CAPITAL INCOME PROPERTIES C LIMITED PARTNERSHIP, 10-K, 1999-03-04

CAPITAL INCOME PROPERTIES C LIMITED PARTNERSHIP
10-K, 1999-03-04
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, 1998
-----------------
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

1998 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Page
----
PART I
------

Item 1. Business . . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . I-3
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . I-13
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . I-14

PART II
-------

Item 5. Market for the Registrant's Partnership Interests
and Related Partnership Matters . . . . . . . . . II-1
Item 6. Selected Financial Data-Registrant . . . . . . . . II-2
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . II-3
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . II-12
Item 8. Financial Statements and Supplementary Data . . . . II-12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures . . . . . II-12

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
Reports on Form 8-K . . . . . . . . . . . . . . . IV-1

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

Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . IV-37
<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 transfers of fractional-units, the outstanding
units are held by approximately 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 a 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 (C.R.C.C. of Bethesda, Inc.) 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 C.R.C.C. of
Bethesda, Inc. 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

I-1
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PART I
------

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

Regency Bethesda (the Hotel), an office building including The Market at
Bethesda Metro, which contains approximately 340,000 square feet of net rentable
office space and 14,000 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, on
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), one affiliated initial limited partner, CRICO-Bethesda Growth
Partners Limited Partnership, and approximately 700 Investors. The Managing
General Partner of the Partnership is CRI. Martin C. Schwartzberg retired from
CRI and its affiliated business effective January 1, 1990 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, Allan 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 Hotels Corporation of Maryland (Hyatt)
and the Office Building is managed by Realty Management Company,
a former affiliate of one of the Special Limited Partners of BMCLP.

SALE CONTRACT
-------------

BMCLP has entered into a contract for the sale of the Development.
A proxy will be sent to the Investors of the Partnership in March 1999 to
solicit majority approval of the sale contract. There is no assurance that
majority approval will be obtained, nor that a sale will take place if such
approval is obtained.

I-2
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PART I
------

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 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 450
people school-room style and seat approximately 700 and 620 people for
receptions and banquets, respectively. There are thirteen additional conference
rooms capable of accommodating from 30-150 people for banquets and from 40-200
people for receptions. In addition, there are two executive conference rooms.

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

The Office Building is a 17-story deluxe office building featuring a lobby
atrium garden and a 130-foot hanging sculpture, with The Market at Bethesda
Metro, a glass enclosed retail pavilion of European design containing three
levels of shopping, restaurants, convenience stores, services and offices,
connected to the Office Building 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. However, due to various leaks and the need to replace the
refrigerant system, the ice rink did not open for the 1998 - 1999 winter season.
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.

THE 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 1998, the minimum
annual rental payments of $1,600,000 were made. Additionally, $105,930 has been
accrued as of December 31, 1998 as additional rent due to WMATA for 1998. No
additional rent was due for 1997 or 1996.

I-3
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PART I
------

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

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.

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 Management Agreement dated March
1, 1982. The Management Agreement provides that the term 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, to determine labor policies, and to conduct
all phases of promotion and publicity relating to the Hotel.

Pursuant to the Management Agreement, Hyatt also provides "chain services"
to the Hotel consisting of: (1) convention, business and sales promotion
services, (2) advertising, publicity and public relations services, (3) food and
beverage, personnel and other departmental supervision and control services, and
(4) centralized reservations services, for which BMCLP is to pay its allocable
share of the Hyatt expenses.

Hyatt will be relieved of its obligation to operate the Hotel as a
first-class hotel and may, in addition, terminate the Management Agreement: (1)
if prevented from performing its obligations by events beyond Hyatt's control,
(2) in the event of a breach by BMCLP of any provision of the Management
Agreement, or (3) if there is a limitation on 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 Management
Agreement.

The Management Agreement places the following financial obligations on
BMCLP.

(1) BMCLP must set aside 3% of gross receipts (as defined in the
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.

(2) 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.

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

(4) 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%

I-4
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PART I
------

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

of the profit, before management fees, for such fiscal year exceeds
the basic fee payable for such fiscal year.

As of December 31, 1998 the above financial obligations were met by BMCLP. By
agreement, the basic fee was reduced to 3% for the period from December 31, 1991
to December 31, 1995; as of January 1, 1996, the basic management fee returned
to 4%. Management fees paid to Hyatt for the years ended December 31, 1998,
1997 and 1996 were approximately $870,000, $788,000 and $734,000, respectively;
the incentive fees earned for the years ended December 31, 1998, 1997 and 1996
were approximately $560,000, $466,000 and $356,000, respectively. These
incentive management fees were included in due to affiliates in the accompanying
consolidated financial statements in Part IV of this document. Of these
amounts, approximately $260,000 of incentive management fees earned during 1998
were paid during 1999, in accordance with the Management Agreement. The
remaining incentive management fees earned during 1998, as well as all incentive
management fees earned during 1997 and 1996, have been deferred in accordance
with the Management Agreement.

BMCLP is currently involved in the arbitration of a dispute with Hyatt and
is attempting to terminate the Management Agreement. See Part I, Item 3 for
further information pertaining to this dispute.

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 with the date the Office Building
opened. Under the terms of that 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 the
restructuring of the original mortgage debt, and use the funds for required
payments to the former lender.

In connection with the debt restructuring on November 16, 1994, BMC Lender
Partnership (BMC), the holder of the amended and restated second mortgage note,
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 from the Office Building. 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, 1998, 1997
and 1996 were approximately $409,000, $403,000 and $401,000, respectively.

In addition to management fees, Realty also receives leasing commissions
for leasing certain space in the Office Building. For the years ended December
31, 1998, 1997 and 1996, approximately $107,000, $174,000 and $466,000,
respectively, were paid to Realty for such leasing commissions.

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

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

Realty was formed in 1976. It has informed the Partnership that it now has
approximately 20 employees and manages approximately 1,000,000 gross square feet
of space.

As of December 31, 1998, there were approximately 50,000 square feet of
office space available for rent in the Office Building. Retail and marketplace
space was 89% occupied as of December 31, 1998 with approximately 1,500 square
feet available for rent. 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 to Monument 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 1998, 1997 and 1996, adjusted gross
receipts equaled $1,092,041, $1,126,162 and $1,154,985, respectively, and thus
no incentive fee was due for any of these years.

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.

I-6
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PART I
------

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

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

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

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

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

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.

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 for interest payments in an
amount equal to all of BMCLP's net cash flow, as defined, to be 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 $193,916, including accrued interest, from CRI for the
payment 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
- ---------------------------------------

I-7
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PART I
------

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

(the Restated First Mortgage Note) to a principal amount of $48,000,000 and sold
the Restated First Mortgage Note to General Electric Capital Corporation (GECC).
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.

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, 1998 and 1997 was 5.27% and 5.79%, 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 if they 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. One of the major tenants of the Office Building cancelled
its lease at the end of 1998 and moved out of its space at the end of February
1999. No additional principal payments have been paid or requested to be paid
by GECC and therefore have not been reflected in the accompanying financial
statements. 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, 1998, 1997 and 1996, GECC advanced $222,434,
$535,899 and $975,001, respectively, to BMCLP for capital improvements, tenant
improvements and leasing costs. Interest accrued on cumulative advances is
included in interest expense, and is also added to the balance of the Restated
First Mortgage Note.

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

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

Annual principal payments due on the Restated First Mortgage Note follow.

1999 $ 1,299,996
2000 1,299,996
2001 42,150,008
-----------
Total $44,750,000
===========

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 was established. Monthly payments of $23,125 were made into
this reserve beginning January 1, 1995 through December 1, 1998, as discussed in
Note 2 to the consolidated financial statements. As of December 31, 1998 and
1997, the interest reserve balance was $1,135,046 and $832,500, 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 priority, as follows.

(1) Debt service and reserves on the Restated First Mortgage Note.

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

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

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

(5) 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 refinancing or maturity of the Restated Notes.

(1) 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

(2) 50% of the Economic Value in excess of $100 million.

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

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

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. Historically, the
Partnership has not received appraisals of the Development in order to determine
the Economic Value. However, in the opinion of the Managing General Partner,
based on its knowledge of the Development and the real estate market, the
Economic Value Participation Interest due to BMC as of December 31, 1998 and
1997, is not in excess of the deferred gain recorded by the Partnership as of
each of those dates.

In 1998, 1997 and 1996, $150,000 was paid each year to BMC as 75% of
remaining net cash flow for 1997, 1996 and 1995. Also in 1998, 1997 and 1996,
$50,000 was paid each year to CRCC as BMCLP management fees for 1997, 1996 and
1995, respectively; such amounts are included in management fees in the
accompanying consolidated statements of operations. Additionally, $150,000 and
$50,000 were accrued for net cash flow participation and management fees,
respectively, as of both December 31, 1998 and December 31, 1997 for fiscal
years 1998 and 1997, 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, 1998, 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. An 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, 1998 and December 31, 1997,
the balance in the escrow account was $319,294 and $273,654, respectively.
There were no withdrawals from or deposits to the reserve by BMCLP during 1998
or 1997.

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

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

A purchase money mortgage had been placed upon the Development as of
September 17, 1985 to secure payment for the $3,000,000 purchase by BMCLP of the
partnership interest in BMCLP held by Iroquois Financial Corporation (Iroquois),
a Maryland corporation, which, the Partnership has been advised, is owned 50% by
Alan I. Kay and Allan E. Rozansky and 50% by an individual unaffiliated with
Alan I. Kay and Allan E. Rozansky or the General Partners. The purchase money
note (the Third Mortgage Note) was subordinated to the Second Mortgage Note as
of July, 1987. 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 is to be deferred without interest and is to 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, 1998 and 1997,
accrued interest of $3,589,500 and $3,319,500, 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 1998, 1997 or 1996.

