CAPITAL INCOME PROPERTIES C LIMITED PARTNERSHIP, 10-K, 1996-03-29

CAPITAL INCOME PROPERTIES C LIMITED PARTNERSHIP
10-K, 1996-03-29
REAL ESTATE

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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1995
-----------------
Commission file number 0-14513
-----------------

CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

District of Columbia 52-1420605
- ----------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)

(Registrant's telephone number,including area code) (301) 468-9200
---------------------

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
- ------------------- --------------------------------------------
NONE 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 [X] No[ ]

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 to this
Form 10-K. [X]

The partnership interests of the Registrant are not traded in any market.
Therefore, the Partnership interests had neither a market selling price nor an
average bid or asked price within 60 days prior to the date of this filing.
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP

1995 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I
------

Page
----

Item 1. Business . . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . I-2
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . I-15
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . I-15

PART II
-------

Item 5. Market for the Registrant's Partnership's Interests
and Related Partnership Matters . . . . . . . . . II-1
Item 6. Selected Financial Data-Registrant . . . . . . . . II-1
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . II-3
Item 8. Financial Statements and Supplementary Data . . . . II-9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures . . . . . II-9

PART III
--------

Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . . III-1
Item 11. Executive Compensation . . . . . . . . . . . . . . III-3
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . III-6
Item 13. Certain Relationships and Related Transactions . . III-6

PART IV
-------

Item 14. Exhibits, Financial Statement Schedules and
Report on Form 8-K . . . . . . . . . . . . . . . IV-1

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . IV-5

Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . IV-32
<PAGE>
PART I
------

ITEM 1. BUSINESS
--------
OWNERSHIP STRUCTURE
-------------------

Capital Income Properties - C Limited Partnership (the Partnership) was
formed as of December 15, 1984, under the District of Columbia Uniform Limited
Partnership Act for the purpose of investing in a mixed use development located
in Bethesda, Maryland, consisting of a hotel, an office building containing both
office and retail space, a retail pavilion and a parking facility (the
Development). The investment was accomplished through the purchase of a limited
partnership interest in Bethesda Metro Center Limited Partnership (BMCLP), a
Maryland limited partnership which owns, operates and maintains the Development.

Between October 21, 1985 and December 31, 1985, 600 limited partnership
interests (Units) were sold to the public through a private placement offering
with an aggregate offering price of $60,000,000 (reduced to $59,639,200 for
Units paid in full at a discount at inception) conducted pursuant to Section
4(2) of the Securities Act of 1933, as amended and Regulation D promulgated
thereunder. As a result of the sale of half-units, the 600 units outstanding
are held by 698 limited partners (Investors) of the Partnership. As of December
31, 1990, the Partnership had received capital contributions from Investors in
an aggregate amount equal to $59,599,769. No additional capital contributions
have been received since December 31, 1990.

The Partnership made all of its payments of capital contributions totaling
$42,500,100 to BMCLP in nine installments commencing in December 1985 and ending
in March 1990 in return for its 92.5% limited partnership interest in BMCLP.
Such capital contributions were funded with the proceeds of the Investors'
capital contributions to the Partnership. Effective June 15, 1992 the Investors
voted in connection with a loan modification to remove the managing general
partners of BMCLP and to make an affiliate of the Managing General Partner of
the Partnership the managing general partner of BMCLP. The affiliate of the
Managing General Partner of the Partnership is able to exercise significant
control over the operating, financing and investing activities of BMCLP.
Accordingly, effective June 15, 1992, the Partnership commenced reporting of its
financial statements on a consolidated basis of accounting for its investment in
BMCLP. Prior to the assumption by an affiliate of the Partnership of the
managing general partner duties, the Partnership recorded its investment in
BMCLP under the equity method.

BMCLP was organized on November 30, 1981 and owns and operates the
Development. The Development consists of a 381-room hotel known as the Hyatt
Regency Bethesda (the Hotel), an office building including The Market at
Bethesda Metro, which contains approximately 336,000 square feet of net rentable
office space and 18,000 square feet of net rentable retail space, known as
Bethesda Metro Office Building, a parking garage and an outdoor plaza with
cafes, fountains and a performing arts center that converts into an ice skating
rink in the winter months (collectively, the Office Building). The Development
is located on top of the subway station in downtown Bethesda, Maryland upon
approximately 3.5 acres of land leased from the Washington Metropolitan Area
Transit Authority (WMATA). The five floors of underground parking, with a total
of approximately 1,300 parking spaces, allow direct access to the Office
Building.

The Partnership has four general partners, C.R.I., Inc. (CRI), William B.
Dockser, Martin C. Schwartzberg and H. William Willoughby (the General Partners)
and one affiliated initial limited partner, CRICO-Bethesda Growth Partners
Limited Partnership, and the 698 Investors. The Managing General Partner of the
Partnership is CRI. The Partnership is a limited partnership owning a 92.5%
limited partnership interest in BMCLP. The other limited partners of BMCLP are

I-1
<PAGE>
PART I
------

ITEM 1. BUSINESS - Continued
--------

Alan I. Kay, Allen E. Rozansky (Special Limited Partners) and R & K Bethesda
Metro Limited Partnership. C.R.C.C. of Bethesda, Inc. (CRCC), an affiliate of
CRI, acts as BMCLP's managing general partner.

The Hotel is managed by the Hyatt Corporation and the Office Building is
managed by Realty Management Company, an affiliate of one of the Special Limited
Partners.

ITEM 2. PROPERTIES
----------

THE HOTEL
---------

The Hotel is a 12-story, 381 room luxury hotel which includes 13 suites,
181 king bedded rooms, 11 queen bedded rooms and 176 double bedded rooms with a
120-foot high central atrium lobby. The Hotel is managed by the Hyatt
Corporation.

The Hotel has a 104-seat restaurant and a lobby bar, and contains two
levels of convention, meeting and banquet facilities. The 7,300 square foot
Crystal Ballroom can accommodate over 480 people school-room style and seat
approximately 700 people for banquets. There are thirteen additional conference
rooms capable of accommodating from 30-150 people for banquets and from 40-200
people for receptions. In addition, there are two executive conference rooms.

THE OFFICE BUILDING
-------------------

The Office Building is a 17-story deluxe office building featuring a lobby
atrium garden and a 130-foot hanging sculpture, with The Market at Bethesda
Metro, a glass enclosed retail pavilion of European design containing three
levels of shopping, restaurants, convenience stores, services and offices,
connected to it at the plaza level. An outdoor plaza offers year-round
activities. In the winter months, an outdoor ice arena is centrally located in
the plaza. During the warmer months, the ice arena converts into an outdoor
eating plaza and performing arts center, where outdoor cafes, vendors,
sculptures, fountains and various activities are located. The Office Building
is managed by Realty Management Company, an affiliate of one of the Special
Limited Partners.

I-2
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

As of December 31, 1995, the Office Building contains approximately 336,000
square feet of net rentable office space and approximately 18,000 square feet of
net rentable retail and marketplace space, accessible to Metrobus and Metrorail.

LAND LEASE
----------

BMCLP entered into a non-recourse Land Lease with WMATA, dated December 1,
1981, pursuant to which BMCLP leases the land on which the Development is built
for a term of 50 years, renewable at the option of BMCLP for an additional term
of 49 years.

As of December 1, 1985 and continuing throughout the remainder of the
initial lease term, BMCLP is required to pay WMATA a minimum annual rental of
$1,600,000 in equal quarterly installments in advance. Further, BMCLP is
obligated to pay WMATA additional rent in an amount equal to 7.5% of all Gross
Income (which is defined in the Land Lease as gross receipts) in excess of
$31,000,000, commencing in calendar year 1986 and payable within 90 days of the
end of the calendar year to which each payment relates. In 1995, total land
lease rental payments of $1,600,000 were made with no additional rent due for
the calendar year 1995.

WMATA may terminate the Land Lease at least thirty (30) days after giving
BMCLP notice if (1) BMCLP fails to make a payment of minimum or additional rent
for 30 days after notice of such failure from WMATA or (2) BMCLP fails to
perform any other covenants contained in the Land Lease for 60 days after notice
of such failure from WMATA.

MANAGEMENT OF THE DEVELOPMENT
-----------------------------

Hotel Management
- ----------------

Hyatt Corporation (Hyatt) manages the Hotel under the name of Hyatt Regency
Bethesda, in accordance with the terms and conditions of the Hotel Management
Agreement dated March 1, 1982. The Hotel Management Agreement will expire on
December 31, 2015, unless earlier terminated in accordance with its terms. Hyatt
is given substantial control and discretion in the operation of the Hotel,
including the right on behalf of BMCLP to negotiate all agreements necessary to
the operation of the Hotel and the right to determine the charges for rooms,
entertainment, food and beverages, labor policies, and all phases of promotion
and publicity relating to the Hotel.

Pursuant to the Hotel Management Agreement, Hyatt also provides "chain
services" to the Hotel consisting of: (i) conventions, business and sales
promotion services, (ii) advertising, publicity and public relations services,
(iii) food and beverage, personnel and other departmental supervision and
control services, and (iv) centralized reservations services, for which BMCLP is
to pay its allocable share of the Hyatt expense.

Hyatt will be relieved from its obligation to operate the Hotel as a
first-class hotel and may, in addition, terminate the Hotel Management Agreement
if: (i) prevented from performing its obligations by events beyond Hyatt's
control, (ii) in the event a breach by BMCLP of any provision of the Hotel
Management Agreement, or (iii) there is a limitation upon Hyatt's ability to

I-3
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

expend funds for the Hotel, such as would result from BMCLP's failure to provide
adequate working capital or replacement reserves, as required under the Hotel
Management Agreement.

BMCLP can terminate the Hotel Management Agreement upon no less than 60
days written notice if, for two successive fiscal years after December 31, 1991
(referred to as the Sixth Full Year), the Hotel does not produce enough income
to permit Hyatt to remit to BMCLP the sum of $6,250,000 for each such fiscal
year (referred to as the Owner's Remittance). Notwithstanding the above, BMCLP
has agreed that Hyatt may not be removed for so long as the basic fee is reduced
from 4% to 3% as described below. BMCLP may not sell or transfer the Hotel or
any portion thereof without the prior approval of Hyatt, which may not be
unreasonably withheld and will be based upon, among other things, the ability of
the prospective purchaser or transferee to fulfill BMCLP's financial obligations
under the Hotel Management Agreement.

The Hotel Management Agreement places the following financial obligations
upon BMCLP:

a. BMCLP must set aside 3% of gross receipts (as defined in the Hotel
Management Agreement as all revenues and income of any kind from the Hotel) as a
reserve for the replacement of the Hotel's furnishings and equipment.

b. BMCLP must assure that there is sufficient working capital on hand to
make timely payment of all current obligations of the Hotel (including the
annual management fee) and to assure the uninterrupted and efficient operation
of the Hotel as a first class hotel development.

c. BMCLP must reimburse Hyatt for the Hotel's pro rata share of Hyatt's
reservation expenses incurred in providing the chain services.

d. BMCLP must pay Hyatt an annual management fee of (i) a basic fee,
equal to 4%, as set forth below, of the gross receipts of the Hotel; and (ii) a
contingent incentive fee equal to the amount by which 20% of the profit, before
management fees, for such fiscal year exceeds the basic fee payable for such
fiscal year.

Pursuant to an amendment to its management agreement in connection with the
1992 loan modification with BMCLP's prior lender, which remains in effect as to
Hyatt under the newly amended and restated first and second mortgage loans,
Hyatt agreed to reduce its basic management fee from 4% to 3% from December 31,
1991 to December 31, 1995. In return for this reduction, BMCLP agreed to modify
the Owner's Remittance of the Hotel Management Agreement, as discussed above, by
extending the Sixth Full Year by one additional year for each year that Hyatt
reduced its basic fee. In addition, the calculation of the contingent incentive
fee includes the basic fee at the original 4%. Management fees paid to Hyatt
for the years ended December 31, 1995, 1994 and 1993 were approximately
$520,000, $482,000 and $422,000, respectively. The incentive fee earned for the
year ended December 31, 1995 and 1994 was approximately $232,000 and $134,000,
respectively. No incentive fee was earned in 1993.

As of December 31, 1995 these financial obligations were met by BMCLP.

I-4
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

Office Building Management
- --------------------------

The Office Building is managed by Realty Management Company (Realty), an
affiliate of one of the Special Limited Partners. BMCLP entered into an
agreement with Realty dated January 31, 1985, in which Realty was to manage the
Office Building for a term of twenty years commencing from the date the Office
Building opened. Under this agreement, Realty received a management fee equal
to 4% of all income collected from the operation of the Office Building, to be
paid monthly. However, Realty agreed to allow BMCLP to defer payment of its
management fees, effective January 1, 1992, through the date of restructuring of
the original debt.

In connection with the debt restructuring which occurred November 16, 1994,
BMC Lender Partnership (BMC), the holder of the amended and restated second
mortgage loan, paid Realty $1,000,000 to terminate its former twenty year
management contract with BMCLP (which amount is not part of any financing for
which BMCLP is liable). At that time BMCLP entered into a new management
contract with Realty for a term of one year which will automatically renew for
successive one year periods so long as Realty is not then in default of the
management contract. The agreement provides for a management fee in the amount
of 4% of total revenues. Of this amount, one-half or 2% shall be paid by Realty
to BMC, during the term of the amended and restated second mortgage loan, in
partial consideration for the $1,000,000 payment to terminate the original
contract. Management fees for the years ended December 31, 1995, 1994 and 1993
were approximately $391,000, $357,000 and $328,000, respectively.

Realty was formed in 1976. It has informed the Partnership that it now has
20 employees and manages approximately 1,000,000 gross square feet of space
which includes two office buildings owned by Alan I. Kay, Allen E. Rozansky or
affiliates and five office buildings owned by unrelated third parties, all in
the Washington, D.C. area.

As of December 31, 1995, there was approximately 11,000 square feet of
office space available for rent in the Office Building. Retail and marketplace
space was 98% occupied as of December 31, 1995. See page II-8 for average
occupancy percentages.

I-5
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

Parking Garage Management
- -------------------------

Monument Parking Co., Inc. (Monument) entered into a garage lease with
BMCLP, dated March 14, 1983, pursuant to which BMCLP leased the underground
parking garage from the date that it opened. Under the garage lease, Monument
pays rent to BMCLP in an amount equal to the gross receipts of the parking
garage less all operating expenses thereof, including an annual management fee
to Monument in the amount of $65,000, until adjusted gross receipts (defined as
all cash, revenue and compensation received from garage operations, reduced by
parking taxes and other operating expenses) equal $1,500,000.

Monument retains 10% of all adjusted gross receipts in excess of $1,500,000
until the adjusted gross receipts reach $2,000,000, as an incentive fee. In
addition, Monument retains 30% of all adjusted gross receipts in excess of
$2,000,000, as a further incentive fee. In 1995, adjusted gross receipts
equaled $1,680,088.

The garage lease requires Monument to provide parking privileges to tenants
of the Office Building, their guests and employees and the guests and employees
of the Hotel on a priority basis.

