ML EQ REAL ESTATE PORTFOLIO L P, 10-K405, 1997-03-31

ML EQ REAL ESTATE PORTFOLIO L P
10-K405, 1997-03-31
LESSORS OF REAL PROPERTY, NEC

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

<TABLE>
<S> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996).
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>

COMMISSION FILE NUMBER 0-17684

ML/EQ REAL ESTATE PORTFOLIO, L.P.
(Exact name of registrant as specified in governing instrument)

<TABLE>
<S> <C>
DELAWARE 58-1739523
(State of organization) (IRS Employer Identification No.

1150 LAKE HEARN DR., ATLANTA, GEORGIA 30342-1522
(Address of Principal Executive Offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (404) 239-5002

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

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<C> <C>
None None
</TABLE>

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

BENEFICIAL ASSIGNEE CERTIFICATES ("BACS")
REPRESENTING ASSIGNMENTS OF LIMITED PARTNERSHIP INTERESTS
(Title of Class)

LIMITED PARTNERSHIP INTERESTS UNDERLYING BACS
(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]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant.

Not Applicable

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the Prospectus of the Registrant dated April 23, 1987,
as supplemented by supplements dated March 3, 1988 and March 17, 1988 (File No.
33-11064) filed pursuant to Rule 424 of the Securities Act of 1933, as amended,
are incorporated by reference in Parts I and II of this Annual Report on Form
10-K.
<PAGE> 2

PART I

ITEM 1. BUSINESS

General. The registrant, ML/EQ Real Estate Portfolio, L.P. (the
"Partnership"), is a limited partnership formed on December 22, 1986 under the
Revised Uniform Limited Partnership Act of the State of Delaware. The
Partnership operates pursuant to the Amended and Restated Agreement of Limited
Partnership dated as of April 23, 1987 as amended as of February 9, 1988 (the
"Partnership Agreement"), which is included as an exhibit to this annual report.
Capitalized terms used in this annual report that are not defined herein have
the same meaning as in the Partnership Agreement.

The Partnership's two general partners are EREIM Managers Corp., a Delaware
corporation (the "Managing General Partner"), and MLH Real Estate Associates
Limited Partnership, a Delaware limited partnership (the "Associate General
Partner" and, together with the Managing General Partner the "General
Partners"). The Managing General Partner is an indirect, wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States ("Equitable") and
the general partner of the Associate General Partner is an affiliate of Merrill
Lynch & Co., Inc. ("Merrill Lynch"). Equitable has announced that it is
exploring strategic alternatives regarding Equitable Real Estate Investment
Management, Inc. ("Equitable Real Estate"). Equitable Real Estate is an indirect
wholly-owned subsidiary of Equitable and the sole shareholder of the Managing
General Partner. The alternatives being explored by Equitable include a possible
sale of all or a portion of Equitable Real Estate. It is not anticipated,
however, that such a sale would include the shares of the Managing General
Partner.

The Partnership offered to the public $150,000,000 of Beneficial Assignee
Certificates (the "BACs"), which evidence the economic rights attributable to
limited partnership interests in the Partnership (the "Interests"), in an
offering (the "Offering") which commenced in 1987. The Offering was made
pursuant to a Prospectus dated April 23, 1987, as supplemented by Supplements
dated December 29, 1987 (the "December Supplement"), March 3, 1988 (the "March 3
Supplement") and March 17, 1988 (the "March 17 Supplement"), filed with the
Securities and Exchange Commission (the "SEC") in connection with a Registration
Statement on Form S-11 (No. 33-11064). The Prospectus as supplemented is
hereinafter referred to as the "Prospectus." The Offering terminated on March
29, 1988. On March 10, 1988, the Partnership's initial investor closing occurred
at which time the Partnership received $92,190,120, representing the proceeds
from the sale of 4,609,506 BACs. On May 3, 1988, the Partnership's final
investor closing occurred at which time the Partnership received $16,294,380,
representing the proceeds from the sale of an additional 814,719 BACs. In total,
the Partnership realized gross proceeds of $108,484,500 from the Offering,
representing the sale of 5,424,225 BACs.

Following its investor closings, the Partnership contributed the net
proceeds of the Offering to EML Associates (the "Venture"), a joint venture with
EREIM LP Associates, a New York general partnership between Equitable and EREIM
LP Corp., a wholly-owned subsidiary of Equitable. The Venture was formed in
March 1988. The capital of the Venture was provided approximately 80% by the
Partnership and approximately 20% by EREIM LP Associates.

cumulative return computed at the rate of 9.75% per annum on contributions
outstanding from time to time. Prior to the amendment, EREIM LP Associates had a
right to receive 20% of all of the Venture's distributions of Sale or Financing
Proceeds on a pari passu basis with the Partnership. The amendment will have the
effect of accelerating the return of original contributions to BAC holders to
the extent that Sale and Financing Proceeds are realized prior to the
dissolution of the Partnership.

Business of the Partnership. The Partnership was formed to invest in a
diversified portfolio of properties and mortgage loans. The Partnership
considers its business to represent one industry segment, investment in real
property. The Partnership has, however, developed a concentration of retail real
estate investments with the inclusion of the Venture's interests in Northland
Center and Brookdale Center. Such properties were transferred to the Venture and
Equitable on July 22, 1994 and December 16, 1996, respectively. The Venture's
interest in Northland Center represented approximately 31% and 30% of the real
estate investments owned by the Venture as of December 31, 1996 and 1995,
respectively, and approximately 46% and 54% of total revenues of the Venture for
the years ended December 31, 1996 and 1995, respectively. The Venture's interest
in Brookdale Center represented approximately 12% of the real estate investments
owned by the Venture as of December 31, 1996 and approximately 15.3% of total
revenues of the Venture in the year ended December 31, 1996. Combined retail
real estate investments represented approximately 50% and 53% of real estate
investments owned by the Venture as of December 31, 1996 and 1995, respectively,
and approximately 67% and 66% of total revenues of the Venture for the years
ended December 31, 1996 and 1995, respectively.

Following the Offering, the Venture acquired a diversified portfolio of
real properties and mortgage loans secured by real properties. Based on original
acquisition prices, approximately 52% of the Venture's original contributed
capital was invested in existing income-producing real properties acquired
without permanent mortgage indebtedness (the "Properties"), approximately 25% of
such capital was invested in zero coupon or similar mortgage notes (the "Zero
Notes"), and the balance was invested in fixed-rate first mortgage loans (the
"Mortgage Loans"). The Properties and the properties that secured the mortgage
loans included commercial, industrial, residential and warehouse/distribution
properties.

At December 31, 1996, the Venture owned ten Properties (one of which
consists of two adjacent office buildings) and undivided interests in two
Properties (Northland Center and Brookdale Center) as a tenant in common with
Equitable. All references herein to the Venture's ownership of Northland Center
or Brookdale Center shall be deemed to refer to the Venture's undivided interest
as a tenant in common with Equitable unless otherwise indicated. Nine of the
Properties were purchased at an aggregate cost of approximately $68.1 million.
Two of the Properties, Northland Center and The Bank of Delaware Building
(originally properties that secured a Zero Note and a Mortgage Loan,
respectively), were transferred to the Venture during 1994 in separate deed in
lieu of foreclosure transactions. The estimated fair market value of the
Venture's undivided interest in the Northland Center Zero Coupon Mortgage Note
Receivable immediately preceding the transfer was approximately $32.2 million
and the estimated fair market value of the Bank of Delaware Building Mortgage
Loan immediately preceding the transfer was approximately $8.5 million.
Brookdale Center (originally a property that secured a Zero Note) was
transferred to the Venture during December 1996 pursuant to a Chapter 11
bankruptcy plan for Midwest Real Estate Shopping Center L.P. ("Midwest"), a
publicly traded limited partnership (formerly Equitable Real Estate Shopping
Centers L.P.), the borrower. The estimated fair market value of the Venture's
undivided interest in the Brookdale Loan immediately preceding the transfer was
approximately $15.6 million. In addition, at December 31, 1996, the Venture
owned an interest in one remaining Mortgage Loan in the principal amount of $6.0
million. (Amounts identified are exclusive of closing costs.) Reference is made
to Item 2. PROPERTIES for information concerning the Properties and the Mortgage
Loan.

2
<PAGE> 4

Real estate investments are recorded at historical cost less accumulated
depreciation. For purposes of financial statement presentation, the Properties
are stated at cost, unless it is determined that the value of the Properties has
been impaired to a level below depreciated cost. Impairment is determined by
calculating the sum of the estimated undiscounted future cash flows including
the projected undiscounted future net proceeds from sale of the Property. In the
event this sum is less than the depreciated cost of the Property, the Property
will be written down to estimated fair market value. With respect to Mortgage
Loans, management reviews the valuation of the underlying security. If the
Venture's portion of the estimated fair market value of the underlying
collateral declines below the recorded investment in the Mortgage Loans,
impairment will be recognized through the creation of a valuation allowance.

Neither the Partnership nor the Venture has any real property investments
located outside the United States. The Partnership has no employees.

Leasing Information. See Item 2. PROPERTIES for information regarding
percentages of space under lease for each of the Properties and the property
that secures the Mortgage Loan, as well as information relating to the
percentage of rentable space at each Property covered by leases that are
scheduled to expire in each of the years 1997 to 1999.

Competition. The Properties and the property that secures the Mortgage
Loan may compete with other properties in the areas in which they are located
for, among other things, desirable tenants. Competitors may include properties
owned or managed directly or indirectly by Equitable or its subsidiaries or
affiliates or by affiliates of the Associate General Partner. Owners of some of
these properties may have greater resources than the Venture or the owners of
the property that secures the Mortgage Loan and/or may be willing or able to
make greater concessions (e.g., lower rent or higher allowances for tenant
improvements) to attract tenants. Similarly, tenants of the Properties and the
property that secures the Mortgage Loan may compete for business with other
businesses in the area. Such competition may adversely affect the business (and,
in some cases, the viability) of such tenants and, particularly in the case of
retail tenants, may reduce the amount of rent received by the Venture under
percentage rent provisions. See Item 2. PROPERTIES for a discussion of
competition pressures experienced by the Venture's Richland Mall Property.

The Venture's income from Properties may be affected by many factors,
including reductions in rental income due to an inability to maintain occupancy
levels, adverse changes in general economic conditions, adverse local conditions
(such as decreases in demand for similar or competing facilities or competitive
over-building, adverse changes in tax, real estate, zoning and environmental
laws or decreases in employment), energy shortages or increased energy costs, or
acts of God (such as earthquakes and floods). In addition, the ability of the
borrower on the Mortgage Loan to meet its obligations under such loan will be
affected by these same factors. See Item 2. PROPERTIES for a description of
difficulties experienced by certain of the Properties and the property that
secures the Mortgage Loan.

The holding period for the Properties was originally intended to be 7 to 10
years and the Partnership currently does not anticipate that the Properties will
be sold prior to that time unless market conditions demand that earlier action
be taken. The Partnership can not state whether or not the Properties will be
sold within this original period. The ability of the Venture to dispose of its
Properties will be influenced by, among other things, prevailing interest rates
and the availability of mortgage financing at the time that the Properties are
offered for sale. For example, if high interest rates or shortages of mortgage
funds were prevailing at the time the Venture was attempting to dispose of a
Property, the sale or other disposition of such Property might be rendered
difficult or the Venture might be required to assume credit risks if it becomes
necessary to extend mortgage financing to buyers. Similarly, such factors may
affect the ability of the borrower under the

3
<PAGE> 5

Mortgage Loan held by the Venture to sell or refinance the property that secures
such loan, which may adversely affect the ability of the borrower to pay such
loan at maturity. In this regard, it should be noted that many lenders have
continued to curtail extending credit to many businesses and industries,
including real estate owners and developers. The reasons for such action
include, but are not limited to, defaults experienced on such loans. There can
be no assurance whether or when the availability of credit for real estate
financing will increase. Liquidation or dissolution of the Venture will be
delayed until the sale, retirement or other disposition of the Mortgage Loan and
Properties held by the Venture (other than purchase money notes from the sale of
a property) or the liquidation of the Partnership, but not beyond December 31,
2002. See INVESTMENT GUARANTY AGREEMENT AND RELATED MATTERS below.

Conflicts of Interest. Equitable and its subsidiaries and affiliates are
among the largest managers of real estate assets in the country and certain
activities in which they currently or in the future may engage will be
competitive with the Partnership and the Venture. As Managing General Partner of
the managing partner of the Venture, EREIM Managers Corp. may encounter various
conflicts of interest in managing the Partnership's and the Venture's
businesses. These conflicts may, for example, arise in connection with the
allocation of leasing or sale opportunities, selection of service providers such
as property managers (including whether to retain an affiliate or a
non-affiliate), determination to exercise or forbear exercise of certain rights
(e.g., eviction or foreclosure), or the timing of investment dispositions or
liquidations. While EREIM Managers Corp. believes that it will be able to
resolve such conflicts in an equitable manner, it is possible that such
conflicts may not be resolved in favor of the Partnership or the Venture.

Presently nine Properties are managed by Compass Management and Leasing,
Inc. ("Compass") and Compass Retail, Inc. ("Compass Retail"), affiliates of
Equitable. The property management agreements are at market rates but not in
excess of the rates permitted under the Partnership Agreement.

Working Capital Reserves. The Partnership intends to maintain adequate
working capital reserves to meet short and long-term commitments. The
Partnership's reserves may be increased or decreased from time to time based
upon the Managing General Partner's determination as to their adequacy;
provided, however, that such working capital reserves may not be decreased below
1% of gross offering proceeds prior to the time that the Partnership enters its
liquidation phase. Working capital reserves as of December 31, 1996, including
the Partnership's allocable share of Venture cash reserves, are approximately
20.5% of the Partnership's gross offering proceeds. See Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Insurance. The Properties are covered under insurance contracts which
provide comprehensive general liability as well as physical damage protection.
Such insurance contracts also cover other properties in accounts which are
advised or managed by Equitable or its subsidiaries as well as certain
properties in which Equitable, its subsidiaries, or its insurance company
separate accounts have an ownership interest.

Although the Venture carries comprehensive insurance on the Properties and
the terms of the Venture's Mortgage Loan requires the borrower to obtain and
maintain general liability, property damage and certain other insurance in
specified amounts, there are certain risks (such as earthquakes, floods and
wars) which may be uninsurable or not fully insurable at a cost believed to be
economically feasible. Moreover, there can be no assurance that particular risks
that are currently insurable will continue to be so, or that current levels of
coverage will continue to be available at a cost believed to be economically
feasible. The Managing General Partner, on behalf of the Partnership as managing
partner of the Venture, will use its discretion in determining the scope of
coverage, limits and deductible provisions on insurance, with a view to
maintaining appropriate insurance on the Properties at an appropriate cost.
Similarly, the Managing General Partner will use its

4
<PAGE> 6

discretion in determining whether and when to permit the borrower under the
Mortgage Loan to obtain and maintain coverage that differs from the requirements
of the mortgage, with a view to requiring appropriate insurance on the property
which secures the Mortgage Loan in light of prevailing insurance market,
economic, and other factors. This may result in insurance which will not cover
the full extent of a loss or claim.

Investment Guaranty Agreement and Related Matters. Under an investment
guaranty agreement dated March 10, 1988 by and between EREIM LP Associates and
the Venture (the "Guaranty Agreement"), EREIM LP Associates has guaranteed to
pay the Venture, if necessary, ninety days after the earlier of the sale,
retirement, or other disposition of the Mortgage Loan and Properties or the
liquidation of the Partnership, an amount which when added to all distributions
from the Partnership to the holders of BACs ("BAC Holders") will enable the
Partnership to provide the BAC Holders with a minimum return (the "Minimum
Return") equal to their Capital Contributions plus a simple annual return equal
to 9.75% multiplied by their Adjusted Capital Contributions (as defined in the
Guaranty Agreement), calculated from the investor closing at which the BAC
Holder acquired its BACs.

The Venture has assigned the Guaranty Agreement to the Partnership in
exchange for the Partnership's assumption of the Venture's obligations
thereunder, including the obligation to pay the Guaranty Fee. Any moneys
distributed by the Partnership to BAC Holders and/or limited partners of the
Partnership ("Limited Partners") on account of payments made under the Guaranty
Agreement will be distributed to BAC Holders and/or Limited Partners based on
the total number of BACs or Interests owned by each BAC Holder and/or Limited
Partner as of the date the Minimum Return is calculated.

If the Venture holds a purchase money note from the sale of a Property at
the time all other investments of the Partnership and the Venture have been
disposed of and the proceeds distributed, any remaining obligation of EREIM LP
Associates under the Guaranty Agreement will be reduced by (i) the aggregate
amount of all cash payments to BAC Holders and Limited Partners and (ii) the
discounted value (at the market rate of interest of a U.S. Treasury security
having a comparable term) of principal and interest payments on the purchase
money note. EREIM LP Associates will be required to either purchase the purchase
money note from the Venture at its discounted value or guarantee timely payment
of principal and interest under the note, but only to the extent such note
reduces obligations under the Guaranty Agreement and so long as the note does
not reduce obligations below zero. If the Venture sells a purchase money note at
a premium over the discounted value of the note, the premium will be paid to
EREIM LP Associates to the extent of any payments made under the Guaranty
Agreement. Moreover, EREIM LP Associates will be entitled to receive any cash
payments paid to the Partnership (other than payments from a purchase money note
guaranteed by EREIM LP Associates) to the extent that it has made any payment
under the Guaranty Agreement.

The obligation of EREIM LP Associates to pay the Minimum Return is subject
to reduction for (i) any Federal, state or local corporate income or franchise
tax imposed upon the Partnership or the Venture, and (ii) any Federal, state or
local income, gross receipts, value-added, excise or similar tax imposed on the
Partnership or the Venture not imposed under law at the time of the Offering,
other than any such local tax imposed as a result of owning real property in the
locality. All distributions from the Partnership to BAC Holders from whatever
source will reduce the amount of EREIM LP Associates' obligation under the
Guaranty Agreement. The obligations of EREIM LP Associates under the Guaranty
Agreement will terminate in the event that upon the written consent or the
affirmative vote of BAC Holders or Limited Partners owning more than 50% of the
Interests either (i) EREIM Managers Corp. is removed as the Managing General
Partner of the Partnership or (ii) the Partnership is dissolved without the
consent of EREIM Managers Corp. The maximum liability of EREIM LP Associates
under the Guaranty Agreement is

5
<PAGE> 7

$271,211,250. Subject to the foregoing, the obligations of EREIM LP Associates
under the Guaranty Agreement as of December 31, 1996 are limited to $244,905,999
plus the value of EREIM LP Associates' interest in the Venture less any amounts
contributed by EREIM LP Associates to the Venture to fund cash deficits.

