ARVIDA JMB PARTNERS L P, 10-Q/A, 1997-11-26

ARVIDA JMB PARTNERS L P
10-Q/A, 1997-11-26
OPERATIVE BUILDERS

Previous: GAYLORD CONTAINER CORP /DE/, PRE 14A, 1997-11-26

Next: MUTUAL FUND GROUP, 485BPOS, 1997-11-26

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10Q/A

AMENDMENT NO. 1

Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934

ARVIDA/JMB PARTNERS, L.P.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)

IRS Employer Identification
Commission File No. 0-16976 No. 36-3507015

The undersigned registrant hereby amends the following sections of its
Report for September 30, 1997 on Form 10-Q as set forth in the pages
attached hereto:

PART I FINANCIAL INFORMATION

Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations

Pages 3 through 26

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

ARVIDA/JMB PARTNERS, L.P.

BY: Arvida/JMB Managers, Inc.
(The General Partner)

By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
and Principal Accounting Officer

Dated: November 26, 1997

<PAGE>

<TABLE>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

(UNAUDITED)

ASSETS
------

<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -----------
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,617,330 53,635,737
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,513,592 11,833,522
Trade and other accounts receivable (net of allowance for doubtful
accounts of $254,732 at September 30, 1997 and $261,326 at
December 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,925,159 3,582,995
Mortgages receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 442,224 1,269,460
Real estate inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,919,038 174,638,454
Property and equipment held for disposition or sale. . . . . . . . . . . . . . 43,867,455 --
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . 35,764,691 79,373,444
Investments in and advances to joint ventures, net . . . . . . . . . . . . . . 2,106,101 2,739,842
Equity memberships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,886,021 5,457,880
Amounts due from affiliates, net . . . . . . . . . . . . . . . . . . . . . . . 1,347,327 1,003,732
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . . . 10,542,067 7,105,077
------------ ------------

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $322,931,005 340,640,143
============ ============

<PAGE>

ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(UNAUDITED)

LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS
------------------------------------------

SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -----------
Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,436,605 21,532,400
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,846,233 17,287,325
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . 18,537,365 15,324,815
Notes and mortgages payable, net . . . . . . . . . . . . . . . . . . . . . . 97,675,505 36,843,778
------------ ------------
Commitments and contingencies

Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 159,495,708 90,988,318
------------ ------------

Partners' capital accounts:
General Partner and Associate Limited Partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
Cumulative net income. . . . . . . . . . . . . . . . . . . . . . . . . . . 39,766,027 35,750,061
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . (38,508,251) (34,492,285)
------------ ------------
1,277,776 1,277,776
------------ ------------
Limited Partners:
Capital contributions, net of offering costs . . . . . . . . . . . . . . . 364,841,815 364,841,815
Cumulative net income. . . . . . . . . . . . . . . . . . . . . . . . . . . 44,810,571 36,071,642
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . (247,494,865) (152,539,408)
------------ ------------
162,157,521 248,374,049
------------ ------------
Total partners' capital accounts . . . . . . . . . . . . . . . . . . 163,435,297 249,651,825
------------ ------------

Total liabilities and partners' capital. . . . . . . . . . . . . . . $322,931,005 340,640,143
============ ============

<FN>
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
ARVIDA/JMB PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

(UNAUDITED)