BMCLP FINANCING
---------------

Original Mortgage Debt
- ----------------------

On December 23, 1985, BMCLP entered into a ten-year, nonrecourse mortgage
note (the First Mortgage Note) with Great Western Bank (Great Western) in the
amount of $120,000,000. The First Mortgage Note provided for a variable
interest rate, adjustable monthly, of 2.75% in excess of the Federal Home Loan
Bank Board Eleventh District weighted-average cost of funds.

On July 1, 1987, BMCLP entered into a five-year nonrecourse mortgage note
(the Second Mortgage Note) with Great Western for $10,000,000 together with a
modification of the First Mortgage Note. Principal and accrued interest were
due at maturity. The proceeds of this loan were used to fund operating deficit
requirements. The Second Mortgage Note also provided for a variable interest
rate, adjustable monthly, of 4% in excess of the Federal Home Loan Bank Board
Eleventh District weighted-average cost of funds.

Effective March 1, 1988, BMCLP entered into a second loan modification,
which superseded the first loan modification. Under the second loan
modification, principal and interest payments were modified during the period
April 1, 1988 to January 1, 1992.

On October 12, 1990, BMCLP was notified by Great Western that an event of
default had occurred related to the nonpayment of its debt- service obligation
under the First and Second Mortgage Notes (collectively, the Notes). BMCLP
failed to remedy the default within the time period allowed and, consequently,
was in default as defined in the Notes. Pursuant to the default, Great Western
exercised its right to collect rents under leases of the Office Building. In
1992, BMCLP reached an agreement with Great Western to modify the terms of the
Notes as discussed below.

I-6
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

Modifications to Original Mortgage Debt
- ---------------------------------------

Effective June 15, 1992, Great Western and BMCLP entered into a
modification which superseded all previous modifications and was in effect until
the restructuring on November 16, 1994, as discussed below. The following is a
summary of the principal terms of this modification:

a. The maturity date of the Notes was extended to January 1, 1996, the
original maturity date of the First Mortgage Note.

b. Interest was accrued at the stated rate, adjusted as set forth in the
original Notes, and interest payments in an amount equal to all of
BMCLP's net cash flow, as defined, were due and payable monthly. All
accrued but unpaid interest was added to principal and was to be due
in full at maturity. No regular principal payments were required.

c. The following payments (the Excess Payments) were scheduled to be due
to Great Western on the last day of the months indicated. All amounts
due through the debt restructuring on November 16, 1994 were paid.

<TABLE>
QUARTERLY
PERIOD PAYMENT DUE
------ -----------
<C> <C>
March 31, 1992 $100,000
June, September, December, 1992 $200,000
March, June, September, December, 1993 $218,750
March, June, September, December, 1994 $265,625
March, June, September, December, 1995 $312,500

</TABLE>

The Excess Payments were applied: first, against expenses incurred by
Great Western in connection with the restructuring of the Notes;
second, to pay late charges owing on the Second Mortgage Note; third,
to reduce accrued interest on the First Mortgage Note and then the
Second Mortgage Note; and finally, to reduce principal on the First
Mortgage Note and then the Second Mortgage Note. BMCLP paid all net
cash flow to Great Western, and, therefore, did not itself have cash
to make the Excess Payments. These Excess Payments were partially
funded to Great Western from management fees waived by Hyatt and those
deferred by Realty and Capitol Hotel Group, an affiliate of the
General Partners which managed another hotel owned by a partnership of
which Alan I. Kay and Allen E. Rozansky were limited partners. During
1994, BMCLP was advanced a total of $107,103, including accrued
interest, from CRI for the payments of the Excess Payments due. Under
the restructured debt, which occurred November 16, 1994, as discussed
below, no further Excess Payments were required.

The funding of the Excess Payments was guaranteed by Alan I. Kay and
Allen E. Rozansky. However, these guarantees were unsecured and were
in addition to other obligations Alan I. Kay and Allen E. Rozansky may
have to BMCLP or its partners for funding of operating deficits. As
of December 31, 1995 and 1994, Alan I. Kay and Allen E. Rozansky have

I-7
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

loaned $2,243,984 and $2,120,800, respectively, including accrued
interest, as advances for such deficits. This amount is net of
$342,734 which is due from the Alan I. Kay Companies, an affiliate of
Alan I. Kay, for advances from BMCLP. Alan I. Kay and Allen E.
Rozansky have each represented that their current net worth is
insignificant and illiquid and they do not have resources to meet the
operating deficit obligations.

d. BMCLP agreed to allow Great Western to take title to the Development
without contest in the event of any default under the terms of the
Notes, as modified, provided the fair market value of the Development
was less than the then outstanding indebtedness payable. Therefore,
BMCLP deposited in escrow, in recordable form, documents to
immediately convey title to Great Western (the Documents) in the event
of a default under any of the terms of the Notes, as modified. Great
Western had the right to record the Documents and immediately take
title to the Development if, on the maturity date, the fair market
value of the Development was less than the then outstanding
indebtedness payable and BMCLP had been otherwise unable to pay off
the Notes. As discussed below, however, BMCLP restructured the Notes
prior to the maturity date. As a condition to the 1994 debt
restructuring, the new holder of the amended and restated Second
Mortgage Note required that BMCLP deposit a deed in lieu of
foreclosure in escrow to be recordable in the event of a default under
that note.

e. CRI and certain of its affiliates agreed not to: (1) cause CRCC to
(a) file for bankruptcy, (b) make any general assignments for the
benefit of creditors, or (c) seek appointment of a receiver or
trustee; (2) admit in writing CRCC's inability to pay its debts as
they mature; and (3) take any action which could impede delivery of
the Documents ((1) through (3) collectively, the No Bankruptcy
Agreement). The No Bankruptcy Agreement was secured by the loan
guarantee by CRI in the amount of $5,000,0001. Similarly, Alan I.
Kay entered into a separate No Bankruptcy Agreement with respect to
BMCLP. [In connection with the 1994 debt restructuring, the various
No Bankruptcy Agreements were released, although similar unsecured no
bankruptcy agreements were made by CRCC and the Partnership. Should
an entity other than CRCC become a general partner of BMCLP (and
potentially be able to put BMCLP in bankruptcy), the amended and
restated Second Mortgage Note would be deemed to be in default.]

1 Great Western was also the first mortgage lender
for a similar mixed-use property owned by another
partnership in which a CRI sponsored partnership invested
and in which Alan I. Kay and Allen E. Rozansky were
partners. A loan modification agreement was entered into
with Great Western on terms similar to those described
herein with respect to the property, including a No
Bankruptcy Agreement. The guarantees securing the No
Bankruptcy Agreement described above were aggregate
guarantees for both the BMCLP loans and the other loan. On
July 18, 1994, Great Western took title to the other
property.

I-8
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

f. The Partnership agreed not to enforce any rights and remedies it may
have against Alan I. Kay and Allen E. Rozansky or Rozansky and Kay
Construction Company (including any rights with regard to operating
deficit funding obligations) until the earlier of (a) the date on
which the Notes are fully repaid or (b) the day immediately following
the last day on which any person may commence a proceeding seeking to
avoid or set aside the transfer of the Development to Great Western as
a fraudulent conveyance or preferential transfer pursuant to any
applicable State or Federal law. Alan I. Kay, Allen E. Rozansky and
Rozansky & Kay Construction Company agreed to waive any statute of
limitations until such time.

g. The terms of the Limited Partnership Agreement (LPA) governing the
operations of BMCLP were amended. Alan I. Kay and Allen E. Rozansky
converted their aggregate 4.5% general partnership interests in BMCLP
to special limited partnership interests totalling 3.51%. CRCC
increased its general partnership interest in BMCLP by receiving the
0.99% partnership interest which Alan I. Kay and Allen E. Rozansky
gave up. As a result, CRCC became the sole managing general partner
with a 1.00% partnership interest; however, CRCC did not assume any
operating deficit or other obligations of Alan I. Kay and Allen E.
Rozansky that arose under the terms of BMCLP's LPA or other agreements
executed in connection therewith.

h. Great Western agreed to provide funds to pay for capital improvements,
tenant improvements, leasing commissions, real estate taxes and ground
rent to WMATA. Any such payments made by Great Western were added to
First Mortgage Note principal.

Restructuring of Original Mortgage Debt
- ---------------------------------------

On November 16, 1994, Great Western sold the Notes to BMC Lender
Partnership (BMC), an unaffiliated entity. BMC sold the First Mortgage Note to
General Electric Capital Corporation (GECC) which amended and restated the First
Mortgage Note (the Restated First Mortgage Note) to a principal amount of
$48,000,000. BMC amended and restated the Second Mortgage Note (the Restated
Second Mortgage Note) (collectively, the Restated Notes) to a principal amount
of $10,000,000 advanced at closing. Of the total $58 million principal amount
of the Restated Notes, $55 million was paid to Great Western in consideration
for the Notes, approximately $1.8 million was used to fund loan fees and related
costs on behalf of BMCLP, approximately $200,000 was used to fund interest and
insurance premiums at the closing date and the remaining amount of approximately
$1.0 million was deposited into an escrow account restricted for working capital
requirements, as discussed in Note 2 to the consolidated financial statements.

I-9
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

2001. Additional advances may be made by GECC in an aggregate amount not to
exceed 50% of all previously made principal payments. Any additional advances
are generally intended to fund tenant improvements, leasing costs and other
capital improvements but may be used to fund other cash flow needs as well. For
the year ended December 31, 1995, GECC advanced $216,666 to BMCLP for tenant
improvements.

Annual principal payments due on the Restated First Mortgage Note are as
follows:

1996 $ 1,299,996
1997 1,299,996
1998 1,299,996
1999 1,299,996
2000 1,299,996
Thereafter 40,417,016
------------
Total $ 46,916,996
============

Additionally, under the terms of the Restated First Mortgage Note, an
interest reserve account to be used as additional collateral under the Restated
First Mortgage Note must be established. Monthly payments of $23,125 must be
made into this reserve beginning January 1, 1995, as discussed in Note 2 to the
consolidated financial statements.

The Restated Second Mortgage Note stipulates that 16% interest is payable
monthly from available cash flow as defined on a cumulative basis. Based on the
provisions of the Restated Second Mortgage Note, BMCLP s cash flow from
operations shall be disbursed in the following priority:

a. Debt service and reserves on the Restated First Mortgage Note

b. Establishment of working capital reserves of $50,000 plus an amount
reasonably required to pay ordinary and necessary expenses of
operations.

c. Debt service on the Restated Second Mortgage Note (to the extent of
available cash flow).

d. Principal and interest on additional advances, as discussed below, if
any, made to BMCLP by BMC.

e. 75% of the remaining net cash flow (as defined) to BMC and 25% of the
remaining net cash flow to BMCLP (less up to $50,000 per year to cover
management and administrative costs of the Partnership and/or CRCC),
subject to the establishment of the reserves as stipulated in the
agreement, as discussed below.

Furthermore, BMC is entitled to an Economic Value Participation Interest as
defined which requires BMCLP to pay the following at the sale of the property or
maturity date of the Restated Notes.

a. 75% of the amount by which the Economic Value of the Development as
defined up to $100 million exceeds the unpaid principal balance and
accrued interest under the Restated Notes, and

I-10
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

b. 50% of the Economic Value in excess of $100 million.

In general, the Economic Value is defined by the Restated Second Mortgage
Note as the value of the Development as determined by the Partnership or the
average of three independent appraisals if deemed necessary by BMC.

In 1995, $150,000 was paid to BMC as 75% of remaining net cash flow for
1994 and is included in net cash flow participation in the accompanying
consolidated statement of operations. Also in 1995, $50,000 was paid to CRCC as
management fees and is included in management fees in the accompanying
consolidated statement of operations. Additionally, $150,000 and $50,000 were
accrued as of December 31, 1995 for fiscal year 1995 net cash flow participation
and management fees, respectively.

The Restated Second Mortgage Note is due on November 30, 2001 and no
principal payments are required until then. However, any amounts remitted to
BMC with respect to its 75% net cash flow participation described above may be
re-advanced to BMCLP for payment of debt service on the Restated First Mortgage
Note, repairs, capital improvements, leasing commissions, tenant concessions and
improvements, taxes and ground lease payments. These advances are limited to
75% of the total amount required to fund these items. The remaining 25% must be
funded by BMCLP. BMC has reserved the right, but does not have the obligation,
to make up to $5 million in additional advances that would be secured under its
Restated Second Mortgage Note. These additional advances would carry an
interest rate of 18% payable from available net cash flow, as defined, and would
also be due on November 30, 2001. Subsequent to December 31, 1995, the
Partnership received an additional advance of $580,000 from BMC.

A purchase money mortgage had been placed upon the Development as of
September 17, 1985 upon the redemption by BMCLP of the partnership interest in
BMCLP held by Iroquois Financial Corporation (Iroquois), a Maryland corporation,
which is owned 50% by Alan I. Kay and Allen E. Rozansky and 50% by an individual
unaffiliated with Alan I. Kay and Allen E. Rozansky or the General Partners.
This purchase money mortgage (the Third Mortgage Note) was subordinated to the
Second Mortgage Note as of July, 1987. The Third Mortgage Note collateralizes
the payment by BMCLP of the $3,000,000 purchase money note given by BMCLP to
Iroquois in exchange for Iroquois' interest in BMCLP. The Third Mortgage Note
bears simple interest at 9%. Payments of principal and interest were contingent
upon available net cash flow as defined in the agreement. In connection with
the debt restructuring on November 16, 1994, the Third Mortgage Note was amended
to provide that interest is due and payable annually only to the extent funds
are available after taking into account payment of amounts due and payable on
the Restated Notes and a payment of up to $50,000 per year to CRCC and/or the
Partnership to cover costs of management and administration. Accrued but unpaid
interest shall be deferred without interest and be paid, together with the
outstanding principal balance of the Third Mortgage Note, upon the earliest of:
(i) sale of the assets of BMCLP; (ii) refinancing of the Restated Notes for an
amount in excess of the aggregate outstanding principal balances due thereunder;
or (iii) one day later than the later of any Maturity Date under the Restated
Notes. As of December 31, 1995 and 1994, accrued interest of $2,779,500 and
$2,509,500, respectively, has been added to the outstanding principal balance of
$3,000,000 in accordance with the amended Third Mortgage Note. No net cash flow
as defined in the agreement was available for repayment of this note during
1995, 1994 or 1993.

I-11
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

Substantially all of BMCLP's property and equipment is pledged as
collateral to the amended and Restated First and Second Mortgage Notes and to
the Third Mortgage Note.

DEBT FORGIVENESS
----------------

BMCLP's outstanding obligation under the First Restated Note prior to the
restructuring was $178,373,753. The carrying amount of the outstanding
principal and accrued interest that was forgiven based on the assignment and
subsequent restatement of the First Mortgage Note is presented as deferred gain
on debt forgiveness in the accompanying consolidated balance sheets. This
amount is being amortized as an extraordinary gain over the remaining term of
the Restated First Mortgage Note based on a constant effective yield as required
by Statement of Financial Accounting Standards No. 15 (SFAS 15), "Accounting by
Debtors and Creditors for Troubled Debt Restructurings".

