CAPITAL INCOME PROPERTIES C LIMITED PARTNERSHIP, 10-K, 1997-03-20

CAPITAL INCOME PROPERTIES C LIMITED PARTNERSHIP
10-K, 1997-03-20
REAL ESTATE

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UNITED STATES 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, 1996
-----------------
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

1996 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-14
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . I-14

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
------

INTRODUCTION

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this report and other Partnership filings (collectively
"SEC Filings") under the Securities Act of 1993, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations. Actual results may differ materially from those
described in the forward looking statements and will be affected by a variety of
factors including national and local economic conditions, the general level of
interest rates, terms of governmental regulations that affect the Partnership
and interpretations of those regulations, the competitive environment in which
the Partnership operates, and the availability of working capital.

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 700 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

I-1
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PART I
------

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

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 700 Investors. The Managing General Partner of the
Partnership is CRI. Martin C. Schwartzberg retired from CRI and its affiliated
business effective January 1, 1996 and has had no role in management of the
Partnership since then. The Partnership is a limited partnership owning a 92.5%
limited partner interest in BMCLP. The other limited partners of BMCLP are 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, a former 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(Hyatt).

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.

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

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

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(Realty), a former affiliate of one of
the Special Limited Partners.

As of December 31, 1996, 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 1996, total land
lease rental payments of $1,600,000 were made with no additional rent due for
the calendar year 1996.

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. No such default notices have been received.

BMCLP constructed its buildings on land it leases from WMATA. WMATA
asserted claims against BMCLP concerning the deterioration of the concrete slab
in areas that WMATA has used as a bus terminal and Kiss & Ride area since 1985.
WMATA asserted that the deterioration is due to construction defects, but BMCLP
takes the position that the deterioration is due to improper maintenance. The
deterioration has reached the point that BMCLP's parking garage, which underlies
the concrete slab, could be damaged. Accordingly, although BMCLP denies any
legal liability for the repair of the concrete slab, it agreed to contribute
$100,000 toward repair of the deck in exchange for a full release of any and all
claims WMATA may have with respect to the design and construction issues. The
estimated cost for repair is approximately $1,000,000, of which WMATA will pay
all but the $100,000 contributed by BMCLP. BMCLP negotiated a release with
WMATA, and in July 1996 submitted it together with the $100,000. On September

I-3
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PART I
------

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

26, 1996 the release and a settlement agreement were signed, thus releasing
BMCLP from any liability over $100,000. The settlement agreement specifies work
to be performed and WMATA's use of BMCLP's parking garage space for structural
shoring during its repairs of the overhead concrete deck. The $100,000 is being
held in trust until the work is completed or until WMATA requests payment.

WMATA held a meeting with representatives from Realty on January 31, 1997
to further discuss the details of the refurbishment program. A newly updated
repair plan will be submitted to Realty by mid March, at that time it should be
known how many parking spaces will be affected along with the duration of the
construction. This estimated repair work will begin July 7, 1997.

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

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

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 of a breach by BMCLP of any provision of the Hotel
Management Agreement, or (iii) there is a limitation upon Hyatt's ability to
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.

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.

I-4
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PART I
------

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

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.

As of December 31, 1996 these financial obligations were met by BMCLP.

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, 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%. As of January 1, 1996, the basic management fee has
returned to 4%. Management fees paid to Hyatt for the years ended December 31,
1996, 1995 and 1994 were approximately $734,000, $520,000 and $482,000,
respectively. The incentive fee earned for the years ended December 31, 1996,
1995 and 1994 was approximately $356,000, $232,000 and $134,000, respectively.

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). This shortfall occurred in 1996
and Hyatt and BMCLP expect it to occur during 1997. Accordingly, BMCLP explored
the possibility of engaging a different hotel manager, but Hyatt would not
agree to let the Partnership retain the franchise unless Hyatt managed the
hotel. Instead, BMCLP and Hyatt are negotiating a new Hotel Management
Agreement which will have a lower fee. 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. Management can not currently project the
impact on the accompanying consolidated financial statements for the outcome of
these negotiations.

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

The Office Building is managed by Realty, an affiliate prior to July 1,
1988, 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.

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

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

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, 1996, 1995 and 1994
were approximately $401,000, $391,000 and $357,000, 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.

As of December 31, 1996, there was approximately 3,257 square feet of
office space available for rent in the Office Building. Retail and marketplace
space was 92% occupied as of December 31, 1996. See page II-7 for average
occupancy percentages.

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 1996, adjusted gross receipts
equaled $1,154,985.

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.

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

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

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.

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). 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 modification provided for interest to be 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.

The modification also provided for quarterly payments (Excess Payments) to
be paid to Great Western beginning March 1992. However, 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 (CHG), an affiliate of the General Partners. During 1994, BMCLP was
advanced a total of $107,103, including accrued interest, from CRI for the
payments of the Excess Payments due. BMCLP paid $796,876 of Excess Payments to
Great Western in 1994, as required. Under the restructured debt, which occurred
November 16, 1994, as discussed below, no further Excess Payments were required.

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.

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

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

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 years ended December 31, 1996 and 1995, GECC advanced
$975,001 and $216,666, respectively, to BMCLP for capital improvements, tenant
improvements and leasing commissions.

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

1997 $ 1,299,996
1998 1,299,996
1999 1,299,996
2000 1,299,996
2001 40,417,016
------------
Total $ 45,617,000
============

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. For the years ended December 31, 1996 and
1995, the interest reserve balance was $555,000 and $277,500, respectively.

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.