<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------------------------------------
1997 1996 1997 1996
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Housing. . . . . . . . . . . . . . . . . . . . . . . $56,850,265 54,010,856 134,740,429 154,106,035
Homesites. . . . . . . . . . . . . . . . . . . . . . 6,109,836 6,388,362 14,841,540 14,809,610
Land and property. . . . . . . . . . . . . . . . . . 633,940 5,093,464 3,914,289 19,853,665
Operating properties . . . . . . . . . . . . . . . . 7,509,103 6,726,081 24,289,366 22,300,362
Brokerage and other operations . . . . . . . . . . . 7,085,481 7,142,108 18,774,739 20,931,980
----------- ---------- ----------- -----------
Total revenues . . . . . . . . . . . . . . . . 78,188,625 79,360,871 196,560,363 232,001,652
----------- ---------- ----------- -----------
Cost of revenues:
Housing. . . . . . . . . . . . . . . . . . . . . . . 47,964,413 48,047,779 115,347,052 132,596,690
Homesites. . . . . . . . . . . . . . . . . . . . . . 3,835,008 4,238,549 9,049,395 10,182,604
Land and property. . . . . . . . . . . . . . . . . . 507,056 1,371,878 3,034,835 13,298,625
Operating properties . . . . . . . . . . . . . . . . 6,178,530 6,771,381 20,118,274 21,119,659
Brokerage and other operations . . . . . . . . . . . 5,828,873 6,510,860 17,005,323 19,346,466
----------- ---------- ----------- -----------
Total cost of revenues . . . . . . . . . . . . 64,313,880 66,940,447 164,554,879 196,544,044
----------- ---------- ----------- -----------
Gross operating profit . . . . . . . . . . . . . . . . 13,874,745 12,420,424 32,005,484 35,457,608
Selling, general and administrative expenses . . . . . (5,044,291) (5,206,752) (17,243,606) (14,993,374)
----------- ---------- ----------- -----------
Net operating income . . . . . . . . . . . . . 8,830,454 7,213,672 14,761,878 20,464,234

Interest income. . . . . . . . . . . . . . . . . . . . 500,338 344,098 1,531,724 1,125,991
Equity in earnings (losses) of
unconsolidated ventures. . . . . . . . . . . . . . . 53,692 (18,076) 73,497 (134,989)
Interest and real estate taxes, net. . . . . . . . . . (1,640,154) (836,180) (3,612,204) (2,719,005)
----------- ---------- ----------- -----------

<PAGE>

ARVIDA/JMB PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------------------------------------
1997 1996 1997 1996
------------ ----------- ------------ -----------

Net income . . . . . . . . . . . . . . . . . . $ 7,744,330 6,703,514 12,754,895 18,736,231
=========== ========== ========== ==========

Net income per Limited
Partnership Interest . . . . . . . . . . . . $ 12.56 16.42 21.63 44.74
=========== ========== ========== ==========

Cash distributions per
Limited Partnership
Interest . . . . . . . . . . . . . . . . . . $ 175.00 -- 235.04 25.85
=========== ========== ========== ==========

<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

(UNAUDITED)

<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,754,895 18,736,231
Charges (credits) to net income not requiring (providing) cash:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,974,154 4,320,628
Equity in (earnings) losses of unconsolidated ventures . . . . . . . . . . . . . . (73,496) 134,989
Provision for doubtful accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 49,719 (10,272)
Gain on disposition of property and equipment. . . . . . . . . . . . . . . . . . . 2,814 (8,591)
Changes in:
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,680,070) 301,851
Trade and other accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . (5,391,883) 19,202,471
Real estate inventories:
Additions to real estate inventories . . . . . . . . . . . . . . . . . . . . . . (122,775,973) (144,705,804)
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,811,464 148,616,606
Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,517,104) (3,841,138)
Capitalized real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . . . (2,798,971) (2,982,168)
Equity memberships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571,859 769,122
Amounts due from affiliates, net . . . . . . . . . . . . . . . . . . . . . . . . . (343,595) 164,194
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . . . . . (3,817,916) 870,504
Accounts payable, accrued expenses and other liabilities . . . . . . . . . . . . . 574,304 2,018,785
Deposits and unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,558,908 (4,178,750)
------------ -----------

Net cash provided by operating activities. . . . . . . . . . . . . . . . . 1,899,109 39,408,658
------------ -----------