Based on the Restated First Mortgage Note s interest rate of 10.06% and
9.98% in effect at December 31, 1995 and 1994, respectively, and the monthly
principal curtailments of $108,333 as stipulated in the Restated First Mortgage
Note, the estimated total future obligation for principal and interest is
$73,150,159 and $74,620,628 at December 31, 1995 and 1994, respectively.
Although these obligations are lower than the combined obligations of the
Restated First Mortgage Note and the deferred gain on debt forgiveness (which
totalled $156,408,615 and $176,521,019 at December 31, 1995 and 1994,
respectively) SFAS 15 does not permit the entire difference to be recognized as
an extraordinary gain at the time of the restructuring as the Restated First
Mortgage Note s interest rate is variable, which makes the amount of future
debt-service payments contingent upon changes in the index upon which the
interest rate is calculated. Accordingly, the $83,258,456 and $101,900,391
difference between the carrying value and total future obligation of the debt at
December 31, 1995 and 1994, respectively, was deferred and is being amortized as
an extraordinary gain in the accompanying consolidated statements of operations
using the effective interest method over the term of the Restated First Mortgage
Note.

As a result of the fluctuations of the interest rate on the Restated First
Mortgage Note, the Partnership continues to remeasure the total future
obligation for principal and interest based upon changes in the underlying
index, as discussed above. Differences in the future obligation resulting from
interest rate changes are reflected as a reclassification between the Restated
First Mortgage Note and deferred gain on debt forgiveness. For the year ended
December 31, 1995, $4,556,760 was reclassified from the deferred gain on debt
forgiveness to the Restated First Mortgage Note resulting from an increase in
the future obligation based on changes in the underlying index. For the year
ended December 31, 1994, no portion of the deferred gain on debt forgiveness was
reclassified. The adjusted deferred gain on debt forgiveness will be amortized
as extraordinary gain over the remaining term of the Restated First Mortgage
Note.

I-12
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

accompanying consolidated statements of operations, as it is shown net of the
interest expense on the Restated Second Mortgage Note of $259,860 and $32,482 as
discussed below.

With regard to the Restated Second Mortgage Note, the total estimated
future obligation for payment of principal and interest based on the fixed
interest rate of 16% is $21,200,000. This amount exceeds the carrying value of
the Restated Second Mortgage Note at November 16, 1994, of $19,380,974. In
accordance with SFAS 15, this difference of $1,819,026 represents a constant
additional interest obligation based on the fixed interest rate, and is to be
amortized as a reduction of the extraordinary gain on the Restated First
Mortgage Note at $21,655 per month through maturity, using the effective
interest method, over the term of the Restated Second Mortgage Note.
Accordingly, accrual of this additional interest for the years ended December
31, 1995 and 1994 amounted to $259,860 and $32,482, respectively, and were added
to the principal balance of the Restated Second Mortgage Note.

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Investments" (SFAS 107), requires the disclosure of fair
value information about financial instruments for which it is practicable to
estimate that value. The Partnership implemented SFAS 107 in 1995 and has
determined that the carrying amount of the total future obligation of the
Restated First Mortgage Note, which represents the estimated total future
obligation of principal and interest, approximates fair value based on the
variable nature of the Restated First Mortgage Note's interest rate. Because
future debt-service payments are contingent upon changes in the underlying index
upon which the interest rate is calculated, the total future obligation of the
Restated First Mortgage Note is expected to fluctuate with changing market rates
of interest. The Partnership has determined that it is not practicable to
estimate the fair value for the Restated Second Mortgage Note or the Third
Mortgage Note due to: (1) the lack of an active market for these types of
financial instruments, (2) the variable nature of the remaining net cash flow
payments payable to BMC under the Restated Second Mortgage Note, as discussed
above, (3) the variable nature of the Third Mortgage Note's interest payments as
a result of its dependance on available cash flow from BMCLP, and (4) the
excessive costs associated with an independent appraisal of the Restated Second
Mortgage Note and the Third Mortgage Note.

OPERATING DEFICIT OBLIGATION
----------------------------

For operating deficits which arise, the LPA provides that Alan I. Kay and
Allen E. Rozansky and their affiliates (collectively, R&K) are required to loan,
or cause to be loaned, all amounts necessary to pay operating deficits
(Operating Deficit Loans) up to an aggregate principal amount of $15,600,000.
R&K and the Partnership have agreed that the former Second Mortgage Note of
$10,000,000 was an Operating Deficit Loan "caused to be" made to BMCLP by R&K.
Further, R&K's Operating Deficit Loan obligation limit of $15,600,000 was
increased by (i) an amount equal to the net positive difference between the
interest due and payable under the original terms of the First Mortgage Note and
the interest due and payable under the original First Mortgage Note as a result
of the third loan modification and (ii) the amount that interest accruing on the
original Second Mortgage Note exceeded the interest that would have accrued had
the loan been made directly by R&K. At December 31, 1995, BMCLP estimates that
R&K's total operating deficit obligation has increased to approximately
$29,000,000, although R&K do not concur with this amount. As of December 31,

I-13
<PAGE>
PART I
------

ITEM 2. PROPERTIES - Continued
----------

1995 and 1994, R&K have provided $2,243,984 and $2,120,800, respectively,
including accrued interest, to BMCLP to fund operating deficits under this
provision of the LPA. This amount is net of $342,734 which is due from the Alan
I. Kay Companies, an affiliate of Alan I. Kay, for advances from BMCLP.
Interest on amounts advanced to BMCLP for operating deficits is accrued at the
prime rate plus 1% and will be repaid subject to the terms of the Restated Notes
and then out of 50% of cash flow available after payment of certain priorities
as set forth in the BMCLP partnership agreement. These Operating Deficit Loans
shall be repaid in full upon the earlier to occur of (i) fifteen (15) years from
the date of such loans or (ii) liquidation, sale or refinancing of the
Development (except a refinancing which does not exceed the outstanding
principal balance of the original First Mortgage Note).

The obligation of R&K to make or cause to be made Operating Deficit Loan(s)
is jointly and severally guaranteed by Alan I. Kay and Allen E. Rozansky and
further secured by the expense allowance payable to Alan I. Kay and Allen E.
Rozansky, the Incentive Management Fee payable to Rozansky & Kay Construction
Company, one-half (1/2) of the disposition fee payable to Alan I. Kay and Allen
E. Rozansky from the proceeds of any sale of the Development, and any
distributions made to Alan I. Kay and Allen E. Rozansky from the net cash flow
of BMCLP or from the proceeds of any sale or refinancing of BMCLP. All
obligations of Rozansky and Kay Construction Company have been assumed by
affiliates of Alan I. Kay and Allen E. Rozansky.

ITEM 3. LEGAL PROCEEDINGS
-----------------

There are no material pending legal proceedings to which the Partnership is
a party.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------

None.

I-14
<PAGE>
PART II
-------

ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS
-------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------

There is no established public trading market for the Units and it is not
anticipated that a public trading market for the Units will develop. Article
VII of the Partnership Agreement governs transfer or assignment by an Investor
of his or her limited partnership interest in the Partnership. Transfer or
assignment by an Investor of his or her limited partnership interest is
restricted and may not be made without the consent of the Managing General
Partner.

Section 7.02 of the Partnership Agreement describes the procedure for
transferring a limited partnership interest. Units may be sold, transferred,
assigned or otherwise disposed of by an Investor only if, in the opinion of
counsel for the Partnership, registration is not required under the Securities
Act of 1933 and such transfer and assignment would not violate state securities
or "blue sky" laws (including investment suitability standards).

As of December 31, 1995, there were 698 holders of record of 600 limited
partnership units and there have been no cash distributions to the Investors
since the inception of the Partnership.

II-1
<PAGE>
PART II
-------

ITEM 6. SELECTED FINANCIAL DATA-REGISTRANT
----------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Loss on Investment in BMCLP $ 0 $ 0 $ 0 $ 0 $ 0
Revenue 26,598,394 25,037,520 24,125,298 11,896,586 25,619
Operating Expenses (13,473,167) (13,095,130) (13,054,106) (7,378,258) (447,480)
Depreciation and Amortization (5,335,679) (5,139,013) (5,284,838) (3,583,798) --
Interest expense (756,102) (12,737,570) (14,068,974) (8,257,890) --
Other Expenses (4,673,031) (4,689,669) (4,786,626) (2,742,168) --
Extraordinary Item - debt forgiveness 13,825,315 1,820,252 -- -- --
Loss Attributable to Minority Interest
at Consolidation Date (2) -- -- -- (77,472,839) --
------------ ------------ ------------ ------------ ------------
Net income (Loss) $ 16,185,730 $ (8,803,610) $(13,069,246) (87,538,367) $ (421,861)
============ ============ ============ ============ ============
Net Income (Loss) Attributable to
Minority Interest (3) 16,217,328 $ (8,776,560) $(12,959,305) $(87,475,121) $ N/A
============ ============ ============ ============ ============
Net Loss Attributable to Partnership $ 31,598 $ 27,050 $ 109,941 $ 63,246 $ 421,861
============ ============ ============ ============ ============
Net Loss Allocated to General Partners
and Affiliated Initial Limited
Partner (1%) $ 316 $ 270 $ 1,099 $ 632 $ 4,219
============ ============ ============ ============ ============
Net Loss Allocated to Additional Limited
Partners (99%) $ 31,282 $ 26,780 $ 108,842 $ 62,614 $ 417,642
============ ============ ============ ============ ============
Net Loss Allocated to Additional Limited
Partners per Unit (600 units issued and
outstanding) $ 52.14 $ 44.63 $ 181.40 $ 104.36 $ 696.07
============ ============ ============ ============ ============
Investment in BMCLP, as restated $ N/A $ N/A $ N/A $ N/A (1) $ 0
============ ============ ============ ============ ============

Total Property and Equipment, net $ 85,718,935 $ 89,123,745 $ 91,219,288 $ 95,166,224 $ 0
============ ============ ============ ============ ============

Total Assets, as restated $ 93,929,081 $ 98,232,016 $ 97,099,757 $102,125,162 $ 150,705
============ ============ ============ ============ ============

Total Mortgage Debt $ 96,979,826 $ 99,543,584 $192,961,944 $185,582,840 $ 0
============ ============ ============ ============ ============

Capital Contributions payment to BMCLP $ 0 $ 0 $ 0 $ 0 $ 0
============ ============ ============ ============ ============
</TABLE>

(1) The Managing General Partner of the Partnership has a 0.01% interest.
Other general partner interests which total 0.99% are held by three
individuals affiliated (or formerly affiliated) with CRI. 98.99% of the
99% remaining interest is widely held by unrelated parties. On June 15,
1992, pursuant to a debt modification agreement with BMCLP's former first
mortgage lender, CRCC replaced the unrelated managing general partners of
BMCLP. Since CRCC is an affiliate of CRI, the Partnership's financial

II-2
<PAGE>
PART II
-------

ITEM 6. SELECTED FINANCIAL DATA-REGISTRANT - Continued
----------------------------------

statements as of December 31, 1992 and for the period June 16 through
December 31, 1992 have been consolidated with BMCLP.

(2) The loss attributable to minority interest at consolidation date of
$77,472,839 represents BMCLP's cumulative losses prior to June 15, 1992
which have not been recognized by the Partnership as these losses exceeded
the Partnership's investment in BMCLP. Prior to June 15, 1992 the
Partnership recorded its investment in BMCLP under the equity method of
accounting.

(3) The cumulative net loss attributable to minority interest of $92,993,658,
$109,210,986 and $100,434,426 as of December 31, 1995, 1994 and 1993,
respectively, represents losses not attributable to the partners of the
Partnership. Rather, they are attributable to the Special Limited Partners
of BMCLP. (See the Consolidated Statements of Partners' Deficit in the
Consolidated Financial Statements located in Part IV of this document.)
Cumulative BMCLP losses in excess of the Partnership's investment in BMCLP
are comprised of $77,472,839 (as discussed in #2 above) plus net cumulative
additional excess BMCLP losses at December 31, 1995, 1994 and 1993 of
$15,520,819, $31,738,147 and $22,961,587, respectively. The cumulative
BMCLP losses in excess of the Partnership's investment have been reflected
as loss attributable to minority interest at consolidation date, and the
BMCLP losses subsequent to June 15, 1992, have been consolidated into the
operating accounts of the Partnership for the years ended December 31,
1995, 1994 and 1993.

II-3
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------

Liquidity
---------

The Partnership's sole investment is its limited partnership interest in
BMCLP. BMCLP has experienced cash deficits in recent years as cash flow from
operations has been insufficient to fund capital and debt service requirements.

However, pursuant to the purchase and subsequent to restructuring of its
First and Second Mortgage Notes by new lenders, BMCLP's management is projecting
break-even cash flow from operations for the year ended December 31, 1996 after
funding anticipated capital and debt-service requirements. To the extent that
any cash deficits arise, management plans to utilize certain working capital
reserves established in 1994 and additional borrowing capacity under its
Restated Notes. However, since access to reserves and additional borrowings are
contingent upon the approval of the Restated First and Second Mortgage Note
lenders, there can be no assurances that management will be available to fund
cash flow deficits should they arise.

The Partnership does not have adequate cash reserves or any source of cash
to fund its projected cash requirements in 1996, which are principally comprised
of professional fees and administrative expenses. Additionally, based on the
projected operating performance of BMCLP, it is unlikely that the Partnership
will receive any cash distribution from its investment in BMCLP in 1996 due to
priorities established for distribution of excess cash flow pursuant to the
restructuring of BMCLP's mortgage notes. However, the Managing General Partner
has represented a willingness to fund projected cash flow requirements of the
Partnership for the year ending December 31, 1996.

At December 31, 1995 and 1994, the Partnership had $116 and $113,
respectively, in available cash.

During 1995, the Partnership recorded a slight increase in available cash
and a $31,601 increase in accounts payable. The increase in accounts payable
includes an increase of $31,287 in loan payable to its Managing General Partner
for administrative expenses and an increase of $314 in third-party payables.

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" (SFAS 107), requires the disclosure of fair
value information about financial instruments for which it is practicable to
estimate that value. The Partnership implemented SFAS 107 in 1995, and has
determined that the carrying amount of its cash approximates fair value.

II-4
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS - Continued
---------------------

Capital Resources
-----------------

BMCLP, of which the Partnership owns a 92.5% limited partnership interest,
had unrestricted cash and cash equivalents of $1,351,408 and $1,649,448 at
December 31, 1995 and 1994, respectively. BMCLP had restricted cash and cash
equivalents of $1,607,970 and $1,450,904 at December 31, 1995 and 1994,
respectively. During 1995, unrestricted cash and cash equivalents decreased
$298,040 despite net income of $16,217,328. This was due largely as the result
of the non-cash gain on debt forgiveness of $13,825,315, as well as the net debt
payments of $7,867,044, which were partially offset by depreciation and
amortization totalling $5,335,679.

In accordance with SFAS 107, the Partnership has determined that the
carrying amounts of BMCLP's cash and cash equivalents and restricted cash and
cash equivalents approximate fair value.