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

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

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 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 1996 and 1995, $150,000 was paid to BMC as 75% of remaining net cash
flow for 1995 and 1994, respectively, and is included in net cash flow
participation in the accompanying consolidated statements of operations. Also
in both 1996 and 1995, $50,000 was paid to CRCC as management fees for 1995 and
1994, respectively, and is included in management fees in the accompanying
consolidated statements of operations. Additionally, $150,000 and $50,000 were
accrued as of December 31, 1996 for fiscal year 1996 for 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. As of December 31, 1996, no additional
advances have been made.

BMC required that BMCLP deposit a deed in lieu of foreclosure in escrow to
be recordable in the event of a default under the Restated Second Mortgage Note.
CRCC agreed to amend and restate various no bankruptcy agreements of the type
the original lender, Great Western, had required of it and certain affiliates.
The new agreements are not secured or guaranteed, but a default thereunder could
trigger the recordation of the escrowed deed in lieu of foreclosure. One event
of default would occur if an entity other than CRCC became a General Partner of
BMCLP (and could potentially put BMCLP in bankruptcy).

Additionally, under the terms of the Restated Second Mortgage Note, the
Partnership received working capital reserves as proceeds in connection with the
November 16, 1994 debt restructuring. These funds are held by BMC in an escrow
account and can be used by BMCLP to fund any operating expenses by demonstrating
the need for such funds to BMC. As of December 31, 1996 and December 31, 1995,
balances in the escrow account totalled $273,654 and $738,654, respectively. On
February 1, 1996 and April 5, 1996, BMC released $580,000 and $135,000,
respectively, to BMCLP to fund costs of leasing and operating expenses. On July
31, 1996 and December 31, 1996, BMCLP deposited $50,000 and $200,000,
respectively, to replenish the reserve. During 1995, BMCLP withdrew $400,000
from the escrow account to help pay the interest on the Restated Second Mortgage
Note and deposited $100,000 to replenish the reserve.

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

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

A purchase money mortgage had been placed upon the Development as of
September 17, 1985 to secure repayment for 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%. 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, 1996 and 1995, accrued interest of $3,049,500 and
$2,779,500, 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 1996, 1995 or 1994.

Substantially all of BMCLP's property and equipment is pledged as
collateral to the 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 9.78% and
10.06% in effect at December 31, 1996 and 1995, 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
$67,453,640 and $73,150,159 at December 31, 1996 and 1995, respectively,
including additional draws subsequent to the restructuring. Although these
obligations are lower than the combined obligations of the Restated First
Mortgage Note and the deferred gain on debt forgiveness (which totalled
$136,886,036 and $156,408,615 at December 31, 1996 and 1995, 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

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

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

$69,432,396 and $83,258,456 difference between the carrying value and total
future obligation of the debt at December 31, 1996 and 1995, 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 years ended
December 31, 1996 and 1995, $990,767 and $4,556,760, respectively, 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. 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 ended December 31, 1996, 1995 and 1994, amortization of this
deferred debt forgiveness amounted to $14,600,160, $14,085,175 and $1,852,734,
respectively. The amortization of deferred gain is included in the
extraordinary item of $14,340,300, $13,825,315 and $1,820,252 at December 31,
1996, 1995 and 1994, respectively, in the accompanying consolidated statements
of operations, as it is shown net of the interest expense on the Restated Second
Mortgage Note of $259,860, $259,860 and $32,482, respectively, 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, 1996 and 1995 amounted to $259,860 in each year and was 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 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

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

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

Second Mortgage Note, as discussed above, (3) the variable nature of the Third
Mortgage Note's interest payments as a result of its dependence 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 BMCLP 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, 1996, 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, 1996 and 1995, R&K have provided $2,367,168 and
$2,243,984, 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 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.

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

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

None.

I-13
<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, 1996, there were 700 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,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 27,920,327 $ 26,598,394 $ 25,037,520 $ 24,125,298 $ 11,896,586
Operating expenses (13,783,831) (13,473,167) (13,095,130) (13,054,106) (7,378,258)
Depreciation and Amortization (4,889,241) (5,335,679) (5,139,013) (5,284,838) (3,583,798)
Interest expense (814,767) (756,102) (12,737,570) (14,068,974) (8,257,890)
Other expenses (5,066,489) (4,673,031) (4,689,669) (4,786,626) (2,742,168)
Extraordinary item - debt forgiveness 14,340,300 13,825,315 1,820,252 -- --
Loss attributable to minority interest
at consolidation date (2) -- -- -- -- (77,472,839)
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 17,706,299 $ 16,185,730 $ (8,803,610) $(13,069,246) $(87,538,367)
============ ============ ============ ============ ============
Net income (loss) attributable to
minority interest (3) $ 17,736,221 $ 16,217,328 $ (8,776,560) $(12,959,305) $(87,475,121)
============ ============ ============ ============ ============
Net loss attributable to Partnership $ 29,922 $ 31,598 $ 27,050 $ 109,941 $ 63,246
============ ============ ============ ============ ============
Net loss allocated to General Partners
and Affiliated Initial Limited
Partner (1%) $ 299 $ 316 $ 270 $ 1,099 $ 632
============ ============ ============ ============ ============
Net loss allocated to additional Limited
Partners (99%) $ 29,623 $ 31,282 $ 26,780 $ 108,842 $ 62,614
============ ============ ============ ============ ============
Net loss allocated to additional Limited
Partners per Unit (600 units issued and
outstanding) $ 49.37 $ 52.14 $ 44.63 $ 181.40 $ 104.36
============ ============ ============ ============ ============
Investment in BMCLP, as restated (1) $ N/A $ N/A $ N/A $ N/A $ N/A
============ ============ ============ ============ ============
Total Property and Equipment, net $ 82,670,172 $ 85,718,935 $ 89,123,745 $ 91,219,288 $ 95,166,224
============ ============ ============ ============ ============
Total Assets, as restated $ 91,943,571 $ 93,929,081 $ 98,232,016 $ 97,099,757 $102,125,162
============ ============ ============ ============ ============
Total Mortgage Debt $ 90,190,945 $ 96,979,826 $ 99,543,584 $192,961,944 $185,582,840
============ ============ ============ ============ ============
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
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

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

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

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 $75,257,437,
$92,993,658 and $109,210,986 as of December 31, 1996, 1995 and 1994,
respectively, represents losses not attributable to the partners of the
Partnership. (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 income (losses) at December 31, 1996,
1995 and 1994 of $2,215,402, ($15,520,819) and ($31,738,147), respectively.
The cumulative BMCLP losses in excess of the Partnership's investment have
been reflected as losses 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, 1996, 1995 and 1994.