As described above, the general partners of EREIM LP Associates are EREIM
LP Corp., a wholly-owned subsidiary of Equitable, and Equitable. The obligations
of EREIM LP Associates under the Guaranty Agreement are nonrecourse to Equitable
but are recourse as to EREIM LP Corp. Equitable has entered into an agreement
dated as of March 10, 1988 (the "Keep Well Agreement") with EREIM LP Corp. which
provides that Equitable will make capital contributions to EREIM LP Corp. in
such amounts as to permit EREIM LP Corp. to pay its obligations with respect to
the Guaranty Agreement as they become due; provided, however, that the maximum
liability of Equitable under the Keep Well Agreement is an amount equal to the
lesser of (i) two percent of the total admitted assets of Equitable (as
determined in accordance with New York Insurance Law) or (ii) $271,211,250.
Subject to the foregoing, the obligations of Equitable under the Keep Well
Agreement as of December 31, 1996 are $244,905,999. The Keep Well Agreement
provides that only EREIM LP Corp. and its successors will have the right to
enforce Equitable's obligations thereunder.

The Keep Well Agreement is an unsecured contractual liability of Equitable
and is not a policy of insurance. Since the Guaranty Agreement is nonrecourse as
to Equitable and the obligation under the Keep Well Agreement to pay all
obligations of EREIM LP Corp. is not for the benefit of third parties, including
the Partnership and BAC Holders, BAC Holders will have no direct cause of action
against Equitable to enforce the obligations of Equitable under the Keep Well
Agreement. However, if the assets of EREIM LP Associates and EREIM LP Corp. are
insufficient to satisfy EREIM LP Associates' obligations under the Guaranty
Agreement, a proceeding in bankruptcy could be commenced against EREIM LP Corp.
In such event the debtor-in-possession or trustee in bankruptcy would have a
claim against Equitable to compel performance under the Keep Well Agreement. If
the Managing General Partner, which is an affiliate of Equitable, did not
commence an involuntary bankruptcy proceeding against EREIM LP Corp. on behalf
of the Partnership, MLH Real Estate Assignor Inc., the initial limited partner
of the Partnership (the "Initial Limited Partner"), on behalf of BAC Holders
would have a right to compel the Partnership to commence such involuntary
bankruptcy proceeding.

The New York Insurance Law contains provisions limiting the amount of an
investment by a New York life insurance company, such as Equitable, in certain
of its subsidiaries and in real estate. The Keep Well Agreement provides that
Equitable's obligation thereunder is subject to compliance with any applicable
limitation on investment contained in the New York Insurance Law.

At December 31, 1996, 1995 and 1994, Equitable's total surplus, calculated
in accordance with the statutory method of accounting, was approximately $2.26
billion, $2.20 billion and $2.12 billion, respectively. At December 31, 1996,
1995 and 1994, Equitable's total consolidated capital, calculated in accordance
with the statutory method of accounting and consisting of surplus and the Asset
Valuation Reserve, was approximately $3.56 billion, $3.55 billion and $3.11
billion, respectively.

The Equitable Companies Incorporated (the "Holding Company"), a Delaware
corporation, owns all of Equitable's outstanding capital stock. Equitable and
the Holding Company are subject to the informational requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information, including financial
statements, with the Securities Exchange Commission under Commission File No.
0-25280 and 1-11166, respectively. Such reports and other

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<PAGE> 8

information filed by Equitable and the Holding Company can be inspected and
copied at the public reference facilities maintained by the SEC in Washington,
D.C. and at certain of its Regional Offices, and copies may be obtained from the
Public Reference Section of the SEC, Washington, D.C. 20549, at prescribed
rates.

Equitable is a diversified financial service organization serving a broad
spectrum of insurance, investment management and investment banking customers.
It has been in business since 1859. In 1992, it converted from a mutual life
insurance company into a stock life insurance company through a process called
"demutualization."

ITEM 2. PROPERTIES

At December 31, 1996, approximately 85.5% of the aggregate rentable square
feet of the Venture's Properties was leased. Leases covering approximately 8.7%,
8.4% and 8.6% of the Properties rentable square feet are scheduled to expire in
1997, 1998 and 1999, respectively.

Set forth below is a brief description of each of the Venture's investments
at December 31, 1996. Reference is made to Notes 3, 4, 5 and 9 of the Notes to
Consolidated Financial Statements in Item 8. FINANCIAL STATEMENTS. The Venture
has fee ownership of the land and improvements relating to each of the
Properties.

<TABLE>
<CAPTION>
NAME, LOCATION APPROXIMATE DATE OF YEAR OF
AND TYPE OF PROPERTY SIZE ACQUISITION COMPLETION
-------------------- ------------------ ----------- ----------
<S> <C> <C> <C>
1200 Whipple Road 257,500 sq. ft. 3/17/88 1963
Union City, CA
warehouse/distribution
Richland Mall 182,577 sq. ft. 7/19/88 1974-75
Bucks County, PA
shopping center
16/18 Sentry Park West 186,243 sq. ft. 12/22/88 1988
Montgomery County, PA
office buildings
701 Maple Lane 58,230 sq. ft. 12/27/88 1980
Bensenville, IL
warehouse/office
733 Maple Lane 23,520 sq. ft. 12/27/88 1980
Bensenville, IL
warehouse/office
7550 Plaza Court 49,500 sq. ft. 12/27/88 1980
Willowbrook, IL
warehouse/office
1850 Westfork Drive 103,505 sq. ft. 1/6/89 1988
Lithia Springs, GA
warehouse/distribution
1345 Doolittle Drive 326,414 sq. ft. 5/18/89 1964
San Leandro, CA
warehouse/distribution
</TABLE>

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<PAGE> 9
<TABLE>
<CAPTION>
NAME, LOCATION APPROXIMATE DATE OF YEAR OF
AND TYPE OF PROPERTY SIZE ACQUISITION COMPLETION
-------------------- ------------------ ----------- ----------
<S> <C> <C> <C>
800 Hollywood Avenue 50,337 sq. ft. 6/8/89 1979
Itasca, IL
warehouse/office
Northland Center 552,992(1) sq. ft. 7/22/94 1954
Southfield, MI
regional mall
The Bank of Delaware Building 314,313 sq. ft. 11/15/94 1970
Wilmington, DE
office building
Brookdale Center 200,184(1) sq. ft. 12/16/96 1962
Brooklyn Center, MN
regional mall
</TABLE>

- ---------------

(1) Excludes square feet of properties owned by certain anchor stores.

PROJECTED ANNUAL AGGREGATE LEASE PAYMENTS TO BE RECEIVED
(IN DOLLARS)(1)

<TABLE>
<CAPTION>
NAME OF PROPERTY 1997 1998 1999 2000 2001 THEREAFTER
---------------- ----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1200 Whipple Rd................ $ 1,009,340 $ 1,098,200 $ 1,261,675 $ 1,261,675 $1,261,675 $ 2,079,051
Richland Mall.................. 535,461 895,060 890,321 861,898 806,035 9,275,140
16/18 Sentry Park West......... 2,897,834 2,723,867 2,413,557 1,704,002 656,762 2,197,216
701 and 733 Maple Lane......... 339,430 205,391 104,174 111,720 111,720 46,550
7550 Plaza Ct.................. 193,050 202,950 211,613 218,790 225,720 171,889
1850 Westfork Dr............... 179,409 0 0 0 0 0
1345 Doolittle Dr.............. 838,192 859,468 708,686 451,216 86,400 86,400
800 Hollywood Ave.............. 204,284 206,382 210,786 213,932 213,932 89,138
Northland Center............... 3,667,672 3,400,990 3,133,558 2,791,510 2,241,635 5,273,995
The Bank of Delaware
Building..................... 947,717 900,331 874,389 848,175 635,142 1,998,357
Brookdale Center............... 2,585,919 2,446,716 2,289,332 1,893,076 1,658,142 5,642,619
----------- ----------- ----------- ----------- ---------- -----------
$13,398,308 $12,939,355 $12,098,091 $10,355,994 $7,897,163 $26,860,355
=========== =========== =========== =========== ========== ===========
</TABLE>

- ---------------

(1) Lease payments to be received under noncancelable operating leases in effect
as of December 31, 1996.

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<PAGE> 10

RANGE OF LEASE EXPIRATIONS

<TABLE>
<CAPTION>
NAME OF PROPERTY YEARS
---------------- ---------
<S> <C>
1200 Whipple Road........................................... 2003
Richland Mall............................................... 1997-2018
16/18 Sentry Park West...................................... 1997-2007
701 and 733 Maple Lane...................................... 1998-2002
7550 Plaza Court............................................ 2002
1850 Westfork Drive......................................... 1997
1345 Doolittle Drive........................................ 1999-2002
800 Hollywood Avenue........................................ 2002
Northland Center............................................ 1997-2008
The Bank of Delaware Building............................... 1997-2007
Brookdale Center............................................ 1997-2015
</TABLE>

MAJOR TENANTS

The following list sets forth major tenants for certain Properties together
with percentage of space used by such tenants:

<TABLE>
<CAPTION>
PERCENTAGE OF
PROPERTIES MAJOR TENANTS LEASABLE SPACE
- ---------- ------------- ---------------
<S> <C> <C>
Richland Mall.............................. Bon Ton Department Store 46.2%
Redner's Market 30.1%
16/18 Sentry Park West..................... J&B Software 10.0%
1345 Doolittle Drive....................... Gruner & Jahr 44.1%
National Distribution Agency 23.5%
Jay-N Company 18.6%
Northland Center........................... Hudson's Department Store (A)
J.C. Penney (A)
Montgomery Ward (A)
Target (A)
The Bank of Delaware Building.............. PNC Bank 32.2%
Brookdale Center........................... J.C. Penney (B)
Sears (B)
Mervyn's (B)
Dayton's (B)
Kohl's (B)
</TABLE>

- ---------------

(A) Hudson's Department Store, J.C. Penney, Montgomery Ward, and Target
independently constructed and operate their stores at Northland Center and
each contributes common area maintenance payments for operating expenses
and real estate taxes under separate agreements. These stores covering
511,509 square feet, 283,534 square feet, 117,750 square feet, and 116,222
square feet, respectively, are not included in the gross leasable area of
the mall.
(B) Sears and Mervyn's owns their stores, the underlying land, and the parking
fields adjacent to their stores. Dayton's, J.C. Penney and Kohl's ground
lease the land underlying their stores, but own their buildings.

9
<PAGE> 11

Contributions by the stores for common area maintenance, real estate taxes,
and HVAC costs are covered under separate agreements. These stores,
covering 211,004 square feet, 138,279 square feet, 195,368 square feet,
150,589 square feet and 75,000 square feet, respectively, are not included
in the gross leasable area of the mall.

All of the remaining Properties are leased in their entirety to their
respective tenants.

DESCRIPTION OF PROPERTIES

1200 WHIPPLE ROAD is a one-story warehouse/distribution property located in
the Hayward-Fremont market area, approximately 25 miles southeast of San
Francisco. At December 31, 1996, the property was 100% leased to Broadway
Stores, Inc. under a lease which runs through August 2003. The property is
described in the March 17 Supplement, which is included as an exhibit to this
annual report.

RICHLAND MALL is a one-level enclosed mall located in Richland Township,
Pennsylvania. Tenants include Bon Ton Department Store, Redner's Market,
Footlocker, and Radio Shack. At December 31, 1996, the Mall was approximately
95.0% leased with 9,062 square feet vacant. Excluding Bon Ton Department Store
and Redner's Market, the two anchor stores, the Mall was 79.3% leased. Leases
covering approximately 1.5%, 5.9% and 3.6% of the space are scheduled to expire
in 1997, 1998 and 1999, respectively. Richland Mall is described in the
Partnership's Current Report on Form 8-K dated July 19, 1988 (the "July
Report"), which is included as an exhibit to this annual report.

Richland Mall has suffered from the continued weakness of the retail
sector. Additionally, the current design, which is essentially an enclosed
community center, has been unsuccessful in this market. Over the past year, due
to a decrease in mall traffic caused by this outdated design, a number of
retailers have vacated the center. Additionally, the Clemens Market (25,988
square feet) vacated in November 1996, their lease having expired and their new
store having been completed approximately 1 1/2 miles north of Richland.
Wal-Mart, which has been attempting to enter this market for the past few years,
has received zoning approval and intends to begin construction in April 1997.
The Wal-Mart store is expected to open in November 1997.

In an effort to strengthen Richland Mall's position in this market,
management has embarked on a plan that will (i) address the physical drawbacks
of the center and (ii) enhance tenant mix. Both of these goals, if achieved, are
expected to increase the consumer appeal of the center, and thus, sales. The
plan consists of three separate parts. The first part consists of releasing the
vacant grocery store to a new tenant. This has been accomplished and a lease has
been signed with Redner's Market ("Redners"), a regional grocer. Redner's will
take the Clemens space of approximately 26,000 square feet and also will take
additional mall store space as well as common area, for a total store size of
approximately 55,000 square feet. In order to accommodate Redner's, CVS and
Radio Shack will be moved to the front of the center. In doing this the
remaining tenants will be terminated, leaving the center with two vacant spaces,
measuring approximately 28,000 square feet and 19,000 square feet each. The
larger space, located at the front of the center, is currently in lease
negotiations with Ross Dress for Less, a national discount clothes retailer. The
remaining smaller space is located generally behind the proposed Ross store.
This space would only be attractive to a service type user, due to its poor
visibility and access. Although a lease has been signed with Redner's, the lease
is terminable by either Redner's or the landlord if the landlord does not obtain
the required permit from the health department. The landlord believes it will
obtain the required permit in the near future and that the lease will be binding
on both parties.

10
<PAGE> 12

Upon completion of this project, Richland will no longer be an enclosed
community center, as the mall common area will be converted to leased space. The
tenant roster is expected to consist of Redner's, Bon-Ton, CVS, Radio Shack and
Ross Dress for Less, all of which are strong, credit-worthy tenants with a
proven ability to draw customers. The expenses associated with the property are
expected to drop substantially upon completion of the project, as there will be
no "mall" to clean, heat, and cool. Management believes that this is the best
strategy for repositioning the center. The entire project is expected to be
completed by the end of 1997.

16/18 SENTRY PARK WEST are two four-story office buildings that together
contain 186,243 rentable square feet. Tenants include Liberty Mutual Insurance
Company and The Prudential Insurance Company. At December 31, 1996, the property
was approximately 97.6% leased. Leases covering approximately 5.9%, 18.0% and
42.5% of the space are scheduled to expire in 1997, 1998 and 1999, respectively.
The 16/18 Sentry Park West Property is described in the Partnership's Current
Report on Form 8-K dated December 2, 1988, which is included as an exhibit to
this annual report.

701 MAPLE LANE, 733 MAPLE LANE AND 7550 PLAZA COURT are three one-story
office/warehouse buildings located in the Chicago metropolitan area. At December
31, 1996, the buildings were 100% leased. Tenants include Triangle Engineered
Products, Co., Acme Window Covers and Hi Performance, Inc. These properties are
described in the Partnership's Current Report on Form 8-K dated December 27,
1988 (the "December Report"), which is included as an exhibit to this annual
report. One lease covering approximately 44.4% of the space is scheduled to
expire in 1998.

1850 WESTFORK DRIVE is a one-story warehouse/distribution facility located
approximately 15 miles west of the Atlanta central business district. At
December 31, 1996 the Property was 100% leased to Treadway Exports Limited
("Treadway"). The lease with Treadway commenced on September 1, 1992 and is for
an initial term of three years with two renewal options for a total of an
additional three years. On August 30, 1995, Treadway exercised the first renewal
option for a term of two years. This lease will expire on August 30, 1997. The
1850 Westfork Drive Property is described in the December Report, which is
included as an exhibit to this annual report.

1345 DOOLITTLE DRIVE is a one-story warehouse/distribution property located
in San Leandro, California approximately one mile south of Oakland International
Airport. At December 31, 1996, the property was 100% leased. Tenants include
Gruner & Jahr Printing and Publishing, Stericycle, Inc., National Distribution
Agency, Jay-N Company, and OKI Supply Company. Leases covering approximately
25.5% of the property expire in 1999. The 1345 Doolittle Drive Property is
described in the Partnership's Current Report on Form 8-K dated May 18, 1989,
which is included as an exhibit to the annual report.

800 HOLLYWOOD AVENUE is a one-story warehouse/office building located in
Itasca, Illinois. The building contains 2,500 rentable square feet of office
space and 47,837 rentable square feet of warehouse space. The property is 100%
leased to Concentric, Inc. through May 31, 2002. The lease requires the tenant
to pay 100% of real estate taxes, insurance, and certain maintenance costs.

NORTHLAND CENTER, which was transferred to the Venture and Equitable by a
deed in lieu of foreclosure on July 22, 1994, is a regional enclosed mall
located in Southfield, Michigan. Tenants include Hudson's Department Store, J.C.
Penney, Montgomery Ward and Target. As of December 31, 1996, the Center was
approximately 79.9% leased (excluding the anchor stores). Leases covering
approximately 2.3%, 15.6% and 2.2% of the space (excluding the anchor stores)
are scheduled to expire in 1997, 1998 and 1999, respectively.

11
<PAGE> 13

On March 17, 1995, Equitable, the Venture and Dayton Hudson Corporation
signed an agreement allowing Target to locate a store at Northland. Target is a
division of Dayton Hudson, which currently operates a Hudson's Department Store
at Northland. Equitable and the Venture agreed to expend funds in the amount of
$1,700,000 (of which the Venture's share was approximately $1,200,000) to ready
a site for the Target store and to partially demolish the Kohl's store and
redemise the remaining portion of Kohl's into mall shops. Target built its own
store, which opened in April 1996.

Competitive conditions in the retail industry in general and shopping malls
in particular have remained difficult. The Venture has tried to reposition its
shopping malls to take advantage of the changing demographics of retail
customers. However, given the continuing competitive difficulties in the retail
industry, the Venture may be unable to sell its shopping malls at favorable
prices within the next few years.

THE BANK OF DELAWARE BUILDING, which was transferred to the Venture by deed
in lieu of foreclosure on November 15, 1994, is a seventeen story office
building in Wilmington, Delaware. PNC Bank, a major tenant, occupies 102,808
square feet, or 32.7% of the building. PNC's lease expires in May 2005 and
contains an option to renew. PNC's rent is substantially below market rates. As
of December 31, 1996, the building was approximately 52.3% leased. Over the past
year, management has removed asbestos from a number of the vacant floors in the
building. Currently, approximately 34,000 square feet of the 149,802 square feet
of vacant space still contain asbestos, removal of which is scheduled for 1997.
The majority of deferred maintenance has been corrected, and thus contemplated
capital expenditures in 1997 will generally be for asbestos abatement, tenant
improvements in connection with actual leasing and leasing commissions. Leases
covering approximately 1.0%, 0.2% and 3.7% are scheduled to expire in 1997, 1998
and 1999, respectively.

Management has established an enhancement/stabilization and renovation
program for the Bank of Delaware building. See Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for further
information regarding this renovation program.

BROOKDALE CENTER, which was transferred to the Venture and Equitable on
December 16, 1996, is a regional shopping mall located approximately five miles
northwest of the central business district of Minneapolis, Minnesota. Anchor
stores include J.C. Penney, Sears, Mervyn's, Dayton's and Kohl's. As of December
31, 1996, Brookdale Center was approximately 69.5% leased (excluding the anchor
stores). Leases covering approximately 4.5%, 5.1% and 4.5% of the space are
scheduled to expire in 1997, 1998 and 1999, respectively. See "-- Mortgage Loans
Pursuant to Which the Venture Acquired Properties" for a discussion of the
events leading to Equitable and the Venture's acquisition of Brookdale Center.