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 Restated Notes prior to the
restructuring was $197,754,727. In accordance with Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings" ("SFAS 15"), the net carrying amount of the outstanding
principal and accrued interest prior to the restructuring in excess of the total
estimated future cash payments for principal and interest (based on the interest
rate in effect on the date of restructuring for the Restated First Mortgage
Note) of the Restated Notes was recorded as a deferred gain on debt
restructuring in the accompanying consolidated balance sheets. Under SFAS 15, a
debtor should not recognize a gain on restructuring involving indeterminate
future cash payments (the floating rate interest on the Restated First Mortgage
Note and the Economic Value Participation Interest on the Restated Second
Mortgage Note) as long as the maximum total future cash payments may exceed the
carrying amount of the debt. For purposes of applying SFAS 15, the Restated
Notes have been aggregated, as the restructuring was negotiated between BMCLP
and a single lender.

Based on the Restated First Mortgage Note's interest rate of 9.52% and
10.04% in effect at December 31, 1998 and 1997, 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
$56,666,258 and $62,774,907 at December 31, 1998 and 1997, respectively,
including additional draws subsequent to the restructuring. As a result of the
fluctuations of the interest rate on the Restated First Mortgage Note, the
Partnership continues to remeasure the estimated total future obligation for
principal and interest based upon changes in the underlying index. Differences

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

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

in the total estimated future obligation resulting from interest rate changes
are reflected as a reclassification between the Restated First Mortgage Note and
deferred gain on debt restructuring. For the years ended December 31, 1998 and
1996, $651,018 and $990,767, respectively, were reclassified from the Restated
First Mortgage Note to the deferred gain on debt restructuring. For the year
ended December 31, 1997, $551,054 was reclassified from the deferred gain on
debt restructuring to the Restated First Mortgage Note.

With regard to the Restated Second Mortgage Note, the total estimated
future obligation for payment of principal and interest at the time of the
restructuring, based on the fixed interest rate of 16%, was $21,200,000. This
amount exceeded the carrying amount of the Second Mortgage Note prior to
restructuring of $19,380,974. As noted above, the Restated Notes have been
aggregated for accounting purposes. Therefore, in accordance with SFAS 15, this
difference of $1,819,026, which represents a constant additional interest
obligation based on the fixed interest rate, is being accrued for and added to
the Restated Second Mortgage Note principal balance over the term of the
Restated Second Mortgage Note as a reclassification from the deferred gain on
debt restructuring. For each of the years ended December 31, 1998, 1997 and
1996, $259,860 was reclassified from the deferred gain on debt restructuring to
the Restated Second Mortgage Note.

Due to the variable interest rate on the Restated First Mortgage Note and
BMCLP's potential liability to BMC as a result of the Economic Value
Participation Interest, the total future obligations under the Restated Notes,
including future interest and contingent payments, cannot currently be
determined. Therefore, the deferred gain on debt restructuring will not be
recognized as an extraordinary gain unless it is realized through repayment or
refinancing of the Restated Notes. As of December 31, 1998 and 1997, the
deferred gain on debt restructuring was $98,998,507 and $98,607,349,
respectively.

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

For operating deficits which arise, the BMCLP Limited Partnership Agreement
(LPA) provides that Alan I. Kay and Allan 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 (1) 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 (2) 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,
1998, 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, 1998 and 1997, R&K have provided $2,599,769 and
$2,490,352, respectively, including accrued interest, to BMCLP to fund operating
deficits under this provision of the LPA. 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

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

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

partnership agreement. These Operating Deficit Loans shall be repaid in full
upon the earlier to occur of (1) fifteen years from the date of such loans or
(2) 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 Allan E. Rozansky and
further secured by the expense allowance payable to Alan I. Kay and Allan E.
Rozansky, the incentive management fee payable to Rozansky & Kay Construction
Company (R&KCC), one-half (1/2) of the disposition fee payable to Alan I. Kay
and Allan E. Rozansky from the proceeds of any sale of the Development, and any
distributions made to Alan I. Kay and Allan E. Rozansky from the net cash flow
of BMCLP or from the proceeds of any sale or refinancing of BMCLP. All
obligations of R&KCC have been assumed by Alan I. Kay and Allan E. Rozansky.

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

As mentioned previously, the Hotel is managed by Hyatt, in accordance with
the Management Agreement dated March 1, 1982. BMCLP can terminate the
Management Agreement upon no less than 60 days written notice if, for two
successive fiscal years after December 31, 1995 (referred to as the Sixth Full
Year), the Owner's Remittance Amount (as defined) is less than the annual
principal and interest payments paid on the First Mortgage Note (presently the
Restated First Mortgage Note), up to a maximum of $6,250,000. This shortfall
occurred in 1996 and 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 began negotiating a new Management Agreement with a lower fee and
other provisions more favorable to BMCLP than the existing Management Agreement.
For example, BMCLP desires to eliminate the provision in the existing agreement
that 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 Management
Agreement. However, during these negotiations, Hyatt asserted for the first
time that the determination of whether or not a shortfall had occurred must be
based on the portion of the Restated First Mortgage Note allocable to the Hotel,
rather than the entire debt service, and that based on their analysis, a
shortfall may not have occurred in 1996 or 1997. BMCLP vigorously disagrees
with this assertion, and on April 21, 1998 sent a notice to Hyatt terminating
the Management Agreement effective July 31, 1998. At the same time, BMCLP
exercised its right under the Management Agreement to demand arbitration seeking
a declaratory judgment that BMCLP's termination of Hyatt is proper and
effective, and also seeking reimbursement of certain chain expenses for which
BMCLP believes Hyatt has overcharged. The parties initially agreed to postpone
the termination until October 31, 1998 and the arbitration for 90 days. The
parties have subsequently extended these dates several times. Currently, the
arbitration and termination have been stayed by agreement until March 1, 1999
and April 15, 1999, respectively, although the parties have verbally agreed to a
further extension to April 1, 1999 and May 17, 1999, respectively, to allow the
parties time potentially to resolve their differences. The parties are
presently formalizing this verbal agreement. The Managing General Partner
cannot currently predict whether the parties will be able to resolve their
differences, and if not, the impact on the accompanying consolidated financial

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

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

statements of the outcome of the arbitration.

In the event of a sale of the Development, as discussed below, the sale
agreement states that the purchaser shall negotiate a new management agreement
with Hyatt, and if the purchaser fails to reach such an agreement, that the
purchaser shall assume the Management Agreement at the sale's closing and shall
accept the Development subject to the Management Agreement and the arbitration
previously described. The Management Agreement calls for Hyatt's consent to the
assignment, which shall not be unreasonably withheld. The Partnership can
provide no assurance that Hyatt would consent to an assignment under the
circumstances described.

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

BMCLP has entered into a contract for the sale of the Development.
A proxy will be sent to the investors of the Partnership in March 1999 to
solicit majority approval of the sale contract. There is no assurance that
majority approval will be obtained, nor that a sale will take place if such
approval is obtained.

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

ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
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 partner interest in the Partnership. Transfer or
assignment by an Investor of his or her limited partner 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 partner 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, 1998, there were approximately 700 holders of record of
approximately 600 Units. 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,
------------------------------------------------------------------------------
1998 1997 (3) 1996 (3) 1995 (3) 1994 (3)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue (1) $ 32,845,782 $ 29,778,744 $ 28,411,536 $ 27,042,636 $ 25,454,566
Operating expenses (1) (16,307,332) (15,150,993) (14,438,321) (14,067,462) (13,694,193)
Depreciation and Amortization (4,658,258) (4,748,292) (4,889,241) (5,335,679) (5,139,013)
Interest expense (1,326,848) (1,465,120) (964,767) (1,056,102) (12,737,570)
Other expenses (1) (5,032,815) (4,858,793) (4,753,208) (4,222,978) (4,507,652)
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 5,520,529 $ 3,555,546 $ 3,365,999 $ 2,360,415 $(10,623,862)
============ ============ ============ ============ ============
Net income (loss) attributed to
minority interest (2) $ 5,556,484 $ 3,593,522 $ 3,395,921 $ 2,392,013 $(10,596,812)
============ ============ ============ ============ ============

Net loss attributed to Partnership $ (35,955) $ (37,976) $ (29,922) $ (31,598) $ (27,050)
============ ============ ============ ============ ============
Net loss allocated to General Partners
and affiliated Initial Limited
Partner (1%) $ (360) $ (380) $ (299) $ (316) $ (270)
============ ============ ============ ============ ============
Net loss allocated to Additional Limited
Partners (99%) $ (35,595) $ (37,596) $ (29,623) $ (31,282) $ (26,780)
============ ============ ============ ============ ============
Net loss per unit of Additional Limited
Partnership Interest based on 600
units issued and outstanding $ (59.33) $ (62.66) $ (49.37) $ (52.14) $ (44.63)
============ ============ ============ ============ ============

Total Property and Equipment, net $ 76,385,131 $ 79,633,610 $ 82,670,172 $ 85,718,935 $ 89,123,745
============ ============ ============ ============ ============

Total Assets $ 90,095,414 $ 90,320,008 $ 91,943,571 $ 93,929,081 $ 98,232,016
============ ============ ============ ============ ============

Total Mortgage Debt and Deferred
Gain on Restructuring $176,217,345 $183,027,199 $189,609,181 $195,883,849 $203,264,227
============ ============ ============ ============ ============

</TABLE>

(1) Certain amounts in the 1997, 1996, 1995 and 1994 selected financial data
have been reclassified to conform to to the 1998 presentation.

(2) The cumulative net loss attributable to minority interest of $96,093,298,
$101,649,782 and $105,243,304 as of December 31, 1998, 1997 and 1996,
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, which represents BMCLP's cumulative losses
prior to June 15, 1992 (the consolidation date), plus net cumulative
additional excess BMCLP losses at December 31, 1998, 1997 and 1996 of

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

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

$18,620,459, $24,176,943 and $27,770,465, 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 income and losses subsequent to June 15, 1992 have been consolidated
into the operating accounts of the Partnership for the years ended December
31, 1998, 1997 and 1996.