Operating Deficit Reserve
-------------------------

For operating deficits which arise, the Limited Partnership Agreement (LPA)
provides that Alan I. Kay and Allen E. Rozansky and their affiliates
(collectively, R&K) are required to loan, or cause to be loaned, all amounts
necessary to pay operating deficits (Operating Deficit Loans) up to an aggregate
principal amount of $15,600,000. R&K and the Partnership have agreed that the
former Second Mortgage Note of $10,000,000 was an Operating Deficit Loan "caused
to be" made to BMCLP by R&K. Further, R&K's Operating Deficit Loan obligation
limit of $15,600,000 was increased by (i) an amount equal to the net positive
difference between the interest due and payable under the original terms of the
First Mortgage Note and the interest due and payable under the original First
Mortgage Note as a result of the third loan modification and (ii) the amount
that interest accruing on the original Second Mortgage Note exceeded the
interest that would have accrued had the loan been made directly by R&K. At
December 31, 1995, BMCLP estimates that R&K's total operating deficit obligation
has increased to approximately $29,000,000, although R&K do not concur with this
amount. As of December 31, 1995 and 1994, R&K have provided $2,243,984 and
$2,120,800, respectively, including accrued interest, to BMCLP to fund operating
deficits under this provision of the LPA. This amount is net of $342,734 which
is due from the Alan I. Kay Companies, an affiliate of Alan I. Kay, for advances
from BMCLP. Interest on amounts advanced to BMCLP for operating deficits is
accrued at the prime rate plus 1% and will be repaid subject to the terms of the
Restated Notes and then out of 50% of cash flow available after payment of
certain priorities as set forth in the BMCLP partnership agreement. Cumulative
interest accrued on these advances was $1,005,097 and $881,913 at December 31,
1995 and

II-5
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS - Continued
---------------------

1994, respectively and has been added to the original advance amount. For the
years ended December 31, 1995 and 1994, no amounts were advanced to the BMCLP
for operating deficits because R&K have represented that their net worth is not
significant, their assets are very illiquid and they do not have resources to
meet their operating deficit obligations.

In accordance with the terms of the Restated First and Second Mortgage
Notes dated November 16, 1994, BMCLP has several additional resources to fund
current operating deficits. If BMCLP requires funds to pay for capital
improvements, tenant improvements, leasing commissions, etc., and is in
compliance with the conditions stated in the Restated First Mortgage Note, GECC
shall advance for such purposes up to 50% of the amounts previously paid by
BMCLP as principal payments. In 1995, GECC advanced $216,666 to BMCLP for
tenant improvements.

Upon approval of BMC Lender Partnership (BMC), BMCLP may draw upon the
$1,038,654 that was placed in an escrow account at the closing of the Restated
Second Mortgage Note. These funds may be used to pay operating expenses of the
Development including payments under the Restated First and Second Mortgage
Notes. On April 3, 1995, BMCLP withdrew $400,000 from the escrow account to
help pay the interest due on the Restated Second Mortgage Note. BMCLP deposited
$100,000 into the escrow account on April 18, 1995.

BMC may advance additional amounts up to $5,000,000 to BMCLP in accordance
with the Restated Second Mortgage Note. Also, BMC may re-advance funds received
from BMCLP as additional interest payments (75% net cash flow) if BMCLP pays its
25% share of net cash flow held in reserves. No advances were made by BMC to
BMCLP in 1995. On February 1, 1996, BMC advanced $580,000 to BMCLP for capital
improvements.

Results of Operations
---------------------

Partnership
- ----------

YEAR ENDED DECEMBER 31, 1995

The Partnership recorded a net loss for 1995 of $31,598 as compared with a
net loss of $27,050 for 1994. Operating expenses during 1995 were $4,551 higher
than 1994 primarily due to an increase in accounting and auditing fees.

YEAR ENDED DECEMBER 31, 1994

The Partnership recorded a net loss for 1994 of $27,050 as compared with a
net loss of $109,941 for 1993. Operating expenses in 1994 were $82,891 lower
than 1993 primarily due to the decrease in professional fees.

II-6
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS - Continued
---------------------

Bethesda Metro Center Limited Partnership
- -----------------------------------------

YEAR ENDED DECEMBER 31, 1995

BMCLP had net income for 1995 of $16,217,328 as compared with a net loss of
$8,776,560 for 1994. This was primarily the result of a gain on debt
forgiveness of $13,825,315 and a reduction of interest expense of $11,981,468
relating to the restructuring of the First and Second Mortgage Notes in November
1994.

Room revenue increased by $739,670, or 7% from 1994. The Hotel experienced
an increase in occupancy from 75% to 77% and an increase in average room rate of
$4 from 1994 due to the completion of hotel renovations in 1994. Food and
beverage revenues increased by $359,372, or 8% from 1994 as a result of
increased banquet patronage. The increases in room and food and beverage
revenues, along with the hotel's cost control efforts, resulted in gross
operating profits which exceeded last year by approximately $857,000 or 15%.

In 1995, the Hotel received the AAA Four Diamond Award for overall
excellence.

Office building revenue increased $333,237 or 4% during 1995 compared with
1994. The occupancy of the Office Building increased from 95% to 97% while the
rental rate remained unchanged at $24 in 1995. The retail and marketplace
occupancy increased from 75% to 98% primarily due to the reclassification of
11,375 square feet of retail space to office space in mid-1994. The retail and
marketplace average rental rate increased from $35 in 1994 to $38 in 1995.

Operating expenses for the Office Building for 1995 decreased by $80,703,
or 3%, from 1994.

YEAR ENDED DECEMBER 31, 1994

BMCLP recorded a net loss for 1994 of $8,776,560 as compared with a net
loss of $12,959,305 for 1993.

Hotel rooms revenue increased by $219,344 or 2.1% from 1993. The Hotel
experienced an increase in occupancy of 1.0% and an increase in an average rate
of $1.00 compared to 1993. Food and beverage revenues increased by $125,225 or
2.8% from prior years due to a higher volume of banquet and catering sales. The
Hotel completed the renovation of the ballroom meeting rooms, guest rooms and
corridors which was begun in late 1993. The newly refurbished ballroom has
benefited Hotel revenues from additional banquet and catering sales. Operating
expenses for the Hotel increased only slightly in 1994 resulting in year to date
gross operating profits exceeding last year by $379,015 or 7.2%.

II-7
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS - Continued
---------------------

In 1994, the Hotel received the AAA Four Diamond Award for overall
excellence.

Office, retail and parking income increased in 1994 by $738,657 or 9.3%.
As tenants vacated, the building space was relet to new tenants without any free
rent concessions resulting in increased revenues. In addition, the Office
Building received an early termination fee in the amount of $109,000. The
occupancy of the office space has remained constant while the rental rate has
increased $1.00 compared to 1993. The retail and market place occupancy
increased by 27% while the rental rate has decreased $2.00 from 1993. This
increase in occupancy was due to the conversion of 11,375 square feet from
retail to office space, as discussed above. Operating expenses for the Office
Building remained fairly constant from prior year.

Interest expense decreased largely as a result of the reduction in the
Federal Home Loan Bank Board Eleventh District weighted average cost of funds on
which the First and Second Mortgage Note interest rates were based until the
debt restructuring on November 16, 1994.

An extraordinary gain resulted from the debt restructuring on November 16,
1994. See Restructuring of Original Mortgage Debt on page
I-10 for further discussion on the restructuring and calculation of the
extraordinary gain.

Management fees increased from the prior year due to an incentive
management fee of $133,558 earned by Hyatt and a management and administrative
fee of $50,000 earned by CRCC.

The following tables outline pertinent data regarding the operations of the
Hotel and Office Building:

II-8
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS - Continued
---------------------

Office Building
---------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Leasing:
- -------
Average Space Occupied:
Office 97% 95% 95%
Retail and Marketplace 98% 75% 48%

Average Rental Rate:
Office $24 $24 $23
Retail and Marketplace $38 $35 $37

Operations:
- ----------
Total Income $ 9,048,040 $ 8,714,803 $ 7,976,146
Operating Expenses (2,652,644) (2,733,347) (2,695,730)
----------- ----------- -----------
Gross Operating Profits (Before Depreciation,
Management Fees and Other Fixed Costs) $ 6,395,396 $ 5,981,456 $ 5,280,416
=========== =========== ===========

</TABLE>
HOTEL
-----
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Actual Average Occupancy 77% 75% 74%

Actual Average Room Rate $108 $104 $103

Room Revenue $11,633,224 $10,893,554 $10,674,210

Food & Beverage Revenues $ 5,012,419 $ 4,653,047 $ 4,527,822

Room Profits $ 9,184,955 $ 8,592,414 $ 8,371,903

Food & Beverage Profits $ 1,486,226 $ 1,262,887 $ 988,385

Gross Operating Profits (Before Depreciation,
Management Fees and Other Fixed Costs) $ 6,502,378 $ 5,644,927 $ 5,265,911

</TABLE>

II-9
<PAGE>
PART II
-------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS - Continued
---------------------

It should be noted that BMCLP's investment in the Development is a
high-risk investment involving many factors beyond the control of its General
Partner. Such factors could adversely affect the operation and value of the
Development and, consequently, the value of an interest in the Partnership, to
an extent not currently ascertainable. These factors, include, but are not
limited to, over building of office, hotel or commercial space; changes in the
general or local economic conditions including changes in interest rates;
adjacent land utilization; changes in demand or use with respect to the
proximate business facilities; demographic trends; increases in real estate
taxes; changes in the federal income tax laws, which could be applied
retroactively; local, state and federal environmental, energy, and other
regulations (including regulations governing the maintenance of liquor
licenses); possible restrictive changes in the uses applicable to real estate,
zoning and similar land use and environmental laws and regulations; and acts of
God. As of February 20, 1996, the local government in Montgomery County,
Maryland, where the hotel is located, is contemplating an increase in room taxes
from 5% to 7%.

In addition, Hotel occupancy and room rates may be adversely affected by a
downturn in the business cycle or by shortages of gasoline or increases in the
price of gasoline, increases in airline fare rates or the curtailment of airline
service, or other constraints upon travel. Furthermore, in the event mortgage
payment and/or tax assessment obligations are not met, the Partnership may
sustain a loss of its equity investment as a result of foreclosure of the
Restated First or Second Mortgage Notes and/or a tax sale as previously
discussed.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------

The financial statements and supplementary data required by this Item are
included in Part IV, Item 14 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------

None.

II-10
<PAGE>
PART III
--------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------

(a), (b) and (c)

The Partnership has no directors, executive officers or significant
employees of its own.

(a), (b), (c) and (e)

The names, ages and business experience of the directors and executive
officers of C.R.I., Inc. (CRI), the Managing General Partner of the Partnership
are as follows:

William B. Dockser, 59, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment complexes. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board of CRIIMI MAE Inc., CRIIMI, Inc. and CRI Liquidating REIT, Inc.

H. William Willoughby, 49, President, Secretary and a Director of CRI since
January 1990 and Senior Executive Vice President, Secretary and a Director of
CRI from 1974 to 1989. He is principally responsible for the financial
management of CRI and its associated partnerships. Prior to joining CRI in
1974, he was Vice President of Shelter Corporation of America and a number of
its subsidiaries dealing principally with real estate development and equity
financing. Before joining Shelter Corporation, he was a senior tax accountant
with Arthur Andersen & Company. He holds a Juris Doctorate degree, a Master of
Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc., CRIIMI, Inc. and CRI Liquidating REIT,
Inc.

Richard J. Palmer, 44, Senior Vice President-Chief Financial Officer. Prior to
joining CRI in 1983 as Director of Tax Policy, he was a Tax Manager at Grant
Thornton (formerly Alexander Grant & Company). He also served in the Tax and
Audit Departments of Peat, Marwick, Main and Company (formerly Peat, Marwick,
Mitchell and Company) prior to his seven years at Grant Thornton. He holds a
Bachelor of Business Administration degree from the Florida Atlantic University
and is also a Certified Public Accountant.

III-1
<PAGE>
PART III
--------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------

Ronald W. Thompson, 49, Group Executive Vice President-Hotel Asset Management.
Prior to joining CRI in 1985, he was employed at the Hyatt Organization where he
most recently served as the General Manager of the Hyatt Regency in Flint,
Michigan. During his nine year tenure with Hyatt, he held senior management
positions with the Hyatt Regency in Dearborn, Michigan, the Hyatt in Richmond,
Virginia, the Hyatt in Winston-Salem, North Carolina and the Hyatt Regency in
Atlanta, Georgia. Before joining Hyatt, Mr. Thompson worked in London, England
for the English Tourist Board as well as holding management positions in Europe,
Australia, and New Zealand in the hotel industry. Mr. Thompson received his
education in England where he received a business degree in Hotel Administration
from Winston College.

Susan R. Campbell, 37, Senior Vice President-CRI Realty Services. Prior to
joining CRI in March 1985, she was a budget analyst for the B. F. Saul Advisory
Company. She holds a Bachelor of Science degree in General Business from the
University of Maryland.

Melissa Cecil Lackey, 40, Senior Vice President and General Counsel. Prior to
joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctorate from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.

(d) There is no family relationship between any of the foregoing directors
and executive officers.

(f) Involvement in certain legal proceedings.

None.

(g) Promoters and control persons.

Not applicable.

III-2
<PAGE>
PART III
--------

ITEM 11. EXECUTIVE COMPENSATION
----------------------

(a), (b), (c) and (d)

As described above in Item 10, the Partnership has no officers, directors
or any employees. Under the Partnership Agreement, however, the General
Partners have the exclusive right to conduct the business and affairs of the
Partnership. Set forth below are all fees and other consideration payable to
the General Partners and their affiliates, and to Alan I. Kay and Allen E.
Rozansky and their affiliates, in fiscal year 1995.

A. Operational Period
------------------

1. General Partnership No distributions of net cash
Interests of C.R.I., flow have been made through
Inc., Dockser, December 31, 1995.
Schwartzberg and
Willoughby, and Limited
Partnership Interest of
CRICO-Bethesda in the
Partnership.

2. Partnership Management No incentive management fee
Fee CIP Management 14, was paid.
Inc.

3. Partnership Interests of No distributions of net cash
CRCC, Alan I. Kay, Allen flow have been made through
E. Rozansky and R&K December 31, 1995.
Construction.

4. Expense Allowances to (A) There was no net cash flow
Alan I. Kay, Allen E. generated by BMCLP, as
Rozansky and CRCC; defined, for fiscal year 1995,
Management Fee and therefore, no expense
Incentive Management Fee allowances were paid to Alan
to R&K Construction. I. Kay, Allen E. Rozansky and
CRCC; (B) $3,000,000 payable
to R&K Construction for its
management services to BMCLP
in 1986 through 1990. As of
December 31, 1986, no
additional management fee was
payable to R&K Construction
and since then all additional
amounts owed have been used
to fund operating deficits of
BMCLP in accordance with the
terms of LPA; and (C) there
was no cash flow, as defined,
generated by BMCLP in fiscal
year 1995, therefore, no
incentive management fee was
paid to R&K Construction.

5. Additional Purchase Price (A) In fiscal year 1995, there
to Sellers and an were no funds available in the
Additional Incentive Operating Deficit Reserve to

III-3
<PAGE>
PART III
--------

ITEM 11. EXECUTIVE COMPENSATION - Continued
----------------------

Management Fee to CRCC, pay additional purchase price
Alan I. Kay and Allen E. to the sellers; (B) there was
Rozansky. no net cash flow, as defined,
generated by BMCLP for fiscal
year 1995, therefore, no
additional incentive
management fee was paid.