Management took possession of Brookdale Center on December 16, 1996, and is
currently evaluating future strategies with respect to the mall. The ground
lease and operating covenant for Dayton's, a major department store and one of
the mall anchors, has expired. The operating covenant for Sears, another anchor
tenant, expires in May 1997. While neither of these tenants has indicated a
desire to leave the center, substantial capital expenditures could be required
to obtain new ground leases/covenants from these tenants. Management is also
evaluating a renovation of the mall common area and a plan to retenant the
approximately 30% mall store vacancy. No definitive course of action has been
decided upon. A comprehensive plan for this property should be complete in the
second or third quarter of 1997.

12
<PAGE> 14

OUTSTANDING MORTGAGE LOAN

<TABLE>
<CAPTION>
PRINCIPAL &
ACCRUED INT.
DATE OF AT DATE OF INTEREST
NAME, LOCATION AND TYPE OF PROPERTY INVESTMENT INVESTMENT RATE MATURITY
- ----------------------------------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C>
Jericho Village 1/31/89 $6,000,000 10.25% 2/1/99
Weston, MA
apartment complex
</TABLE>

JERICHO VILLAGE LOAN is a first mortgage loan to the Wilcon Company secured
by an apartment complex in Weston, Massachusetts. Interest-only payments on the
loan in the amount of $51,250 are due monthly in arrears during the term of the
loan, with the full principal amount of the loan due upon maturity of the loan
on February 1, 1999. The borrower may prepay the loan in full subject to a
prepayment penalty based on a yield maintenance formula, but not less than 2% of
the principal balance of the loan. The property which secures the loan consists
of 22 free-standing one and two-story apartment buildings, containing a total of
99 apartment units. At December 31, 1996, the property was approximately 99%
leased. The Jericho Village Loan and the property which secures it are described
in the December Report, which is included as an exhibit to this annual report.

13
<PAGE> 15

MORTGAGE LOANS PURSUANT TO WHICH THE VENTURE ACQUIRED PROPERTIES

NORTHLAND ZERO NOTE was a first mortgage note secured by Northland Center,
a regional enclosed mall which is located outside of Detroit, Michigan. The
Venture acquired its 71.66% participation interest in 1988 from Equitable which
held the remaining 28.34% interest. The Venture's participation interest had an
estimated fair market value (including accrued interest) at the time of
acquisition of $20,774,985. The borrower was Midwest. The note had an implicit
interest rate of 10.2% compounded semiannually with the Venture's portion of the
principal and accrued interest totaling $42,882,504 due June 30, 1995. The note
provided that the borrower could elect to pay interest currently; however, no
interest was paid through July 22, 1994.

Management discontinued the accrual of interest on the Northland note
during the quarter ended June 30, 1993 as the accreted value of the mortgage
approximated the estimated fair market value of the Northland Center. The
Northland mortgage note and first mortgage were accounted for as an in-substance
foreclosure at December 31, 1993, and the zero mortgage note was reclassified as
an other real estate asset. The Venture recognized a loss of $7,628,000 as of
December 31, 1993 to record Northland Center at its estimated fair market value.
This amount included $4,730,000 reserved by the Venture as its share of the $6.6
million to be paid to Midwest on the transfer of Northland Center.

On July 22, 1994, Midwest transferred Northland Center to the Venture and
Equitable in proportion to their respective undivided interests in the Northland
mortgage. Following the transfer which was retroactive as of January 1, 1994,
Northland Center was reclassified from other real estate assets to rental
properties and income and expenses were recorded from that date. The Venture
records its proportionate share of the assets, liabilities, revenues, and
expenses of the undivided interests in the Northland Center in accordance with
the tenancy in common arrangements set forth in the Participation Agreement
dated September 27, 1988 between the Venture and Equitable, which is included as
an exhibit to this annual report. The Venture and Equitable paid the owner $6.6
million at the time of transfer (an amount which was determined to approximate
the net present value of the anticipated cash flow from Northland Center,
subject to closing adjustments, for the period from January 1, 1994 through June
30, 1995, the date the Northland mortgage would have matured).

For additional information concerning the Northland Note, reference is made
to the information under "REAL PROPERTY INVESTMENTS -- The Zero Notes" and "REAL
PROPERTY INVESTMENT -- Brookdale and Northland Zero Notes" in the Prospectus,
"REAL PROPERTY INVESTMENTS -- The Zero Notes" in the March 17 Supplement, and
Note 1 to Notes to Financial Statements to the Partnership's Quarterly Report of
Form 10-Q for the Quarter ended June 30, 1988, all of which information are
included as exhibits to this annual report.

BANK OF DELAWARE BUILDING LOAN was a first mortgage loan secured by a
17-story office building in the Wilmington central business district. The owners
of The Bank of Delaware Building defaulted on the mortgage loan receivable and
the Venture accounted for the transaction as an in-substance foreclosure at
December 31, 1993. Accordingly, the mortgage loan receivable was reclassified to
other real estate assets at its estimated fair market value as of that date and
the Venture began recording operating revenues and expenses of the building. In
the third quarter of 1994, the Venture recognized a loss of $1,000,000 due to
valuing The Bank of Delaware Building at the most recent estimated fair market
value. Subsequently, on November 15, 1994, the Venture acquired title to The
Bank of Delaware Building by a deed in lieu of foreclosure. In connection with
the deed in lieu transaction, the Venture received a $350,000 cash payment plus
the property's operating cash account, which reduced the loss on the transaction
to approximately $380,000.

14
<PAGE> 16

BROOKDALE ZERO NOTE was a first mortgage note secured by Brookdale Center,
a regional shopping mall located approximately five miles northwest of the
central business district of Minneapolis, Minnesota. The Venture acquired its
71.66% participation interest in 1988 from Equitable which held the remaining
28.34% interest. The Venture's participation interest had a fair value
(including accrued interest) at the time of acquisition of $12,278,885. The
borrower was Midwest. The note had an implicit interest rate of 10.2% compounded
semiannually, with the Venture's portion of the principal and accrued interest
totaling $25,345,353 due June 30, 1995.

Management discontinued the accrual of interest relating to the Brookdale
note beginning with the second quarter of 1995 as the accreted value of the
mortgage approximated the estimated fair market value of the Brookdale Center.
The Venture's share of the note plus accrued interest at the time was
$24,730,409.

An internal review of the property, performed for the Venture as of
September 30, 1995, estimated the fair market value of Brookdale Center to be
$30,000,000. The Venture recorded a valuation allowance of $3,232,210 to value
its interest in the Brookdale Zero Note at an amount equal to the Venture's
participation interest in the note multiplied by the estimated fair market value
of the Center, or $21,498,199. This valuation allowance was presented on the
consolidated balance sheets as a decrease in assets and partners' capital and on
the consolidated statements of operations as a provision for impairment on zero
coupon mortgage. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

On December 16, 1996, Brookdale Center was transferred to the Venture and
Equitable, as tenants in common pursuant to a Chapter 11 bankruptcy plan for
Midwest that was approved by the Bankruptcy Court on November 25, 1996. The
consideration for this transfer was (i) release of Midwest from its obligations
under the Brookdale zero coupon note and (ii) payment to Midwest of $500,000, of
which the Venture's portion was $358,303. An internal review of the property,
performed for the Venture as of the date of transfer, estimated the fair market
value of Brookdale Center to be $21,700,000, of which Venture's portion was
$15,550,364. Following the transfer, Brookdale Center was reclassified from zero
coupon mortgage note receivable to rental properties and income and expenses
were recorded from that date. The Venture recognized a loss of $6,211,644 to
record Brookdale Center at its estimated fair market value. The Venture records
its proportionate share of the assets, liabilities, revenues, and expenses of
the undivided interest in Brookdale Center in accordance with the Participation
Agreement dated March 3, 1988 between the Venture and Equitable, as amended on
March 10, 1988, which is included as an exhibit to this annual report.

For additional information concerning the Brookdale Note and the Brookdale
Center, see "REAL PROPERTY INVESTMENTS -- The Zero Notes" and "REAL PROPERTY
INVESTMENTS -- Brookdale and Northland Zero Notes" in the Prospectus, "REAL
PROPERTY INVESTMENTS -- The Zero Notes" in the March 17 Supplement, and Note 1
to Notes to Financial Statements to the Partnership's Quarterly Report on Form
10-Q for the quarter ended June 30, 1988, all of which information is included
as exhibits to this annual report.

Midwest is subject to the informational requirements under the Exchange
Act, and in accordance therewith files reports and other information, including
financial statements, with the Securities Exchange Commission under Commission
File No. 1-9331. Such reports and other information filed by Midwest can be
inspected and copied at the public reference facilities maintained by the SEC in
Washington, D.C. and at certain of its Regional Offices, and copies may be
obtained from the Public Reference Section of the SEC, Washington, D.C. 20549,
at prescribed rates.

15
<PAGE> 17

ITEM 3. LEGAL PROCEEDINGS

On November 29, 1995, a class action suit was filed in the Superior Court
of the State of California, County of San Diego (No. 694936), against the
Partnership, Merrill Lynch, the principal operating subsidiary of Merrill Lynch,
and certain subsidiaries and limited partnerships affiliated with Merrill Lynch.
The complaint alleges, among other things, that defendants breached their
fiduciary duties, committed fraud and violated California business practice laws
in connection with the sale of certain limited partner interests. The suit has
been removed to the United States District Court for the Southern District of
California and transferred to the Southern District in New York. The case has
been dismissed with respect to the Partnership on the grounds that the statute
of limitations be tolled through November 27, 1996.

Several class action suits have been filed against Midwest, the general
partner of Midwest, certain officers of such general partner, Lehman Brothers,
Inc., Equitable and Equitable Real Estate. The complaints allege, among other
things, that defendants breached their fiduciary duties and violated federal
securities laws in connection with the initial sale of BACs, the operation of
Midwest and Midwest's sale of Northland Center to the Venture and Equitable.
Neither the Venture nor the Partnership has been named as a party to the
lawsuit.

On October 30, 1996, the plaintiffs in one of the class action suits
previously filed against Midwest, Equitable and others filed a claim for
equitable subordination against Equitable in the Midwest bankruptcy proceeding.
The claim alleges, among other things, that Equitable breached a fiduciary duty
to Midwest's investors and violated federal securities laws in connection with
the initial sale of interests in Midwest and, as such, that Equitable should not
be entitled to preferential treatment in bankruptcy court. On December 16, 1996,
Brookdale Center was transferred to the Venture and Equitable in a bankruptcy
court proceeding free and clear of any claims that Midwest or any other
creditors may have. Ultimate resolution of this claim is expected to have no
effect on Brookdale Center or the Venture.

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

No matter was submitted during the fourth quarter of the fiscal year to a
vote of BAC Holders.

16
<PAGE> 18

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

No public trading market for BACs or Interests exists nor is it expected
that one will develop. Accordingly, accurate information as to the market value
of a BAC at any given date is not available. Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S") has generally offered a limited partnership
secondary service through the Merrill Lynch Limited Partnership Secondary
Transaction Department ("LPSTD").

BACs are transferable as provided in Article Seven of the Partnership
Agreement. Subject to certain restrictions, the General Partners are authorized
to impose restrictions on the transfer of BACs or Interests (or take such other
action as they deem necessary or appropriate) so that the Partnership is not
treated as a "publicly-traded partnership" as defined in Section 7704(b) of the
Internal Revenue Code of 1986 (or any similar provision of succeeding law) which
could result in adverse tax consequences. See "AMENDMENTS TO PARTNERSHIP
AGREEMENT -- TRANSFER OF INTERESTS" in the March 3 Supplement.

In late 1996 the Managing General Partner, on the advice of counsel to the
Partnership, halted transfers of BACs for the remainder of the year, after
transfers of 260,363 BACs, representing 4.8% of all issued and outstanding BACs,
had been processed. No transfers have been processed in 1997 pending the
determination of the Partnership to impose similar restrictions or other
limitations on transfers for the present calendar year. The total number of
transfers which could not be processed in 1996 but which were resubmitted for
processing in January, 1997 exceeds 4.8% of all issued and outstanding BACs.

The number of BAC Holders at March 1, 1997 was 11,440.

The Partnership is a limited partnership and, accordingly, does not pay
dividends. It does, however, make distributions of cash to its BAC Holders and
General Partners. BAC Holders are entitled to receive cash distributions,
allocations of taxable income and tax loss and guaranty proceeds as provided in
Article Four of the Partnership Agreement. For information regarding the
Guaranty Agreement, see Item 1. BUSINESS. Since inception, the Partnership has
made the following distributions:

<TABLE>
<CAPTION>
PERIOD ENDED DATE PAID DISTRIBUTION PER BAC
- ------------ ----------------- --------------------
<S> <C> <C>
December 31, 1990................................ February 28, 1991 $0.25
June 30, 1991.................................... August 31, 1991 0.50
December 31, 1991................................ February 28, 1992 0.50
June 30, 1992.................................... August 31, 1992 0.662
December 31, 1992................................ February 28, 1993 0.40
June 30, 1993.................................... -- 0.00
December 31, 1993................................ February 28, 1994 0.10
June 30, 1994.................................... August 31, 1994 0.10
December 31, 1994................................ February 28, 1995 0.15
June 30, 1995.................................... August 31, 1995 0.15
December 31, 1995................................ February 29, 1996 0.10
June 30, 1996.................................... August 29, 1996 0.10
December 31, 1996................................ February 28, 1997 0.15
</TABLE>

17
<PAGE> 19

All of the distributions made from 1994 through 1997 constitute
distributions of Sale or Financing Proceeds derived from a portion of the
proceeds from the pay-off of the Mortgage Loan to the Second Merritt Seven Joint
Venture (the "201 Merritt Seven Loan") on November 22, 1993. See Item
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS for further information regarding cash distributions.

ITEM 6. SELECTED FINANCIAL DATA

The following sets forth the selected financial data for the Partnership on
a consolidated basis for the years ended December 31, 1992, 1993, 1994, 1995 and
1996:

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue........ $ 24,982,922 $ 24,374,185 $ 25,922,117 $ 14,628,016 $ 17,347,435
Net income (loss).... 2,225,866 4,760,605 7,543,402 (1,533,890) 9,517,222
Net income (loss) per
BAC................ 0.39 0.83 1.32 (0.27) 1.67
Cash distributions
paid per BAC....... 0.20 0.30 0.20 0.40 1.16
Total assets......... $171,967,228 $171,924,760 $168,009,262 $155,009,772 $159,297,484
</TABLE>

The above selected financial data for the years 1994 through 1996 should be
read in conjunction with the financial statements and the related notes
appearing elsewhere in this annual report.

18
<PAGE> 20

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

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996, the Partnership had cash and cash equivalents of
approximately $2.0 million. Such cash and cash equivalents are expected to be
utilized for general working capital requirements including, to the extent that
scheduled lease expirations occur, shortfalls associated with such lease
expirations on the Properties until such time as such leases can be replaced and
for capital needs at the Venture's Properties. In addition, to the extent that
cash distributions from the Partnership's interest in the Venture are
insufficient, the payment or reimbursement of fees and expenses to the General
Partners and their affiliates will be paid out of such cash and cash
equivalents. Amounts which the Managing General Partner determines are not
needed for general working capital requirements will be available for
distribution.

The Partnership's policy is to maintain adequate cash reserves (taking into
consideration reserves of the Venture) to enable it to meet short and long-term
requirements. The Partnership's working capital reserves may be increased or
decreased, from time to time, depending on the Managing General Partner's
determination as to their adequacy. However, pursuant to the Partnership
Agreement working capital reserves may not be decreased below 1% of gross
offering proceeds prior to the time that the Partnership enters its liquidation
phase.

In addition, the Partnership owns an 80% interest in the Venture. At
December 31, 1996, the Venture owned ten real properties, undivided interests in
two real properties as a tenant in common with Equitable and one Mortgage Loan
on a real property. Nine of the Properties were purchased at an aggregate cost
of approximately $68.1 million. Two of the properties, Northland Center and The
Bank of Delaware Building (originally properties that secured a Zero Note and a
Fixed-Rate Mortgage Loan, respectively), were transferred to the Venture during
1994 in separate deed in lieu of foreclosure transactions. The estimated fair
market value of the Venture's undivided interest in the Northland Center Zero
Coupon Mortgage Note Receivable immediately preceding the transfer was
approximately $32.2 million and the estimated fair market value of The Bank of
Delaware Building Mortgage Note immediately preceding the transfer was
approximately $8.5 million. Brookdale Center (originally a property that secured
a Zero Note) was transferred to the Venture during December 1996 pursuant to a
Chapter 11 bankruptcy plan for Midwest. The estimated fair market value of the
Venture's undivided interest in the Brookdale Zero Note immediately preceding
the transfer was approximately $15.6 million. At December 31, 1996 the Venture
also had approximately $25.3 million in cash and cash equivalents which is
intended to be utilized primarily to fund the renovation work on the Bank of
Delaware Building, to fund possible costs incurred to increase tenancy at
Richland Mall, to fund capital improvements at the Venture's other Properties,
to cover general working capital requirements, and to make distributions to the
Venture's partners. These funds, in addition to reserves from future operations,
may also be used fund improvements deemed to be necessary on Brookdale Center.
For 1994, 1995 and 1996, the Partnership received distributions from the Venture
totaling $1,084,996, $3,100,000 and $2,400,000 respectively.

All of the Venture's properties and the Mortgage Loan were acquired without
mortgage indebtedness, and neither the Venture nor the Partnership has incurred
any borrowings. All of the Venture's Properties and its Mortgage Loan are
currently producing operating cash flow to the Venture which, net of expenses of
the Venture and the establishment or increase of reserves, is distributable 80%
to the Partnership and 20% to EREIM LP Associates as provided in the Joint
Venture Agreement.

Under the terms of the Brookdale Zero Note, which was secured by Brookdale
Center, principal and interest in the aggregate amount of $35,368,572 was due on
June 30, 1995, of which the Venture's portion was

19
<PAGE> 21

$25,345,353. Midwest defaulted on its obligation to repay the Brookdale Zero
Note in full on the maturity date. Notice of default was given to Midwest. For
book purposes, beginning with the second quarter of 1995, the Venture
discontinued the accrual of interest on the Brookdale Zero Note as the accreted
value of the mortgage approximated the estimated fair market value of Brookdale
Center. Under the terms of the mortgage agreement, however, the Venture
continued to accrue interest off the books at the effective implicit rate of
10.2% until June 30, 1995. On July 1, 1995, the Venture began to accrue interest
off the books at the default rate of 19.0%.

Additionally, Equitable and the Venture commenced foreclosure proceedings
and a court-appointed receiver was named. The receiver was responsible for
collecting rent proceeds from the tenants at Brookdale Center and applying the
proceeds to payments of operating costs at Brookdale Center. Any remaining funds
were to be paid to Equitable and the Venture on account of the Zero Note. The
Venture recorded cash received from the operations of Brookdale Center as
interest income. During 1996 and 1995, approximately $1,975,000 and $700,000,
respectively, were remitted under the terms of the receivership. The Venture's
portion of these payments were approximately $1,415,000 and $502,000,
respectively.