<PAGE>

ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

1997 1996
------------ -----------
Cash flows from investing activities:
Mortgages receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 827,236 750,637
Acquisitions of property and equipment . . . . . . . . . . . . . . . . . . . . . . (2,857,482) (11,892,813)
Proceeds from sales and disposals of property and equipment. . . . . . . . . . . . 2,739 24,863
Joint venture distributions (contributions), net . . . . . . . . . . . . . . . . . 249,699 (14,276)
Payments from (advances to) joint ventures . . . . . . . . . . . . . . . . . . . . (12) 4,167,035
Proceeds from sale of joint venture interest . . . . . . . . . . . . . . . . . . . -- 6,111,440
------------ -----------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . (1,777,820) (853,114)
------------ -----------
Cash flows from financing activities:
Proceeds from notes and mortgages payable. . . . . . . . . . . . . . . . . . . . . 86,580,797 30,980,173
Payments of notes and mortgages payable. . . . . . . . . . . . . . . . . . . . . . (25,749,070) (61,915,441)
Distributions to General Partner and Associate Limited Partners. . . . . . . . . . (4,015,966) (580,251)
Distributions to Limited Partners. . . . . . . . . . . . . . . . . . . . . . . . . (94,955,457) (10,444,636)
Bank overdrafts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,822,094)
------------ -----------
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . (38,139,696) (45,782,249)
------------ -----------
Decrease in Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . (38,018,407) (7,226,705)

Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . 53,635,737 20,171,289
------------ -----------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . $ 15,617,330 12,944,584
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest, net of amounts capitalized. . . . . . . $ 799,794 292,173
============ ===========
Non-cash investing and financing activities. . . . . . . . . . . . . . . . . . . . $ -- --
============ ===========

<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>

ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1997 AND 1996

(UNAUDITED)

Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1996,
which are included in the Partnership's 1996 Annual Report on Form 10-K
(File No. 0-16976) filed on March 31, 1997, as certain footnote disclosures
which would substantially duplicate those contained in such audited
financial statements have been omitted from this report. Capitalized terms
used but not defined in this quarterly report have the same meanings as in
the Partnership's 1996 Annual Report.

GENERAL

Capitalized Interest and Real Estate Taxes

Interest, including the amortization of loan fees, of $2,874,645 and
$3,841,138 was incurred for the nine months ended September 30, 1997 and
1996, respectively, of which $2,517,104 and $3,841,138 was capitalized,
respectively. Interest payments, including amounts capitalized, of
$3,316,898 and $4,133,311 were made during the nine months ended September
30, 1997 and 1996, respectively. Interest, including the amortization of
loan fees, of $1,558,878 and $1,005,182 was incurred for the three months
ended September 30, 1997 and 1996, respectively, of which $1,201,337 and
$1,005,182 was capitalized, respectively. Interest payments, including
amounts capitalized of $2,041,607 and $1,263,416, were made during the
three months ended September 30, 1997 and 1996, respectively. The increase
in interest incurred and paid during the three months ended September 30,
1997 as compared to the same period in 1996 is due to the Partnership
obtaining a new credit facility on July 31, 1997, as discussed in detail in
the "Notes and Mortgages Payable" section of the Notes.

Real estate taxes of $6,053,634 and $5,701,173 were incurred for the
nine months ended September 30, 1997 and 1996, respectively, of which
$2,798,971 and $2,982,168 were capitalized, respectively. Real estate tax
payments of $579,935 and $573,108 were made during the nine months ended
September 30, 1997 and 1996, respectively. In addition, real estate tax
reimbursements totaling $244,706 and $165,682 were received from the
Partnership's escrow agent during the nine months ended September 30, 1997
and 1996, respectively. Real estate taxes of $2,202,929 and $1,932,966
were incurred for the three months ended September 30, 1997 and 1996,
respectively, of which $920,316 and $1,096,786 were capitalized,
respectively. Real estate tax payments of $257,622 and $195,761 were made
during the three months ended September 30, 1997 and 1996, respectively.
The preceding analysis of real estate taxes does not include real estate
taxes incurred or paid with respect to the Partnership's club facilities
and other operating properties as these taxes are included in cost of
revenues for operating properties.