6. Office Building Management fees of $391,092
Management Fees to Realty were paid in 1995. Management
Management Company. fees of $50,592 were paid for
the period November 16, 1994
through December 31, 1994.
Fees deferred in 1994, (prior
to November 16, 1994) and 1993
amounted to $332,435 and
$328,488, respectively.

7. Management and Management and Administration
Administration Fees to fees relating to 1994 of
CRCC and/or the $50,000 were paid in 1995.
Partnership Management and Administration
fees relating to 1995 of
$50,000 were accrued as of
December 31, 1995.

B. Termination Period
------------------

1. General Partners' and 1.00% to the General Partners
CRICO-Bethesda's Share of and 0.1% to CRICO-Bethesda of
Liquidation, Sale and Liquidation, Sale and
Refinancing Proceeds of Refinancing Proceeds remaining
the Partnership after all payments and
distributions have been made,
and a return of their capital
contributions. In addition,
9.08% to CRICO-Bethesda of the
amount remaining prior to the
final distribution in
accordance with partnership
interests. The General
Partners and CRICO-Bethesda
will also receive a return of
their nominal capital
contributions.

III-4
<PAGE>
PART III
--------

ITEM 11. EXECUTIVE COMPENSATION - Continued
----------------------

2. Disposition Fee payable 3.00% of the gross sales price
to CRICO-Bethesda upon of the Development, payable
sale of the Development after payment of all debts of
the Partnership, return of
capital contributions to the
Investors, and payment of the
Preferred Distribution, as may
be multiplied by the Tax
Bracket Adjustment Factor, if
applicable.

3. Alan I. Kay, Allen E. (A) 1.00% to CRCC and 6.5% in
Rozansky, R&K the aggregate to Alan I. Kay,
Construction and CRCC's Allen E. Rozansky and R&K
Share of Liquidation, Construction of Liquidation,
Sale or Refinancing Sale or Refinancing Proceeds
Proceeds remaining after all payments
and distributions have been
made; plus (B) 18.928% to Alan
I. Kay and Allen E. Rozansky
of the amount remaining after
payment of the Disposition Fee
described in C-4 below. Alan
I. Kay, Allen E. Rozansky, R&K
Construction and CRCC will
also receive a return of their
nominal capital contributions.

4. Disposition Fee to Alan The lesser of (i) 0.75% of the
I. Kay and Allen E. gross sales price of the
Rozansky Development of (ii)

$2,500,000, as such fee shall
be increased by an amount
equal to 25% of the amount by
which the Preferred
Distribution is increased by
the Tax Bracket Adjustment
Factor, if any, payable after
payment of all debts of BMCLP,
repayment to the Partnership
of its capital contributions
to BMCLP, and payment of the
Preferred Distribution, as
adjusted by the Tax Bracket
Adjustment Factor, if
applicable.

5. Loan Repayment to Repayment to Iroquois of the
Iroquois purchase money Third Mortgage
Note, including all accrued
but unpaid interest thereon.

(e) Termination of employment and change in control arrangement.

None.

III-5
<PAGE>
PART III
--------

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------

(a) Security ownership of certain beneficial owners.

As of December 31, 1995, no person owned of record, or owned
beneficially, more than 5% of the total number of Units.

The General Partners own as a group a 1.00% interest in the
Partnership. Alan I. Kay and Allen E. Rozansky and their affiliates
own as a group a 6.50% interest in BMCLP.

(b) Security ownership of management.

The following table sets forth certain information concerning all
units beneficially owned, as of December 31, 1995, by each director
and by all directors and officers as a group of the Managing General
Partner of the Partnership.

Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- ------------
<C> <C> <C>
William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (6 persons) None 0%

</TABLE>

The Partnership is not aware of any arrangement which may, at a
subsequent date, result in a change in control of the Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------

(a) Transactions with Management and Others.

The Partnership has no directors or officers. The Partnership has had
no transactions with individual officers or directors of the General
Partner of the Partnership other than any indirect interest such officers
and directors may have in the amounts paid to the managing general partner
or its affiliates or by virtue of their stock ownership in CRI. See Item
11 for a discussion of fees and other compensation paid or accrued by the
Partnership to the General Partners or affiliates.

Iroquois, which is an affiliate of the Special Limited Partners, has
provided financing through the Third Mortgage Note.

A summary of indebtedness to related parties as of December 31, 1995
and 1994 is presented below:

III-6
<PAGE>
PART III
--------

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
----------------------------------------------

Balance at Balance at Balance at
Related January 1, December 31, December 31,
Party 1993 Additions 1994 Additions 1995
------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
CRI $ 69,234 $ 166,645 $ 235,879 $ 53,780 $ 289,659
CHG 642,036 398,249 1,040,285 88,415 1,128,700
Realty 614,831 357,402 972,233 -- 972,233
Hyatt -- 320,264 320,264 318,789 639,053
----------- ----------- ----------- ----------- -----------
$ 1,326,101 $ 1,242,560 $ 2,568,661 $ 460,984 $ 3,029,645
=========== =========== =========== =========== ===========

</TABLE>

The $289,659 and $235,879 due to CRI as of December 31, 1995 and 1994,
respectively, is partially comprised of $107,103 of advances to BMCLP to
fund Excess Payments due on its mortgages with Great Western. The
remaining amount due to CRI is comprised of advances to the Partnership to
fund operating deficits and accrued interest on advances. In addition,
$1,040,285 of the $1,128,700 and $1,040,285 due to CHG as of December 31,
1995 and 1994, and $972,233 due to Realty as of December 31, 1995 and 1994
were also advanced to BMCLP to fund Excess Payments on the Great Western
mortgages, as discussed in Note 4 to the consolidated financial statements.
The advances from CRI and CHG accrue interest at the prime rate plus 1% in
accordance with the Partnership Agreement whereas the amount due to Realty
is non-interest bearing. These advances plus any accrued interest will be
repaid subject to cash availability as defined by the partnership agreement
and the Restated Notes Agreements, as discussed in Note 4 to the
consolidated financial statements. Finally, the $639,053 and $320,264 due
to Hyatt as of December 31, 1995 and 1994, respectively, consists of
$463,821 and $233,193, respectively, of incentive management fees earned
under its management agreement with BMCLP and is due subject to Hyatt
meeting certain performance standards as defined in the Management
Agreement. The remaining balance consists of trade payables to Hyatt for
various services as described in Note 7 to the consolidated financial
statements.

CRCC and/or the Partnership may receive an annual payment of up to
$50,000 to cover costs of management and administration, to the extent that
funds are available after payment of amounts due on the Restated First and
Second Mortgage Notes, as discussed in Note 4 to the consolidated financial
statements. CRCC received a payment of $50,000 on January 31, 1995 from
remaining net cash flow relating to 1994. Additionally, $50,000 was
accrued as of December 31, 1995 for fiscal year 1995 management fees as
described in Note 8 to the consolidated financial statements.

CIP Management 14, Inc., an affiliate of the Managing General Partner,
may receive an incentive management fee on a noncumulative annual basis
commencing in 1987 equal to 9.08% of net cash flow after payment of certain
priorities set forth in the Partnership agreement. No incentive management
fee has been incurred or paid in 1995, 1994 and 1993.

III-7
<PAGE>
PART III
--------

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
----------------------------------------------

During 1995, 1994 and 1993, BMCLP entered into transactions with the
Keystone Group, an affiliate of one of BMCLP's Special Limited Partners, to
provide for the construction of tenant improvements and capital
improvements in the Office Building. For the years ended December 31,
1995, 1994 and 1993, $379,298, $503,305 and $335,243, respectively, was
paid to the Keystone Group. Amounts paid during 1993 and through November
16, 1994 were paid directly by Great Western to Keystone Group. In 1995,
the Partnership was informed by the Special Limited Partner that the
Keystone Group was no longer affiliated with the Special Limited Partner.
As of February 20, 1996, the Partnership had not received verification of
the change in affiliation.

Realty Management Company, which is an affiliate of one of Special
Limited Partners, provides management services related to the Office
Building, while Iroquois, which is also an affiliate of the Special Limited
Partners, has provided financing through the Third Mortgage Note.

Provident Commercial, an affiliate of one of BMCLP's Special Limited
Partners, may receive free use of 9,719 square feet of office space until
October 31, 2000. BMCLP estimates that the value of this rent-free office
space is approximately $119,500 per year ($12.30 per square foot).

(b) Certain business relationships.

The Partnership's response to Item 13(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship with
entities of which the General Partners of the Partnership are officers,
directors or equity owners other than as set forth in the Partnership's
response of Item 13(a).

None.

(d) Transaction with promoters.

Not applicable.

III-8
<PAGE>
PART IV
-------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
--------------------------------------------------------------

(a) (1) Financial Statements Page
-------------------- ------

Reports of Independent Public Accountants IV-6

Consolidated Balance Sheets as of
December 31, 1995 and 1994 IV-7

Consolidated Statements of Operations for
the years ended December 31, 1995, 1994
and 1993 IV-9

Consolidated Statements of Changes in
Partners' Capital (Deficit) for the
years ended December 31, 1995, 1994 and
1993 IV-10

Consolidated Statements of Cash Flows for
the years ended December 31, 1995, 1994
and 1993 IV-11

Notes to Consolidated Financial Statements IV-12

(2) Financial Statement Schedules
-----------------------------

All financial statement schedules are omitted since they are
not required, are inapplicable, or the required information is
included in the financial statements or notes thereto.

(3) Exhibits (listed according to the number assigned in the
-------- table in Item 601 of Regulation S-K).

Exhibit No. 4 - Instruments defining the rights of security
holders, including indentures

a. Second Amended Certificate and Limited Partnership Agreement
of Capital Income Properties-C Limited Partnership
(Incorporated by reference from Exhibit 4 to Registrant's
Regulation D filing as amended, dated October 1, 1985)

b. Bethesda Metro Center Limited Partnership Indemnification
and Hold Harmless Agreement dated July 1, 1987 (Incorporated
by reference to the 1987 Annual Report on Form 10-K filed on
March 30, 1988)

c. Bethesda Metro Center Limited Partnership Second Amendment
to Second Restated Certificate and Agreement of Limited
Partnership dated July 1, 1987 (Incorporated by reference to
the 1987 Annual Report on Form 10-K filed on March 30, 1988)

d. Bethesda Metro Center Limited Partnership Second Restated
Agreement of Limited Partnership (related to Second
Amendment to Restated Certificate of Limited Partnership)
(Incorporated by reference to the 1992 Annual Report on Form
10-K filed on April 15, 1993)

IV-1
<PAGE>
PART IV
-------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM
----------------------------------------------------------
8-K - Continued
---

e. Bethesda Metro Center Limited Partnership Second Restated
Certificate and Agreement of Limited Partnership
(Incorporated by reference to the 1992 Annual Report on Form
10-K filed on April 15, 1993)

f. Bethesda Metro Center Limited Partnership Third Amendment to
the Second Restated Certificate and Agreement to Limited
Partnership (Incorporated by reference to the 1992 Annual
Report on Form 10-K filed on April 15, 1993)

g. Bethesda Metro Center Limited Partnership Amended and
Restated Promissory Note (Incorporated by reference to the
1994 Annual Report on Form 10-K filed on March 31, 1995)

h. Bethesda Metro Center Limited Partnership Amended and
Restated First Leasehold Deed of Trust and Security
Agreement (Incorporated by reference to the 1994 Annual
Report on Form 10-K filed on March 31, 1995)

i. Bethesda Metro Center Limited Partnership Assignment of
Rents and Leases (Incorporated by reference to the 1994
Annual Report on Form 10-K filed on March 31, 1995)

j. Bethesda Metro Center Limited Partnership Amended and
Restated Second Deed of Trust Note (Incorporated by
reference to the 1994 Annual Report on Form 10-K filed on
March 31, 1995)

k. Bethesda Metro Center Limited Partnership Loan Agreement
(Incorporated by reference to the 1994 Annual Report on Form
10-K filed on March 31, 1995)

l. Bethesda Metro Center Limited Partnership Amended and
Restated Second Leasehold Deed of Trust and Security
Agreement (Incorporated by reference to the 1994 Annual
Report on Form 10-K filed on March 31, 1995)

m. Bethesda Metro Center Limited Partnership Second Assignment
of Rents and Leases (Incorporated by reference to the 1994
Annual Report on Form 10-K filed on March 31, 1995)

n. Collateral Assignment of Partnership Interests Bethesda
Metro Center Limited Partnership (Incorporated by reference
to the 1994 Annual Report on Form 10-K filed on March 31,
1995)

o. Bethesda Metro Center Limited Partnership Amended and
Restated Escrow Agreement (Incorporated by reference to the
1994 Annual Report on Form 10-K filed on March 31, 1995)

p. Bethesda Metro Center Limited Partnership First Allonge to
Non-negotiable Non-recourse Purchase Money Promissory Note
(Incorporated by reference to the 1994 Annual Report on Form
10-K filed on March 31, 1995)

IV-2
<PAGE>
PART IV
-------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM
----------------------------------------------------------
8-K - Continued
---

Exhibit No. 10 - Material Contracts

a. Management services agreement between Capital Income
Properties-C Limited Partnership and CIP Management-14, Inc.
(Incorporated by reference from Exhibit 10 to the
Registrant's Regulation D filing as amended, dated October
1, 1985)

b. Management Agreement with Hyatt Corporation (Incorporated by
reference to the 1992 Annual Report on Form 10-K filed on
April 15, 1993)

c. Amendment to Management Agreement with Hyatt Corporation
(Incorporated by reference to the 1992 Annual Report on Form
10-K filed on April 15, 1993)

d. Garage Lease with Monument Parking Co., Inc. (Incorporated
by reference to the 1992 Annual Report on Form 10-K filed on
April 15, 1993)

e. Land Lease (Incorporated by reference to the 1992 Annual
Report on Form 10-K filed on April 15, 1993)

f. Management Agreement with Realty Management Company
(Incorporated by reference to the 1994 Annual Report on Form
10-K filed on March 31, 1995)

g. Collateral Assignment of Management Agreement with Hyatt
Corporation (Incorporated by reference to the 1994 Annual
Report on Form 10-K filed on March 31, 1995)

Exhibit No. 27 - Financial Data Schedule

(b) Reports on Form 8-K
-------------------

No reports of Form 8-K were filed during the quarter ended December
31, 1995.

The list of Exhibits required by Item 601 at Regulation S-K is
included in Item (a)(3) above.

(d) Financial Statement Schedules
------------------------------

See (a)(2), above.

IV-3
<PAGE>
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 thereunto duly authorized.