(3) The selected financial data for the years ended December 31, 1997, 1996,
1995 and 1994 have been restated to reflect the change in accounting
treatment for the Partnership's mortgage debt. (See the Notes to the
Consolidated Financial Statements located in Part IV of this document.)

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.

BMCLP's management is of the opinion that cash flow from operations for the
year ended December 31, 1999, 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 some of the reserves and additional borrowings is
contingent upon the approval of the BMC Lender Partnership (the Second Restated
Note holder), 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 1999, which are principally comprised
of professional fees and administrative expenses. Additionally, absent the sale
of the Development, 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 1999 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 commitment to fund
projected cash flow requirements of the Partnership for the year ending December
31, 1999.

At December 31, 1998 and 1997, the Partnership had $126 and $116,
respectively, in available cash.

During 1998, the Partnership's available cash increased $10 due to interest
income, whereas accounts payable increased $35,965. The increase in accounts
payable includes an increase of $30,155 in loan payable to its Managing General
Partner for professional fees and administrative expenses paid on behalf of the
Partnership, and an increase of $5,810 in third-party payables.

CAPITAL RESOURCES
-----------------

BMCLP, of which the Partnership owns a 92.5% limited partner interest, had
unrestricted cash and cash equivalents of $4,628,581 and $2,071,713 at December
31, 1998 and 1997, respectively. During 1998, unrestricted cash and cash
equivalents increased by $2,556,868; operating activities provided $4,114,149 of
the increase, partially offset by $1,055,931 used in investing activities and
$501,350 used in financing activities. The increase of $2,556,868 was due
largely to the 1998 net income of $5,556,484, net of the net principal and
interest payments of $7,490,506, fixed assets additions and payment of leasing
costs of $1,055,931 and $328,351, respectively, and a $537,226 increase in
restricted cash and cash equivalents. All of these factors were partially
offset by depreciation and amortization totalling $4,658,258, proceeds from
mortgage debt of $410,650, an increase in accrued interest on advances from
affiliates of $716,345, and non-cash interest expense of $630,703, net. BMCLP
had restricted cash and cash equivalents of $2,970,343 and $2,433,117 at
December 31, 1998 and 1997, respectively.

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

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

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

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. For the years
ended December 31, 1998, 1997 and 1996, GECC advanced $222,434, $535,899 and
$975,001, respectively, to BMCLP for capital improvements, tenant improvements
and leasing costs. Interest accrued on cumulative advances is included in
interest expense, and is also added to the balance of the Restated First
Mortgage Note.

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. As of December 31, 1998 and December 31, 1997, the balance in the escrow
account was $319,294 and $273,654, respectively. There were no withdrawals from
or deposits to the reserve by BMCLP during 1998 or 1997.

BMC may advance additional amounts of 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)

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

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

if BMCLP pays its 25% share of net cash flow held in reserves. No advances were
made in 1998, 1997 or 1996.

RESULTS OF OPERATIONS
---------------------

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

1998 versus 1997
- ----------------

The Partnership recorded a net loss for 1998 of $35,955 as compared with a
net loss of $37,976 for 1997. Operating expenses during 1998 were $2,011 lower
than 1997 primarily due to lower professional fees. Additionally, the
Partnership recognized $10 in interest revenue during 1998 versus $0 in 1997.

1997 versus 1996
- ----------------

The Partnership recorded a net loss for 1997 of $37,976 as compared with a
net loss of $29,922 for 1996. Operating expenses during 1997 were $8,054 higher
than 1996, primarily due to an increase in professional fees.

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

1998 versus 1997
- ----------------

BMCLP had net income for 1998 of $5,556,484 as compared with net income of
$3,593,522 for 1997. This was primarily the result of an increase in room
revenue, office retail and parking rentals and food and

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

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

beverage revenue. BMCLP's net income was negatively impacted by increases in
rooms expense and food and beverage expense.

Room revenue increased by $1,257,490, or 9%, from 1997 primarily due to
growth in the transient market average rate. Hotel occupancy increased 2% to
82% and the average room rate increased $7 to $126 during 1998. Food and
beverage revenues increased $623,938, or 10%, from 1997 primarily due to
increases in public room rental and audio visual revenues. Rooms expense
increased by $351,819, or 12%, from 1997 due to increased payroll related
expenses, guest supplies and travel agent commissions. Food and beverage
expense increased $282,729, or 6%, from 1997 primarily due to increased payroll
related expenses, training and contract service expenses. The increases in room
revenue and food and beverage revenue, partially offset by the increases in
rooms expense and food and beverage expense, contributed to gross operating
profits for the hotel exceeding 1997 by $866,442, or 11%.

Office building revenue increased $925,488, or 10%, during 1998 compared to
1997 due to increased occupancy and rental rates. The average occupancy of the
Office Building increased from 97% to 100% and the average rental rate increased
from $24 to $25 per square foot. However at December 31, 1998, the physical
occupancy of the Office Building was 85%, as the largest tenant moved out during
October 1998 but continues to pay rent through February 28, 1999. The retail and
marketplace occupancy increased from 85% to 89%. The retail and marketplace
average rental rate increased from $31 to $34 per square foot. There is no
assurance that these occupancy levels or rental rates will be maintained.

Operating expenses for the Office Building for 1998 increased by $97,925,
or 4%, from 1997, primarily due to increased building maintenance and
administrative expenses.

1997 versus 1996
- ----------------

BMCLP had net income for 1997 of $3,593,522 as compared with net income of
$3,395,921 for 1996. This was primarily the result of an increase in room
revenue and food and beverage revenue and a decrease in amortization expense.
BMCLP's net income was negatively impacted by an increase in interest expense, a
decrease in office, retail and parking rentals, and an increase in food and
beverage expense, insurance expense and management fees.

Room revenue increased by $999,715, or 8%, from 1996 due to increased
transient and group revenue. The Hotel experienced an increase in occupancy
from 78% to 80% and an increase of $7 in average room rate over 1996. Food and
beverage revenues increased by $519,486, or 9%, from 1996 due to increased in-
room and banquet dining. The increase in room and food and beverage
departmental profits, combined with the Hotel's cost control efforts, resulted
in gross operating profits exceeding 1996 by $850,863, or 12%.

Office building revenue decreased $149,326, or 2%, during 1997 compared
with 1996 primarily due to decreased occupancy. The occupancy of the Office
Building decreased from 98% to 97% while the rental rate remained constant at
$24 per square foot. The retail and marketplace occupancy decreased from 92% to
85% primarily due to the expiration of two major retail leases during 1997 which
were not renewed. The retail and marketplace average rental rate decreased from

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

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

$33 in 1996 to $31 per square foot in 1997 primarily due to decreased rates
throughout the market.

Operating expenses for the Office Building for 1997 increased by $51,891,
or 2%, from 1996, primarily due to payroll increases associated with customary
raises and utility increases.

Pertinent data regarding the operations of the Office Building and Hotel
follow.

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 Years Ended December 31,
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Leasing:
- -------
Average Space Occupied:
Office 100% 97% 98%
Retail and Marketplace 89% 85% 92%

Average Rental Rate:
Office $25 $24 $24
Retail and Marketplace $34 $31 $33

Operations:
- ----------
Total Income $10,312,630 $ 9,387,142 $ 9,536,468
Operating Expenses (2,866,999) (2,769,074) (2,717,183)
----------- ----------- -----------
Gross Operating Profits (Before Depreciation,
Management Fees and Other Fixed Costs) $ 7,445,631 $ 6,618,068 $ 6,819,285
=========== =========== ===========
</TABLE>

HOTEL
-----

<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------
1998 1997 (1) 1996 (1)
----------- ----------- -----------
<S> <C> <C> <C>
Actual Average Occupancy 82% 80% 78%

Actual Average Room Rate $126 $119 $112

Room Revenue $14,505,508 $13,248,018 $12,248,303

Food & Beverage Revenues $ 6,991,728 $ 6,367,790 $ 5,848,304

Room Profits $11,231,747 $10,326,076 $ 9,450,242

Food & Beverage Profits $ 1,927,515 $ 1,586,306 $ 1,503,892

Gross Operating Profits (Before Depreciation,
Management Fees and Other Fixed Costs) $ 8,834,473 $ 7,968,031 $ 7,117,168
</TABLE>

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

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

(1) Certain amounts for 1997 and 1996 have been reclassified to conform to the
1998 presentation.

It should be noted that BMCLP's investment in the Development is a
high-risk investment involving many factors beyond the control of its Managing
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. Local market conditions
could be affected by the addition of over 1,000,000 square feet of new office
space currently under construction in downtown Bethesda.

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.

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

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

SALE CONTRACT
-------------

BMCLP has entered into a contract for the sale of the Development. A proxy
will be sent to the investors of the Partnership in March 1999 to solicit
majority approval of the sale contract. There is no assurance that majority
approval will be obtained, nor that a sale will take place if such approval is
obtained.

LEGAL MATTERS
-------------

II-11
<PAGE>
PART II
-------

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

The Managing General Partner cannot currently predict whether the parties will
be able to resolve their differences, and if not, the impact on the accompanying
consolidated financial statements of the outcome of the arbitration.

YEAR 2000 COMPUTER ISSUE
------------------------

The Year 2000 ("Y2K") computer issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year. The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19." As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002. In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.