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 partner 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, subsequent to the November 1994 debt restructuring, BMCLP's
management is of the opinion that cash flow from operations for the year ended
December 31, 1997 after funding anticipated capital and debt-service
requirements will be at a break-even level. To the extent that any cash
deficits arise, management may utilize certain working capital reserves
established in 1994 and additional borrowing capacity under its Restated Notes.
However, since access to reserves and additional borrowings is contingent upon
the approval of the BMC Lender Partnership, there can be no assurance that
management will be able 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 1997, 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 1997 due to
priorities established for distribution of excess cash flow pursuant to the
restructuring of BMCLP's mortgage notes. However, the Managing General Partner,
CRI, has represented a willingness to fund projected cash flow requirements of
the Partnership for the year ending December 31, 1997.

At December 31, 1996 and 1995, the Partnership had $116 in available cash.

During 1996, the Partnership's available cash remained constant at $116,
whereas accounts payable increased $29,922. The increase in accounts payable
includes an increase of $28,547 in loan payable to its Managing General Partner
for administrative expenses and an increase of $1,375 in third-party payables.

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

BMCLP, of which the Partnership owns a 92.5% limited partnership interest,
had unrestricted cash and cash equivalents of $2,015,128 and $1,351,408 at
December 31, 1996 and 1995, respectively. BMCLP had restricted cash and cash
equivalents of $1,801,023 and $1,607,970 at December 31, 1996 and 1995,
respectively. During 1996, unrestricted cash and cash equivalents increased by
$663,720 despite a net income of $17,736,221. This was due largely to the non-
cash gain on debt forgiveness of $14,340,300, as well as the net debt payments
of $7,575,578, and fixed assets additions and payment of leasing costs of
$1,354,687 and $1,229,414, respectively, which were offset by depreciation and
amortization totalling $4,889,241 and proceeds from mortgage debt of $975,001
along with a $628,500 collection of accounts receivable and a $454,166 advance
from affiliates.

The Partnership has determined that the carrying amounts of BMCLP's cash
and cash equivalents and restricted cash and cash equivalents approximate fair
value.

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

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

Operating Deficit Obligation
----------------------------

For operating deficits which arise, the BMCLP 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, 1996, 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, 1996 and 1995, R&K have provided $2,367,168 and
$2,243,984, 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 $1,128,281 and $1,005,097 at December 31,
1996 and 1995, respectively, and has been added to the original advance amount.
For the years ended December 31, 1996 and 1995, no amounts were advanced to
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.

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

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

In accordance with the terms of the Restated 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 1996 and
1995, GECC advanced $975,001 and $216,667 respectively, to BMCLP for capital
improvements, tenant improvements and leasing commissions.

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 February 1, 1996 and April 5, 1996, BMC released $580,000 and
$135,000, respectively, to BMCLP to fund costs of leasing and operating
expenses. On July 31, 1996 and December 31, 1996, BMCLP deposited $50,000 and
$200,000, respectively, to replenish the reserve. During 1995 BMCLP withdrew
$400,000 from the escrow account to help pay the interest due to the Restated
Second Mortgage Note and deposited $100,000 to replenish the reserve.

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% of net cash flow) if BMCLP pays
its 25% share of net cash flow held in reserves. No advances were made in 1995
or 1996.

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

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

YEAR ENDED DECEMBER 31, 1996

The Partnership recorded a net loss for 1996 of $29,922 as compared with a
net loss of $31,598 for 1995. Operating expenses during 1996 were $1,679 lower
than 1995, primarily due to a decrease in professional fees.

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.

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, 1996

BMCLP had net income for 1996 of $17,736,221 as compared with net income of
$16,217,328 for 1995. The increase was primarily a result of an increase in
room revenue, food and beverage revenue, telephone revenue and office retail and
parking rentals revenue. Contributing to BMCLP's increase in net income was an
increase in extraordinary gain on debt forgiveness due to fluctuations in the
underlying debt interest rate and a decrease in depreciation expense. BMCLP's
net income was negatively impacted by an increase in real estate and property
taxes, the Hotel's increase in management fees from 3% to 4% effective January
1, 1996, and an increase in food and beverage expense.

Room revenue increased by $615,079, or 5%, from 1995. The Hotel
experienced an increase in occupancy from 77% to 78% and an increase in average
room rate of $4.10 from 1995. Food and beverage revenues increased by $342,246,
or 7%, from 1995 as a result of increased banquet revenue. The increase in room
and food departmental profits combined with the Hotel's cost control efforts,
resulted in gross operating profits exceeding 1995 by approximately $775,641 or
12%.

In 1996, the Hotel received the AAA Four Diamond Award for overall
excellence.

Office building revenue increased $488,428 or 5% during 1996 compared with
1995. The occupancy of the Office Building increased from 97% to 98% while the
rental rate remained constant at $24 per square foot in 1996 and 1995. The
retail and marketplace occupancy decreased from 98% to 92% primarily due to
three major retail leases expiring during 1996 and not being renewed. The
retail and marketplace average rental rate decreased from $38 per square foot in
1995 to $33 in 1996.