As of September 30, 1995, an internal review of the Brookdale Center was
performed for the Venture. Based on this review, the estimated fair market value
of Brookdale Center was $30,000,000 at that date. The Venture recorded a
valuation allowance of $3,232,210 to value the note at an amount equal to the
Venture's participation interest in the note multiplied by the estimated fair
market value of Brookdale Center, or $21,498,199. The valuation allowance is
presented on the consolidated balance sheets as a decrease in assets and
partners' capital and on the consolidated statements of operations as a loss on
write-down of zero coupon mortgage.

In April, 1996 the Lender agreed in principle to a workout arrangement with
Midwest on the Brookdale zero note under which Midwest filed for Chapter 11
bankruptcy protection and, with the support of Lender, submitted a plan of
reorganization to the Bankruptcy Court for approval. The workout arrangement was
memorialized in a nonbinding letter agreement dated April 11, 1996 (the "Letter
Agreement") between Midwest and Equitable and approved by the Board of Directors
of EREIM Managers Corp., the general partner of the Partnership, on behalf of
the Venture.

On June 20, 1996 Midwest filed a voluntary petition for Chapter 11
bankruptcy protection, as contemplated by the Letter Agreement staying the
Brookdale foreclosure proceeding and terminating the receivership arrangement.
However, as further contemplated by the Letter Agreement, Midwest subsequently
obtained Bankruptcy Court approval to retain the management company that had
served as receiver prior to the bankruptcy filing as Brookdale's property
manager.

In addition, the Bankruptcy Court, with the agreement of Midwest and
Lender, entered a cash collateral order as contemplated by the Letter Agreement,
pursuant to which all positive cash flows from the property in excess of
property-related expenses and certain administrative costs of the bankruptcy,
not to exceed $25,000, were paid to the Lender during the bankruptcy. The
Venture recorded cash received from the operation of Brookdale Center as
interest income. During 1996, approximately $2,890,000 was remitted under the
terms of the cash collateral order. The Venture's portion of these payments was
approximately $2,071,000.

20
<PAGE> 22

the fair market value of Brookdale Center to be $21,700,000, of which Venture's
portion was $15,550,364. Following the transfer, Brookdale Center was
reclassified from zero coupon mortgage note receivable to rental properties and
income and expenses were recorded from that date. The Venture recognized a loss
of $6,211,644 to record Brookdale Center at its estimated fair market value.

Management has established an enhancement, stabilization and renovation
program for the Bank of Delaware Building which was transferred to the Venture
by deed in lieu of foreclosure on November 15, 1994. Estimated costs for this
program total $4.3 million, of which $1.6 million was incurred in 1995, $1.2
million was incurred in 1996, and approximately $800,000, $530,000 and $260,000
is expected to be incurred in 1997, 1998 and 1999, respectively. As of December
31, 1996, approximately $2.6 million of these costs have been expended.
Approximately $159,000 in capital costs at the Bank of Delaware Building have
been accrued but not paid as of December 31, 1996.

Included in the estimated $4.3 million of renovation expenditures is
approximately $2.3 million for asbestos abatement of which approximately $1.6
million has been expended. Also included in the $4.3 million is $400,000 for
sprinkler installation, $400,000 for exterior deferred maintenance and $600,000
for interior and exterior common area cosmetic upgrades. To date, approximately
$170,000 remains to be expended for sprinkler installation, and approximately
$150,000 remains to be spent on the interior portion of the common area
upgrades. Management expects these upgrades to give the building a fresher, more
inviting look. Additional costs not included in the above figures are estimated
tenant improvements of $3.0 million. The tenant improvement costs are directly
associated with actual leasing and will only be expended as leasing transactions
occur in the building. As of December 31, 1996, approximately $190,000 had been
expended for tenant improvements. Tenant improvement costs of $2.8 million
(excluding the $190,000 spent to date) are expected to be expended over the next
few years to tenant the currently vacant space.

The Venture anticipates costs to be incurred to increase tenancy at
Richland Mall of approximately $3.8 million, including $2.1 million for tenant
improvements in connection with leasing approximately 55,000 square feet of
space to Redner's Market. Management has executed a lease with Redner's Market
that would involve expanding the current 26,000 square foot vacant grocery into
approximately 55,000 square feet in order to accommodate Redner's Market. The
Redner's Market lease will be for an initial 20-year term with renewal options
thereafter. Although a lease has been signed with Redner's, the lease is
terminable by either Redner's or the landlord if the landlord does not obtain
the required permit from the health department. The landlord believes it will
obtain the required permit in the near future and that the lease will be binding
on both parties. The balance of the funds, approximately $1.7 million, is to be
expended in connection with additional required work to relocate Radio Shack and
CVS in order to accommodate Redner's, as well as other work required in
connection with the project. Additional funds may be expended in connection with
any future leasing at the property. As of December 31, 1996, approximately
$296,000 of these costs have been incurred.

Cash provided by operating activities increased approximately 25% from 1995
to 1996. This increase is primarily due to the receipt of approximately $4.9
million (consisting of cash remitted under the terms of the receivership and
cash remitted under the terms of the cash collateral order), of which the
Venture's portion was approximately $3.5 million, which was remitted in
connection with the Brookdale Zero Note during 1996, as compared to $700,000, of
which the Venture's portion was approximately $502,000, which was remitted in
connection with the Brookdale Zero Note during 1995. Cash provided by operating
activities remained fairly constant from 1994 to 1995.

Distributable Cash from operations is distributed in accordance with the
terms of the Partnership Agreement, which provides that such amounts will be
distributed 95% to the BAC Holders and Limited

21
<PAGE> 23

Partners and 5% to the General Partners with the BAC Holders and Limited
Partners entitled to a non-cumulative preferred 6% simple return on their
Adjusted Capital Contribution during each period. Since inception, the
Partnership has made the following distributions:

The distribution made on August 31, 1992 to holders of record as of June
30, 1992 includes a $0.162 distribution of Sale or Financing Proceeds associated
with the termination of the lease with Saab-Scania of America, Inc. ("Saab") at
1850 Westfork Drive. The Partnership withheld the distribution for the
semiannual period that would have been made in August 1993. All of the
distributions made from 1994 through 1997 constitute distributions of Sale or
Financing Proceeds derived from a portion of the proceeds from the pay-off of
the Mortgage Loan to the Second Merritt Seven Joint Venture (the "201 Merritt
Seven Loan") on November 22, 1993. There were no distributions of Distributable
Cash from operations during 1994, 1995 and 1996. The determination to withhold
the 1994 distribution was based upon the then anticipated needs of the Venture
to fund capital improvements to Northland Center in order to preserve the
Venture's equity in the Northland Zero Note in addition to other working capital
needs of the Venture. The determination to withhold the 1995 distributions was
based on the likelihood of significant capital expenditures for the renovation
of The Bank of Delaware Building as well as uncertainty regarding the level and
timing of expenditures relating to Brookdale Center. The determination to
withhold the 1996 distributions was based on the needs of the Venture to fund
significant capital expenditures for the renovation of The Bank of Delaware
Building, costs incurred at Richland Mall to increase tenancy, and the Venture's
pro rata share of costs incurred in connection with the Brookdale zero coupon
mortgage note. The levels of future cash distributions principally will be
dependent on the distributions to the Partnership by the Venture, which in turn
will be dependent on returns from the Venture's investments and future reserve
requirements, including but not limited to renovations at the Bank of Delaware
Building, Richland Mall and Brookdale Center.

It is anticipated that the Partnership will not make distributions of
Distributable Cash from operations in 1997. Amounts distributed to BAC Holders
fluctuate from time to time based on changes in occupancy, rental and expense
rates at the Venture's Properties and other factors. The Partnership has
increased its working capital reserves, and reduced distributions of
Distributable Cash in connection with its efforts to lease vacant space at
certain of its Properties, most significantly at 16 and 18 Sentry Park West,
Richland Mall, Northland Center, and The Bank of Delaware Building. As a result
of the increase in reserves, the tax liability of the BAC Holders arising from
taxable income allocated to a BAC Holder may substantially exceed the amounts,
if any, distributed to such BAC Holder.

22
<PAGE> 24

During 1994, 1995 and 1996, the Venture received approximately $499,000,
$1,502,000 and $179,000, respectively, for early lease termination payments of
which the Partnership's share is approximately $399,000, $1,202,000 and
$143,000, respectively. These early lease termination payments are classified as
Sale or Financing Proceeds and are being held as reserve for future improvements
on the Properties. See Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. The amount and timing of distributions from Sale or
Financing Proceeds depend upon payments of the Mortgage Loans and maturity
schedules, the timing of disposition of Properties as well as the need to
allocate such funds to increase reserves.

The Partnership is intended to be self-liquidating in nature, meaning that
proceeds from the sale of properties or principal repayments of loans will not
be reinvested but instead will be distributed to BAC Holders and partners,
subject to certain limitations. Under the terms of the Guaranty Agreement which
has been assigned to the Partnership, following the earlier of the sale or other
disposition of all of the Properties and Mortgage Loans or the liquidation of
the Partnership, EREIM LP Associates has guaranteed to pay an amount which, when
added to all distributions from the Partnership to the BAC Holders, will enable
the Partnership to provide the BAC Holders with a minimum return equal to their
original capital contributions plus a simple annual return equal to 9.75% simple
interest per annum multiplied by their adjusted capital contributions calculated
from the investor closing at which an investor acquired his BACs, subject to
certain limitations. Capital contributions by the BAC Holders totaled
$108,484,500. As of December 31, 1996, the cumulative 9.75% simple annual return
was $92,031,083. As of December 31, 1996, cumulative distributions by the
Partnership to the BAC Holders totaled $16,337,751, of which $11,662,084 is
attributable to income from operations and $4,675,667 is attributable to sales
of Venture assets, principal payments on Mortgage Loans and other capital
events. Another $813,634 in capital proceeds was distributed to the BAC Holders
in February 1997.

FINANCIAL CONDITION

The Partnership's financial statements include the consolidated statements
of the Partnership and the Venture, through which the Partnership conducts its
business of investment in real property. Although the Partnership was formed in
1986, it did not commence operations until March 1988, following receipt of the
first proceeds of its offering of BACs. Thereafter, utilizing the net proceeds
of the Offering, the Partnership (through the Venture) began its acquisition of
real estate investments. The Partnership substantially completed its acquisition
phase in 1989.

Total real estate investments decreased approximately $6.1 million in 1996
as compared to 1995. As of December 16, 1996, an internal review of Brookdale
Center was performed for the Venture. Based on this review, the estimated fair
market value of Brookdale Center was $21,700,000. The Venture recorded a loss of
$6,211,644 and reclassified the Brookdale Zero Note to rental properties at the
Venture's undivided interest in Brookdale Center multiplied by the estimated
fair market value of Brookdale Center, or $15,550,364.

Other assets increased approximately $6.1 million in 1996 as compared to
1995 primarily due to the receipt of approximately $4.9 million, of which the
Venture's portion was $3.5 million, which was remitted during 1996 under the
terms of the receivership and the cash collateral order in connection with the
Brookdale Zero Note. The increase in other assets is also due to the Venture
reserving funds for future costs that may be incurred in connection with The
Bank of Delaware Building, Richland Mall, and Brookdale Center.

Total liabilities decreased approximately $1.2 million in 1996 as compared
to 1995. This decrease is primarily due to the payment of approximately $2.6
million of capital expenditures during 1996 that were

23
<PAGE> 25

accrued as of December 31, 1995. This decrease is offset by the accrual of
approximately $1.1 million of capital expenditures as December 31, 1996.
Additionally, distributions declared at December 31, 1996 are approximately
$271,000 greater than the distribution declared at December 31, 1995.

Inflation has been at relatively low levels during the periods presented in
the financial statements and, as a result, has not had a significant effect on
the operations of the Partnership, the Venture or their investments. Over the
past several years, the rate of inflation has exceeded the rate of rental rate
growth in many of the Venture's properties. During the recent real estate
downturn, rental rates dropped, indicating a negative growth rate. This negative
growth appears to have ceased, and rental rates have stabilized in many of the
Properties' markets. Real recovery in rental rates, if achieved at all, will
likely occur over an extended period of time.

RESULTS OF OPERATIONS

Rental income remained fairly constant from 1995 to 1996. Rental income
decreased approximately $1.4 million in 1995 as compared to 1994. Rental income
decreased approximately $1.8 million in 1995 due to decreased occupancy at
Northland Center. This decrease is partially offset by an increase in rental
income of approximately $460,000 due to increased occupancy at 16/18 Sentry Park
West.

Lease termination rental income decreased approximately $1.3 million in
1996 as compared to 1995 and increased approximately $1.0 million in 1995 as
compared to 1994. These fluctuations are primarily due to the receipt of
approximately $1.8 million in 1995, of which the Venture's portion was
approximately $1.3 million, pursuant to the agreement between Kohl's department
Store and the Venture regarding the termination of Kohl's lease at Northland
Center.

Interest on loans receivable increased approximately $2.4 million in 1996
as compared to 1995. This increase is primarily due to the receipt of cash in
connection with the Brookdale Zero Note during 1996 of approximately $4.9
million, of which the Venture's portion was approximately $3.5 million. The
Venture recorded cash received under the terms of receivership and the cash
collateral order as interest income. The Venture recognized interest income of
approximately $1.1 million on the Brookdale Zero Note in 1995. Interest on loans
receivable decreased in 1995 as compared to 1994 due to the non-accrual of
interest, commencing April 1, 1995, on the Brookdale Zero Note.

Operating expenses, excluding the loss on the write-down of zero coupon
mortgage (see "Liquidity and Capital Resources"), increased approximately
$872,000 in 1996 as compared to 1995. This increase is primarily due to an
increase in depreciation and amortization of approximately $866,000 at Northland
Center, 16/18 Sentry Park West and The Bank of Delaware Building. The Venture
recorded depreciation on approximately $11.4 million and $3.6 million of capital
expenditures, of which the Venture's portion was approximately $8.2 million and
$2.6 million, respectively, at Northland Center which were capitalized in the
second half of 1995 and during 1996, respectively. The Venture also recorded
depreciation on approximately $1.0 million which was capitalized at 16/18 Sentry
Park West during 1996. Additionally, the Venture recorded depreciation on
approximately $2.6 million which has been capitalized by the Venture in
connection with the enhancement, stabilization, and renovation program which was
established at the end of the second quarter of 1995 for The Bank of Delaware
Building. Operating expenses, excluding the loss on write-down of zero coupon
mortgage (see "Liquidity and Capital Resources") and the loss on write-down of
other real estate assets, decreased approximately $697,000 in 1995 as compared
to 1994. This decrease is partially due to decreased occupancy at Northland
Center and The Bank of Delaware Building. The decrease is also due to a decrease
in common area maintenance costs incurred at Northland Center.

24
<PAGE> 26

Total other expense net of other income decreased approximately $75,000 in
1996 as compared to 1995 primarily due to an increase in interest on short term
investments. Interest on short-term investments increased approximately $45,000
in 1996 as compared to 1995 primarily due to an increase in funds reserved for
possible expenditures in connection with Northland Center, The Bank of Delaware
Building, Richland Mall, and Brookdale Center. The remainder of the decrease is
due to a decrease of approximately $34,000 in general and administrative expense
in 1996 as compared to 1995. Total other expense net of other income decreased
in 1995 as compared to 1994 due to an increase in interest on short-term
investments. Interest on short-term investment increased from 1994 to 1995 due
to a higher average interest rate throughout 1995 as compared to 1994.

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<PAGE> 27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements are included in Item 14 of this annual
report:

Independent Auditors' Report.

Consolidated Balance Sheets, December 31, 1996 and 1995.

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

Consolidated Statements of Partners' Capital for the years ended
December 31, 1996, 1995 and 1994.

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

Notes to Consolidated Financial Statements.

26
<PAGE> 28

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

Not applicable.

27
<PAGE> 29

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Partnership is a limited partnership and has no directors or officers.

For informational purposes only, certain information regarding the General
Partners and their respective directors and officers is set forth below.

MANAGING GENERAL PARTNER

The Managing General Partner is a wholly-owned subsidiary of Equitable Real
Estate Investment Management, Inc. ("Equitable Real Estate"). Equitable Real
Estate is a wholly-owned subsidiary of Equitable Investment Corporation, which
is a wholly-owned subsidiary of Equitable Holding Corporation, which is a
wholly-owned subsidiary of Equitable, which is a wholly-owned subsidiary of the
Holding Company.

The names and titles of the directors and officers of the Managing General
Partner as of March 15, 1997 are as follows:

<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---- --- ------
<S> <C> <C>
Eugene F. Conway..................... 46 Chairman of the Board
Paul J. Dolinoy...................... 49 Director
B. Stanton Breon..................... 37 President, Chief Executive Officer and Director
Peter J. Urdanick.................... 49 Vice President and Assistant Treasurer
Charles R. Beaver.................... 44 Vice President
Patricia C. Snedeker................. 41 Chief Financial Officer, Vice President,
Controller and Treasurer
Douglas L. Brown..................... 55 Secretary
</TABLE>

The business experience of the directors and executive officers of the
Managing General Partner is set forth below.

Eugene F. Conway has been Chairman of the Board and a Director since March
1996. Prior thereto, Mr. Conway was Executive Vice President, Chief Operating
Officer and a Director of the Managing General Partner since December 1986. Mr.
Conway is an Executive Vice President of Equitable Real Estate responsible for
institutional accounts/retail markets. He also serves as portfolio manager for
approximately $1 billion of assets.

Paul J. Dolinoy was the President, Chief Executive Officer and a Director
of the Managing General Partner from December 1986 through March 1996, when he
assumed the sole position of Director. Mr. Dolinoy is a Senior Executive Vice
President of Equitable Real Estate in charge of the Institutional Accounts and
Portfolio Management area. He is responsible for Equitable Real Estate's
corporate, public and union pension fund business and also oversees the
development of institutional-grade real estate investment products for
individual investors. He is also a Vice President of Equitable.

B. Stanton Breon has been President, Chief Executive Officer and a Director
since March 1996. Prior thereto, Mr. Breon was Vice President and Secretary of
the Managing General Partner since September 1993. He joined Equitable Real
Estate in 1982 and was elected a Vice President in 1993. He is currently
responsible for the management of portfolios aggregating approximately $1
billion of assets. Prior thereto, Mr. Breon was a

28
<PAGE> 30

Director of Appraisal for the Philadelphia regional office of Equitable Real
Estate, responsible for valuation of real estate portfolios as well as
coordination of the Commercial Loan Restructuring/Workout division of the
office.

Peter J. Urdanick has been Vice President and Assistant Treasurer of the
Managing General Partner since January 1995. Prior thereto, Mr. Urdanick was
Vice President, Controller and Treasurer of the Managing General Partner since
December 1986. Mr. Urdanick is also Senior Vice President and Treasurer of
Equitable Real Estate. Prior to becoming Senior Vice President and Treasurer in
1992, Mr. Urdanick was Vice President and Controller since 1985. He is
responsible for its corporate finance department, including its treasury
operations.

Charles R. Beaver has been a Vice President of the Managing General Partner
since June 1994, and is an Executive Vice President of Equitable Real Estate.
Mr. Beaver is in charge of the Chicago regional office of Equitable Real Estate.
Prior thereto, Mr. Beaver was in charge of the Denver regional office of
Equitable Real Estate.