The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue. To address
the issue, the Managing General Partner has developed and is currently
implementing a plan (the "Y2K Project") designed to ensure that the Y2K date
change will not have an adverse impact on the Partnership's operations. The Y2K
Project is on schedule and the Managing General Partner expects completion by
the end of 1999. The Y2K Project consists of four phases -- Planning,
Assessment, Implementation and Testing. The Planning Phase began early in 1998
and is complete. Under the Planning Phase, the Managing General Partner
conducted an inventory of all internal hardware and software systems, data
interfaces, business operations and non-information technology functions which
may be susceptible to the Y2K issue. This phase was completed at the end of
November, 1998. Under the next phase, the Assessment Phase, all applications
and functions identified in the Planning Phase were analyzed to determine Y2K
compliance and the materiality of each identified risk. In the event of
noncompliance, for material risks, timetables for corrective action, as well as
estimated costs to achieve compliance, were determined. This phase was
completed during the first quarter of 1999. The Implementation Phase is now
underway. Renovation and replacement of existing internal hardware and software
systems has begun and completion is expected by June 1999. Additionally, the
Managing General Partner is currently working with third party vendors and
service providers to verify their Y2K compliance. Final completion of this
phase is expected by June 1999. The Testing Phase, which will include testing
of internal applications as well as third party systems, began during January
1999 and will continue throughout 1999. Contingency planning commenced during
the fourth quarter of 1998 and will be completed by year-end 1999. Although the

II-12
<PAGE>
PART II
-------

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

expense associated with the Y2K Project cannot presently be determined, the
Managing General Partner does not expect it to be material.

The Partnership has been informed that Realty has chosen to address the Y2K
computer issue by retaining a consultant in the area of real estate and
accounting software. The consultant is assisting Realty in researching and
selecting a new property management accounting software package that will be
fully functional by August 1, 1999. Realty has represented that they are
committed to making any hardware changes required for the Y2K as part of this
program. With regard to building systems, including energy management systems,
elevator systems, and access control systems, Realty has completed an inventory
and has contacted building vendors to determine their current level of Y2K
compliance. For those systems not in compliance, Realty is in the process of
purchasing required software. Realty does not expect the expense associated
with the Y2K project to be material.

The Partnership has been informed that Hyatt is working with Computer
Sciences Corporation ("CSC") and Sabre Technology Solutions ("STS"), its
technology outsourcing partners, to address the Y2K compliance status of each of
its major systems and has implemented a plan in an attempt to ensure that each
of its systems is Y2K compliant by a goal date of July 1999.

Hyatt's major systems include: 1.) SPIRIT - a world-wide reservations
system; 2.) Envision - a sales system used by its hotels and national sales
force; 3.) Revenue Management System - used by hotels to develop forecasts and
establish rate guidelines; 4.) Property Management System - used for hotel
operations; and 5.) Sales and Catering Automation System - used by hotels to
manage meeting room inventory and the service requirements of group customers.

The evaluation of these systems began in 1995 and has lead to a remediation
plan specific to each system. Hyatt's technology outsourcers have reviewed the
application business logic, application development tools, database, system
management tools, operating systems, hardware and network for each system. Once
each of these components is determined to be Y2K compliant, all components will
be tested together transitioning to the Y2K and operating in the Y2K. Hyatt has
represented that each of its major systems has been or is scheduled to be
certified as Y2K compliant by June 1999. Hyatt does not expect the expense
associated with the Y2K project for the Hotel to be material.

II-13
<PAGE>
PART II
-------

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

Although Realty and Hyatt are coordinating the Y2K compliance efforts at
the Office Building and the Hotel, respectively, it is ultimately the
Partnership's responsibility to ensure that the operations are Y2K compliant.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------

The Partnership's earnings are affected by changes in interest rates as the
result of borrowing at a floating interest rate. If the relevant interest rate
on the Restated First Mortgage Note (see Part I, Item 2.) had increased, on
average for 1998, by ten percent, the Partnership's annual interest expense
would have increased by approximately $584,000, based on the average balance of
the Restated First Mortgage Note for the year ended December 31, 1998.

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-14
<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, 62, 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 properties. 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 and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.

H. William Willoughby, 52, has been 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 & Co. He holds a Juris Doctor 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. and CRIIMI, Inc.

Ronald W. Thompson, 52, is 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.

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

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

Susan R. Campbell, 40, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985, she was a budget analyst for the B. F. Saul
Advisory Company. She holds a Bachelor of Science degree in General Business
from the University of Maryland.

Melissa Cecil Lackey, 43, is 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 Doctor degree 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 paid or payable to the General Partners and
their affiliates, and to Alan I. Kay and Allan E. Rozansky and their
affiliates, in fiscal year 1998.

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, 1998.
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, Allan flow have been made through
E. Rozansky and R&K December 31, 1998.
Construction Company
(R&KCC) in BMCLP.

4. Expense Allowances to (A) There was no net cash flow
Alan I. Kay, Allan E. generated by BMCLP, as
Rozansky and CRCC in BMCLP; defined, for fiscal year 1998,
Management Fee and therefore, no expense
Incentive Management Fee allowances were paid to Alan
to R&KCC. I. Kay, Allan E. Rozansky and
CRCC; (B) $3,000,000 payable
to R&KCC for its management services
to BMCLP in 1986 through 1990. As of
December 31, 1986, no additional
management fee was payable to R&KCC
and since then all additionalamounts
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 1998,
therefore, no incentive management
fee was paid to R&KCC.

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

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

5. Additional Purchase Price (A) In fiscal year 1998, there
to Sellers and an were no funds available in the
Additional Incentive Operating Deficit Reserve to
Management Fee to CRCC, pay additional purchase price
Alan I. Kay and Allan E. to the sellers; (B) there was
Rozansky. no net cash flow, as defined,
generated by BMCLP for fiscal
year 1998, therefore, no
additional incentive
management fee was paid.

6. Management and Management and Administrative
Administration Fees to fees relating to 1996 of $50,000
CRCC and/or the were paid in 1997.
Partnership Management and Administration
fees relating to 1997 of
$50,000 were paid in 1998.
Management and Administrative
fees relating to 1998 of
$50,000 were accrued in 1998.

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.

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.

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

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

3. Alan I. Kay, Allan E. (A) 1.00% to CRCC and 6.5% in
Rozansky, R&KCC the aggregate to Alan I. Kay,
and CRCC's Share of Allan E. Rozansky and R&KCC
Liquidation, Sale or of Liquidation, Sale or Refinancing
Refinancing Proceeds remaining after all payments and
distributions have been
made; plus (B) 18.928% to Alan
I. Kay and Allan E. Rozansky
of the amount remaining after
payment of the Disposition Fee
described in C-4 below. Alan
I. Kay, Allan E. Rozansky, R&KCC 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 Allan 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.

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

None.

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

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

(a) Security ownership of certain beneficial owners.

As of December 31, 1998, 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 Allan E. Rozansky and their affiliates
as a group own 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, 1998, 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.

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.

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

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

A summary of amounts due to affiliates follows.

Balance at Balance at Balance at
Related December 31, December 31, December 31,
Party 1996 Additions 1997 Additions 1998
------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
CRI $ 342,558 $ 63,252 $ 405,810 $ 61,323 $ 467,133
CHG 1,215,586 88,275 1,303,861 86,899 1,390,760
Realty 972,233 538,895 1,511,128 103,514 1,614,642
Hyatt 953,434 441,840 1,395,274 574,001 1,969,275
------------ ----------- ------------ ----------- -------------
$ 3,483,811 $ 1,132,262 $ 4,616,073 $ 825,737 $ 5,441,810
============ =========== ============ =========== =============

</TABLE>

The $467,133 and $405,810 due to CRI as of December 31, 1998 and 1997,
respectively, are partially comprised of $142,792 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, the $1,390,760 and $1,303,861 due to CHG as of
December 31, 1998 and 1997, respectively, and $1,614,642 and
$1,511,128 due to Realty as of December 31, 1998 and 1997,
respectively, represent advances made to BMCLP and interest accrued
thereon, to fund Excess Payments on the Great Western Notes, as
discussed in Note 4 to the consolidated financial statements. The
advances from CRI, CHG and Realty accrue interest at the prime rate
(7.75% as of December 31, 1998) plus 1% in accordance with the
Partnership Agreement. 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 $1,969,275 and
$1,395,274 due to Hyatt as of December 31, 1998 and 1997,
respectively, consist of $1,845,766 and $1,285,429, respectively, of
incentive management fees earned under its management agreement with
BMCLP which is due subject to Hyatt meeting certain performance
standards as defined in the management agreement. Of the $1,845,766
due as of December 31, 1998, $260,270 of incentive management fees
earned during 1998 were paid during 1999 in accordance with the
Management Agreement. The remaining 1998 incentive management fees
and all 1997 incentive management fees have been deferred by Hyatt in
accordance with the Management Agreement. The remaining $123,509 and
$109,845 balance due to Hyatt as of December 31, 1998 and 1997,
respectively, consists of trade payables to Hyatt for various services
as described in Note 7 to the consolidated financial statements.

CRCC 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 payments of $50,000 in each of 1998, 1997
and 1996 from remaining net cash flow relating to 1997, 1996 and 1995,

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

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

respectively. Additionally, $50,000 was accrued as of December 31,
1998 for fiscal year 1998 management fees, as described in Note 4 to
the consolidated financial statements.

CIP Management 14, Inc., an affiliate of the Managing General Partner,
may receive an incentive management fee on a noncumulative annual
basis commencing in 1987 equal to 9.08% of net cash flow after payment
of certain priorities set forth in the Partnership Agreement. No
incentive management fee has been incurred or paid in 1998, 1997 and
1996.

Realty Management Company, which is a former affiliate of one of the
Special Limited Partners, provides management and leasing 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-8
<PAGE>
PART IV
-------

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

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

Report of Independent Public Accountants IV-6

Consolidated Balance Sheets as of
December 31, 1998 and 1997 (as restated
for 1997) IV-7

Consolidated Statements of Operations for
the years ended December 31, 1998, 1997
and 1996 (as restated for 1997 and 1996) IV-9

Consolidated Statements of Partners'
Deficit for the years ended December 31,
1998, 1997 and 1996 (as restated for 1997
and 1996) IV-10

Consolidated Statements of Cash Flows for
the years ended December 31, 1998, 1997
and 1996 (as restated for 1997 and 1996) IV-11

Notes to Consolidated Financial Statements
for the years ended December 31, 1998, 1997
and 1996 (as restated for 1997 and 1996) 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)

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

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

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)

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)

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

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

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)

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)

IV-3
<PAGE>
PART IV
-------

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

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, 1998.