Operating expenses for the Office Building for 1996 increased by $64,539,
or 2%, from 1995 primarily due to common area painting and wallcovering and
maintenance and repairs to the plaza, fountain and HVAC system.

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 1994 by approximately $857,000 or 15%.

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

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

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 per square foot 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 per square foot in 1995.

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

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,
--------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Leasing:
- -------
Average Space Occupied:
Office 98% 97% 95%
Retail and Marketplace 92% 98% 75%

Average Rental Rate:
Office $24 $24 $24
Retail and Marketplace $33 $38 $35
Operations:
- ----------
Total Income $ 9,536,468 $ 9,048,040 $ 8,714,803
Operating Expenses (2,717,183) (2,652,644) (2,733,347)
----------- ----------- -----------
Gross Operating Profits (Before Depreciation,
Management Fees and Other Fixed Costs) $ 6,819,285 $ 6,395,396 $ 5,981,456
=========== =========== ===========

</TABLE>
Hotel
-----

<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Actual Average Occupancy 78% 77% 75%

Actual Average Room Rate $112 $108 $104

Room Revenue $12,248,303 $11,633,224 $10,893,554

Food & Beverage Revenues $ 5,354,665 $ 5,012,419 $ 4,653,047

Room Profits $ 9,796,735 $ 9,184,955 $ 8,592,414

Food & Beverage Profits $ 1,544,021 $ 1,486,226 $ 1,262,887

Gross Operating Profits (Before Depreciation,
Management Fees and Other Fixed Costs) $ 7,278,019 $ 6,502,378 $ 5,644,927

</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
general or local economic conditions including changes in interest rates;
adjacent land utilization; changes in demand or use with respect to the nearby
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. Effective July 1, 1996,
the local government in Montgomery County, Maryland, where the Hotel is located,
increased room taxes from 5% to 7% to fund the Montgomery County Conference
Center which is expected to be completed in 1999.

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, 60, 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, 50, 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.

Ronald W. Thompson, 50, 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, 38, 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.

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

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

Melissa Cecil Lackey, 41, 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), (d), (e), (f), (g), (i), (j), (k) and (l)

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 1996.

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

1. General Partner No distributions of net cash
Interests of C.R.I., flow have been made through
Inc., Dockser, December 31, 1996.
Schwartzberg and
Willoughby, and Limited
Partner Interest of
CRICO-Bethesda in the
Partnership.

2. Partnership Management No incentive management fee
Fee to 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, 1996.
Construction in BMCLP.

4. Expense Allowances to (A) There was no net cash flow
Alan I. Kay, Allen E. generated by BMCLP, as
Rozansky and CRCC in BMCLP; defined, for fiscal year 1996,
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 1996, therefore, no
incentive management fee was
paid to R&K Construction.

5. Additional Purchase Price (A) In fiscal year 1996, 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 1996, therefore, no
additional incentive
management fee was paid.

6. 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 paid in 1996.
Management and Administrative
fees relating to 1996 of
$50,000 were accrued in 1996.

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 or (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.

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

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

(h) Employment contracts and termination of employment and change in
control arrangement.

None.

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

(a) Security ownership of certain beneficial owners.

As of December 31, 1996, no person owned of record, or owned
beneficially, more than 5% of the total number of Units of the
Partnership.

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, 1996, 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 (5 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.

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

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 Managing
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, 1996
and 1995 is presented below:

III-7
<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 1995 Additions 1995 Additions 1996
------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
CRI $ 235,879 $ 53,780 $ 289,659 $ 52,899 $ 342,558
CHG 1,040,285 88,415 1,128,700 86,886 1,215,586
Realty 972,233 -- 972,233 -- 972,233
Hyatt 320,264 318,789 639,053 314,381 953,434
----------- ----------- ----------- ----------- -----------
$ 2,568,661 $ 460,984 $ 3,029,645 $ 454,166 $ 3,483,811
=========== =========== =========== =========== ===========

</TABLE>

The $342,558 and $289,659 due to CRI as of December 31, 1996 and 1995,
respectively, is partially comprised of $107,103 of advances to BMCLP to
fund Excess Payments due on its former 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 $1,215,586 and $1,128,700 due to CHG as of December 31,
1996 and 1995, and $972,233 due to Realty as of December 31, 1996 and 1995,
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 BMCLP partnership
agreement and the Restated Notes, as discussed in Note 4 to the
consolidated financial statements. Finally, the $953,434 and $639,053 due
to Hyatt as of December 31, 1996 and 1995, respectively, consists of
$819,679 and $463,821, 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. This
amount was paid June 12, 1996 and $50,000 was accrued as of December 31,
1996 for fiscal year 1996 management fees as described in Note 4 to the
consolidated financial statements.

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

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

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 1996, 1995 and 1994.

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

(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 to Item 13(a).

None.

(d) Transaction with promoters.

Not applicable.

III-9
<PAGE>
PART IV
-------

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

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

Report of Independent Public Accountants IV-6

Consolidated Balance Sheets as of
December 31, 1996 and 1995 IV-7

Consolidated Statements of Operations for
the years ended December 31, 1996, 1995
and 1994 IV-9

Consolidated Statements of Changes in
Partners' Capital (Deficit) for the
years ended December 31, 1996, 1995 and
1994 IV-10

Consolidated Statements of Cash Flows for
the years ended December 31, 1996, 1995
and 1994 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, 1996.