CAPITAL INCOME PROPERTIES-C
LIMITED PARTNERSHIP

By: CRI, Inc.
Managing General Partner

March 29, 1996 /s/ William B. Dockser
- ----------------- ---------------------------------
DATE William B. Dockser, Director
Chairman of the Board,
Treasurer and Principal
Executive Officer

March 29, 1996 /s/ H. William Willoughby
- ----------------- ---------------------------------
DATE H. William Willoughby
Director, President and Secretary

March 29, 1996 /s/ Richard J. Palmer
- ----------------- ---------------------------------
DATE Richard J. Palmer
Senior Vice President, Finance
Principal Financial and
Principal Accounting Officer

IV-4
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------

To Partners of
Capital Income Properties-C Limited Partnership:

We have audited the accompanying consolidated balance sheets of Capital
Income Properties-C Limited Partnership (the Partnership ), a District of
Columbia limited partnership, and Subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of operations, partners deficit and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Partnership s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership and
Subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Washington, D.C.,
February 20, 1996

IV-5
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,351,524 $ 1,649,561
Restricted cash and cash equivalents 1,607,970 1,450,904
Accounts receivable, less allowance for doubtful accounts
of $35,413 and $70,249 as of December 31, 1995 and
1994, respectively 1,433,999 1,089,424
Prepaid expenses 840,370 848,339
Current portion of deferred rent receivable 20,932 322,343
Inventory and other 78,392 84,897
------------ ------------
Total current assets 5,333,187 5,445,468
------------ ------------

Property and equipment:
Buildings and tenant improvements 121,441,795 120,588,435
Furniture and equipment 14,618,333 14,064,248
------------ ------------
136,060,128 134,652,683
Less: accumulated depreciation (50,341,193) (45,528,938)
------------ ------------
85,718,935 89,123,745
------------ ------------

Other assets:
Deferred charges, less accumulated amortization of $1,843,919 and
$1,069,159 as of December 31, 1995 and 1994, respectively 2,292,912 2,630,629
Deferred rent receivable, less reserve of $107,010 and
$310,639 as of December 31, 1995 and 1994, respectively 407,109 712,745
Escrows and deposits 176,938 319,429
------------ ------------
2,876,959 3,662,803
------------ ------------
Total assets $ 93,929,081 $ 98,232,016
============ ============
</TABLE>

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

IV-6
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP

CONSOLIDATED BALANCES SHEETS - Continued

LIABILITIES AND PARTNERS DEFICIT

December 31,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Current liabilities:
Current portion of first mortgage note $ 6,033,080 $ 5,840,861
Accounts payable 471,456 417,836
Accrued expenses 726,157 609,006
Due to affiliates 3,029,645 2,568,661
Other liabilities 34,578 35,228
------------ ------------
Total current liabilities 10,294,916 9,471,592

First mortgage note 67,117,079 68,779,767

Second mortgage note 18,050,167 19,413,456

Third mortgage note 5,779,500 5,509,500

Due to guarantor of operating deficits 2,243,984 2,120,800

Deferred gain on debt forgiveness 83,258,456 101,900,391

Deferred revenue and security deposits 355,915 393,176
------------ ------------
Total liabilities 187,100,017 207,588,682
------------ ------------
Commitments and contingencies

Partners deficit (93,170,936) (109,356,666)
------------ ------------
Total liabilities and partners' deficit
$ 93,929,081 $ 98,232,016
============ ============
</TABLE>

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

IV-7
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rooms $ 11,633,224 $ 10,893,554 $ 10,674,210
Food and beverage 5,012,419 4,653,047 4,527,822
Telephone 589,944 450,509 404,485
Office, retail and parking rentals 9,048,040 8,714,803 7,976,146
Other 203,629 66,489 60,734
------------ ------------ ------------
26,487,256 24,778,402 23,643,397
------------ ------------ ------------
Departmental expenses:
Rooms 2,448,269 2,301,140 2,302,307
Food and beverage 3,526,193 3,390,160 3,539,435
Telephone 412,693 385,551 381,063
Other 322,780 328,581 319,028
------------ ------------ ------------
6,709,935 6,405,432 6,541,833
------------ ------------ ------------
Gross operating income 19,777,321 18,372,970 17,101,564
------------ ------------ ------------
Unallocated operating expenses:
Administrative 1,439,725 1,355,081 1,363,558
Marketing 1,444,250 1,404,963 1,279,155
Energy costs 1,809,507 1,887,300 1,915,094
Property operations and maintenance 2,069,750 2,042,354 1,954,466
------------ ------------ ------------
6,763,232 6,689,698 6,512,273
------------ ------------ ------------
Operating income before other income, fixed charges and other
deductions, loss attributable to minority interest at
consolidation date and extraordinary item 13,014,089 11,683,272 10,589,291
------------ ------------ ------------
Other income 111,138 259,118 481,901
------------ ------------ ------------
Fixed charges and other deductions:
Depreciation 4,812,255 4,788,999 4,956,748
Amortization 523,424 350,014 328,090
Interest expense 756,102 12,737,570 14,068,974
Management fees 1,241,408 972,871 750,345
Real estate and personal property taxes 672,598 1,091,566 1,153,090
Ground rent 1,600,000 1,600,000 1,600,000
Net cash flow participation 300,000 -- --
Other 859,025 1,025,232 1,283,191
------------ ------------ ------------
10,764,812 22,566,252 24,140,438
</TABLE> ------------ ------------ ------------

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

IV-8
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) before extraordinary item 2,360,415 (10,623,862) (13,069,246)

Extraordinary item debt forgiveness 13,825,315 1,820,252 --
------------ ------------ ------------
Net income (loss) 16,185,730 (8,803,610) (13,069,246)

Total (income) loss attributed to minority interest (16,217,328) 8,776,560 12,959,305
------------ ------------ ------------

Net loss attributed to Partnership $ (31,598) $ (27,050) $ (109,941)
============ ============ ============

Net loss allocated to General Partners and affiliated
Initial Limited Partner (1%) $ (316) $ (270) $ (1,099)
============ ============ ============

Net loss allocated to Additional Limited Partners (99%) $ (31,282) $ (26,780) $ (108,842)
============ ============ ============

Net loss allocated to Additional Limited Partners per unit $ (52.14) $ (44.63) $ (181.40)
============ ============ ============

Limited partnership units issued and outstanding 600 600 600
============ ============ ============
</TABLE>

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

IV-9
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF PARTNERS DEFICIT

For the Years Ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
(Losses)
Income not
General Limited Allocable to
Partners Partners Partners Total
------------ ------------ ------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1992 $ (527,394) $ 518,705 $ (87,475,121) $ (87,483,810)

Net loss attributed to Partnership (1,099) (108,842) -- (109,941)
Total loss attributed to minority
interest (Note 1) -- -- (12,959,305) (12,959,305)
------------ ------------ ------------- -------------
Balance, December 31, 1993 (528,493) 409,863 (100,434,426) (100,553,056)

Net loss attributed to Partnership (270) (26,780) -- (27,050)
Total loss attributed to minority
interest (Note 1) -- - (8,776,560) (8,776,560)
------------ ------------ ------------- -------------
Balance, December 31, 1994 (528,763) 383,083 (109,210,986) (109,356,666)

Net loss attributed to Partnership (316) (31,282) -- (31,598)
Total income attributed to minority
interest (Note 1) -- -- 16,217,328 16,217,328
------------ ------------ ------------- -------------
Balance, December 31, 1995 $ (529,079) $ 351,801 $ (92,993,658) $ (93,170,936)
============ ============ ============= =============
</TABLE>

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

IV-10
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 16,185,730 $ (8,803,610) $(13,069,246)

Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 4,812,255 4,788,999 4,956,748
Amortization 523,424 350,014 328,090
Extraordinary item gain on debt forgiveness (13,825,315) (1,820,252) --
Interest expense related to the amortization
of financing costs 251,336 552,751 276,381
Net interest expense added to debt 393,184 4,391,163 4,671,983
Interest payments treated as a reduction in mortgage debt (6,567,048) -- --
Changes in assets and liabilities:
Increase in restricted cash and cash equivalents (157,066) (1,450,904) --
(Increase) decrease in accounts receivable, net (344,575) (230,503) 364,611
Decrease in prepaid expenses 7,969 164,885 17,325
Decrease in deferred rent receivable, net 607,047 187,466 75,320
Decrease (increase) in inventory and other 6,505 (8,287) 2,210
Decrease (increase) in escrows and deposits 142,491 21,593 (58,850)
Increase (decrease) in accounts payable 53,620 (97,738) (50,750)
Increase (decrease) in accrued expenses 117,151 92,909 (45,474)
Decrease in other liabilities (650) (850) (92,059)
(Decrease) increase in deferred revenue and
security deposits (37,261) 94,330 (20,192)
------------ ------------ ------------
Net cash provided by (used in) operating activities 2,168,797 (1,768,034) (2,643,903)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,407,445) (1,903,487) (467,435)
Payment of leasing costs (437,043) (200,053) (182,505)
------------ ------------ ------------
Net cash used in investing activities (1,844,488) (2,103,540) (649,940)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from mortgage debt 216,666 5,243,778 2,288,485
Payments on mortgage debt (1,299,996) -- --
Payment of financing costs -- (1,759,336) --
Advances from affiliates 460,984 1,242,560 749,471
------------ ------------ ------------
Net cash (used in) provided by financing activities (622,346) 4,727,002 3,037,956
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (298,037) 855,428 (255,887)

Cash and cash equivalents, beginning of year 1,649,561 794,133 1,050,020
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,351,524 $ 1,649,561 $ 794,133
============ ============ ============
</TABLE>

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

IV-11
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 6,567,048 $ 8,346,407 $ 9,120,610
============ ============ ============
Noncash investing activities:

Payment of tenant improvements through mortgage debt $ -- $ 789,969 $ 542,377
============ ============ ============
Write-off of deferred financing costs, net $ -- $ 310,918 $ --
============ ============ ============
</TABLE>

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

IV-12
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE PARTNERSHIP

Capital Income Properties - C Limited Partnership (the Partnership), a
District of Columbia limited partnership, was organized as of December 15, 1984.
The purpose of the Partnership is to invest in real estate by acquiring and
holding a limited partnership interest in Bethesda Metro Center Limited
Partnership (BMCLP). BMCLP owns and operates a 381-room hotel known as the
Hyatt Regency Bethesda Hotel (the Hotel) and an office building known as
Bethesda Metro Office Building (the Office Building) located in Bethesda,
Maryland containing approximately 336,000 square feet of net rentable office
space and approximately 18,000 square feet of net rentable retail space. In
addition, attached to the structure is a parking facility for approximately
1,300 cars serving the entire development.

The Managing General Partner of the Partnership is C.R.I., Inc. (CRI),
which has a 0.01% general partner interest. Other general partner interests
which total 0.99% are held by three individuals affiliated (or formally
affiliated) with CRI. The total limited partner interest of 99% is comprised of
0.01% owned by CRICO-Bethesda Growth Partners Limited Partnership, the
affiliated Initial Limited Partner, and the remaining 98.99% interest is widely
held by unrelated parties. On June 15, 1992, pursuant to a debt modification
with BMCLP s former first mortgage lender, as discussed in Note 4, C.R.C.C. of
Bethesda, Inc. (CRCC) replaced the managing general partners of BMCLP (unrelated
parties hereinafter the Special Limited Partners). Since CRCC is a wholly owned
affiliate of CRI, the accompanying financial statements as of December 31, 1995
and 1994, and for each of the three years ended December 31, 1995 have been
consolidated with BMCLP.

Although an entity affiliated with the Partnership has assumed
responsibility for management of BMCLP and the Partnership has consolidated its
interest therein in the accompanying financial statements, the Partnership has
not assumed responsibility for any past or future operating deficits of BMCLP.
The deficit in partners capital generated by activity at BMCLP remains the
obligation of the Special Limited Partners of BMCLP.

Therefore, of the total partners deficit of $93,170,936 and $109,356,666
as of December 31, 1995 and 1994, respectively, $92,993,658 and $109,210,986,
respectively, are not attributable to the partners of the Partnership. Rather,
they are attributable to the Special Limited Partners of BMCLP. The amounts
attributable to the Special Limited Partners as of December 31, 1995 and 1994
are comprised of cumulative BMCLP losses in excess of the Partnership s
investment in BMCLP as of June 15, 1992 of $77,472,839, and cumulative net BMCLP
losses of $15,520,819 and $31,738,147 as of December 31, 1995 and 1994,
respectively. BMCLP losses subsequent to June 15, 1992, have been consolidated
into the operating accounts of the Partnership in the accompanying consolidated
statements of operations.

IV-13
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE PARTNERSHIP - Continued

Liquidity
---------

As discussed above, the Partnership s sole investment is its limited
partnership interest in BMCLP. BMCLP has experienced cash deficiencies in
recent years as cash flow from operations has been insufficient to fund capital
and debt service requirements.

However, pursuant to the purchase and subsequent restructuring of its First
and Second Mortgage Notes by new lenders in November 1994, as discussed in Note
4, BMCLP s management is projecting break-even cash flow from operations for the
year ending December 31, 1996, after funding all anticipated capital and debt-
service requirements. To the extent that any cash deficits arise, management
plans to utilize certain working capital reserves established in conjunction
with the restructuring in 1994, as discussed in Note 2, and additional borrowing
capacity under its Restated Notes, as discussed in Note 4. However, since
access to such reserves and additional borrowings are contingent upon the
approval of the Restated First and Second Mortgage Note lenders, no assurances
can be made that the Partnership will have the ability to fund cash flow
deficits should they arise.

The Partnership does not have adequate cash reserves or any source of cash
to fund its projected cash requirements in 1996, which are principally comprised
of professional fees and administrative expenses. Additionally, based on the
projected operating performance of BMCLP, it is unlikely that the Partnership
will receive any cash distribution from its investment in BMCLP in 1996 due to
priorities established for distribution of excess cash flow pursuant to the
restructuring of BMCLP s mortgage notes. However, the Managing General Partner
has represented a willingness to fund projected cash flow requirements of the
Partnership for the year ending December 31, 1996.

2. SIGNIFICANT ACCOUNTING POLICIES

a. Basis of presentation
---------------------

The consolidated financial statements of the Partnership are prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles.

b. Consolidation
-------------

As discussed in Note 1, the Partnership consolidated its interest in
BMCLP in 1992. The accompanying balance sheets as of December 31, 1995 and
1994, reflect all the accounts of both the Partnership and BMCLP.
Additionally, the consolidated statements of operations for the years ended
December 31, 1995, 1994 and 1993, include the Partnership s and BMCLP s
operations for the entire year.