On February 24, 1999, the Partnership filed a report on
Form 8-K regarding the restatement of the Partnership's
financial statements to properly reflect the restructuring
of the Partnership's mortgage debt in accordance with
Statement of Financial Accounting Standards No. 15
"Accounting by Debtors and Creditors for Troubled Debt
Restructurings." See Note 2 to the consolidated financial
statements for additional information.

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-4
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of Section 13 or 15(d) 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
-----------------------------------------------
(Registrant)

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

March 4, 1999 by: /s/ William B. Dockser
- ------------- ---------------------------------------
DATE William B. Dockser, Director,
Chairman of the Board,
and Treasurer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

March 4, 1999 by: /s/ H. William Willoughby
- ------------- ---------------------------------------
DATE H. William Willoughby,
Director, President
and Secretary

March 4, 1999 by: /s/ Michael J. Tuszka
- ------------- ---------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)

IV-5
<PAGE>

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

To the Partners of
Capital Income Properties-C Limited Partnership:

We have audited the accompanying consolidated balance sheets of Capital
Income Properties-C Limited Partnership, a District of Columbia limited
partnership (the Partnership ), and Subsidiary as of December 31, 1998 and 1997
(as restated - See Note 2), and the related consolidated statements of
operations, partners deficit and cash flows for each of the three years in the
period ended December 31, 1998 (as restated for 1997 and 1996 - See Note 2).
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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

Washington, D.C.
February 10, 1999

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

CONSOLIDATED BALANCE SHEETS

ASSETS

December 31,
--------------------------------
1998 1997
(as restated)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,628,707 $ 2,071,829
Restricted cash and cash equivalents 2,970,343 2,433,117
Accounts receivable, less allowance for doubtful accounts
of $85,310 and $86,439 as of December 31, 1998 and
1997, respectively 1,107,240 1,317,229
Prepaid expenses 793,231 771,659
Current portion of deferred rent receivable 181,472 136,579
Inventory and other assets 70,536 70,790
------------ ------------
Total current assets 9,751,529 6,801,203
------------ ------------

Property and equipment:
Buildings and tenant improvements 123,741,442 123,255,734
Furniture and equipment 16,084,500 15,514,277
------------ ------------
139,825,942 138,770,011
Less: accumulated depreciation (63,440,811) (59,136,401)
------------ ------------
76,385,131 79,633,610
------------ ------------

Other assets:
Deferred charges, less accumulated amortization of $3,793,947 and
$3,188,815 as of December 31, 1998 and 1997, respectively 2,601,472 2,878,253
Deferred rent receivable, less reserve of $246,863 and
$171,763 as of December 31, 1998 and 1997, respectively 805,979 550,472
Escrows and deposits 551,303 456,470
------------ ------------
3,958,754 3,885,195
------------ ------------

Total assets $ 90,095,414 $ 90,320,008
============ ============
</TABLE>

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

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

CONSOLIDATED BALANCE SHEETS - Continued

LIABILITIES AND PARTNERS DEFICIT

December 31,
--------------------------------
1998 1997
(as restated)
------------ ------------
<S> <C> <C>
Current liabilities:
Current portion of first mortgage note $ 5,398,922 $ 5,748,221
Accounts payable 734,162 551,409
Accrued expenses 989,079 997,275
Due to affiliates 5,441,810 4,616,073
------------ ------------
Total current liabilities 12,563,973 11,912,978

First mortgage note 51,267,336 57,026,686

Second mortgage note 13,963,080 15,325,443

Third mortgage note 6,589,500 6,319,500

Due to guarantor of operating deficits 2,599,769 2,490,352

Deferred gain on debt restructuring 98,998,507 98,607,349

Deferred revenue and security deposits 487,678 532,658
------------ ------------
Total liabilities 186,469,843 192,214,966
------------ ------------

Commitments and contingencies

Partners deficit (96,374,429) (101,894,958)
------------ ------------

Total liabilities and partners' deficit $ 90,095,414 $ 90,320,008
============ ============
</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
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------
1998 1997 1996
(as restated) (as restated)
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rooms $ 14,505,508 $ 13,248,018 $ 12,248,303
Food and beverage 6,991,728 6,367,790 5,848,304
Telephone 641,731 636,446 654,847
Office, retail and parking rentals 10,312,630 9,387,142 9,536,468
Other 135,839 97,696 86,852
------------ ------------ ------------
32,587,436 29,737,092 28,374,774
------------ ------------ ------------
Departmental expenses:
Rooms 3,273,761 2,921,942 2,798,061
Food and beverage 5,064,213 4,781,484 4,344,412
Telephone 365,931 392,567 371,816
Other 374,734 355,467 336,215
------------ ------------ ------------
9,078,639 8,451,460 7,850,504
------------ ------------ ------------
Other operating expenses:
Administrative 1,793,676 1,577,614 1,539,586
Marketing 1,248,243 1,192,501 1,153,253
Energy costs 1,944,766 1,919,220 1,823,969
Property operations and maintenance 2,242,008 2,010,198 2,071,009
------------ ------------ ------------
7,228,693 6,699,533 6,587,817
------------ ------------ ------------
Operating income before other income, fixed charges
and other deductions 16,280,104 14,586,099 13,936,453
------------ ------------ ------------

Other income 258,346 41,652 36,762
------------ ------------ ------------
Fixed charges and other deductions:
Depreciation 4,304,410 4,391,758 4,403,450
Amortization 353,848 356,534 485,791
Interest expense 1,326,848 1,465,120 964,767
Management fees 1,846,011 1,707,162 1,540,587
Real estate and personal property taxes 1,058,688 1,026,773 1,079,511
Ground rent 1,705,930 1,600,000 1,600,000
Other 422,186 524,858 533,110
------------ ------------ ------------
11,017,921 11,072,205 10,607,216
------------ ------------ ------------
Net income 5,520,529 3,555,546 3,365,999
Net income attributed to minority interest (5,556,484) (3,593,522) (3,395,921)
------------ ------------ ------------
Net loss attributed to Partnership $ (35,955) $ (37,976) $ (29,922)
============ ============ ============
</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 OPERATIONS - Continued
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------
1998 1997 1996
(as restated) (as restated)
------------ ------------ ------------
<S> <C> <C> <C>
Net loss allocated to General Partners and affiliated
Initial Limited Partner (1%) $ (360) $ (380) $ (299)
============ ============ ============

Net loss allocated to Additional Limited Partners (99%) $ (35,595) $ (37,596) $ (29,623)
============ ============ ============
Net loss per unit of Additional Limited Partnership
Interest based on 600 units issued and outstanding $ (59.33) $ (62.66) $ (49.37)
============ ============ ============
</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 PARTNERS DEFICIT

<TABLE>
<CAPTION>
(Losses)
Income not
General Limited Allocable to
Partners Partners Partners Total
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 (as previously
reported) $ (529,079) $ 351,801 $ (92,993,658) $ (93,170,936)

Effect of prior period restatements
(See Note 2) -- -- (15,645,567) (15,645,567)

------------ ------------ ------------- -------------
Balance, December 31, 1995 (as restated -
See Note 2) (529,079) 351,801 (108,639,225) (108,816,503)

Net loss attributed to Partnership (299) (29,623) -- (29,922)
Net income attributed to minority
interest (Note 1) (as restated -
See Note 2) -- -- 3,395,921 3,395,921
------------ ------------ ------------- -------------
Balance, December 31, 1996 (as restated -
See Note 2) (529,378) 322,178 (105,243,304) (105,450,504)

Net loss attributed to Partnership (380) (37,596) -- (37,976)
Net income attributed to minority
interest (Note 1) (as restated -
See Note 2) -- -- 3,593,522 3,593,522
------------ ------------ ------------- -------------

Balance, December 31, 1997 (as restated -
See Note 2) (529,758) 284,582 (101,649,782) (101,894,958)

Net loss attributed to Partnership (360) (35,595) -- (35,955)
Net income attributed to minority
interest (Note 1) -- -- 5,556,484 5,556,484
------------ ------------ ------------- -------------

Balance, December 31, 1998 $ (530,118) $ 248,987 $ (96,093,298) $ (96,374,429)
============ ============ ============= =============
</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

<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
(as restated) (as restated)
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,520,529 $ 3,555,546 $ 3,365,999

Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,304,410 4,391,758 4,403,450
Amortization 353,848 356,534 485,791
Interest expense related to the amortization of financing costs 251,286 251,286 251,286
Net interest expense added to debt 379,417 393,184 393,184
Interest payments treated as a reduction in mortgage debt (6,190,510) (6,239,541) (6,275,582)

Changes in assets and liabilities:
Increase in restricted cash and cash equivalents (537,226) (632,094) (193,053)
Decrease (increase) in accounts receivable, net 209,989 (511,730) 628,500
(Increase) decrease in prepaid expenses (21,572) 28,623 40,088
Increase in deferred rent receivable, net (300,400) (93,284) (165,726)
Decrease (increase) in inventory and other assets 254 (3,620) 11,222
Increase in escrows and deposits (94,833) (51,305) (228,227)
Increase (decrease) in accounts payable 182,753 (15,509) 95,462
(Decrease) increase in accrued expenses (8,196) 137,055 99,485
(Decrease) increase in deferred revenue and security deposits (44,980) 25,908 150,835
------------ ------------ ------------
Net cash provided by operating activities 4,004,769 1,592,811 3,062,714
------------ ------------ ------------