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: C.R.I., Inc.
Managing General Partner

March 20, 1997 /s/ William B. Dockser
- ----------------- ---------------------------------
DATE William B. Dockser, Director
Chairman of the Board,
Treasurer and Principal
Executive Officer

March 20, 1997 /s/ H. William Willoughby
- ----------------- ---------------------------------
DATE H. William Willoughby
Director, President and Secretary

March 20, 1997 /s/ Deborah K. Browning
- ----------------- ---------------------------------
DATE Deborah K. Browning
Vice President
Chief Accounting Officer,
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, 1996 and 1995,
and the related consolidated statements of operations, partners deficit and
cash flows for each of the three years in the period ended December 31, 1996.
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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Washington, D.C.,
March 5, 1997

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

CONSOLIDATED BALANCE SHEETS

ASSETS

December 31,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,015,244 $ 1,351,524
Restricted cash and cash equivalents 1,801,023 1,607,970
Accounts receivable, less allowance for doubtful accounts
of $69,465 and $35,413 as of December 31, 1996 and
1995, respectively 805,499 1,433,999
Prepaid expenses 800,282 840,370
Current portion of deferred rent receivable 116,606 20,932
Inventory and other 67,170 78,392
------------ ------------
Total current assets 5,605,824 5,333,187
------------ ------------

Property and equipment:
Buildings and tenant improvements 122,314,194 121,441,795
Furniture and equipment 15,100,621 14,618,333
------------ ------------
137,414,815 136,060,128
Less: accumulated depreciation (54,744,643) (50,341,193)
------------ ------------
82,670,172 85,718,935
------------ ------------

Other assets:
Deferred charges, less accumulated amortization of $2,580,996 and
$1,843,919 as of December 31, 1996 and 1995, respectively 2,785,249 2,292,912
Deferred rent receivable, less reserve of $148,442 and
$107,010 as of December 31, 1996 and 1995, respectively 477,161 407,109
Escrows and deposits 405,165 176,938
------------ ------------
3,667,575 2,876,959
------------ ------------
Total assets $ 91,943,571 $ 93,929,081
============ ============
</TABLE>

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

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

CONSOLIDATED BALANCE SHEETS - Continued

LIABILITIES AND PARTNERS DEFICIT

December 31,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Current portion of first mortgage note $ 5,759,111 $ 6,033,080
Accounts payable 566,918 471,456
Accrued expenses 824,142 726,157
Due to affiliates 3,483,811 3,029,645
Other liabilities 36,078 34,578
------------ ------------
Total current liabilities 10,670,060 10,294,916

First mortgage note 61,694,529 67,117,079

Second mortgage note 16,687,805 18,050,167

Third mortgage note 6,049,500 5,779,500

Due to guarantor of operating deficits 2,367,168 2,243,984

Deferred gain on debt forgiveness 69,432,396 83,258,456

Deferred revenue and security deposits 506,750 355,915
------------ ------------
Total liabilities 167,408,208 187,100,017
------------ ------------
Commitments and contingencies

Partners deficit (75,464,637) (93,170,936)
------------ ------------
Total liabilities and partners' deficit $ 91,943,571 $ 93,929,081
============ ============
</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,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rooms $ 12,248,303 $ 11,633,224 $ 10,893,554
Food and beverage 5,354,665 5,012,419 4,653,047
Telephone 654,847 589,944 450,509
Office, retail and parking rentals 9,536,468 9,048,040 8,714,803
Other 86,852 203,629 66,489
------------ ------------ ------------
27,881,135 26,487,256 24,778,402
------------ ------------ ------------
Departmental expenses:
Rooms 2,451,568 2,448,269 2,301,140
Food and beverage 3,810,644 3,526,193 3,390,160
Telephone 369,657 412,693 385,551
Other 336,215 322,780 328,581
------------ ------------ ------------
6,968,084 6,709,935 6,405,432
------------ ------------ ------------
Other operating expenses:
Administrative 1,437,329 1,439,725 1,355,081
Marketing 1,472,192 1,444,250 1,404,963
Energy costs 1,831,429 1,809,507 1,887,300
Property operations and maintenance 2,074,797 2,069,750 2,042,354
------------ ------------ ------------
6,815,747 6,763,232 6,689,698
------------ ------------ ------------
Operating income before other income, fixed charges and other
deductions, extraordinary items and loss attributed to
minority interest 14,097,304 13,014,089 11,683,272
------------ ------------ ------------
Other income 39,192 111,138 259,118
------------ ------------ ------------
Fixed charges and other deductions:
Depreciation 4,403,450 4,812,255 4,788,999
Amortization 485,791 523,424 350,014
Interest expense 814,767 756,102 12,737,570
Management fees 1,540,587 1,241,408 972,871
Real estate and personal property taxes 1,079,511 672,598 1,091,566
Ground rent 1,600,000 1,600,000 1,600,000
Net cash flow participation 150,000 300,000 --
Other 696,391 859,025 1,025,232
------------ ------------ ------------
10,770,497 10,764,812 22,566,252
------------ ------------ ------------
Net income (loss) before extraordinary item 3,365,999 2,360,415 (10,623,862)
Extraordinary item debt forgiveness 14,340,300 13,825,315 1,820,252
------------ ------------ ------------
</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,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) 17,706,299 16,185,730 (8,803,610)

Total (income) loss attributed to minority interest (17,736,221) (16,217,328) 8,776,560
------------ ------------ ------------

Net loss attributed to Partnership $ (29,922) $ (31,598) $ (27,050)
============ ============ ============

Net loss allocated to General Partners and affiliated
Initial Limited Partner (1%) $ (299) $ (316) $ (270)
============ ============ ============

Net loss allocated to Additional Limited Partners (99%) $ (29,623) $ (31,282) $ (26,780)
============ ============ ============

Net loss allocated to Additional Limited Partners per unit $ (49.37) $ (52.14) $ (44.63)
============ ============ ============

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, 1996, 1995 and 1994

<TABLE>
<CAPTION>
(Losses)
Income not
General Limited Allocable to
Partners Partners Partners Total
------------ ------------ ------------- -------------
<S> <C> <C> <C>
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)