Patricia C. Snedeker has been Chief Financial Officer of the Managing
General Partner since June 1994 and Vice President, Controller and Treasurer
since January 1995. Mrs. Snedeker is also a Senior Vice President of Equitable
Real Estate, responsible for overseeing the Institutional Advisors real estate
accounting area of the organization. Mrs. Snedeker has been with Equitable since
October 1982.

Douglas L. Brown has been Secretary of the Managing General Partner since
March 1996. He has been a Senior Vice President and Secretary of Equitable Real
Estate since April 1993.

ASSOCIATE GENERAL PARTNER

The Associate General Partner is a limited partnership and has no directors
or officers. The general partner of the Associate General Partner is MLH Real
Estate Inc., a wholly-owned subsidiary of MLH Group Inc., which is a
wholly-owned subsidiary of Merrill Lynch, Hubbard Inc. ("MLH"). MLH is a
wholly-owned subsidiary of Merrill Lynch Group, Inc., which is a wholly-owned
subsidiary of Merrill Lynch.

The names and dates of election of the directors and executive officers of
the general partner of the Associate General Partner as of March 31, 1997 are as
follows:

<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---- --- ------
<S> <C> <C>
Allen N. Jones....................... 55 Chairman, Chief Executive Officer and Director
James V. Caruso...................... 45 President, Chief Operating Officer and Director
Robert F. Aufenanger................. 43 Executive Vice President and Director
Rosalie Y. Goldberg.................. 59 Vice President and Director
Michael E. Lurie..................... 53 Vice President and Director
George I. Wagner..................... 54 Vice President
Audrey Bommer........................ 30 Vice President and Treasurer
</TABLE>

The business experience of the directors and executive officers of the
general partner of the Associate General Partner is set forth below.

Allen N. Jones has been Chairman, Chief Executive Officer and Director of
the Associate General Partner since January 1, 1997. Mr. Jones joined Merrill
Lynch in 1973. From June 1992 through February 1994, Mr. Jones was the President
and Chief Executive Officer of Merrill Lynch Insurance Group,

29
<PAGE> 31

Inc., and he currently serves on its Board of Directors. Since June 1992, Mr.
Jones has held the position of Senior Vice President of Merrill Lynch, Pierce,
Fenner & Smith ("MLPF&S") where he has held various senior executive
responsibilities.

James V. Caruso has been President, Chief Operating Officer and Director of
the Associate General Partner since January 1, 1997. Mr. Caruso joined Merrill
Lynch in 1975 and is a Director in its Investment Banking Group ("IBK"). Since
September 1992, he has been responsible for managing the IBK Finance Department
and the Controller's area of the Partnership Analysis & Finance Group. Mr.
Caruso also serves as the Chief Financial Officer for certain Merrill Lynch
limited partnerships for which Merrill Lynch subsidiaries serve as general
partner.

Robert F. Aufenanger has been Executive Vice President and Director of the
Associate General Partner since January 1, 1997. Mr. Aufenanger joined Merrill
Lynch in 1980. He is a Vice President of its Corporate Credit Department and a
Director of the Partnership Management Department where he is responsible for
the ongoing management of the operations of certain Merrill Lynch limited
partnerships for which Merrill Lynch subsidiaries serve as general partner.

Rosalie Y. Goldberg has been Vice President and Director of the Associate
General Partner since February 1, 1997. Ms. Goldberg joined Merrill Lynch in
1975 and is a Director in its Private Client Group. Since February 1995, she has
served as Manager of the Special Investments Group. Ms. Goldberg is also a
Director of certain other Merrill Lynch subsidiaries which serve as general
partners to certain Merrill Lynch limited partnerships.

Michael E. Lurie has been Vice President and Director of the Associate
General Partner since February 1, 1997. Mr. Lurie joined Merrill Lynch in 1970
and is a First Vice President of its Corporate Credit Department and the
Director of the Asset Recovery Management Group. Prior to his present position,
Mr. Lurie held several senior positions at Merrill Lynch.

George I. Wagner has been Vice President of the Associate General Partner
since June 1993 and is a Senior Vice President of MLH, responsible for managing
its information systems and Investor Service and Human Resources functions.
Prior to joining MLH, Mr. Wagner worked in various information systems
management positions at Merrill Lynch since 1987.

Audrey Bommer has been Vice President and Treasurer of the Associate
General Partner since January 1, 1997. Mr. Bommer joined the IBK Partnership
Analysis and Management Group at MLPF&S in April 1994 where she also serves as
Treasurer for certain other Merrill Lynch limited partnerships for which Merrill
Lynch subsidiaries serve as general partner. Prior to joining Merrill Lynch, Ms.
Bommer worked in senior accounting positions at Metallgesellschaft Corp., a
Commodities firm, and Grant Thornton, LLP, a public accounting firm.

There is no family relationship among any of the above-listed directors and
officers of the Managing General Partner and the general partner of the
Associate General Partner. All of the directors have been elected to serve until
the next annual meeting of the shareholder of the Managing General Partner or
general partner of the Associate General Partner, respectively, or until their
successors are elected and qualify. All of the officers have been elected to
serve until their successors are elected and qualify.

ITEM 11. EXECUTIVE COMPENSATION

The General Partners are entitled to receive a share of cash distributions
and a share of taxable income or tax loss as provided in Article Four of the
Partnership Agreement which is incorporated herein by reference.

30
<PAGE> 32

The General Partner and their affiliates may be paid certain fees and
commissions and reimbursed for certain out-of-pocket expenses. Information
concerning such fees, commissions and reimbursements is set forth under
"Compensation and Fees" in the Prospectus and Note 7 to notes to Consolidated
Financial Statements in Item 8. FINANCIAL STATEMENTS, which is incorporated
herein by reference.

All of the directors and officers of the Managing General Partner are
employees of Equitable or its subsidiaries and are not separately compensated
for services provided to the Managing General Partner or, on behalf of the
Managing General Partner, to the Partnership. All of the directors and officers
of the general partner of the Associate General Partner are employees of Merrill
Lynch or its subsidiaries and are not separately compensated for services
provided to the Associate General Partner or, on behalf of the Associate General
Partner, to the Partnership.

The Partnership Agreement indemnifies the General Partners and the Initial
Limited Partner against liability for losses resulting from errors in judgment
or other action or inaction, whether or not disclosed, if such course of conduct
did not constitute negligence or misconduct (see Section 5.7 of the Partnership
Agreement). As a result of such indemnification provisions, a purchaser of BACs
may have a more limited right of legal action than he would have if such
provision were not included in the Partnership Agreement. In the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the Federal Securities laws is against public policy and therefore
unenforceable. Indemnification of general partners involves a developing and
changing area of the law and since the law relating to the rights of assignees
of limited partnership interests, such as BAC Holders, is largely undeveloped,
investors who have questions concerning the duties of the General Partners
should consult their own counsel.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Initial Limited Partner, an affiliate of the Associate General Partner,
is the record owner of substantially all of the Interests in the Partnership,
although it has assigned such Interests to BAC Holders. In its capacity as
record owner of the Interests, the Initial Limited Partner has no authority to
transact business for, or to participate in the activities and decisions of, the
Partnership. MLPF&S is the record owner of approximately 82% of the BACs,
holding such BACs in a nominee capacity and having no beneficial interest in the
BACs. Otherwise, there is no person known to the Partnership who owns
beneficially or of record more than five percent of the BACs of the Partnership.
Neither of the General Partners owns any BACs of the Partnership. The directors
and officers of the Managing General Partner and the general partner of the
Associate General Partner, as a group, own no BACs.

There are no arrangements known to the Partnership, the operation of which
may, at a subsequent date, result in a change in control of the Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

31
<PAGE> 33

PART IV

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

(a) 1. The following financial statements are filed with this report on the
pages indicated:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets, December 31, 1996 and 1995..... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994.......................... F-4
Consolidated Statements of Partners' Capital for the years
ended December 31, 1996, 1995 and 1994.................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.......................... F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>

2. The following audited financial statement schedules are filed with this
report on the pages indicated:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Supplemental Schedules:
Real Estate and Accumulated Depreciation as of December 31,
1996 and for the years ended December 31, 1996, 1995 and
1994 (Schedule III)....................................... F-19
Mortgage Loans on Real Estate as of December 31, 1996 and
for the years ended December 31, 1996, 1995 and 1994
(Schedule IV)............................................. F-20
</TABLE>

All schedules except those indicated above have been omitted as the
required information is not applicable or the information is shown in the
financial statements or notes thereto.

3. Exhibits

See Item 14(c) below.

(b) The Partnership filed no Current Reports on Form 8-K during the last quarter
of the period covered by this Report.

4. (a) Amended and Restated Agreement of Limited Partnership dated April
23, 1987. Included as an Exhibit to the Prospectus (see Exhibit 99(a)).

(b) Amendment to Amended and Restated Agreement of Limited Partnership
dated February 9, 1988 (incorporated by reference to Exhibit 4(b) to the
Partnership's Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1987 (File No. 33-11064) (the "1987 10-K")).

32
<PAGE> 34

10. Material Contracts.

(a) Form of Beneficial Assignee Certificate (incorporated by reference to
Exhibit 10(a) to Pre-Effective Amendment No. 1 to the Registration Statement of
the Partnership (File No. 33-11064)).

(b) Agreement Between General Partners (incorporated by reference to
Exhibit 10(c) to the 1987 10-K).

(d) Investment Guaranty Agreement between the Venture and EREIM LP
Associates (incorporated by reference to Exhibit 10(e) to the 1987 10-K).

(e) Assignment Agreement between Registrant and Venture (incorporated by
reference to Exhibit 10(f) to the 1987 10-K).

(f) Keep Well Agreement between The Equitable Life Assurance Society of the
United States and EREIM LP Corp. (incorporated by reference to Exhibit 10(g) to
the 1987 10-K).

(g) Amended and Restated Agreement of General Partnership of EREIM LP
Associates (incorporated by reference to Exhibit 10(h) to the 1987 10-K).

(h) Promissory Notes and Mortgages Relating to Brookdale and Northland
(incorporated by reference to Exhibit 10(I) to Pre-Effective Amendment No. 1 to
the Registration Statement of the Partnership (File No. 33-11064)).

(i) Contract to Purchase 1200 Whipple Road, Union City, California
(incorporated by reference to Exhibit 10(j)) to Post-Effective Amendment No. 1
to the Registration Statement of the Partnership (File No. 33-11064)).

(j) Lease Agreement Pertaining to 1200 Whipple Road, Union City, California
(incorporated by reference to Exhibit 10(k) to Post-Effective Amendment No. 1 to
the Registration Statement of the Partnership (File No. 33-11064)).

(k) Participation Agreements relating to Brookdale and Northland Notes
(incorporated by reference to Exhibit 10(1) to the 1987 10-K).

(l) Amendments to Participation Agreements relating to Brookdale and
Northland Notes (incorporated by reference to Exhibit 10(1) to Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1988 of ML/EQ Real Estate
Portfolio, L.P. (File No. 33-11064) (the "1988 10-K").

(m) Agreement of Sale between Richland Mall Associates and EML Associates
dated July 19, 1988 (incorporated by reference to Exhibit No. 1 to Form 8-K
dated July 19, 1988 of ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)).

(n) Note and Mortgage dated September 27, 1988 relating to the loan by EML
to Second Merritt Seven (incorporated by reference to Exhibit No. 1 to Form 8-K
dated September 27, 1988 of ML/EQ Real Estate Portfolio, L.P. (File No.
33-11064)).

(o) Form of Participation Agreement between The Equitable Life Assurance
Society of The United States and EML Associates dated September 27, 1988
(incorporated by reference to Exhibit No. 2 to Form 8-K dated September 27, 1988
of ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)).

33
<PAGE> 35

(p) Agreement of Sale among EML, Blue Bell Office Campus Associates, a
Pennsylvania limited partnership, E. F. Hansen Jr. and G. Eileen Hansen dated
December 2, 1988 (incorporated by reference to Exhibit No. 1 to Form 8-K dated
December 2, 1988 of ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)).

(q) Agreement of Sale between Provident Mutual Life Insurance Company of
Philadelphia and EML Associates dated December 27, 1988 (incorporated by
reference to Exhibit No. 1 to Form 8-K dated December 27, 1988 of ML/EQ Real
Estate Portfolio, L.P. (File No. 33-11064)).

(r) Agreement of Sale between Anderson Partners (Southside/Corporate Lakes)
L.P., Gene Anderson, Auerbach Associates Ltd. and EML Associates dated as of
December 31, 1988 (incorporated by reference to Exhibit No. 2 to Form 8-K dated
December 27, 1988 of ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)).

(s) Note and Mortgage and Security Agreement dated January 31, 1989
relating to loan by EML to The Wilcon Company (incorporated by reference to
Exhibit No. 4 to Form 8-K dated December 27, 1988 of ML/EQ Real Estate
Portfolio, L.P. (File No. 33-11064)).

(t) Note and Mortgage dated February 28, 1989 relating to the loan by EML
to 300 Delaware Avenue Associates (incorporated by reference to Exhibit 10(u) to
the 1988 10-K.)

(u) Agreement of Sale among Lincoln San Leandro IV Limited Partnership,
Patrician Associates, Inc. and EML Associates dated April 21, 1989 (incorporated
by reference to Exhibit (c)1 to Form 8-K dated May 18, 1989 of ML/EQ Real Estate
Portfolio, L.P. (File No. 33-11064)).

(v) Agreement dated March 25, 1994 between The Equitable Life Assurance
Society of the United States and Midwest Real Estate Shopping Centers L.P.
(formerly Equitable Real Estate Shopping Centers L.P.) (incorporated by
reference to Item 10(v) to Form 10-K dated December 31, 1994 of EREIM LP
Associates (the "1994 10-K")).

(w) Deed in Lieu of Foreclosure Agreement dated November 15, 1994 by and
between Three Hundred Delaware Avenue Associates, L.P. and EML Associates
(incorporated by reference to Exhibit 10(w) to the 1994 10-K).

(x) Lease Termination Agreement dated January 27, 1995 by and between The
Equitable Life Assurance Society of the United States and Kohl's Department
Stores, Inc. (incorporated by reference to Exhibit 10(x) to the 1994 10-K).

(y) Amendment to Lease Termination Agreement dated as of February 17, 1995
by and between The Equitable Life Assurance Society of the United States and
Kohl's Department Stores, Inc. (incorporated by reference to Exhibit 10(y) to
the 1994 10-K).

(z) Purchase Agreement dated as of March 10, 1995 by and among The
Equitable Life Assurance Society of the United States, the Venture and Dayton
Hudson Corporation (incorporated by reference to Exhibit 10(z) to the 1994
10-K).

27. Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only.

34
<PAGE> 36

99. Additional Exhibits

(a) Prospectus dated April 23, 1987, as supplemented by supplements dated
December 29, 1987, March 3, 1988 and March 17, 1988 (incorporated by reference
to Exhibit 28 to the 1987 10-K).

(b) Quarterly Report on Form 10-Q for the quarter ended June 30, 1988
(incorporated by reference to File No. 33-11064).

(d) Current Report on Form 8-K of the Partnership dated September 27, 1988
(incorporated by reference to File No. 33-11064).

(e) Current Report on Form 8-K of the Partnership dated December 2, 1988
(incorporated by reference to File No. 33-11064).

(f) Current Report on Form 8-K of the Partnership dated December 27, 1988
(incorporated by reference to File No. 33-11064).

(g) Current Report on Form 8-K of the Partnership dated May 18, 1989
(incorporated by reference to File No. 33-11064).

(h) Audited Financial Statements of Midwest Shopping Centers, L.P.
(incorporated by reference to the Form 10-K for the year ended December 31, 1996
of Midwest Shopping Centers, L.P. (File No. 1-9331)).

(i) Amendment to Joint Venture Agreement dated as of January 1, 1997
between ML/EQ Real Estate Portfolio, L.P. and EREIM LP Associates.

35
<PAGE> 37

SIGNATURES

Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 28th day of
March, 1997.

ML/EQ REAL ESTATE PORTFOLIO, L.P.

By: EREIM MANAGERS CORP.
(Managing General Partner)

By: /s/ B. STANTON BREON
------------------------------------
B. Stanton Breon
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on March 28, 1997.

/s/ EUGENE F. CONWAY
--------------------------------------
Eugene F. Conway
Chairman of the Board
of EREIM Managers Corp.

/s/ PAUL J. DOLINOY
--------------------------------------
Paul J. Dolinoy
Director of EREIM Managers Corp.

/s/ B. STANTON BREON
--------------------------------------
B. Stanton Breon
President, Chief Executive Officer
and Director of EREIM Managers Corp.

/s/ PATRICIA C. SNEDEKER
--------------------------------------
Patricia C. Snedeker
Chief Financial Officer, Vice
President,
Controller and Treasurer
of EREIM Managers Corp.

36
<PAGE> 38

ML/EQ REAL ESTATE PORTFOLIO, L.P.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
AND 1995 AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995,
AND 1994:
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Partners' Capital........................... F-5
Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements................ F-8
CONSOLIDATED SUPPLEMENTAL SCHEDULES AS OF DECEMBER 31, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994:
Schedule III -- Real Estate and Accumulated
Depreciation........................................... F-19
Schedule IV -- Mortgage Loans on Real Estate.............. F-20
</TABLE>

F-1
<PAGE> 39

INDEPENDENT AUDITORS' REPORT

ML/EQ Real Estate Portfolio, L.P.:

We have audited the accompanying consolidated balance sheets of ML/EQ Real
Estate Portfolio L.P. (the "Partnership") as of December 31, 1996 and 1995 and
the related consolidated statements of operations, partners' capital, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedules listed in the table of
contents as consolidated supplemental schedules. These financial statements and
the supplemental schedules discussed below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and supplemental schedules 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, such consolidated financial statements present fairly, in
all material respects, the financial position of ML/EQ Real Estate Portfolio,
L.P. at December 31, 1996 and 1995 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also in our opinion,
such consolidated supplemental schedules, when considered in relation to the
basic consolidated financial statements, present fairly in all material respects
the information shown therein.