Cash flows from investing activities:
Purchase of property and equipment (1,055,931) (1,355,196) (1,354,687)
------------ ------------ ------------
Net cash used in investing activities (1,055,931) (1,355,196) (1,354,687)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from mortgage debt 410,650 687,527 1,030,937
Payments on mortgage debt (1,299,996) (1,299,996) (1,299,996)
Advances from affiliates 825,737 1,132,262 454,166
Payment of leasing costs (328,351) (700,823) (1,229,414)
------------ ------------ ------------
Net cash used in financing activities (391,960) (181,030) (1,044,307)
------------ ------------ ------------
Net increase in cash and cash equivalents 2,556,878 56,585 663,720
Cash and cash equivalents, beginning of year 2,071,829 2,015,244 1,351,524
------------ ------------ ------------
Cash and cash equivalents, end of year $ 4,628,707 $ 2,071,829 $ 2,015,244
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 6,190,510 $ 6,239,541 $ 6,275,582
============ ============ ============
</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

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

1. THE PARTNERSHIP

a. 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 340,000 square feet
of net rentable office space and approximately 14,000 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
(collectively, the 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, 1990 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, 1998 and 1997, and for each of the three years ended December
31, 1998 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 $96,374,429, $101,894,958 and
$105,450,504 as of December 31, 1998, 1997 and 1996, respectively,
$96,093,298, $101,649,782 and $105,243,304, 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 losses
of $18,620,459, $24,176,943 and $27,770,465 as of December 31, 1998, 1997
and 1996, respectively. BMCLP income and losses subsequent to June 15,
1992, have been consolidated into the operating accounts of the Partnership
in the accompanying consolidated statements of operations. BMCLP income
has been allocated 100% to the minority interest and will continue to be
allocated in this manner until the minority interest's cumulative losses
have been eliminated.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

1. THE PARTNERSHIP - Continued

b. Sale Contract
-------------

BMCLP has entered into a contract for the sale of the Development. A
proxy will be sent to the Investors of the Partnership in March 1999 to
solicit majority approval of the sale contract. There is no assurance that
majority approval will be obtained, nor that a sale will take place if such
approval is obtained. (See Note 11.)

c. Liquidity
---------

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

However, BMCLP s management is of the opinion that cash flow from
operations for the year ended December 31, 1999, 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 some of the reserves and additional
borrowings is contingent upon the approval of the BMC Lender Partnership
(the Second Restated Note holder), 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 1999, which are principally
comprised of professional fees and administrative expenses. Additionally,
absent the sale of the Development, 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 1999 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 commitment to fund projected cash flow
requirements of the Partnership for the year ending December 31, 1999.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

2. SIGNIFICANT ACCOUNTING POLICIES

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

The consolidated financial statements of the Partnership are prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles and include the accounts of the Partnership and
BMCLP. All intercompany transactions have been eliminated in
consolidation.

The accompanying consolidated financial statements as of December 31,
1997 and for the years ended December 31, 1997 and 1996, have been restated
in order to properly account for the restructuring of the Partnership's
mortgage debt, as discussed in Note 4. The estimated extraordinary gain
calculated by the Partnership due to the restructuring was originally
deferred and was being amortized into income over the term of the
restructured mortgage debt. The Partnership's 1997 and 1996 financial
statements have been restated to eliminate the amortization of the
extraordinary gain, and therefore, deferring the gain from the
restructuring until realized, as required under Statement of Financial
Accounting Standards No. 15 ("SFAS 15"), "Accounting by Debtors and
Creditors for Troubled Debt Restructurings." Due to this restatement, net
income of the Partnership decreased $14,129,506 and $14,340,300 for the
years ended December 31, 1997 and 1996, respectively, and the beginning
balance of partners' deficit as of December 31, 1995 increased $15,645,567.
The restatement had no effect on the Partnership's net income before
extraordinary item, as previously reported. The entire effect of this
restatement is attributable to BMCLP and not the partners of the
Partnership.

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

As discussed in Note 1, the Partnership consolidated its interest in
BMCLP in 1992. The accompanying balance sheets as of December 31, 1998 and
1997, reflect all the accounts of both the Partnership and BMCLP.
Additionally, the consolidated statements of operations for the years ended
December 31, 1998, 1997 and 1996, 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 of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

d. Reclassifications
-----------------

Certain reclassifications have been made to the 1997 and 1996
consolidated financial statements to conform them with the 1998
presentation.

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 amount of its cash and cash equivalents
approximates fair value.

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

The $2,970,343 and $2,433,117 as of December 31, 1998 and 1997,
respectively, in restricted cash and cash equivalents include $1,454,340
and $1,106,154 in working capital reserves as of December 31, 1998 and
1997, 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, $1,135,046 and $832,500 of the working capital reserves were held
by the Restated First Mortgage Note lender (as defined in Note 4) as of
December 31, 1998 and 1997, respectively. Additionally, $319,294 and
$273,654 of the working capital reserves were held by the Restated Second
Mortgage Note lender (as defined in Note 4) as of December 31, 1998 and
1997, respectively. The remaining $1,516,003 and $1,326,963 of the
restricted cash and cash equivalents balances as of December 31, 1998 and
1997, respectively, represented 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 amount of its
restricted cash and cash equivalents approximates fair value.

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

Accounts receivable, consisting primarily of trade related
receivables, are stated at cost less an allowance for accounts deemed
uncollectible of $85,310 and $86,439 at December 31, 1998 and 1997,
respectively.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

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:

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

Additions to property and equipment were $1,055,931, $1,355,196 and
$1,354,687 in 1998, 1997 and 1996, 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 1998, 1997, or 1996.

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 $2,601,472 and $2,878,253 as of December 31,
1998 and 1997, respectively, consist of $1,759,336 of deferred financing
costs related to the mortgage debt restructuring, as discussed in Note 4,
and $4,636,083 and $4,307,732, 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 $3,793,947 and $3,188,815 as of December 31,
1998 and 1997, respectively.

j. Deferred revenue and security deposits
--------------------------------------

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

k. 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-17
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(ASRESTATED FOR1997 AND 1996)

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

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

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

m. Impairment of Long-Lived Assets
-------------------------------

Property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In the event that the sum of undiscounted expected
future cash flows is less than the carrying amount of an asset, the
Partnership would recognize an impairment loss based on the amount by which
the carrying amount of the asset exceeds the fair value of the asset. Fair
value is calculated as the present value of expected future cash flows.

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP

The Partnership has invested $42,500,100 in cash in BMCLP through December
31, 1998, 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-18
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued

Condensed financial information of the Partnership on an unconsolidated
basis follows.

BALANCE SHEETS

December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Total assets $ 126 $ 116
============ ============

Accounts payable $ 281,257 $ 245,292
Partners deficit (281,131) (245,176)
------------ ------------
Total liabilities and partners' deficit $ 126 $ 116
============ ============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS

For the years ended December 31,
-----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 10 $ -- $ --
Professional fees (22,689) (29,995) (21,650)
Other (13,276) (7,981) (8,272)
------------ ------------ ------------
Net loss $ (35,955) $ (37,976) $ (29,922)
============ ============ ============
</TABLE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued

Condensed financial information of BMCLP on an unconsolidated
basis follows.

<TABLE>
<CAPTION>
BALANCE SHEETS

December 31,
-----------------------------
1998 1997
(as restated)
------------ ------------
<S> <C> <C>
Investment in real estate, at cost, net $ 76,385,131 $ 79,633,610
Current assets 9,751,403 6,801,087
Other assets 3,958,754 3,885,195
------------ ------------
Total assets $ 90,095,288 $ 90,319,892
============ ============

Current liabilities $ 12,282,716 $ 11,667,686
Other liabilities 173,905,870 180,301,988
Partners deficit (96,093,298) (101,649,782)
------------ ------------
Total liabilities and partners deficit $ 90,095,288 $ 90,319,892
============ ============
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS

For the years ended December 31,
-----------------------------------------------
1998 1997 1996
(as restated) (as restated)
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 32,845,772 $ 29,778,744 $ 28,411,536
Expenses (27,289,288) (26,185,222) (25,015,615)
------------ ------------ ------------
Net income $ 5,556,484 3,593,522 3,395,921
============ ============ ============

</TABLE>

During 1998, 1997 and 1996, the Partnership did not invest any cash in
BMCLP. No cash distributions were made to the Partnership by BMCLP in 1998,
1997 or 1996.

IV-20
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued

A reconciliation of BMCLP's financial statement net income to its tax
return net loss follows.

Net adjustments for tax return purposes:
Additional depreciation and amortization
allowed for tax purposes (808,209) (733,003) (653,502)
Cash rents received (less than) in excess of rental income (399,532) (169,895) 176,420
Interest expense reversal (5,618,269) (6,247,288) (6,152,397)
Non-deductible portion of meals and entertainment 24,772 20,537 38,746
Other 1,140 181,305 36,201
------------ ------------ ------------
Tax return net loss $ (1,243,614) $ (3,354,822) $ (3,158,611)
============ ============ ============
</TABLE>

4. MORTGAGE DEBT

a. Original Mortgage Debt
----------------------

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

4. MORTGAGE DEBT - Continued

b. 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.

The modification provided for interest to be accrued at the stated
rate, adjusted as set forth in the original Notes, and for interest
payments in an amount equal to all of BMCLP's net cash flow, as defined, to
be 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 $193,916,
including accrued interest, from CRI for the payment 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

4. MORTGAGE DEBT - Continued

c. Restructuring of Original Mortgage Debt
---------------------------------------

On November 16, 1994, Great Western sold the Notes to BMC Lender
Partnership (BMC), an unaffiliated entity which amended and restated the
First and Second Mortgage Notes. BMC amended and restated the First
Mortgage Note (the Restated First Mortgage Note) to a principal amount of
$48,000,000 and sold the Restated First Mortgage Note to General Electric
Capital Corporation (GECC). 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.