IV-14
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

c. Financial instruments
---------------------

Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" (SFAS 107), requires the
disclosure of fair value information about financial instruments for which
it is practicable to estimate that value. The Partnership implemented SFAS
107 in 1995.

d. Cash and cash equivalents
-------------------------

Cash and cash equivalents consist of all time and demand deposits with
original maturities of three months of less. The Partnership has
determined that the carrying value of its cash and cash equivalents
approximates fair value.

e. Restricted cash and cash equivalents
------------------------------------

The $1,607,970 and $1,450,904 as of December 31, 1995 and 1994,
respectively, in restricted cash and cash equivalents consists of
$1,016,154 and $1,038,654 in working capital reserves as of December 31,
1995 and 1994, respectively. The Partnership received the working capital
reserves as proceeds in connection with the restructuring of its mortgage
debt, as discussed in Note 4. These funds are held in an escrow account
and can be used by BMCLP to fund any operating expenses without limitation
by demonstrating the need for such funds to the refinance lenders. Of this
amount, $277,500 of the working capital reserves were held by the Restated
First Mortgage Note lender as of December 31, 1995. Additionally, $738,654
and $1,038,654 of the working capital reserves are held by the Restated
Second Mortgage Note lender as of December 31, 1995 and 1994, respectively.
The remaining $591,816 and $412,250 of the restricted cash and cash
equivalents balance as of December 31, 1995 and 1994, respectively,
represents the balances in an escrow account for property taxes and ground
rent as required by the Restated First Mortgage Note lender. Amounts in
the escrow account are funded from cash flow from operations. The
Partnership has determined that the carrying value of its restricted cash
and cash equivalents approximates fair value.

f. Accounts receivable
-------------------

Accounts receivable, consisting primarily of trade related
receivables, is stated at cost less an allowance for accounts deemed
uncollectible of $35,413 and $70,249 at December 31, 1995 and 1994,
respectively.

g. Property and equipment
----------------------

Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets as follows:

IV-15
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

Buildings 40 years
Tenant improvements 5-15 years
Furniture and equipment
(half year convention) 5 years

Additions to property and equipment were $1,407,445 and $2,693,456 in
1995 and 1994, respectively. The additions in each year were less than 10%
of the beginning balance of property and equipment and were primarily
comprised of hotel furniture and fixtures, renovations performed on the
Hotel, and leasehold improvements to the Office Building. There were no
significant retirements in 1995 or 1994.

h. Deferred charges
----------------

Deferred charges include mortgage note financing costs and costs
related to leasing space to tenants of the Office Building. Deferred
financing costs are amortized as interest expense using the effective
interest method over the life of the related debt. Deferred leasing costs
are amortized over the term of the related lease using the straight line
method.

Net deferred charges of $2,292,912 and $2,630,629 as of December 31,
1995 and 1994, respectively, consist of $1,759,336 of deferred financing
costs related to the mortgage debt restructuring, as discussed in Note 4,
and $2,377,495 and $1,940,452, respectively, of leasing costs incurred to
lease office space at the Office Building. These deferred amounts are
presented in the accompanying consolidated balance sheets net of
accumulated amortization of $1,843,919 and $1,069,159 as of December 31,
1995 and 1994, respectively.

Net deferred financing costs at November 16, 1994, remaining from the
previous mortgage debt, of $310,918 were written off as interest expense in
the accompanying consolidated statement of operations for the year ended
December 31, 1994. Additionally, $2,763,807 of fully amortized deferred
financing costs at December 31, 1994 were written off in the accompanying
consolidated balance sheets.

j. Reclassifications
-----------------

Certain reclassifications were made to the 1994 and 1993 consolidated
financial statements in order to conform with the 1995 presentation.

k. Deferred revenue and security deposits
--------------------------------------

Deferred revenue and security deposits represent funds received in
advance from tenants of the Office Building.

l. Rental income and deferred rent receivable
------------------------------------------

Office and retail rental income consists of base annual rents, as
adjusted by scheduled and cost of living increases, and the reimbursement
of certain operating costs of the Office Building. The lease arrangements
with tenants are classified as operating leases. The Partnership

IV-16
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

recognizes rental income for financial statement purposes using the
straight-line method over the terms of the respective leases, as discussed
in Note 9.

l. Income taxes
------------

No provision is made for income taxes in the accompanying consolidated
financial statements because the Partnership allocates profits and losses
to the individual partners for Federal and state income tax purposes.

m. Use of estimates
----------------

In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, the Partnership is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements, and revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP

The Partnership has invested $42,500,100 in cash in BMCLP through December
31, 1995, to acquire a 92.5% limited partnership interest. Prior to June 15,
1992, the Partnership s investment in BMCLP was accounted for under the equity
method which prohibits the recognition of investment losses in excess of the
original investment. However, as discussed in Note 1, subsequent to June 15,
1992, the Partnership s investment in BMCLP has been consolidated in the
accompanying consolidated financial statements.

IV-17
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued

Condensed financial information of the Partnership on an unconsolidated
basis is as follows:

<TABLE>
<CAPTION>
BALANCE SHEETS

December 31,
1995 1994
------------ ------------
<S> <C> <C>
Total assets $ 116 $ 113
============ ============

Accounts payable $ 177,394 $ 145,793
Partners deficit (177,278) (145,680)
------------ ------------
Total liabilities and partners deficit $ 116 $ 113
============ ============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS

For the year ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 3 $ -- $ --
Professional fees (22,971) (10,781) (98,355)
Other (8,630) (16,269) (11,586)
------------ ------------ ------------
Net loss $ (31,598) $ (27,050) $ (109,941)
============ ============ ============
</TABLE>

STATEMENTS OF CASH FLOWS

For the year ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net cash used in operating activities $ (31,598) $ (49,450) $ (76,355)
Net cash provided by financing activities 31,601 49,473 69,234
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 3 23 (7,121)
Cash and cash equivalents, beginning of year 113 90 7,211
------------ ------------ ------------
Cash and cash equivalents, end of year $ 116 $ 113 $ 90
============ ============ ============
</TABLE>

IV-18
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued

Condensed financial information of BMCLP on an unconsolidated
basis is as follows:

<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
1995 1994
------------ ------------
<S> <C> <C>
Investment in real estate, at cost, net $ 85,718,935 $ 89,123,745
Current assets 5,333,071 5,445,355
Other assets 2,876,959 3,662,803
------------ ------------
Total assets $ 93,928,965 $ 98,231,903
============ ============

Current liabilities $ 10,117,522 $ 9,325,799
Other liabilities 176,805,101 198,117,090
Partners deficit (92,993,658) (109,210,986)
------------ ------------
Total liabilities and partners deficit $ 93,928,965 $ 98,231,903
============ ============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS

For the year ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 26,598,391 $ 25,037,520 $ 24,125,298
Extraordinary gain debt forgiveness 13,825,315 1,820,252 --
Expenses (24,206,378) (35,634,332) (37,084,603)
------------ ------------ ------------
Net income (loss) $ 16,217,328 $ (8,776,560) $(12,959,305)
============ ============ ============

</TABLE>

During 1995 and 1994, the Partnership did not invest any cash in BMCLP. No
cash distributions were made to the Partnership by BMCLP in 1995, 1994 or 1993.

The following represents a reconciliation of BMCLP's financial statement
net income (loss) to its tax return net (loss) income for each of the three
years in the period ended December 31, 1995:

IV-19
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued

For the year ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) per financial statements $ 16,217,328 $ (8,776,560) $(12,959,305)
Net adjustments for tax return purposes:

Depreciation and amortization less than amounts
allowed for tax purposes (956,169) (2,564,036) (1,976,405)
Rents received in excess of rental income 492,112 294,375 343,132
Debt forgiveness income deferred for financial
statement purposes (14,018,044) 139,939,727 --
Interest expense reversal (6,567,046) (1,504,339) --
Meals and entertainment 48,622 33,579 --
Other 48,382 (548,349) (44,989)
------------ ------------ ------------
Net (loss) income per tax return $ (4,734,815) $126,874,397 $(14,637,567)
============ ============ ============
</TABLE>

4. MORTGAGE DEBT

Original Mortgage Debt
----------------------

On September 17, 1985, BMCLP entered into a nonrecourse mortgage note (the
Third Mortgage Note) in the amount of $3,000,000 with Iroquois Financial
Corporation (Iroquois), an affiliate of the Special Limited Partners of BMCLP,
with interest at a rate of 9.0%. Payments of principal and interest were
contingent upon available net cash flow as defined in the agreement.

Substantially all of BMCLP s property and equipment was pledged as
collateral to the Restated First and Second Mortgage Notes and the Third
Mortgage Note.

IV-20
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

Modifications to Original Mortgage Debt
---------------------------------------

In connection with the debt modification described below, the mortgage
principal and related accrued interest were classified as a current obligation.
In addition, all accrued interest on the three mortgage notes was added to the
principal balances. However in fiscal 1994, prior to the restructuring, accrued
interest on the First Mortgage Note was net of cash transfers from the Hotel and
Office Building as required under the debt modifications. For the year ended
December 31, 1994, Great Western had collected and received net transfers of
cash from BMCLP of $8,346,407. Pursuant to the terms of the Notes, a late fee
equal to 3% of the required principal payment could have been assessed by Great
Western. However, the potential late fee of approximately $1,100,000 at the
time of the restructuring is not reflected in the accompanying consolidated
financial statements because Great Western agreed not to accelerate payment or
impose the penalty as part of the modification described below.

a. The maturity date of the Notes was extended to January 1, 1996, the
original maturity date of the First Mortgage Note.

IV-21
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

<TABLE>
<CAPTION>
QUARTERLY
PERIOD PAYMENT DUE
------ -----------

<C> <C>

March 31, 1992 $100,000
June, September, December, 1992 $200,000
March, June, September, December, 1993 $218,750
March, June, September, December, 1994 $265,625
March, June, September, December, 1995 $312,500

</TABLE>

The Excess Payments were applied: first, against expenses incurred by
Great Western in connection with the restructuring of the Notes;
second, to pay late charges owing on the Second Mortgage Note; third,
to reduce accrued interest on the First Mortgage Note and then the
Second Mortgage Note; and finally, to reduce principal on the First
Mortgage Note and then the Second Mortgage Note. BMCLP paid all net
cash flow to Great Western and, therefore, did not itself have cash to
make the Excess Payments. Realty Management Company (Realty), an
affiliate of one of the Special Limited Partners of BMCLP, receives a
management fee for managing the Office Building equal to 4% of the
Office Building s gross revenues. Realty agreed to defer its entire
management fee, effective January 1, 1992, extending through January
1, 1996, and apply it toward payment of the Excess Payments. These
amounts will be repaid in the future should sufficient funds exist.
The Hyatt Corporation (Hyatt) also received a management fee for
managing the Hotel equal to 4% of the Hotel s gross revenues. Hyatt
agreed to a reduction of its management fee to 3% through December 31,
1995, which was applied toward payment of the Excess Payments. In
addition, Capitol Hotel Group (CHG), an affiliate of the Managing
General Partner, which managed another hotel owned by another
partnership of which Alan I. Kay and Alan E. Rozansky were limited
partners, had agreed to contribute certain management fees to fund the
Excess Payments.

d. BMCLP agreed to allow Great Western to take title to the Hotel and
Office Building (the Development) without contest in the event of any
default under the terms of the Notes, as modified, provided the fair
market value of the Development was less than the then outstanding
indebtedness payable. Therefore, BMCLP deposited in escrow, in
recordable form, documents to immediately convey title to Great
Western (the Documents) in the event of a default under any of the
terms of the Notes, as modified. Great Western had the right to
record the Documents and immediately take title to the Development if,
on the maturity date, the fair market value of the Development was
less than the then outstanding indebtedness payable and BMCLP had been
otherwise unable to pay off the Notes. As discussed below, however,
BMCLP restructured the Notes prior to the maturity date. As a
condition to the 1994 debt restructuring, the new holder of the
amended and restated Second Mortgage Note required that BMCLP deposit
a deed in lieu of foreclosure in escrow to be recordable in the event

IV-22
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

of a default under that note.

Restructuring of Original Mortgage Debt
---------------------------------------

The Restated First Mortgage Note requires monthly interest payments in
arrears, payable at 4.25% in excess of the GECC Composite Commercial Rate which
at December 31, 1995 and 1994 was 5.81% and 5.73%, respectively. In addition to
monthly interest payments, monthly principal payments are due in the amount of
$108,333. Furthermore, if a major tenant of the Office Building, as defined in
the Restated First Mortgage Note agreement, shall not exercise their option to
renew or cancels their lease, additional principal payments equal to 100% of net
cash flow, as defined, must be remitted to GECC. These payments must continue
until the space vacated is 93% rented and other minimum financial conditions are
met. All unpaid principal is due at the maturity date which is November 30,
2001. Additional advances may be made by GECC in an aggregate amount not to
exceed 50% of all previously made principal payments. Any additional advances
are generally intended to fund tenant improvements, leasing costs and other
capital improvements but may be used to fund other cash flow needs as well. For
the year ended December 31, 1995, GECC advanced $216,666 to BMCLP for tenant
improvements.

Annual principal payments due on the Restated First Mortgage Note are as
follows:

1996 $ 1,299,996
1997 1,299,996
1998 1,299,996
1999 1,299,996
2000 1,299,996
Thereafter 40,417,016
------------
Total $ 46,916,996
============

The Restated Second Mortgage Note stipulates that 16% interest is payable
monthly from available cash flow, as defined, on a cumulative basis. Based on

IV-23
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

the provisions of the Restated Second Mortgage Note, BMCLP s cash flow from
operations shall be disbursed in the following priority:

a. Debt service and reserves on the Restated First Mortgage Note

b. Establishment of working capital reserves of $50,000 plus an amount
reasonably required to pay ordinary and necessary expenses of
operations.

c. Debt service on the Restated Second Mortgage Note (to the extent of
available cash flow).

d. Principal and interest on additional advances, as discussed below, if
any, made to BMCLP by BMC.

Furthermore, BMC is entitled to an Economic Value Participation Interest as
defined which requires BMCLP to pay the following at the sale of the property or
maturity date of the Restated Notes.

a. 75% of the amount by which the Economic Value of the Development as
defined up to $100 million exceeds the unpaid principal balance and
accrued interest under the Restated Notes, and

b. 50% of the Economic Value in excess of $100 million.

In 1995, $150,000 was paid to BMC as 75% of remaining net cash flow for
1994 and is included in net cash flow participation in the consolidated
statement of operations. Also in 1995, $50,000 was paid to CRCC as management
fees and is included in management fees in the consolidated statement of
operations. Additionally, $150,000 and $50,000 were accrued as of December 31,
1995 for fiscal year 1995 net cash flow participation and management fees,
respectively.

IV-24
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

In connection with the debt restructuring on November 16, 1994, the Third
Mortgage Note was amended to provide that interest is due and payable annually
only to the extent funds are available after taking into account payment of
amounts due and payable on the Restated Notes and a payment of up to $50,000 per
year to CRCC and/or the Partnership to cover costs of management and
administration. Accrued but unpaid interest shall be deferred without interest
and be paid, together with the outstanding principal balance of the Third
Mortgage Note, upon the earliest of: (i) sale of the assets of BMCLP; (ii)
refinancing of the Restated Notes for an amount in excess of the aggregate
outstanding principal balances due thereunder; or (iii) one day later than the
later of any Maturity Date under the Restated Notes. As of December 31, 1995
and 1994, accrued interest of approximately $2,779,500 and $2,509,500,
respectively, has been added to the outstanding principal balance of $3,000,000
in accordance with the amended Third Mortgage Note. No net cash flow as defined
in the agreement was available for repayment of this note during 1995, 1994 or
1993.

Debt Forgiveness
----------------

BMCLP's outstanding obligation under the First Restated Note prior to the
restructuring was $178,373,753. The carrying amount of the outstanding
principal and accrued interest that was forgiven based on the assignment and
subsequent restatement of the First Mortgage Note is presented as deferred gain
on debt forgiveness in the consolidated balance sheets. This amount is being
amortized as an extraordinary gain over the remaining term of the Restated First
Mortgage Note based on a constant effective yield as required by Statement of
Financial Accounting Standards No. 15 (SFAS 15), "Accounting by Debtors and
Creditors for Troubled Debt Restructurings".