Net loss attributed to Partnership (299) (29,623) (29,922)
Total income attributed to minority
interest (Note 1) 17,736,221 17,736,221
------------ ------------ ------------- -------------
Balance, December 31, 1996 $ (529,378) $ 322,178 $ (75,257,437) $ (75,464,637)
============ ============ ============= =============
</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,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 17,706,299 $ 16,185,730 $ (8,803,610)

Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 4,403,450 4,812,255 4,788,999
Amortization 485,791 523,424 350,014
Extraordinary item gain on debt forgiveness (14,340,300) (13,825,315) (1,820,252)
Interest expense related to the amortization
of financing costs 251,286 251,336 552,751
Net interest expense added to debt 393,184 393,184 4,391,163
Interest payments treated as a reduction in mortgage debt (6,219,646) (6,567,048) --
Changes in assets and liabilities:
Increase in restricted cash and cash equivalents (193,053) (157,066) (1,450,904)
Decrease (increase) in accounts receivable, net 628,500 (344,575) (230,503)
Decrease in prepaid expenses 40,088 7,969 164,885
(Increase) decrease in deferred rent receivable, net (165,726) 607,047 187,466
Decrease (increase) in inventory and other 11,222 6,505 (8,287)
(Increase) decrease in escrows and deposits (228,227) 142,491 21,593
Increase (decrease) in accounts payable 95,462 53,620 (97,738)
Increase in accrued expenses 97,985 117,151 92,909
Increase (decrease) in other liabilities 1,500 (650) (850)
Increase (decrease) in deferred revenue and
security deposits 150,835 (37,261) 94,330
------------ ------------ ------------
Net cash provided by (used in) operating activities 3,118,650 2,168,797 (1,768,034)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,354,687) (1,407,445) (1,903,487)
Payment of leasing costs (1,229,414) (437,043) (200,053)
------------ ------------ ------------
Net cash used in investing activities (2,584,101) (1,844,488) (2,103,540)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from mortgage debt 975,001 216,666 5,243,778
Payments on mortgage debt (1,299,996) (1,299,996) --
Payment of financing costs -- -- (1,759,336)
Advances from affiliates 454,166 460,984 1,242,560
------------ ------------ ------------
Net cash provided by (used in) financing activities 129,171 (622,346) 4,727,002
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 663,720 (298,037) 855,428

Cash and cash equivalents, beginning of year 1,351,524 1,649,561 794,133
------------ ------------ ------------
Cash and cash equivalents, end of year $ 2,015,244 $ 1,351,524 $ 1,649,561
============ ============ ============
</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,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 6,275,582 $ 6,567,048 $ 8,346,407
============ ============ ============
Noncash investing activities:

Payment of tenant improvements through mortgage debt $ -- $ -- $ 789,969
============ ============ ============
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

General
-------

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. Martin C. Schwartzberg retired from CRI and its
affiliated business effective January 1, 1996 and has had no role in management
of the Partnership since then. 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 referred to as the Special Limited
Partners). Since CRCC is a wholly owned affiliate of CRI, the accompanying
financial statements as of December 31, 1996 and 1995, and for each of the three
years ended December 31, 1996 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.

Of the total partners deficit of $75,464,637, $93,170,936 and $109,356,666
as of December 31, 1996, 1995 and 1994, respectively, $75,257,437, $92,993,658
and $109,210,986, respectively, are not attributable to the partners of the
Partnership. The amounts 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 income (losses) of $2,215,402, ($15,520,819) and
($31,738,147) as of December 31, 1996, 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.

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE PARTNERSHIP - Continued

However, subsequent to the November 1994 debt restructuring, as discussed
in Note 4, BMCLP s management is of the opinion that cash flow from operations
for the year ended December 31, 1997, after funding anticipated capital and
debt-service requirements will be at a break-even level. To the extent that any
cash deficits arise, management may utilize certain working capital reserves
established 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 is contingent upon the approval of the BMC
Lender Partnership, there can be no assurances that management will be able 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 1997, 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 1997 due to
priorities established for distribution of excess cash flow pursuant to the
restructuring of BMCLP s mortgage notes. However, the Managing General Partner,
CRI, has represented a willingness to fund projected cash flow requirements of
the Partnership for the year ending December 31, 1997.

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, 1996 and
1995, reflect all the accounts of both the Partnership and BMCLP.
Additionally, the consolidated statements of operations for the years ended
December 31, 1996, 1995 and 1994, include the Partnership s and BMCLP s
operations for the entire year.

c. 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.

d. New accounting standards
------------------------

Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

Assets to be Disposed Of", establishes accounting standards for the
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles, and goodwill either to be held or disposed of.
The Partnership implemented SFAS No. 121 in 1996 and it did not have a
material impact on the consolidated financial statements.

e. Cash and cash equivalents
-------------------------

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

f. Restricted cash and cash equivalents
------------------------------------

The $1,801,023 and $1,607,970 as of December 31, 1996 and 1995,
respectively, in restricted cash and cash equivalents consists of $828,654
and $1,016,154 in working capital reserves as of December 31, 1996 and
1995, 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, $555,000 and $277,500 of the working capital reserves were held by
the Restated First Mortgage Note lender (as defined in Note 4) as of
December 31, 1996 and 1995, respectively. Additionally, $273,654 and
$738,654 of the working capital reserves are held by the Restated Second
Mortgage Note lender (as defined in Note 4) as of December 31, 1996 and
1995, respectively. During 1996, $100,000 is being held in trust by
Washington Metropolitan Area Transportation Authority (WMATA) in connection
with the repair of the concrete slab in the areas that WMATA uses as a bus
terminal and Kiss and Ride. The remaining $872,369 and $591,816 of the
restricted cash and cash equivalents balance as of December 31, 1996 and
1995, 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.

g. Accounts receivable
-------------------

Accounts receivable, consisting primarily of trade related
receivables, is stated at cost less an allowance for accounts deemed
uncollectible of $69,465 and $35,413 at December 31, 1996 and 1995,
respectively.

h. 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 $1,354,687 and $1,407,445 in
1996 and 1995, 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 1996 or 1995.

i. 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 $2,785,249 and $2,292,912 as of December 31,
1996 and 1995, respectively, consist of $1,759,336 of deferred financing
costs related to the mortgage debt restructuring, as discussed in Note 4,
and $3,606,909 and $2,377,495, 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 $2,580,996 and $1,843,919 as of December 31,
1996 and 1995, respectively.