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, 1998 and 1997 was 5.27% and 5.79%, 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 if they 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. One
of the major tenants of the Office Building cancelled its lease at the end
of 1998 and moved out of its space at the end of February 1999. No
additional principal payments have been paid or requested to be paid by
GECC and therefore have not been reflected in the accompanying consolidated
financial statements. 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,
1998, 1997 and 1996, GECC advanced $222,434, $535,899 and $975,001,
respectively, to BMCLP for capital improvements, tenant improvements and
leasing commissions. Interest accrued on cumulative advances is included
in interest expense and is also added to the balance of the Restated First
Mortgage Note.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

4. MORTGAGE DEBT - Continued

Annual principal payments due on the Restated First Mortgage Note
follow.

1999 $ 1,299,996
2000 1,299,996
2001 42,150,008
-----------
Total $44,750,000
===========

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 was established. Monthly payments of $23,125
were made into this reserve beginning January 1, 1995 through December 1,
1998, as discussed in Note 2 . As of December 31, 1998 and 1997, the
interest reserve balances were $1,135,046 and $832,500, 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 priority, as
follows.

(1) Debt service and reserves on the Restated First Mortgage Note.

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

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

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

(5) 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 refinancing or maturity of the Restated Notes.

(1) 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

(2) 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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

4. MORTGAGE DEBT - Continued

the average of three independent appraisals, if deemed necessary by BMC.
Historically, the Partnership has not received appraisals of the
Development in order to determine the Economic Value. However, in the
opinion of the Managing General Partner, based on its knowledge of the
Development and the real estate market, the Economic Value Participation
Interest due to BMC as of December 31, 1998 and 1997, is not in excess of
the deferred gain recorded by the Partnership as of each of those dates.
See Note 12 for a discussion of the estimated Economic Value based on the
terms of a non-binding sale agreement entered into by BMCLP in January
1999.

In 1998, 1997 and 1996, $150,000 was paid each year to BMC as 75% of
remaining net cash flow for 1997, 1996 and 1995. Also in 1998, 1997 and
1996, $50,000 was paid each year to CRCC as BMCLP management fees for 1997,
1996 and 1995, respectively; such amounts are included in management fees
in the accompanying consolidated statements of operations. Additionally,
$150,000 and $50,000 were accrued for net cash flow participation and
management fees, respectively, as of both December 31, 1998 and December
31, 1997 for fiscal years 1998 and 1997, 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, 1998, 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. An 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, 1998 and December 31, 1997, the balance in the escrow account was
$319,294 and $273,654, respectively. There were no withdrawals from or
deposits to the reserve by BMCLP during 1998 or 1997.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

4. MORTGAGE DEBT - Continued

In connection with the debt restructuring on November 16, 1994, the
Third Mortgage Note was amended to provide that interest is due and payable
annually only to the extent funds are available after taking into account
payment of amounts due and payable on the Restated Notes and a payment of
up to $50,000 per year to CRCC and/or the Partnership to cover costs of
management and administration. Accrued but unpaid interest is to be
deferred without interest and is to 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, 1998 and 1997, accrued
interest of $3,589,500 and $3,319,500, 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 1998, 1997 or 1996.

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.

The Restated First and Second Mortgage Notes contain certain covenants
which, among other things, require the Partnership to maintain title and
insurance on the mortgaged property and maintain escrow deposits. The
Partnership was in compliance with such covenants as of December 31, 1998.

d. Debt Forgiveness
----------------

BMCLP's outstanding obligation under the Restated Notes prior to the
restructuring was $197,754,727. In accordance with SFAS 15, the net
carrying amount of the outstanding principal and accrued interest prior to
the restructuring in excess of the total estimated future cash payments for
principal and interest (based on the interest rate in effect on the date of
restructuring for the Restated First Mortgage Note) of the Restated Notes
was recorded as a deferred gain on debt restructuring in the accompanying
consolidated balance sheets. Under SFAS 15, a debtor should not recognize
a gain on restructuring involving indeterminate future cash payments (the
floating rate interest on the Restated First Mortgage Note and the Economic
Value Participation Interest on the Restated Second Mortgage Note) as long
as the maximum total future cash payments may exceed the carrying amount of
the debt. For purposes of applying SFAS 15, the Restated Notes have been
aggregated, as the restructuring was negotiated between BMCLP and a single
lender.

Based on the Restated First Mortgage Note's interest rate of 9.52% and
10.04% in effect at December 31, 1998 and 1997, 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 $56,666,258 and $62,774,907 at December 31, 1998 and 1997,
respectively, including additional draws subsequent to the restructuring.
As a result of the fluctuations of the interest rate on the Restated First
Mortgage Note, the Partnership continues to remeasure the total estimated
future obligation for principal and interest based upon changes in the

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

4. MORTGAGE DEBT - Continued

underlying index. Differences in the total estimated future obligation
resulting from interest rate changes are reflected as a reclassification
between the Restated First Mortgage Note and deferred gain on debt
restructuring. For the years ended December 31, 1998 and 1996, $651,018
and $990,767, respectively, were reclassified from the Restated First
Mortgage Note to the deferred gain on debt restructuring. For the year
ended December 31, 1997, $551,054 was reclassified from the deferred gain
on debt restructuring to the Restated First Mortgage Note.

With regard to the Restated Second Mortgage Note, the total estimated
future obligation for payment of principal and interest at the time of the
restructuring, based on the fixed interest rate of 16%, was $21,200,000.
This amount exceeded the carrying amount of the Second Mortgage Note prior
to restructuring of $19,380,974. As noted above, the Restated Notes have
been aggregated for accounting purposes. Therefore, in accordance with
SFAS 15, this difference of $1,819,026, which represents a constant
additional interest obligation based on the fixed interest rate, is being
accrued for and added to the Restated Second Mortgage Note principal
balance over the term of the Restated Second Mortgage Note as a
reclassification from the deferred gain on debt restructuring. For each of
the years ended December 31, 1998, 1997 and 1996, $259,860 was reclassified
from the deferred gain on debt restructuring to the Restated Second
Mortgage Note.

Due to the variable interest rate on the Restated First Mortgage Note
and BMCLP's potential liability to BMC as a result of the Economic Value
Participation Interest, the total future obligations under the Restated
Notes, including future interest and contingent payments, cannot currently
be determined. Therefore, the deferred gain on debt restructuring will not
be recognized as an extraordinary gain unless it is realized through
repayment or refinancing of the Restated Notes. As of December 31, 1998
and 1997, the deferred gain on debt restructuring was $98,998,507 and
$98,607,349, respectively.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

4. MORTGAGE DEBT - Continued

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

6. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME
TO TAX RETURN NET LOSS

A reconciliation of the Partnership s financial statement net income to
its tax return net loss follows.

For the years ended December 31,
------------------------------------------------------
1998 1997 1996
(as restated) (as restated)
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net income $ 5,520,529 $ 3,555,546 $ 3,365,999

Net adjustments for tax return purposes:
Additional depreciation and amortization
allowed for tax purposes (808,209) (733,003) (653,502)
Cash rents received (less than) in excess of rental income (399,532) (169,895) 172,420
Increase in amortization (20,868) (20,868) (20,868)
Non-deductible portion of meals and entertainment 24,772 20,537 38,746
Interest expense reversal (5,618,269) (6,247,288) (6,152,397)
Other (217) 181,305 36,201
------------ ------------ ------------
Tax return net loss $ (1,301,794) $ (3,413,666) $ (3,213,401)
============ ============ ============
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

a. 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, absent earlier termination. 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, above the base management fee,
for the years ended December 31, 1998, 1997 and 1996. Management fees paid
to Hyatt for the years ended December 31, 1998, 1997 and 1996, were
approximately $870,000, $788,000 and $734,000, respectively; the incentive
fees earned for the years ended December 31, 1998, 1997 and 1996 were
approximately $560,000, $466,000 and $356,000, respectively. These
incentive management fees were included in due to affiliates in the
accompanying consolidated financial statements. Of these amounts,
approximately $260,000 of incentive management fees earned during 1998 were
paid during 1999, in accordance with the Management Agreement. The
remaining incentive management fees earned during 1998, as well as all
incentive management fees earned during 1997 and 1996, have been deferred
in accordance with the Management Agreement.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

7. COMMITMENTS AND CONTINGENCIES - Continued

BMCLP can terminate the Management Agreement upon no less than 60 days
written notice if, for two successive fiscal years after December 31, 1995
(referred to as the Sixth Full Year), the Owner's Remittance Amount (as
defined) is less than the annual principal and interest payments paid on
the First Mortgage Note (presently the Restated First Mortgage Note), up to
a maximum of $6,250,000. This shortfall occurred in 1996 and 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 began
negotiating a new management agreement with a lower fee and other
provisions more favorable to BMCLP than the existing Management Agreement.
For example, BMCLP desires to eliminate the provision in the existing
agreement that 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 Management Agreement. However, during these
negotiations, Hyatt asserted for the first time that the determination of
whether or not a shortfall had occurred must be based on the portion of the
Restated First Mortgage Note allocable to the Hotel, rather than the entire
debt service, and that based on their analysis, a shortfall may not have
occurred in 1996 or 1997. BMCLP vigorously disagrees with this assertion,
and on April 21, 1998 sent a notice to Hyatt terminating the Management
Agreement effective July 31, 1998. At the same time, BMCLP exercised its
right under the Management Agreement to demand arbitration seeking a
declaratory judgment that BMCLP's termination of Hyatt is proper and
effective, and also seeking reimbursement of certain chain expenses for
which BMCLP believes Hyatt has overcharged. The parties initially agreed
to postpone the termination until October 31, 1998 and the arbitration for
90 days. The parties have subsequently extended these dates several times.
Currently, the arbitration and termination have been stayed by agreement
until March 1, 1999 and April 15, 1999, respectively, although the parties
have verbally agreed to a further extension to April 1, 1999 and May 17,
1999, respectively, to allow the parties time potentially to resolve their
differences. The parties are presently formalizing this verbal agreement.
The Managing General Partner cannot currently predict whether the parties
will be able to resolve their differences, and if not, the impact on the
accompanying consolidated financial statements of the outcome of the
arbitration.