DELOITTE & TOUCHE LLP

Atlanta, Georgia
February 6, 1997

F-2
<PAGE> 40

ML/EQ REAL ESTATE PORTFOLIO, L.P.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS:
Rental properties, net of accumulated depreciation (Note
3)..................................................... $129,359,200 $113,964,724
Zero coupon mortgage note receivable, net of valuation
allowance (Note 4)..................................... 21,498,199
Mortgage loan receivable (Note 5)......................... 6,000,000 6,000,000
------------ ------------
Total real estate investments..................... 135,359,200 141,462,923
OTHER ASSETS:
Cash and cash equivalents................................. 27,310,460 21,738,499
Accounts receivable and accrued investment income, net of
allowance for doubtful accounts of $748,994 in 1996 and
$460,313 in 1995....................................... 3,532,898 3,446,102
Deferred rent concessions................................. 2,178,371 2,030,727
Guaranty fee, net of accumulated amortization of
$2,133,211 in 1996 and $1,864,960 in 1995 (Notes 6 and
7)..................................................... 1,609,504 1,877,755
Deferred leasing costs, net of accumulated amortization of
$604,828 in 1996 and $393,867 in 1995.................. 1,167,420 713,979
Prepaid expenses and other assets......................... 683,920 495,509
Interest receivable....................................... 120,195 150,233
Due from affiliates....................................... 5,260 9,033
------------ ------------
Total other assets................................ 36,608,028 30,461,837
------------ ------------
$171,967,228 $171,924,760
============ ============

LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued real estate expenses......... $ 2,254,677 $ 2,221,132
Accrued capital expenditures.............................. 1,120,796 2,647,092
Distributions declared.................................... 813,634 542,423
Due to affiliates (Notes 6 and 7)......................... 608,207 609,615
Security deposits and unearned rent....................... 525,578 477,737
------------ ------------
Total liabilities................................. 5,322,892 6,497,999
MINORITY INTEREST IN THE VENTURE............................ 32,894,839 32,547,073
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 6 and 7)
PARTNERS' CAPITAL:
General partners.......................................... 2,144,349 2,033,056
Initial limited partner................................... 6,747 6,650
Limited partners (5,424,225 BACs issued and
outstanding)........................................... 131,598,401 130,839,982
------------ ------------
Total partners' capital........................... 133,749,497 132,879,688
------------ ------------
$171,967,228 $171,924,760
============ ============
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 41

ML/EQ REAL ESTATE PORTFOLIO, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE
Rental income (Note 9)................................ $20,702,439 $21,137,579 $22,512,719
Lease termination income (Note 9)..................... 179,149 1,502,020 498,691
Interest on loans receivable (Note 5)................. 4,101,334 1,734,586 2,910,707
----------- ----------- -----------
Total revenue...................................... 24,982,922 24,374,185 25,922,117
----------- ----------- -----------
OPERATING EXPENSES:
Real estate operating expenses........................ 8,289,903 8,231,795 9,649,243
Depreciation and amortization......................... 4,046,483 3,130,783 2,186,862
Real estate taxes..................................... 2,365,348 2,437,099 2,691,844
Property management fees (Note 7)..................... 477,385 507,820 476,905
Loss on write-down of zero coupon mortgage (Note 4)... 6,211,644 3,232,210
Loss on write-down of other real estate assets (Note
5)................................................. 379,895
----------- ----------- -----------
Total operating expenses...................... 21,390,763 17,539,707 15,384,749
----------- ----------- -----------
INCOME FROM PROPERTY OPERATIONS......................... 3,592,159 6,834,478 10,537,368
OTHER INCOME (EXPENSE):
Interest and other nonoperating income................ 1,221,906 1,177,018 934,206
Asset management fees (Note 7)........................ (686,658) (683,438) (561,173)
Amortization of guarantee fee (Note 7)................ (268,251) (268,251) (268,251)
General and administrative, including $521,815 in
1996, $527,834 in 1995, and $534,848 in 1994 to
affiliates (Note 7)................................ (685,524) (719,223) (825,868)
----------- ----------- -----------
Total other expense -- net.................... (418,527) (493,894) (721,086)
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST......................... 3,173,632 6,340,584 9,816,282
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED
VENTURE............................................... (947,766) (1,579,979) (2,272,880)
----------- ----------- -----------
NET INCOME.............................................. $ 2,225,866 $ 4,760,605 $ 7,543,402
=========== =========== ===========
ALLOCATION OF NET INCOME:
General partners...................................... $ 111,293 $ 238,030 $ 377,170
Initial limited partner............................... 97 208 330
Limited partners...................................... 2,114,476 4,522,367 7,165,902
----------- ----------- -----------
$ 2,225,866 $ 4,760,605 $ 7,543,402
=========== =========== ===========
NET INCOME PER BENEFICIAL ASSIGNEE CERTIFICATE.......... $ 0.39 $ 0.83 $ 1.32
=========== =========== ===========
WEIGHTED AVERAGE BENEFICIAL ASSIGNEE CERTIFICATES
OUTSTANDING........................................... 5,424,225 5,424,225 5,424,225
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 42

ML/EQ REAL ESTATE PORTFOLIO, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
INITIAL
GENERAL LIMITED LIMITED
PARTNERS PARTNER PARTNERS TOTAL
---------- ------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993..................... $1,417,856 $6,174 $121,863,827 $123,287,857
Net income................................... 377,170 330 7,165,902 7,543,402
Cash distributions........................... (25) (542,423) (542,448)
Distributions declared....................... (37) (813,634) (813,671)
---------- ------ ------------ ------------
BALANCE, DECEMBER 31, 1994..................... 1,795,026 6,442 127,673,672 129,475,140
Net income................................... 238,030 208 4,522,367 4,760,605
Cash distributions........................... (813,634) (813,634)
Distributions declared....................... (542,423) (542,423)
---------- ------ ------------ ------------
BALANCE, DECEMBER 31, 1995..................... 2,033,056 6,650 130,839,982 132,879,688
Net income................................... 111,293 97 2,114,476 2,225,866
Cash distributions........................... (542,423) (542,423)
Distributions declared....................... (813,634) (813,634)
---------- ------ ------------ ------------
BALANCE, DECEMBER 31, 1996..................... $2,144,349 $6,747 $131,598,401 $133,749,497
========== ====== ============ ============
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 43

ML/EQ REAL ESTATE PORTFOLIO, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Tenant rentals received................................... $20,891,345 $20,922,265 $21,845,655
Interest received......................................... 5,353,277 2,222,384 1,536,294
----------- ----------- -----------
Cash received from operations........................... 26,244,622 23,144,649 23,381,949
Cash paid for operating activities........................ (12,938,809) (12,207,347) (12,962,344)
Cash distributions to minority interest................... (600,000) (775,000) (271,249)
----------- ----------- -----------
Net cash provided by operating activities............... 12,705,813 10,162,302 10,148,356
INVESTING ACTIVITIES:
Purchases and additions to rental properties.............. (5,350,466) (7,884,869) (9,591,521)
Expenditures for deferred leasing costs................... (698,540) (450,045) (379,375)
Proceeds from other real estate assets.................... 620,105
----------- ----------- -----------
Net cash used in investing activities................... (6,049,006) (8,334,914) (9,350,791)
FINANCING ACTIVITY -- Cash distributions to limited
partners.................................................. (1,084,846) (1,627,305) (1,084,896)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 5,571,961 200,083 (287,331)
CASH AND CASH EQUIVALENTS:
Beginning of year......................................... 21,738,499 21,538,416 21,825,747
----------- ----------- -----------
End of year............................................... $27,310,460 $21,738,499 $21,538,416
=========== =========== ===========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
NET INCOME................................................ $ 2,225,866 $ 4,760,605 $ 7,543,402
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Depreciation and amortization............................. 4,314,734 3,399,034 2,455,113
Minority interest in Venture operations................... 947,766 1,579,979 2,272,880
Cash distributions to minority interest................... (600,000) (775,000) (271,249)
Loss on write-down of zero coupon mortgage................ 6,211,644 3,232,210
Loss on write-down of other real estate assets............ 379,895
Changes in assets (increase) decrease:
Interest accrual on zero coupon mortgage notes.......... (614,944) (2,283,631)
Accounts receivable and accrued investment.............. 129,517 (1,449,518) (1,198,070)
Interest receivable..................................... 30,038 (65,387) 36,330
Deferred rent concessions............................... (147,644) (278,299) (239,328)
Due from affiliates..................................... 3,773 (8,633) 11,821
Prepaid expenses and other assets....................... (31,760) 104,121 (375,154)
Changes in liabilities increase (decrease):
Accounts payable and accrued real estate expenses....... (404,597) 282,684 1,543,757
Due to affiliates....................................... (1,408) 3,997 62,604
Security deposits and unearned rent..................... 27,884 (8,547) 209,986
----------- ----------- -----------
Total adjustments.................................. 10,479,947 5,401,697 2,604,954
----------- ----------- -----------
Net cash provided by operating activities.......... $12,705,813 $10,162,302 $10,148,356
=========== =========== ===========
</TABLE>

F-6
<PAGE> 44

SUPPLEMENTAL INFORMATION REGARDING NONCASH INVESTING ACTIVITIES:

The Venture accrued $1,120,796 and $2,647,092 in capital expenditures that
were not paid before December 31, 1996 and 1995, respectively.

The Venture reclassified $15,550,364 relating to Brookdale Center from zero
coupon mortgage note receivable to rental properties as a result of Brookdale
Center being conveyed to the Venture and Equitable on December 16, 1996

The Venture reclassified $27,517,364 relating to Northland Center from
other real estate assets to rental properties as a result of the deed in lieu of
foreclosure transaction executed on July 22, 1994.

During 1994, the Venture recorded a $1,000,000 write-down on other real
estate assets which reduced other real estate assets relating to The Bank of
Delaware Building to $8,500,000. On November 15, 1994, a deed in lieu of
foreclosure was executed resulting in a reclassification of the remaining
$8,500,000 from other real estate assets to rental properties.

See notes to consolidated financial statements.

F-7
<PAGE> 45

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995 AND FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

1. ORGANIZATION

ML/EQ Real Estate Portfolio, L.P., a Delaware limited partnership (the
"Partnership"), was formed on December 22, 1986. The Partnership was formed to
invest in existing income-producing real properties, zero coupon or similar
mortgage notes, and fixed-rate mortgage loans through a joint venture, EML
Associates (the "Venture"). The Venture was formed on March 10, 1988 with EREIM
LP Associates, an affiliate of The Equitable Life Assurance Society of the
United States ("Equitable"). The Partnership owns an 80% interest in the
Venture.

The Managing General Partner of the Partnership is EREIM Managers Corp.
(the "Managing General Partner"), an affiliate of Equitable, and the Associate
General Partner is MLH Real Estate Associates Limited Partnership (the
"Associate General Partner"), an affiliate of Merrill Lynch, Hubbard Inc. The
initial limited partner is MLH Real Estate Assignor, Inc., an affiliate of
Merrill Lynch, Hubbard Inc.

The Partnership's Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement") authorized the sale of up to 7,500,000 Beneficial
Assignee Certificates ("BACs") at $20 per BAC. The BACs evidence the economic
rights attributable to limited partnership interests in the Partnership. On
March 10, 1988, the Partnership's initial investor closing occurred, at which
time the Partnership received $92,190,120 representing the proceeds from the
sale of 4,609,506 BACs. On May 3, 1988, the Partnership had its second and final
investor closing. The Partnership received $16,294,380 representing the proceeds
from the sale of an additional 814,719 BACs.

Total capital contributions to the Partnership are summarized as follows:

<TABLE>
<S> <C>
General partners............................................ $ 25,000
Initial limited partner..................................... 5,000
Limited partners............................................ 108,484,500
------------
Total............................................. $108,514,500
============
</TABLE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation -- The consolidated financial statements
include the accounts of the Partnership and the Venture. EREIM LP Associates'
20% ownership in the Venture is reflected as a minority interest in the
Partnership's consolidated financial statements. All significant intercompany
accounts are eliminated in consolidation.

F-8
<PAGE> 46

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Venture records its proportionate share of the assets, liabilities,
revenues, and expenses of the undivided interests in Northland Center and
Brookdale Center.

Allocation of Partnership Income -- Partnership net income was allocated
99% to the limited partners as a group and 1% to the general partners until 1990
at which time the Partnership paid the final portion of the
acquisition/syndication fees to the general partners. Partnership net income is
now allocated 95% to the limited partners as a group and 5% to the general
partners, consistent with the provision in the limited partnership agreement for
the allocation of distributable cash.

Rental Properties -- Rental properties are stated at cost. Cost is
allocated between land and buildings based upon preacquisition appraisals of
each property. The Venture has adopted Statement of Financial Accounting
Standards ("SFAS") 121, "Impairment of Long-Lived Assets." Impairment is
determined by calculating the sum of the estimated undiscounted future cash
flows including the projected undiscounted future net proceeds from sale of
property. In the event such sum is less than the depreciated cost of the
property, the property will be written down to estimated fair market value.

Depreciation -- Depreciation of buildings and building improvements is
provided using the straight-line method over estimated useful lives of five to
forty years. Tenant improvements and leasing commissions are amortized using the
straight-line method over the life of the related lease.

Rental Income -- Rental income is recognized on a straight-line basis over
the terms of the leases.

Zero Coupon Mortgage Note Receivable -- During 1995, the Venture adopted
SFAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS
118. The Venture measures impairment of the zero coupon mortgage note receivable
based upon the estimated fair market value of the underlying collateral. If the
Venture's portion of the estimated fair market value of the collateral declines
below the recorded investment in the loans, impairment will be recognized
through the creation of a valuation allowance. The Venture records interest
received on the cash method (Note 4).

Mortgage Loan Receivable -- The mortgage loan receivable is stated at cost
(Note 5).

Offering Costs -- Offering costs, including the acquisition/syndication fee
payable to the general partners and other offering and issuance costs of the
BACs totaling $11,037,537, were charged against the limited partners' capital in
accordance with the provisions of the Partnership Agreement, following the
investor closings in 1988.

Guaranty Fees -- Guaranty fees are being recognized as expense over the
estimated life of the Partnership through a combination of the amortization of
the nonrecurring portion of the fees incurred during the first three years of
the Partnership and the expense of the recurring portion of the fees as incurred
(Note 7).

Cash and Cash Equivalents -- Cash equivalents include cash, demand
deposits, money market accounts, and highly liquid short-term investments
purchased with original maturities of three months or less.

Income Taxes -- No provisions for income taxes have been made since all
income and losses are allocated to the partners for inclusion in their
respective tax returns.

F-9
<PAGE> 47

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Fair Value of Financial Instruments -- Management has reviewed the various
assets and liabilities of the Partnership in accordance with the SFAS 107,
"Disclosures about Fair Value of Financial Instruments," (which is not
applicable to real estate assets). Management has concluded that the estimated
fair market value of the Partnership's financial instruments, including the
mortgage loan receivable, have terms such that the carrying value approximates
the estimated fair market value.

Reclassifications -- Certain prior year amounts have been reclassified to
conform with the 1996 presentation.

3. RENTAL PROPERTIES

As of December 31, 1996, the Partnership's rental properties consisted of
the following:

<TABLE>
<CAPTION>
RENTABLE PERCENTAGE
SQUARE FEET LEASED
----------- ----------
<S> <C> <C> <C>
OFFICE
16 and 18 Sentry Park West............ Montgomery County, Pennsylvania 186,243 98%
The Bank of Delaware Building......... Wilmington, Delaware 314,313 52%
INDUSTRIAL
1200 Whipple Road..................... Union City, California 257,500 100%
701 and 733 Maple Lane................ Bensenville, Illinois 81,750 100%
7550 Plaza Court...................... Willowbrook, Illinois 49,500 100%
800 Hollywood Avenue.................. Itasca, Illinois 50,337 100%
1850 Westfork Drive................... Lithia Springs, Georgia 103,505 100%
1345 Doolittle Drive.................. San Leandro, California 326,414 100%
RETAIL
Richland Mall......................... Richland Township, Pennsylvania 182,577 95%
Northland Center...................... Southfield, Michigan 552,992 80%
Brookdale Center...................... Brooklyn Center, Minnesota 200,184 70%
</TABLE>

F-10
<PAGE> 48

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The costs related to the rental properties are summarized below:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land.................................................... $ 27,551,185 $ 24,441,111
Buildings and Improvements.............................. 117,706,619 101,955,291
------------ ------------
Total......................................... 145,257,804 126,396,402
Accumulated depreciation................................ (15,898,604) (12,431,678)
------------ ------------
Net rental properties......................... $129,359,200 $113,964,724
============ ============
Office.................................................. $ 40,724,046 $ 38,982,689
Retail.................................................. 73,462,730 56,677,049
Industrial.............................................. 31,071,028 30,736,664
------------ ------------
Total......................................... 145,257,804 126,396,402
Accumulated depreciation................................ (15,898,604) (12,431,678)
------------ ------------
Net rental properties......................... $129,359,200 $113,964,724
============ ============
</TABLE>

4. ZERO COUPON MORTGAGE NOTES RECEIVABLE

Brookdale Center

The Venture held a 71.66% participation interest in a zero coupon mortgage
note. The property which secured this first mortgage note is Brookdale Center
which is located outside of Minneapolis, Minnesota. The Venture acquired its
participation interest in 1988 from Equitable which held the remaining 28.34%
interest. The Venture's participation interest had an estimated fair market
value (including accrued interest) at the time of acquisition of $12,278,885.
The borrower was Midwest Real Estate Shopping Center L.P. ("Midwest"), a
publicly traded limited partnership, (formerly Equitable Real Estate Shopping
Centers, L.P.). The note had an implicit interest rate of 10.2% compounded
semiannually with the Venture's portion of the entire amount of principal and
accrued interest totaling $25,345,353 due on June 30, 1995.

Midwest defaulted on its obligation to repay the Brookdale zero note in
full on the maturity date. Notice of default was given to Midwest. For book
purposes, beginning with the second quarter of 1995, Management discontinued the
accrual of interest on the Brookdale zero note as the accreted value of the
mortgage approximated the estimated fair market value of the Brookdale Center.
Under the terms of the mortgage agreement, however, the Venture continued to
accrue interest off the books at the effective implicit rate of 10.2% until June
30, 1995. On July 1, 1995, the Venture began to accrue interest off the books on
the Brookdale zero note at the default rate of 19.0%. Equitable and the Venture
(collectively referred to as "Lender") commenced foreclosure by advertisement
proceedings and a court appointed receiver was named. The receiver was
responsible for collecting rent proceeds from the tenants at Brookdale Center
and applying the proceeds to payments of operating costs at Brookdale Center.
Any remaining funds were paid to Lender on account of the Brookdale zero note.
The Venture recorded cash received from the operation of Brookdale Center on a
cash basis as interest income. During 1996 and 1995, approximately $1,975,000
and $700,000, respectively, was remitted under the terms of the receivership.
The Venture's portion of these payments was approximately $1,415,000 and
$502,000, respectively.

F-11
<PAGE> 49

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In April 1996, the Lender agreed in principle to a workout arrangement with
Midwest on the Brookdale zero note under which Midwest would file for Chapter 11
bankruptcy protection and, with the support of Lender, submit a plan of
reorganization to Bankruptcy Court for approval. The workout arrangement was
memorialized in a nonbinding letter agreement dated April 11, 1996 (the "Letter
Agreement") between Midwest and Equitable and approved by the Board of Directors
of EREIM Managers Corp., the general partner of the Partnership, on behalf of
the Venture.

On June 20, 1996 Midwest filed a voluntary petition for Chapter 11
bankruptcy protection, as contemplated by the Letter Agreement, staying the
Brookdale foreclosure proceeding and terminating the receivership arrangement.
As further contemplated by the Letter Agreement, Midwest subsequently obtained
Bankruptcy Court approval to retain the management company that had served as
receiver prior to the bankruptcy filing as Brookdale's property manager.

In addition, the Bankruptcy Court, with the agreement of Midwest and
Lender, entered a cash collateral order as contemplated by the Letter Agreement,
pursuant to which all positive cash flow generated by the property in excess of
property-related expenses and certain administrative costs of the bankruptcy,
not to exceed $25,000, was paid to the Lender during the bankruptcy. The Venture
recorded cash received from the operation of Brookdale Center as interest
income. During 1996, approximately $2,890,000 was remitted under the terms of
the cash collateral order. The Venture's portion of these payments was
approximately $2,071,000.