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

Certain reclassifications were made to the 1994 consolidated financial
statements in order to conform with the 1996 and 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
recognizes rental income for financial statement purposes using the
straight-line method over the terms of the respective leases, as discussed
in Note 9.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

m. 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.

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP

The Partnership has invested $42,500,100 in cash in BMCLP through December
31, 1996, 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,
1996 1995
------------ ------------
<S> <C> <C>
Total assets $ 116 $ 116
============ ============

Accounts payable $ 207,316 $ 177,394
Partners deficit (207,200) (177,278)
------------ ------------
Total liabilities and partner's deficit $ 116 $ 116
============ ============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS

For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ -- $ 3 $ --
Professional fees (21,650) (22,971) (10,781)
Other (8,272) (8,630) (16,269)
------------ ------------ ------------
Net loss $ (29,922) $ (31,598) $ (27,050)
============ ============ ============
</TABLE>

STATEMENTS OF CASH FLOWS

For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net cash used in operating activities $ (29,922) $ (31,598) $ (49,450)
Net cash provided by financing activities 29,922 31,601 49,473
------------ ------------ ------------
Net increase in cash and cash equivalents -- 3 23
Cash and cash equivalents, beginning of year 116 113 90
------------ ------------ ------------
Cash and cash equivalents, end of year $ 116 $ 116 $ 113
============ ============ ============
</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,
1996 1995
------------ ------------
<S> <C> <C>
Investment in real estate, at cost, net $ 82,670,172 $ 85,718,935
Current assets 5,605,708 5,333,071
Other assets 3,667,575 2,876,959
------------ ------------
Total assets $ 91,943,455 $ 93,928,965
============ ============

Current liabilities $ 10,462,744 $ 10,117,522
Other liabilities 156,738,148 176,805,101
Partners deficit (75,257,437) (92,993,658)
------------ ------------
Total liabilities and partners deficit $ 91,943,455 $ 93,928,965
============ ============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS

For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 27,920,327 $ 26,598,391 $ 25,037,520
Expenses (24,524,406) (24,206,378) (35,634,332)
------------ ------------ ------------
Net income (loss) before extraordinary item 3,395,921 2,392,013 (10,596,812)

Extraordinary gain debt forgiveness 14,340,300 13,825,315 1,820,252
------------ ------------ ------------
Net income (loss) $ 17,736,221 $ 16,217,328 $ (8,776,560)
============ ============ ============

</TABLE>

During 1996 and 1995, the Partnership did not invest any cash in BMCLP.
No cash distributions were made to the Partnership by BMCLP in 1996, 1995 or
1994.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued

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, 1996:

For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) per financial statements $ 17,736,221 $ 16,217,328 $ (8,776,560)
Net adjustments for tax return purposes:

Depreciation and amortization less than amounts
allowed for tax purposes (653,502) (956,169) (2,564,036)
Rents received in excess of rental income 176,420 492,112 294,375
Debt forgiveness income deferred for financial
statement purposes (14,205,310) (14,018,044) 139,939,727
Interest expense reversal (6,152,397) (6,567,046) (1,504,339)
Meals and entertainment 38,746 48,622 33,579
Other (98,789) 48,382 (548,349)
------------ ------------ ------------
Net (loss) income per tax return $ (3,158,611) $ (4,734,815) $126,874,397
============ ============ ============
</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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

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.

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

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). In 1992,
BMCLP reached an agreement with Great Western to modify the terms of the Notes
as discussed below.

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

Western in 1994, as required. Under the restructured debt, which occurred
November 16, 1994, as discussed below, no further Excess Payments were required.

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, 1996 and 1995 was 5.53% and 5.81%, respectively. In addition to
monthly interest payments, monthly principal payments are due in the amount of
$108,333. Furthermore, if certain major tenants of the Office Building, as
defined in the Restated First Mortgage Note agreement, do not exercise an option
to renew or cancel their leases, 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 years ended December 31, 1996 and 1995, GECC advanced
$975,001 and $216,666, respectively, to BMCLP for capital improvements, tenant
improvements and leasing commissions.

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

1997 $ 1,299,996
1998 1,299,996
1999 1,299,996
2000 1,299,996
2001 40,417,016
------------
Total $ 45,617,000
============

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

interest rate of 18% payable from available net cash flow, as defined, and would
also be due on November 30, 2001. As of December 31, 1996, no additional
advances have been made.

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, 1996
and 1995, accrued interest of approximately $3,049,500 and $2,779,500,
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 1996, 1995 or
1994.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

Based on the Restated First Mortgage Note s interest rate of 9.78% and
10.06% in effect at December 31, 1996 and 1995, 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
$67,453,640 and $73,150,159 at December 31, 1996 and 1995, respectively,
including additional draws subsequent to the restructuring. Although these
obligations are lower than the combined obligations of the Restated First
Mortgage Note and the deferred gain on debt forgiveness (which totalled
$136,886,036 and $156,408,615 at December 31, 1996 and 1995, 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 $69,432,396 and $83,258,456 difference between the
carrying value and total future obligation of the debt at December 31, 1996 and
1995, 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.