In the event of a sale of the Development, as discussed below, the
sale agreement states that the purchaser shall negotiate a new management
agreement with Hyatt, and if the purchaser fails to reach such an
agreement, that the purchaser shall assume the Management Agreement at the
sale's closing and shall accept the Development subject to the Management
Agreement and the arbitration previously described. The Management
Agreement calls for Hyatt's consent to the assignment, which shall not be
unreasonably withheld. The Partnership can provide no assurance that Hyatt
would consent to an assignment under the circumstances described.

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, 1998 and 1997, approximately

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

7. COMMITMENTS AND CONTINGENCIES - Continued

$124,000 and $110,000, respectively, of this related party payable was
recorded as due to affiliates in the accompanying consolidated 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 years 1998, 1997 and
1996, respectively. Unexpended reserves are recorded as escrows and
deposits within the accompanying consolidated financial statements. The
reserve balances included in escrows and deposits at December 31, 1998 and
1997, were approximately $489,000 and $391,000, 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 was to manage the Office Building for a
term of 20 years commencing with 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 Lender Partnership
(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 revenues.
Management fees for the years ended December 31, 1998, 1997 and 1996, were
approximately $409,000, $403,000 and $401,000, respectively, and are
included in management fees in the accompanying consolidated statements of
operations.

In addition to management fees, Realty also receives leasing
commissions for leasing certain space in the Office Building. For the
years ended December 31, 1998, 1997 and 1996, approximately $107,000,
$174,000 and $466,000, respectively, were paid to Realty for such leasing
commissions.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

7. COMMITMENTS AND CONTINGENCIES - Continued

b. Ground Leases
-------------

BMCLP entered into a ground lease with the Washington Metropolitan
Area Transit Authority ("WMATA") for land on which the Development is
built. The land lease expires on November 30, 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, as defined in the land lease, in
excess of $31,000,000. As of December 31, 1998, $105,930 was accrued as
additional rent due to WMATA for 1998. No additional rent was due for 1997
or 1996.

Future minimum rental payments under the ground lease follow.

Year Ended
December 31,
------------
1999 $ 1,600,000
2000 1,600,000
2001 1,600,000
2002 1,600,000
2003 1,600,000
Thereafter 44,800,000
-----------
Total $52,800,000
===========

c. Examination of Federal Income Tax Return
----------------------------------------

The 1994 federal income tax return of BMCLP is being examined by the
Internal Revenue Service, primarily due to the refinancing of the Notes and
the subsequent election available to the individual partners of the
Partnership to postpone recognition of income taxable to them as a result
of the restructuring of the Notes. Management cannot currently project
the outcome of the examination. However, as discussed in Note 2, any
impact of the examination will be allocated to the individual partners for
Federal and state income tax purposes.

IV-32
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

8. RELATED-PARTY TRANSACTIONS

A summary of amounts due to affiliates follows.

</TABLE>

The $467,133 and $405,810 due to CRI as of December 31, 1998 and 1997,
respectively, are partially comprised of $142,792 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, the
$1,390,760 and $1,303,861 due to CHG as of December 31, 1998 and 1997,
respectively, and $1,614,642 and $1,511,128 due to Realty as of December
31, 1998 and 1997, respectively, represent advances made to BMCLP and
interest accrued thereon, to fund Excess Payments on the Great Western
Notes, as discussed in Note 4. The advances from CRI, CHG and Realty
accrue interest at the prime rate (7.75% as of December 31, 1998) plus 1%
in accordance with the Partnership Agreement. 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 $1,969,275 and $1,395,274 due to Hyatt as of December
31, 1998 and 1997, respectively, consist of $1,845,766 and $1,285,429,
respectively, of incentive management fees earned under its management
agreement with BMCLP which is due subject to Hyatt meeting certain
performance standards as defined in the management agreement. Of the
$1,845,766 due as of December 31, 1998, $260,270 of incentive management
fees earned during 1998 were paid during 1999 in accordance with the
Management Agreement. The remaining 1998 incentive management fees and all
of the 1997 incentive management fees have been deferred by Hyatt in
accordance with the Management Agreement. The remaining $123,509 and
$109,845 balance due to Hyatt as of December 31, 1998 and 1997,
respectively, consists of trade payables to Hyatt for various services as
described in Note 7.

CRCC 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 payments of $50,000 in each of 1998,
1997 and 1996 from remaining net cash flow relating to 1997, 1996 and 1995,

IV-33
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

8. RELATED-PARTY TRANSACTIONS - Continued

respectively. Additionally, $50,000 was accrued as of December 31, 1998
for fiscal year 1998 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 such incentive
management fee was earned or paid in 1998, 1997, or 1996.

Realty Management Company, which is a former affiliate of one of the
Special Limited Partners, provides management and leasing 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
follow.

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

1999 $ 7,913,957
2000 7,734,282
2001 7,070,633
2002 5,874,316
2003 4,781,251
Thereafter 8,814,457
-----------
Total $42,188,896
===========

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

IV-34
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

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 Partners, 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 $2,599,769 and $2,490,352 as of December
31, 1998 and 1997, respectively. Interest on amounts advanced to BMCLP for
operating deficits is 1% over the prime rate (7.75% as of December 31, 1998) 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
$1,360,882 and $1,251,465 at December 31, 1998 and 1997, 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, 1998 and 1997, 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.

11. SEGMENT REPORTING

BMCLP has two reportable operating segments, the Hotel and the Office
Building. The Managing General Partner evaluates the performance of each based
on gross operating profit (calculated as total revenues less operating expenses,
excluding depreciation, management fees and other fixed costs). The accounting
policies applicable to the operating segments are the same as those described
above in the summary of significant accounting policies.

IV-35
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

11. SEGMENT REPORTING - Continued

Information related to the reportable operating segments for each of
the three years ended December 31, 1998, follows (dollars in thousands.)

<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Office Total Per
Hotel Building Consolidated Data
--------- --------- -----------------
<S> <C> <C> <C>
Total Revenue $ 22,275 $ 10,312 $ 32,587
Operating Expenses (13,440) (2,867) (16,307)
--------- --------- --------
Gross Operating Profit $ 8,835 $ 7,445 $ 16,280
========= ========= ========

</TABLE>

<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
Office Total Per
Hotel Building Consolidated Data
--------- --------- -----------------
<S> <C> <C> <C>
Total Revenue $ 20,350 $ 9,387 $ 29,737
Operating Expenses (12,382) (2,769) (15,151)
-------- -------- --------
Gross Operating Profit $ 7,968 $ 6,618 $ 14,586
======== ======== ========

</TABLE>

IV-36
<PAGE>
CAPITAL INCOME PROPERTIES - C LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AS RESTATED FOR 1997 AND 1996)

11. SEGMENT REPORTING - Continued

<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Office Total Per
Hotel Building Consolidated Data
--------- --------- -----------------
<S> <C> <C> <C>
Total Revenue $ 18,838 $ 9,537 $ 28,375
Operating Expenses (11,721) (2,717) (14,438)
--------- --------- --------
Gross Operating Profit $ 7,117 $ 6,820 $ 13,937
========= ========= ========

</TABLE>

BMCLP does not consider the total assets of each segment in evaluating the
operating performance or when determining the allocation of resources.
Therefore, this information has not been presented.

12. SUBSEQUENT EVENT

On January 22, 1999, BMCLP entered into a non-binding sale agreement to
sell the Development. If such a sale is completed, it is the intention of
management to repay the Restated Notes, the Third Mortgage Note and all related
party debt, including both principal and interest. In addition, based on the
proposed purchase price, management has estimated the Economic Value
Participation Interest (see Note 4) due to BMC from the Partnership (assuming a
closing date of April 30, 1999). BMC has indicated that they will accept a
discount on the Economic Value Participation Interest so that the Partnership
will have sufficient funds to repay all debt obligations and make a distribution
to the limited partners to offset any tax effects of the sale. Based on
management's estimate, the Economic Value Participation Interest would not
exceed the deferred gain on restructuring as reflected in the accompanying
consolidated balance sheets. Upon sale, this liability to BMC for the Economic
Value Participation Interest would be recorded as a charge to the deferred gain
on restructuring. The remaining balance of the deferred gain on restructuring
would be recognized as an extraordinary gain by BMCLP. There is no assurance
that this sale will take place, and the accompanying financial statements do not
reflect the effects of the potential sale. In addition, if a sale does take
place, there is no assurance that the Economic Value Participation Interest due
to BMC would not exceed the deferred gain on the restructuring as reflected on
the accompanying consolidated balance sheets.

IV-37
<PAGE>

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

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

27 Financial Data Schedule Filed herewith electronically

IV-38

<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,599,050
<SECURITIES> 0
<RECEIVABLES> 1,192,550
<ALLOWANCES> 85,310
<INVENTORY> 70,536
<CURRENT-ASSETS> 9,751,529
<PP&E> 139,825,942
<DEPRECIATION> 63,440,811
<TOTAL-ASSETS> 90,095,414
<CURRENT-LIABILITIES> 12,563,973
<BONDS> 71,819,916
0
0
<COMMON> 0
<OTHER-SE> (96,374,429)
<TOTAL-LIABILITY-AND-EQUITY> 90,095,414
<SALES> 0
<TOTAL-REVENUES> 32,845,782
<CGS> 0
<TOTAL-COSTS> 16,307,332
<OTHER-EXPENSES> 9,691,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,326,848
<INCOME-PRETAX> 5,520,529
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,520,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,520,529
<EPS-PRIMARY> (59.33)
<EPS-DILUTED> (59.33)

</TABLE>