On December 16, 1996, Brookdale Center was transferred to the Venture and
Equitable, as tenants in common, pursuant to a Chapter 11 bankruptcy plan for
Midwest that was approved by the Bankruptcy Court on November 25, 1996. The
consideration for this transfer was (i) release of Midwest from its obligations
under the Brookdale Zero Note and (ii) payment to Midwest of $500,000, of which
the Venture's portion was $358,303. An internal review of the property,
performed for the Venture as of the date of transfer, estimated the fair market
value of the Brookdale Center to be $21,700,000, of which the Venture's portion
was $15,550,364. Following the transfer, Brookdale Center was reclassified from
zero coupon mortgage note receivable to rental properties and income and
expenses were recorded from that date. The Venture recognized a loss of
$6,211,644 to record Brookdale Center at its estimated fair market value.

Northland Center

Until July 22, 1994, the Venture also held a 71.66% participation interest
in a zero coupon mortgage note and the first mortgage on Northland Center which
is located outside of Detroit, Michigan. The Venture acquired its participation
interest in 1988 from Equitable which held the remaining 28.34% interest. The
Venture's participation interest had an estimated fair market value (including
accrued interest) at the time of acquisition of $20,774,985. The borrower was
Midwest. The note had an implicit interest rate of 10.2% compounded semiannually
with the Venture's portion of the entire amount of principal and accrued
interest

F-12
<PAGE> 50

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

totaling $42,882,504 due on June 30, 1995. The note provided that the borrower
could elect to pay interest currently; however, no interest was paid through
July 22, 1994.

On July 22, 1994, Midwest transferred Northland Center to the Venture and
Equitable in proportion to their respective undivided interests in the Northland
Center mortgage. Following the transfer, which was retroactive as of January 1,
1994, Northland Center was reclassified from other real estate assets to rental
properties and income and expenses were adjusted as of that date. The Venture
records its proportionate share of the assets, liabilities, revenues, and
expenses of the undivided interests in Northland Center in accordance with the
tenancy in common arrangements in the Participation Agreement between the
Venture and Equitable. The Venture and Equitable paid the owner $6.6 million at
the time of transfer (an amount which was determined to approximate the net
present value of the anticipated cash flow from Northland Center, subject to
closing adjustments, for the period from January 1, 1994 through June 30, 1995,
the date the Northland Center mortgage would have matured).

In connection with the transfer of Northland Center, the Venture and
Equitable modified the agreement with Dayton Hudson, which operates one of the
anchor stores at Northland Center, and entered into an agreement to add
Montgomery Ward as an additional anchor. The Venture and Equitable also
commenced a renovation program at Northland Center. The renovations were
completed during the second quarter of 1995 at a total cost of approximately
$11.0 million, of which the Venture's share was approximately $7.9 million.

5. MORTGAGE LOANS RECEIVABLE

In 1989, the Venture made a $6,000,000 nonrecourse first mortgage loan to
the Wilcon Company. The loan is collateralized by an apartment complex in
Weston, Massachusetts. The loan bears interest at 10.25% per annum with interest
only of $51,250 due monthly to the maturity date of February 1999.

In 1989, the Venture made a $9,500,000 nonrecourse first mortgage loan to
Three Hundred Delaware Avenue Associates. This loan was collateralized by a
17-story office building in Wilmington, Delaware. The owners of The Bank of
Delaware Building defaulted on the mortgage loan receivable and the Venture
accounted for this transaction as an in-substance foreclosure at December 31,
1993. Accordingly, the mortgage loan receivable was reclassified to other real
estate assets at its estimated fair market value as of that date and the Venture
began recording operating revenues and expenses of the building. In the third
quarter of 1994, the Venture recognized a loss of $1,000,000 due to valuing The
Bank of Delaware Building to the most recent estimated fair market value.
Subsequently, on November 15, 1994, the Venture acquired title to The Bank of
Delaware Building by a deed in lieu of foreclosure. In connection with the deed
in lieu transaction, the Venture received a $350,000 cash payment plus the
property's operating cash account which reduced the loss on the transaction to
approximately $380,000.

6. GUARANTY AGREEMENT

EREIM LP Associates has entered into a guaranty agreement with the Venture
to provide a minimum return to the Partnership's limited partners on their
contributions. The Venture has assigned its rights under the guaranty agreement
to the Partnership. Payments on the guaranty are due 90 days following the
earlier of the sale or other disposition of all the properties and mortgage
loans and notes or the liquidation of the

F-13
<PAGE> 51

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Partnership. The minimum return will be an amount which, when added to the
cumulative distributions to the limited partners, will enable the Partnership to
provide the limited partners with a minimum return equal to their capital
contributions plus a simple annual return of 9.75% on their adjusted capital
contributions calculated from the dates of the investor closings. Adjusted
capital contributions are the limited partners' original cash contributions
reduced by distributions of sale or financing proceeds and by distributions of
certain funds in reserves, as more particularly described in the Partnership
Agreement. The limited partners' original cash contributions have been adjusted
by that portion of distributions paid through December 31, 1996, resulting from
cash available to the Partnership as a result of sale or financing proceeds paid
to the Venture. The minimum return is subject to reduction in the event that
certain taxes, other than local property taxes, are imposed on the Partnership
or the Venture, and is also subject to certain other limitations set forth in
the prospectus. Based upon the assumption that the last property is sold on
December 31, 2002, upon expiration of the term of the Partnership, the maximum
liability of EREIM LP Associates to the Venture under the guaranty agreement as
of December 31, 1996 is limited to $244,905,999, plus the value of EREIM LP
Associates' interest in the Venture less any amounts contributed by EREIM LP
Associates to the Venture to fund cash deficits.

Capital contributions by the BAC holders totaled $108,484,500. As of
December 31, 1996, the cumulative 9.75% simple annual return was $92,031,083. As
of December 31, 1996, cumulative distributions by the Partnership to the BAC
holders totaled $16,337,751, of which $11,662,084 is attributable to income from
operations and $4,675,667 is attributable to sales of Venture assets, principal
payments on mortgage loans and other capital events. Another $813,634 in capital
proceeds was distributed to the BAC holders in February 1997. To the extent that
future cash distributions to the limited partners are insufficient to provide
the specified minimum return, any shortfall will be funded by the guarantor, up
to the above described maximum.

Effective as of January 1, 1997, the Partnership entered into an amendment
to the Joint Venture Agreement of the Venture between the Partnership and EREIM
LP Associates pursuant to which EREIM LP Associates agreed to defer, without
interest, its rights to receive 20% of the Venture's distributions of Sale or
Financing Proceeds until the Partnership has received aggregate distributions
from the Venture in an amount equal to the capital contributions made to the
Partnership by the BAC holders plus a noncompounded cumulative return computed
at the rate of 9.75% per annum on contributions outstanding from time to time.
Prior to the amendment, EREIM LP Associates had a right to receive 20% of all
the Venture's distributions of Sale or Financing Proceeds on a pari passu basis
with the Partnership. The amendment will have the effect of accelerating the
return of original contributions to BAC holders to the extent that Sale and
Financing Proceeds are realized prior to the dissolution of the Partnership.

7. COMPENSATION AND FEES

Acquisition/Syndication Fee -- The acquisition/syndication fee was paid to
the general partners for initial acquisition, management, and administrative
services to the Partnership. The fee was 8.7% of the proceeds from the offering
of BACs, which amounted to $9,438,152 based upon the total number of BACs sold
and has been included in the offering costs charged to limited partners'
capital. The outstanding balance of this fee was paid to the general partners in
August 1990.

F-14
<PAGE> 52

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Venture Supervisory Fee -- The Venture supervisory fee is payable to the
Managing General Partner for supervising the Partnership's investment in the
Venture. The fee is payable semiannually in an amount equal to .75% per annum of
the Partnership's allocable share of the acquisition price of properties owned
by the Venture. For each of the years ended December 31, 1996, 1995, and 1994,
the total expense for this fee was $658,271, $654,192, and $502,682,
respectively.

Mortgage Loan Servicing Fee -- The mortgage loan servicing fee is payable
to the Managing General Partner for servicing mortgage loans owned by the
Venture. The fee is payable semiannually in an amount equal to .20% per annum of
the outstanding principal amount of the Partnership's allocable share of
fixed-rate first mortgage loans and .20% per annum of the Partnership's
allocable share of the accreted amount of zero coupon mortgage notes at the time
of acquisition or contribution to the Venture. For each of the years ended
December 31, 1996, 1995, and 1994, the total expense for this fee was $28,387,
$29,246, and $58,492, respectively.

Partnership Administration Fee -- The Partnership administration fee is
payable to the Associate General Partner as compensation for providing investor
services limited to processing investor information and disseminating
Partnership reports and tax information. The fee is payable on a semiannual
basis at an annual rate of .15% per annum of the average annual adjusted capital
contributions of the offering of BACs. For the years ended December 31, 1996,
1995, and 1994, the total expense for this fee was $156,389, $158,350, and
$160,460, respectively.

Property Management Fees -- Properties are managed and leased by either
third-party managing and leasing agents or by affiliates of Equitable Real
Estate, Compass Management and Leasing, Inc. ("Compass"), and Compass Retail,
Inc. ("Compass Retail"). Property management fees are generally established at
specified percentages of 1% to 5% of the gross receipts of the properties as
defined in the management agreements. Property management fees for properties
managed by Compass and Compass Retail were $406,995, $442,906, and $217,513 in
1996, 1995, and 1994, respectively.

Leasing commissions are based on a percentage of the rent payable during
the term of the lease as specified in each lease agreement. Leasing commissions
paid by the Venture to Compass and Compass Retail were $123,611, $93,519, and $0
in 1996, 1995, and 1994, respectively. Leasing commissions are capitalized in
deferred leasing costs on the balance sheet or expensed in real estate operating
expenses on the statement of operations in accordance with the Venture's
capitalization policy. The Venture has reimbursed Compass and Compass Retail for
payroll incurred of $1,678,348, $1,974,425, and $763,727 in 1996, 1995, and
1994, respectively. Payroll reimbursements are included in real estate operating
expenses on the statement of operations. Additionally, the Venture has paid
construction management fees to Compass and Compass Retail of $92,024 and
$167,861 in 1996 and 1995, respectively. The construction management fees have
been capitalized as a portion of the construction projects to which they relate.

Compass Retail performed certain due diligence work with regard to the
workout arrangement with Midwest on the Brookdale zero note. Consulting fees
paid to Compass Retail during 1996 for due diligence work were $72,047, of which
the Venture's portion was $51,630. The consulting fees are included in the
statement of operations as a component of real estate operating expenses.

F-15
<PAGE> 53

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Guaranty Fee -- The guaranty fee is payable to the Venture in consideration
of the assignment of the guaranty agreement. The fee was initially paid in six
semiannual installments, which commenced on June 30, 1988 and ended on December
31, 1990, at an annual rate of 1.15% of gross proceeds plus .35% of average
annual adjusted capital contributions. Subsequent to December 31, 1990, the fee
is payable on a semiannual basis at an annual rate of .35% of the average annual
adjusted capital contributions of the offering of BACs. The guaranty fee is
assigned to EREIM LP Associates. The total of the recurring portion of the
guaranty fee which is included in general and administrative expense on the
statement of operations was $365,426, $369,484, and $374,394 for the years ended
December 31, 1996, 1995, and 1994, respectively. The amortization expense on the
nonrecurring portion of the fee was $268,251 in each of the years ended December
1996, 1995, and 1994.

Disposition Fee -- The disposition fee is payable to the Managing General
Partner in the case of a sale of a property. Upon distribution of the proceeds
of the sale to the limited partners, the fee is payable in the amount of 1.50%
of the aggregate gross proceeds received by the Partnership. The Managing
General Partner will not receive any portion of the disposition fee which, when
combined with amounts paid to all other entities as real estate brokerage
commissions in connection with the sale, exceeds 6% of the aggregate gross sale
proceeds.

8. PARTNERSHIP AGREEMENT

The general partners are liable for all general obligations of the
Partnership to the extent not paid by the Partnership. The limited partners are
not liable for the obligations of the Partnership beyond the amount of their
contributed capital.

After payment of the acquisition/syndication fee to the general partners,
which has been charged to the limited partners' capital, distributable cash from
operations, less any amounts set aside for reserves, will be distributed
semiannually on the basis of 95% to the BAC holders and limited partners as a
group and 5% to the general partners. Distributions to the general partners for
any semiannual period will be deferred until the limited partners have received
a 6% per annum simple return on their adjusted capital contribution during the
period.

Taxable income and loss will generally be allocated 1% to the general
partners and 99% to the limited partners.

Distributions from sale or financing proceeds, if applicable during a
period, will be distributed on a semiannual basis with priority return given to
the limited partners. An exception in the agreement provides that the
distribution of sale or financing proceeds may be delayed if the purpose for
withholding such a distribution is to supplement cash reserves. Subsequent to a
complete return of the limited partners' capital contributions and the receipt
of the minimum return by the limited partners, as defined in the Partnership
Agreement, sales proceeds will be allocated to the general partners to the
extent of any distributable cash that has been deferred, net of disposition fees
paid to the Managing General Partner. The balance will be allocated 85% to the
limited partners and 15% to the general partners.

F-16
<PAGE> 54

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. LEASES

Future minimum rentals to be received for the properties under
noncancellable operating leases in effect as of December 31, 1996 are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1997.................................................. $13,398,308
1998.................................................. 12,939,355
1999.................................................. 12,098,091
2000.................................................. 10,355,994
2001.................................................. 7,897,163
Thereafter............................................ 26,860,355
-----------
Total....................................... $83,549,266
===========
</TABLE>

In addition to the minimum lease amounts, certain leases provide for
escalation charges to tenants for common area maintenance and real estate taxes.
The amount of escalation charges included in rental income totaled $7,686,606,
$7,792,848, and $9,007,436 for the years ended December 31, 1996, 1995, and
1994, respectively.

In the case of retail tenants, certain leases provide for percentage rents.
Contingent rentals which include percentage rents included in rental income for
the years ended December 31, 1996, 1995, and 1994 totaled $615,400, $601,316,
and $525,673, respectively.

Information with respect to significant individual leases is as follows:

- Gruner & Jahr Printing Company occupies approximately 44.1% (143,852
square feet) of Doolittle Drive at an annual base rent of $478,104 under a
lease which expires in August 2000.

- Hudson's Department Store, J.C. Penney, Montgomery Ward, and Target
operate stores at Northland Center and each contributes common area
maintenance payments for operating expenses and real estate taxes under
separate agreements. These stores, covering 511,509 square feet, 283,534
square feet, 117,750 square feet, and 116,222 square feet, respectively,
are not included in the gross leasable area of the mall.

- Pursuant to an agreement with Kohl's Department Stores, Inc. ("Kohl's")
finalized on February 17, 1995, Equitable agreed to accept $1,750,000 in
connection with the termination of Kohl's lease at Northland Center on
behalf of the tenancy in common arrangement between the Venture and
Equitable. The Venture's portion of the termination payment was
$1,254,062. Upon termination of the lease, Kohl's was released from any
remaining lease obligation under the original lease agreement.

- PNC Bank occupies approximately 32.7% of The Bank of Delaware Building at
an annual rent of $400,715. The majority of the lease commitment expires
in May 2005.

- Broadway Stores, Inc. occupies the entire Whipple Road property (257,500
square feet) at an annual rent of $1,026,156 under a lease which expires
on August 24, 2003.

F-17
<PAGE> 55

ML/EQ REAL ESTATE PORTFOLIO, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- Dayton's, Sears, J.C. Penney, Mervyn's California, and Kohl's each
operate stores at Brookdale Center and each contributes common area
maintenance payments for operating expenses and real estate taxes under
separate agreements. These stores, covering 195,368 square feet, 211,004
square feet, 150,589 square feet, 138,279 square feet, and 75,000 square
feet, respectively, are not included in the gross leasable area of the
mall. In addition, Kohl's and J.C. Penney pay annual ground rent of
$175,000 and $20,930, respectively.

10. TAXABLE NET INCOME AND TAX NET WORTH

The following is a reconciliation of the Partnership's financial net income
to taxable net income and a reconciliation of partners' capital for financial
reporting purposes to net worth on a tax basis:

<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Financial net income......................... $ 2,225,866 $ 4,760,605 $ 7,543,402
Net book to tax difference from investment in
joint venture.............................. (1,686,777) 2,639,006 (7,145,661)
------------ ------------ ------------
Taxable net income......................... $ 539,089 $ 7,399,611 $ 397,741
============ ============ ============
Capital balance, financial reporting......... $133,749,497 $132,879,688 $129,475,140
Cumulative book to tax income differences
from investment in joint venture........... 1,073,675 2,760,452 121,446
------------ ------------ ------------
Net worth, tax basis....................... $134,823,172 $135,640,140 $129,596,586
============ ============ ============
</TABLE>

F-18
<PAGE> 56

SCHEDULE III

ML/EQ REAL ESTATE PORTFOLIO, L.P.

CONSOLIDATED SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND
1994
<TABLE>
<CAPTION>
COSTS GROSS COST AT WHICH CARRIED
INITIAL COST TO COMPANY CAPITALIZED AT END OF THE YEAR
-------------------------- SUBSEQUENT -----------------------------------------
BUILDINGS TO BUILDINGS
AND ACQUISITION AND
DESCRIPTION LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Industrial
1200 Whipple Road, Union City,
California................... $ 2,759,162 $ 5,112,652 $ 161,659 $ 2,762,332 $ 5,271,141 $ 8,033,473
Maple Lane, Plaza Court, and
Hollywood Avenue,
Bensenville, Illinois........ 1,670,158 5,167,581 452,020 1,673,062 5,616,697 7,289,759
1850 Westfork Drive, Lithia
Springs, Georgia............. 750,000 3,009,802 134,330 788,008 3,106,124 3,894,132
1345 Doolittle Drive, San
Leandro, California.......... 4,000,000 6,269,526 1,584,138 4,026,312 7,827,352 11,853,664
Retail
Richland Mall, Richland
Township, Pennsylvania......... 1,115,321 11,663,922 543,669 1,115,535 12,207,377 13,322,912
Northland Center, Southfield,
Michigan..................... 7,424,476 24,822,493 12,342,485 7,424,476 37,164,978 44,589,454
Brookdale Center, Brooklyn
Center, Minnesota............ 3,110,075 12,440,289 -- 3,110,075 12,440,289 15,550,364
Office
Sentry Park West, Montgomery
County Pennsylvania.......... 2,624,777 23,981,032 2,626,034 2,651,385 26,580,458 29,231,843
The Bank of Delaware Building,
Wilmington, Delaware......... 4,000,000 4,500,000 2,992,203 4,000,000 7,492,203 11,492,203
----------- ----------- ----------- ----------- ------------ ------------
$27,453,969 $96,967,297 $20,836,538 $27,551,185 $117,706,619 $145,257,804
=========== =========== =========== =========== ============ ============

ACCUMULATED DATE OF DATE
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED
----------- ------------ ------------ ---------
<S> <C> <C> <C>
Industrial
1200 Whipple Road, Union City,
California................... $ 1,159,918 1963 03/17/88
Maple Lane, Plaza Court, and
Hollywood Avenue, 12/27/88,
Bensenville, Illinois........ 1,097,241 1979-80 6/8/89
1850 Westfork Drive, Lithia
Springs, Georgia............. 621,959 1988 1/06/89
1345 Doolittle Drive, San
Leandro, California.......... 1,745,427 1964 5/18/89
Retail
Richland Mall, Richland
Township, Pennsylvania......... 2,599,857 1974-75 7/19/88
Northland Center, Southfield,
Michigan..................... 2,661,507 1954 7/22/94
Brookdale Center, Brooklyn
Center, Minnesota............ 25,917 1962 12/16/96
Office
Sentry Park West, Montgomery
County Pennsylvania.......... 5,614,713 1988 12/22/88
The Bank of Delaware Building,
Wilmington, Delaware......... 372,065 1970 11/15/94
-----------
$15,898,604
===========
</TABLE>

<TABLE>
<CAPTION>
RECONCILIATION OF BEGINNING AND ENDING BALANCES: 1995 1994 1993
------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Rental Properties:
Balance at beginning of year.............................. $126,396,402 $118,933,102 $ 70,587,171
Transfers by deed in lieu of foreclosure................ -- 40,746,969
Brookdale Center Acquisition............................ 15,550,364 -- --
Improvements............................................ 3,311,038 7,463,300 7,658,962
------------ ------------ ------------
Balance at end of year.................................... $145,257,804 $126,396,402 $118,993,102
============ ============ ============
Accumulated Depreciation:
Balance at beginning of year.............................. $ 12,431,678 $ 9,743,204 $ 7,668,103
Depreciation for year..................................... 3,466,926 2,688,474 2,075,101
------------ ------------ ------------
Balance at end of year.................................... $ 15,898,604 $ 12,431,678 $ 9,743,204
============ ============ ============
</TABLE>

F-19
<PAGE> 57
SCHEDULE IV

ML/EQ REAL ESTATE PORTFOLIO, L.P.