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Investments" (SFAS 107), requires the disclosure of fair

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. MORTGAGE DEBT - Continued

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 dependence 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
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 (LOSS) INCOME PER TAX RETURN

The following represents a reconciliation of the Partnership s financial
statement net income (loss) to its tax return net (loss) income for the three
years ended December 31, 1996, 1995 and 1994:

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) per financial statements $ 17,706,299 $ 16,185,730 $ (8,803,610)
Adjustments for tax purposes:
Depreciation and amortization less than amounts
allowed for tax purposes (653,502) (956,169) (2,564,036)
Rents received in excess of rental income 172,420 492,112 294,375
Increase in amortization 20,868 20,868 20,868
Debt forgiveness income (14,205,310) (14,018,044) 139,939,727
Meals and entertainment 38,746 48,622 33,579
Interest expense reversal (6,152,397) (6,567,046) (1,504,339)
Other (98,789) 48,382 (548,349)
------------ ------------ ------------
Net (loss) income per tax return $ (3,171,665) $ (4,745,545) $126,868,215
============ ============ ============
</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 4%
of gross revenues, as defined, and an incentive management fee which is
calculated based on 20% of the adjusted gross operating profit, as defined for
the year ended December 31, 1996. For the years ended December 31, 1995 and
1994, the base management fee was 3% (pursuant to a modification of the
agreement in connection with the restructuring). Management fees paid to Hyatt
for the years ended December 31, 1996, 1995 and 1994, were approximately
$734,000, $520,000 and $482,000, respectively. The incentive fees earned, as
discussed in Note 8, for the years ending December 31, 1996, 1995 and 1994 were
approximately $356,000, $232,000 and $134,000, respectively, which are included
in due to related parties in the accompanying consolidated balance sheets.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. COMMITMENTS AND CONTINGENCIES - Continued

impact on the accompanying consolidated financial statements for the outcome of
these negotiations.

Pursuant to the management agreement, Hyatt also provides "chain services"
to the Hotel such as promotion services, advertising, and centralized
reservation services, for which BMCLP is to pay its allocable share of Hyatt
expenses. As of December 31, 1996 and 1995, approximately $134,000 and
$175,000, 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 1996 and 1995,
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, 1996 and 1995, were approximately $342,000 and
$114,000, respectively.

BMCLP entered into a management agreement with Realty, an affiliate prior
to July 1, 1988 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 that
agreement, Realty received a monthly management fee equal to 4% of all income
collected from the operation of the Office Building. 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
(the holder of the Restated Second Mortgage Note) 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 income collected. Management
fees for the years ended December 31, 1996, 1995 and 1994, were approximately
$401,000, $391,000 and $373,000, respectively.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. COMMITMENTS AND CONTINGENCIES - Continued

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

BMCLP entered into a ground lease with WMATA for land on which the
development is built. 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 1996, 1995 or 1994.

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

Year Ended
December 31,
------------
1997 $ 1,600,000
1998 1,600,000
1999 1,600,000
2000 1,600,000
2001 1,600,000
Thereafter 49,600,000
------------
Total future minimum payments $ 57,600,000
============

8. RELATED-PARTY TRANSACTIONS

A summary of indebtedness to affiliates of $3,482,811 and $3,029,645 as of
December 31, 1996 and 1995, 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 $342,558 and $289,659 due to CRI as of December 31, 1996 and 1995,
respectively, is partially comprised of $107,103 of advances to BMCLP to fund
Excess Payments due on its former 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
$1,215,586 and $1,128,700 due to CHG as of December 31, 1996 and 1995, and
$972,233 due to Realty as of December 31, 1996 and 1995, were also advanced to
BMCLP to fund Excess Payments on the Great Western mortgages, 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 BMCLP partnership
agreement and the Restated Notes, as discussed in Note 4. Finally, the $953,434
and $639,053 due to Hyatt as of December 31, 1996 and 1995, respectively,
consists of $819,679 and $463,821, 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. This
amount was paid June 12, 1996 and $50,000 was accrued as of December 31, 1996
for fiscal year 1996 management fees as described in Note 4.

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 1996, 1995 and 1994.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. RELATED-PARTY TRANSACTIONS - Continued

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

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, 1996, are as follows:

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

1997 $ 4,492,895
1998 4,043,122
1999 3,810,698
2000 3,768,585
2001 3,226,710
Thereafter 8,407,126
------------
Total future minimum rental
receipts $ 27,749,136
============

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
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 $2,367,168 and $2,243,984 as of December
31, 1996 and 1995, 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 $1,128,281 and $1,005,097 at December 31,
1996 and 1995, 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, 1996 and 1995, 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-31
<PAGE>

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

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

27 Financial Data Schedule Filed herewith electronically

IV-32

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

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,816,267
<SECURITIES> 0
<RECEIVABLES> 874,964
<ALLOWANCES> 69,465
<INVENTORY> 67,170
<CURRENT-ASSETS> 5,605,824
<PP&E> 137,414,815
<DEPRECIATION> 54,744,643
<TOTAL-ASSETS> 91,943,571
<CURRENT-LIABILITIES> 10,670,060
<BONDS> 84,431,834
0
0
<COMMON> 0
<OTHER-SE> (75,464,637)
<TOTAL-LIABILITY-AND-EQUITY> 91,943,571
<SALES> 0
<TOTAL-REVENUES> 27,920,327
<CGS> 0
<TOTAL-COSTS> 13,783,831
<OTHER-EXPENSES> 9,955,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 814,767
<INCOME-PRETAX> 3,365,999
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,365,999
<DISCONTINUED> 0
<EXTRAORDINARY> 14,340,300
<CHANGES> 0
<NET-INCOME> 17,706,299
<EPS-PRIMARY> 49.37
<EPS-DILUTED> 49.37

</TABLE>