Based on the Restated First Mortgage Note s interest rate of 10.06% and
9.98% in effect at December 31, 1995 and 1994, respectively, and the monthly
principal curtailments of $108,333 as stipulated in the Restated First Mortgage
Note, the estimated total future obligation for principal and interest is
$73,150,159 and $74,620,628 at December 31, 1995 and 1994, respectively.
Although these obligations are lower than the combined obligations of the
Restated First Mortgage Note and the deferred gain on debt forgiveness (which
totalled $156,408,615 and $176,521,019 at December 31, 1995 and 1994,
respectively) SFAS 15 does not permit the entire difference to be recognized as
an extraordinary gain at the time of the restructuring as the Restated First
Mortgage Note s interest rate is variable, which makes the amount of future
debt-service payments contingent upon changes in the index upon which the
interest rate is calculated. Accordingly, the $83,258,456 and $101,900,391
difference between the carrying value and total future obligation of the debt at
December 31, 1995 and 1994, respectively, was deferred and is being amortized as
an extraordinary gain in the consolidated statements of operations using the
effective interest method over the term of the Restated First Mortgage Note.

IV-25
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

the future obligation based on changes in the underlying index. For the year
ended December 31, 1994, no portion of the deferred gain on debt forgiveness was
reclassified. The adjusted deferred gain on debt forgiveness will be amortized
as extraordinary gain over the remaining term of the Restated First Mortgage
Note.

For the years ending December 31, 1995 and 1994, amortization of this
deferred debt forgiveness amounted to $14,085,175 and $1,852,734, respectively.
The amortization of deferred gain is included in the extraordinary item of
$13,825,315 and $1,820,252 at December 31, 1995 and 1994, respectively, in the
consolidated statements of operations, as it is shown net of the interest
expense on the Restated Second Mortgage Note of $259,860 and $32,482 as
discussed below.

As discussed in Note 2, SFAS 107 requires the disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. The Partnership has determined that the carrying amount of the
total future obligation of the Restated First Mortgage Note, which represents
the estimated total future obligation of principal and interest, approximates
fair value based on the variable nature of the Restated First Mortgage Note's
interest rate. Because future debt-service payments are contingent upon changes
in the underlying index upon which the interest rate is calculated, the total
future obligation of the Restated First Mortgage Note is expected to fluctuate
with changing market rates of interest. The Partnership has determined that it
is not practicable to estimate the fair value for the Restated Second Mortgage
Note or the Third Mortgage Note due to: (1) the lack of an active market for
these types of financial instruments, (2) the variable nature of the remaining
net cash flow payments payable to BMC under the Restated Second Mortgage Note,
as discussed above, (3) the variable nature of the Third Mortgage Note's
interest payments as a result of its dependance on available cash flow from
BMCLP, and (4) the excessive costs associated with an independent appraisal of
the Restated Second Mortgage Note and the Third Mortgage Note.

5. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS OF CASH FLOW

As discussed in Note 1, the Partnership is not obligated to fund the
operating deficits of BMCLP. As a result, only the portion of net loss
associated with activity of the Partnership (the Allocable Net Loss) has been
allocated to the partners of the Partnership.

In accordance with the Partnership Agreement, 1% of the Allocable Net Loss
has been allocated to the general partners, and 99% of the Allocable Net Loss
has been allocated to the limited partners. Allocations of cash flow

IV-26
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS OF CASH FLOW - Continued

distributions are specified in the Partnership Agreement. See Note 4 for
discussion of how BMCLP and the lenders of the Restated Notes participate in
cash flow from BMCLP.

6. RECONCILIATION OF NET INCOME (LOSS) PER FINANCIAL STATEMENTS
TO NET INCOME (LOSS) PER TAX RETURN

The following represents a reconciliation of the Partnership s financial
statement net income (loss) to its tax return net income (loss) for the three
years ended December 31, 1995, 1994 and 1993:

IV-27
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. RECONCILIATION OF NET INCOME (LOSS) PER FINANCIAL STATEMENTS
TO NET INCOME (LOSS) PER TAX RETURN - Continued

1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) per financial statements $ 16,185,730 $ (8,803,610) $(13,069,246)
Income (loss) attributable to minority interest 9,177,717 (17,260,997) 2,619,169
Adjustments for tax purposes:
Depreciation and amortization less than amounts
allowed for tax purposes (956,169) (2,564,036) (1,976,405)
Rents received in excess of rental income 492,112 294,375 343,132
Increase in amortization 20,868 20,868 (20,868)
Debt forgiveness income (14,018,044) 139,939,727 --
Meals and entertainment 48,622 33,579 --
Interest expense reversal (6,567,046) (1,504,339)
Other 48,382 (548,349) (36,090)
------------ ------------ ------------
Net income (loss) per tax return $ 4,432,172 $109,607,218 $(12,140,308)
============ ============ ============
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

Management Agreements
---------------------

BMCLP entered into a management agreement with Hyatt in March 1982,
pursuant to which Hyatt is to manage the Hotel commencing from the date the
Hotel opened through December 31, 2015. Based on the management agreement,
Hyatt is to be paid a management fee consisting of a base management fee of 3%
(as modified) of gross revenues, as defined, and an incentive management fee
which is calculated based on 20% of the adjusted gross operating profit, as
defined. Management fees paid to Hyatt for the years ended December 31, 1995,
1994 and 1993, were approximately $520,000, $482,000 and $422,000, respectively.
The incentive fees earned, as discussed in Note 8, for the years ending December
31, 1995 and 1994 were approximately $232,000 and $134,000, respectively, which
are included in due to related parties in the accompanying consolidated balance
sheets. No incentive fee was earned in 1993.

Pursuant to the management agreement, Hyatt also provides chain services
to Hotel such as promotion services, advertising, centralized reservation
services, for which BMCLP is to pay its allocable share of Hyatt expenses. As
of December 31, 1995 and 1994, approximately $175,000 and $87,000, respectively,
of this related party payable are recorded as due to affiliates in the
accompanying financial statements.

The management agreement provides for the establishment of a property
improvement fund. Contributions to the property improvement fund are equal to
3% of gross Hotel revenues (as defined) in fiscal year 1995 and 1994,
respectively. Unexpended reserves are recorded as escrows and deposits within
the accompanying financial statements. The reserve balances included in escrows
and deposits at December 31, 1995 and 1994, were approximately $114,000 and
$256,000, respectively.

IV-28
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. COMMITMENTS AND CONTINGENCIES - Continued

BMCLP entered into a management agreement with Realty, an affiliate of one
of the Special Limited Partners, dated January 31, 1985, pursuant to which
Realty is to manage the Office Building for a term of 20 years commencing from
the date the Office Building opened. Under the terms of this agreement, Realty
receives a monthly management fee equal to 4% of all income collected from the
operation of the Office Building. As discussed in Note 4, Realty had agreed to
allow BMCLP to defer payments of all management fees, effective January 1, 1992,
through the date of the restructuring of the original mortgage debt. In
connection with the debt restructuring which occurred November 16, 1994, BMC
paid Realty $1,000,000 to terminate its former management contract with BMCLP.
At that time BMCLP entered into a new management contract with Realty for a term
of one year which will automatically renew for successive one year periods so
long as Realty is not then in default of the management contract. The agreement
provides for a management fee in the amount of 4% of total revenues. Of this
amount, one-half shall be paid by Realty to BMC, during the term of the Restated
Second Mortgage Note, in partial consideration for the $1,000,000 payment to
terminate the original contract. Management fees for the years ended December
31, 1995, 1994 and 1993, were approximately $391,000, $373,000 and $328,000,
respectively.

Ground Leases
-------------

BMCLP has entered into an agreement for a ground lease on land. The land
lease expires on November 31, 2031, and can be renewed for an additional 49
years at the option of BMCLP. The agreement provides for $400,000 minimum
quarterly rental payments. Additional rent is payable at the rate of 7.5% of
annual gross receipts in excess of $31,000,000. No additional rent was due or
paid for 1995, 1994 or 1993.

Future minimum rental payments under the ground lease are as follows:

Year Ended
December 31,
------------

1996 $ 1,600,000
1997 1,600,000
1998 1,600,000
1999 1,600,000
2000 1,600,000
Thereafter 51,200,000
------------
Total future minimum payments $ 59,200,000
============

8. RELATED-PARTY TRANSACTIONS

A summary of indebtedness to affiliates of $3,029,645 and $2,568,661 as of
December 31, 1995 and 1994, respectively, is presented below:

IV-29
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. RELATED-PARTY TRANSACTIONS - Continued

</TABLE>

The $289,659 and $235,879 due to CRI as of December 31, 1995 and 1994,
respectively, is partially comprised of $107,103 of advances to BMCLP to fund
Excess Payments due on its mortgages with Great Western. The remaining amount
due to CRI is comprised of advances to the Partnership to fund operating
deficits and accrued interest on advances. In addition, $1,040,285 of the
$1,128,700 and $1,040,285 due to CHG as of December 31, 1995 and 1994, and
$972,233 due to Realty as of December 31, 1995 and 1994 were also advanced to
BMCLP to fund Excess Payments on the Great Western mortgage notes, as discussed
in Note 4. The advances from CRI and CHG accrue interest at the prime rate plus
1% in accordance with the Partnership Agreement whereas the amount due to Realty
is non-interest bearing. These advances plus any accrued interest will be
repaid subject to cash availability as defined by the Partnership Agreement and
the Restated Notes Agreements, as discussed in Note 4. Finally, the $639,053
and $320,264 due to Hyatt as of December 31, 1995 and 1994, respectively,
consists of $463,821 and $233,193, respectively, of incentive management fees
earned under its management agreement with BMCLP and is due subject to Hyatt
meeting certain performance standards as defined in the Management Agreement.
The remaining balance consists of trade payables to Hyatt for various services
as described in Note 7.

CRCC and/or the Partnership may receive an annual payment of up to $50,000
to cover costs of management and administration, to the extent that funds are
available after payment of amounts due on the Restated First and Second Mortgage
Notes, as discussed in Note 4. CRCC received a payment of $50,000 on January
31, 1995 from remaining net cash flow relating to 1994. Additionally, $50,000
was accrued as of December 31, 1995 for fiscal year 1995 management fees in the
consolidated balance sheet.

CIP Management 14, Inc., an affiliate of the Managing General Partner, may
receive an incentive management fee on a noncumulative annual basis commencing
in 1987 equal to 9.08% of net cash flow after payment of certain priorities set
forth in the partnership agreement. No incentive management fee has been
incurred or paid in 1995, 1994 and 1993.

IV-30
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. RELATED-PARTY TRANSACTIONS - Continued

During 1995, 1994 and 1993, BMCLP entered into transactions with the
Keystone Group, an affiliate of one of BMCLP's Special Limited Partners, to
provide for the construction of tenant improvements and capital improvements in
the Office Building. For the years ended December 31, 1995, 1994, and 1993,
$379,298, $503,305 and $335,243, respectively was paid to the Keystone Group.
Amounts paid during 1993 and through November 16, 1994 were paid directly by
Great Western to Keystone Group, and thus this activity is included as a noncash
investing activity in the accompanying statements of cash flows. In 1995, the
Partnership was informed by the Special Limited Partner that the Keystone Group
was no longer affiliated with the Special Limited Partner. As of February 20,
1996, the Partnership had not received verification of the change in
affiliation.

As discussed in Note 7, Realty, an affiliate of one of the Special Limited
Partners, provides management services related to the Office Building and, as
discussed in Note 4, Iroquois, which is also an affiliate of the Special Limited
Partners, has provided financing through the Third Mortgage Note.

Provident Commercial, an affiliate of one of BMCLP's Special Limited
Partners, may receive free use of 9,719 square feet of office space until
October 31, 2000. BMCLP estimates that the value of this rent-free office space
is approximately $119,500 per year ($12.30 per square foot).

9. RENTAL INCOME UNDER OPERATING LEASES

BMCLP s principal leasing activities consist of office space rentals under
operating leases. Future minimum rental receipts under noncancelable leases
subsequent to December 31, 1995, are as follows.

Year Ended
December 31,
------------

1996 $ 7,063,555
1997 5,506,904
1998 4,109,868
1999 2,430,260
2000 2,287,437
Thereafter 5,166,303
------------
Total future minimum rental
receipts $ 26,564,327
============

BMCLP has entered into a parking lease with Monument Parking Co., Inc.,
dated March 14, 1983, for a term of 30 years commencing from the date the garage
opened. Under the terms of this agreement, BMCLP receives all adjusted net
gross receipts up to $1,500,000 and a percentage of fees in excess of
$1,500,000, as stipulated in the agreement.

10. DUE TO GUARANTOR OF OPERATING DEFICITS

Pursuant to the BMCLP partnership agreement and operating deficit guarantee
agreement, R&KCC, an affiliate of the Special Limited Partner, has guaranteed
the funding of all BMCLP operating deficits up to $15,600,000. To satisfy a
portion of this obligation, the shareholders of R&KCC arranged for the original

IV-31
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. DUE TO GUARANTOR OF OPERATING DEFICITS - Continued

Second Mortgage Note as described in Note 4. Upon R&KCC s discontinuance of
business, the Special Limited Partners assumed the obligations for funding
operating deficits. The total due to R&KCC with respect to operating deficit
loans, including accrued interest, is $2,243,984 and $2,120,800 as of December
31, 1995 and 1994, respectively. These amounts are net of $342,734 which is due
from the Alan I. Kay Companies, an affiliate of the Special Limited Partners,
for advances from BMCLP. Interest on amounts advanced to BMCLP for operating
deficits is 1% over the prime rate and will be repaid subject to the terms of
the Restated Notes and then out of 50% of cash flow available after payment of
certain priorities as set forth in the BMCLP partnership agreement. Cumulative
interest accrued on these advances was $1,005,097 and $881,913 at December 31,
1995 and 1994, respectively, and has been added to the original advance amount
and classified as due to guarantor of operating deficits in the accompanying
consolidated balance sheets. For the years ended December 31, 1995 and 1994, no
amounts were advanced to the BMCLP for operating deficits because the Special
Limited Partners have represented that their net worth is not significant, their
assets are very illiquid, and they do not have resources to meet their operating
deficit obligations.

IV-32
<PAGE>

EXHIBIT INDEX
-------------

Exhibit Method of Filing
- ------- -----------------------------

27 Financial Data Schedule Filed herewith electronically

IV-33

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFOMRATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,959,494
<SECURITIES> 0
<RECEIVABLES> 1,469,412
<ALLOWANCES> 35,413
<INVENTORY> 78,392
<CURRENT-ASSETS> 5,333,187
<PP&E> 136,060,128
<DEPRECIATION> 50,341,193
<TOTAL-ASSETS> 93,929,081
<CURRENT-LIABILITIES> 10,294,916
<BONDS> 90,946,746
0
0
<COMMON> 0
<OTHER-SE> (93,170,936)
<TOTAL-LIABILITY-AND-EQUITY> 93,929,081
<SALES> 0
<TOTAL-REVENUES> 26,598,394
<CGS> 0
<TOTAL-COSTS> 13,473,167
<OTHER-EXPENSES> 10,008,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 756,102
<INCOME-PRETAX> 2,360,415
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,360,415
<DISCONTINUED> 0
<EXTRAORDINARY> 13,825,315
<CHANGES> 0
<NET-INCOME> 16,185,730
<EPS-PRIMARY> (52.14)
<EPS-DILUTED> (52.14)

</TABLE>