CONSOLIDATED SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND
1994

<TABLE>
<CAPTION>
CARRYING BALLOON
FINAL PERIODIC FACE AMOUNT PAYMENT
INTEREST MATURITY PAYMENT AMOUNT OF OF AT
DESCRIPTION RATE DATE TERMS MORTGAGES MORTGAGES MATURITY
- ----------- -------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
First mortgage loan on apartment
complex in Massachusetts......... 10.25% February 1999 (d) $6,000,000 $6,000,000(a)(c) $6,000,000
========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Balance at beginning of period....................... $27,498,199 $30,115,465 $ 27,831,834
Interest accrued on zero coupon notes................ 614,944 2,283,631
Write-down of zero coupon mortgage(b)................ (6,211,644) (3,232,210)
Loans reclassified as rental properties.............. (15,286,555)
----------- ----------- ------------
Balance at end of year............................... $ 6,000,000 $27,498,199 $ 30,115,465
=========== =========== ============
</TABLE>

- ---------------

Notes:

(a) This loan is not subject to any delinquencies.
(b) EREIM LP Associates, an affiliate, contributed $9,823,108 of the zero
coupon mortgage note to the Venture, including principal plus interest at
the contribution date. The Venture recorded a valuation allowance of
$3,232,210 at September 30, 1996 to value the note at an amount equal to
the Venture's participation interest in the note multiplied by the
estimated fair market value of the underlying collateral. On December 16,
1996, upon acquiring its undivided interest in the shopping mall securing
the zero coupon mortgage, the Venture recorded a loss of $6,211,644 and
recorded the property on its balance sheet at an amount equal to the
Venture's participation interest in the property multiplied by the
estimated fair market value of the property.
(c) The aggregate tax basis is $6,000,000.
(d) Payments of interest only of $51,250 are due monthly until the maturity
date of February 1999.

F-20
<PAGE> 58

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
4.(a) -- Amended and Restated Agreement of Limited Partnership dated
April 23, 1987. Included as an Exhibit to the Prospectus
(see Exhibit 99(a)).........................................
(b) -- Amendment to Amended and Restated Agreement of Limited
Partnership dated February 9, 1988 (incorporated by
reference to Exhibit 4(b) to the Partnership's Annual Report
on Form 10-K for the Fiscal Year Ended December 31, 1987
(File No. 33-11064) (the "1987 10-K"))......................
10. Material Contracts.
(a) -- Form of Beneficial Assignee Certificate (incorporated by
reference to Exhibit 10(a) to Pre-Effective Amendment No. 1
to the Registration Statement of the Partnership (File No.
33-11064))..................................................
(b) -- Agreement Between General Partners (incorporated by
reference to Exhibit 10(c) to the 1987 10-K)................
(c) -- Joint Venture Agreement of EML Associates (incorporated by
reference to Exhibit 10(d) to the 1987 10-K)................
(d) -- Investment Guaranty Agreement between the Venture and EREIM
LP Associates (incorporated by reference to Exhibit 10(e) to
the 1987 10-K)..............................................
(e) -- Assignment Agreement between Registrant and Venture
(incorporated by reference to Exhibit 10(f) to the 1987
10-K).......................................................
(f) -- Keep Well Agreement between The Equitable Life Assurance
Society of the United States and EREIM LP Corp.
(incorporated by reference to Exhibit 10(g) to the 1987
10-K).......................................................
(g) -- Amended and Restated Agreement of General Partnership of
EREIM LP Associates (incorporated by reference to Exhibit
10(h) to the 1987 10-K).....................................
(h) -- Promissory Notes and Mortgages Relating to Brookdale and
Northland (incorporated by reference to Exhibit 10(I) to
Pre-Effective Amendment No. 1 to the Registration Statement
of the Partnership (File No. 33-11064)).....................
(i) -- Contract to Purchase 1200 Whipple Road, Union City,
California (incorporated by reference to Exhibit 10(j)) to
Post-Effective Amendment No. 1 to the Registration Statement
of the Partnership (File No. 33-11064)).....................
(j) -- Lease Agreement Pertaining to 1200 Whipple Road, Union City,
California (incorporated by reference to Exhibit 10(k) to
Post-Effective Amendment No. 1 to the Registration Statement
of the Partnership (File No. 33-11064)).....................
(k) -- Participation Agreements relating to Brookdale and Northland
Notes (incorporated by reference to Exhibit 10(1) to the
1987 10-K)..................................................
(l) -- Amendments to Participation Agreements relating to Brookdale
and Northland Notes (incorporated by reference to Exhibit
10(1) to Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1988 of ML/EQ Real Estate Portfolio, L.P.
(File No. 33-11064) (the "1988 10-K").......................
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
(m) -- Agreement of Sale between Richland Mall Associates and EML
Associates dated July 19, 1988 (incorporated by reference to
Exhibit No. 1 to Form 8-K dated July 19, 1988 of ML/EQ Real
Estate Portfolio, L.P. (File No. 33-11064)).................
(n) -- Note and Mortgage dated September 27, 1988 relating to the
loan by EML to Second Merritt Seven (incorporated by
reference to Exhibit No. 1 to Form 8-K dated September 27,
1988 of ML/EQ Real Estate Portfolio, L.P. (File No.
33-11064))..................................................
(o) -- Form of Participation Agreement between The Equitable Life
Assurance Society of The United States and EML Associates
dated September 27, 1988 (incorporated by reference to
Exhibit No. 2 to Form 8-K dated September 27, 1988 of ML/EQ
Real Estate Portfolio, L.P. (File No. 33-11064))............
(p) -- Agreement of Sale among EML, Blue Bell Office Campus
Associates, a Pennsylvania limited partnership, E. F. Hansen
Jr. and G. Eileen Hansen dated December 2, 1988
(incorporated by reference to Exhibit No. 1 to Form 8-K
dated December 2, 1988 of ML/EQ Real Estate Portfolio, L.P.
(File No. 33-11064))........................................
(q) -- Agreement of Sale between Provident Mutual Life Insurance
Company of Philadelphia and EML Associates dated December
27, 1988 (incorporated by reference to Exhibit No. 1 to Form
8-K dated December 27, 1988 of ML/EQ Real Estate Portfolio,
L.P. (File No. 33-11064))...................................
(r) -- Agreement of Sale between Anderson Partners
(Southside/Corporate Lakes) L.P., Gene Anderson, Auerbach
Associates Ltd. and EML Associates dated as of December 31,
1988 (incorporated by reference to Exhibit No. 2 to Form 8-K
dated December 27, 1988 of ML/EQ Real Estate Portfolio, L.P.
(File No. 33-11064))........................................
(s) -- Note and Mortgage and Security Agreement dated January 31,
1989 relating to loan by EML to The Wilcon company
(incorporated by reference to Exhibit No. 4 to Form 8-K
dated December 27, 1988 of ML/EQ Real Estate Portfolio, L.P.
(File No. 33-11064))........................................
(t) -- Note and Mortgage dated February 28, 1989 relating to the
loan by EML to 300 Delaware Avenue Associates (incorporated
by reference to Exhibit 10(u) to the 1988 10-K.)............
(u) -- Agreement of Sale among Lincoln San Leandro IV Limited
Partnership, Partician Associates, Inc. and EML Associates
dated April 21, 1989 (incorporated by reference to Exhibit
(c)1 to Form 8-K dated May 18, 1989 of ML/EQ Real Estate
Portfolio, L.P. (File No. 33-11064))........................
(v) -- Agreement dated March 25, 1994 between The Equitable Life
Assurance Society of the United States and Midwest Real
Estate Shopping Centers L.P. (formerly Equitable Real Estate
Shopping Centers L.P.) (incorporated by reference to Item
10(w) to Form 10-K dated December 31, 1994 of EREIM LP
Associates (the "1994 10-K"))...............................
(w) -- Deed in Lieu of foreclosure Agreement dated November 15,
1994 by and between Three Hundred Delaware Avenue
Associates, L.P. and EML Associates (incorporated by
reference to Exhibit 10(x) to the 1994 10-K)................
(x) -- Lease Termination agreement dated January 27, 1995 by and
between the Equitable Life Assurance Society of the United
States and Lohl's Department Stores, Inc. (incorporated by
reference to Exhibit 10(y) to the 1994 10-K)................
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
(y) -- Amendment to Lease Termination agreement dated as of
February 17, 1995 by and between The Equitable Life
Assurance Society of the United States and Kohl's Department
Stores, Inc. (incorporated by reference to Exhibit 10(y) to
the 1994 10-K)..............................................
(z) -- Purchase Agreement dated as of March 10, 1995 by and among
The Equitable Life Assurance Society of the United States,
the Venture and Dayton Hudson Corporation (incorporated by
reference to Exhibit 10(z) to the 1994 10-K)................
27. Financial Data Schedule, which is submitted electronically to the Securities
and Exchange Commission for information only.
99. Additional Exhibits.
(a) -- Prospectus dated April 23, 1987, as supplemented by
supplements dated March 3, 1988 and March 17, 1988
(incorporated by reference to Exhibit 28 to the 1987
10-K).......................................................
(b) -- Quarterly Report on Form 10-Q for the quarter ended June 30,
1988 (incorporated by reference to File No. 33-11064).......
(c) -- Current Report on Form 8-K of the Partnership dated July 19,
1988 (incorporated by reference to File No. 33-11064).......
(d) -- Current Report on Form 8-K of the Partnership dated
September 27, 1988 (incorporated by reference to File No.
33-11064)...................................................
(e) -- Current Report on Form 8-K of the Partnership dated December
2, 1988 (incorporated by reference to File No. 33-11064)....
(f) -- Current Report on Form 8-K of the Partnership dated December
27, 1988 (incorporated by reference to File No.
33-11064)...................................................
(g) -- Current Report on Form 8-K of the Partnership dated May 18,
1989 (incorporated by reference to File No. 33-11064).......
(h) -- Audited Financial Statements of Midwest Shopping Centers,
L.P. (incorporated by reference to the Form 10-K for the
year ended December 31, 1996 of Midwest Shopping Centers,
L.P. (File No. 1-9331)).....................................
(i) -- Amendment to Joint Venture Agreement dated as of January 1,
1997 between ML/EQ Real Estate Portfolio, L.P. and EREIM LP
Associates..................................................
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 27,310,460
<SECURITIES> 0
<RECEIVABLES> 4,407,347
<ALLOWANCES> 748,994
<INVENTORY> 0
<CURRENT-ASSETS> 31,652,733
<PP&E> 145,257,804
<DEPRECIATION> 15,898,604
<TOTAL-ASSETS> 171,967,228
<CURRENT-LIABILITIES> 4,797,315
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 133,749,497
<TOTAL-LIABILITY-AND-EQUITY> 171,967,228
<SALES> 0
<TOTAL-REVENUES> 26,204,828
<CGS> 0
<TOTAL-COSTS> 11,132,636
<OTHER-EXPENSES> 4,046,483
<LOSS-PROVISION> 6,211,644
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,173,632
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,225,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,225,866
<EPS-PRIMARY> 39
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1
EXHIBIT 99(i)

AMENDMENT effective as of January 1, 1997, to the Joint Venture
Agreement dated as of March 10, 1988 (the "Agreement") between ML/EQ Real
Estate Portfolio, L.P. (the "Managing Venturer") and EREIM LP Associates (the
"Equitable Venturer").

WHEREAS, the Managing Venturer and the Equitable Venturer (together,
the "Venturers") entered into the Agreement forming a joint venture (the
"Joint Venture") under the laws of the State of New York for the purposes
specified therein and to define the respective rights, interests and
obligations of the Venturers; and

WHEREAS, the Venturers now desire to amend certain provisions of the
Agreement as set forth herein;

NOW, THEREFORE, the Venturers agree as follows:

1. Terms defined in the Agreement and not defined herein shall have
the meanings assigned to them in the Agreement.

2. Defined Terms. The following defined terms shall be added to
Article One of the Agreement:

a. "Accrual Date" means, for purposes of the distribution of Sale or
Financing Proceeds to the Managing Venturer pursuant to Section 4.2A(vii), each
closing date of a purchase of BACs by BAC Holders or limited partners in the
Managing Venturer.

<PAGE> 2
b. "Adjusted Capital Contributions" means for each Fiscal Period, an
amount equal to the aggregate capital contributions made to the Managing
Venturer by the BAC Holders or limited partners in the Managing Venturer, as
reduced (but not below zero) by an amount equal to all distributions made by the
Managing Venturer to the BAC Holders and limited partners therein as a class out
of Sale or Financing Proceeds; provided, however, that capital contributions
shall not be reduced by the portion of Sale or Financing Proceeds from a Zero
Note in an amount equal to the lesser of (A) the accreted amount of the Zero
Note (in excess of the price at which the Zero Note was acquired by the Venture)
through the date of the Sale or Financing less 10% of the accreted amount on the
date the Zero Note was acquired by the Venture or (B) the unpaid Minimum Return
(as defined in the Guaranty Agreement) on the date of Sale or Financing.

c. "Guaranty Proceeds" means all cash receipts of the Managing
Venturer attributable to the Guaranty Agreement, including, without limitation,
payments received under paragraph 3 of the Guaranty Agreement.

d. "Minimum Rate" means 9-3/4%.

3. Distributions of Sale or Financing Proceeds; Distributions on
Liquidation. Section 4.2 of the Agreement is hereby amended as follows:

a. Section 4.2 (A)(vii) of the Agreement is hereby amended and
restated in its entirety as follows:

"(vii) Seventh, the balance of Sale or Financing

-2-
<PAGE> 3
Proceeds remaining after such loans are repaid in full shall be distributed to
the Venturers in accordance with their respective Percentage Interests in the
Venture; provided, however, that distributions to the Equitable Venturer under
this Section 4.2A(vii) shall be deferred, without interest, in any Fiscal
Six-Month Period to the extent necessary to enable the Managing Venturer to
receive (x) distributions of Sale or Financing Proceeds in a cumulative amount
(taking into account all prior distributions of Sale or Financing Proceeds)
equal to the capital contributions made to the Managing Venturer by the BAC
Holders or limited partners therein reduced (but not below zero) by all
Guaranty Proceeds, and (y) a further amount which, when added to all Guaranty
Proceeds (excluding Guaranty Proceeds taken into account under the preceding
clause (x)) and all amounts distributed (taking into account all prior
distributions) to the Managing Venturer pursuant to Sections 4.1(vii),
4.2A(vii) (other than clause (x) hereof) and 4.2B(vii), equals a simple annual
return at the Minimum Rate multiplied by the Adjusted Capital Contributions
from each Accrual Date through the earlier of the close of the Fiscal Period in
respect of which the distribution is being made or the sale, retirement or other
disposition of all the Mortgage Loans and Properties or the Liquidation of the
Venture other than pursuant to Section 708(b)(1)(B) of the Code. Any
distributions so deferred shall be paid to the Equitable Venturer, prior to any
further distributions of Sale or Financing Proceeds to the Managing Venturer,
in each subsequent Fiscal Six-Month Period (if any) in which there are Sale or
Financing

-3-
<PAGE> 4
Proceeds remaining for distribution under this Section 4.2A(vii) after the
Managing Venturer has received the amounts determined under the preceding
clauses (x) and (y)."

b. Section 4.2B(vii) shall be renumber as (viii), the word "Seventh"
in said subparagraph shall be deleted and replaced with the word "Eighth", and a
new subparagraph (vii) shall be inserted after subparagraph (vi), as follows:

"(vii) Seventh, to the Equitable Venturer to the extent of any Sale or
Financing Proceeds that have been deferred under Section 4.2A(vii) and remain
unpaid; and"

4. Taxable Income and Tax Loss. Section 4.3 of the Agreement is hereby
amended as follows:

a. The first sentence of Section 4.3B shall be revised to read as
follows:

"Except as provided in Sections 4.3F, 4.3G and 4.3H, all Taxable
Income for a fiscal year not arising from a Sale or Financing shall be
allocated to each Venturer, to the extent of and in proportion to the amounts of
Net Distributable Cash distributed to them for such year, including amounts
distributed under Section 4.2B(vii)."

b. Section 4.3D of the Agreement is hereby amended as follows:

(1) A new subparagraph (ii) shall be inserted after subparagraph (i),
as follows:

"(ii) Second, to each Venturer which either received or

-4-
<PAGE> 5
is to receive, under Sections 3.2A(vii) or 4.2B(vii), a distribution of the
related Sale or Financing Proceeds (if any), in proportion to and up to the
amount of such distribution:"

(2) Subparagraphs (ii) and (iii) shall be renumbered as (iii) and (iv),
respectively, and the words "Second" and "Third", respectively, in said
subparagraphs shall be revised to be "Third" and "Fourth", respectively.

Except as herein provided, the Agreement shall continue in full force
and effect.

IN WITNESS WHEREOF, the Venturers have executed this Amendment this
31st day of December, 1996, effective as of the date first above written.

ML/EQ REAL ESTATE PORTFOLIO, L.P.

By: EREIM MANAGERS CORP.,
the Managing General Partner

By:
--------------------------------

EREIM LP ASSOCIATES

By: THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES,
a Partner

By:
---------------------------------

By: EREIM LP CORP., a Partner

By:
---------------------------------

-5-