Property and Equipment and Other Assets

Depreciation expense of $2,593,228 and $4,019,257 was incurred for the
nine months ended September 30, 1997 and 1996, respectively. Amortization
of other assets, excluding loan fees, of $212,466 and $115,718 was incurred
for the nine months ended September 30, 1997 and 1996, respectively.
Amortization of loan fees, which is included in interest expense, of
$168,460 and $185,653 was incurred for the nine months ended September 30,
1997 and 1996, respectively. Depreciation expense of $752,083 and
$1,350,783 was incurred for the three months ended September 30, 1997 and
1996, respectively. Amortization of other assets, excluding loan fees, of

<PAGE>

$130,698 and $38,335 was incurred for the three months ended September 30,
1997 and 1996, respectively. Amortization of loan fees, which is included
in interest expense, of $60,402 and $58,179 was incurred for the three
months ended September 30, 1997 and 1996, respectively. The decrease in
depreciation expense for the three and nine months ended September 30, 1997
as compared to the same periods in 1996 is due to the elimination of
depreciation expense for assets held for disposal in accordance with FASB
Statement 121. The Partnership's application of this statement is
discussed further in the "Impact of Recently Issued Accounting Standards"
section of the Notes.

During August 1997, the Partnership entered into an agreement with an
unaffiliated third party for the sale of its two retail shopping centers
located in Weston. During November 1997, the contract was terminated by
the prospective purchaser under the terms of the agreement.

Partnership Distributions

During February 1997, the Partnership made a distribution for 1996 of
$24,240,000 to its Holders of Interests ($60.00 per Interest) and
$1,346,651 to the General Partner and Associate Limited Partners,
collectively. These distributions are the primary cause for the decrease
in Cash and cash equivalents at September 30, 1997 as compared to December
31, 1996. During August 1997, the Partnership made a distribution of
$70,700,000 to its Holders of Interests ($175 per Interest) and $2,668,455
to its General Partner and Associate Limited Partners, collectively. The
Partnership's cash balance was not impacted by the August 1997 distribution
as such distribution was made with the proceeds from the new credit
facility, as discussed in the "Notes and Mortgages Payable" section of the
Notes. In addition, during 1997 distributions totaling $15,457
(approximately $.04 per Interest) were deemed to be paid to the Holder's of
Interests, $15,372 of which was remitted to North Carolina tax authorities
on their behalf for the 1996 non-resident withholding tax. Distributions
totaling $860 were also paid during 1997 on behalf of the General Partner
and Associate Limited Partners, collectively, a portion of which was also
remitted to the North Carolina tax authorities on their behalf.

Reclassifications

Certain reclassifications have been made to the 1996 financial
statements to conform to the 1997 presentation.

NOTES AND MORTGAGES PAYABLE

The Partnership's credit facility previously consisted of a term loan
in the original amount of $85,252,520, a revolving line of credit facility
up to $20 million, an income property term loan in the original amount of
$18,233,326 and a $15 million letter of credit facility, all of which
matured in July 1997. The balances outstanding under this facility were
paid off in conjunction with the Partnership obtaining a new credit
facility, as discussed below.

Under the previous term loan agreement, the Partnership made scheduled
principal payments of $10 million in March 1994, February 1995 and February
1996 and $5 million principal payments in July 1995 and July 1996. The
term loan agreement also provided for additional principal repayments based
upon a specified percentage of available cash flow and upon the sale of
certain assets. During the year ended December 31, 1996, the Partnership
made such additional term loan payments totaling approximately $12.3
million. In January 1997, the Partnership paid off the remaining principal
balance of $5,234,008 outstanding under the term loan. Under the income
property term loan, principal payments of $0.1 million were required to be
paid monthly until maturity. The terms of the Partnership's credit
facility required that upon satisfaction of the principal due under the
term loan, the additional term loan principal repayments described above

<PAGE>

would be applied to the principal outstanding under the income property
term loan. Accordingly, the Partnership made such additional income
property term loan repayments totaling approximately $1.3 million during
1997. The Partnership utilized a portion of the proceeds from its new
credit facility, which is discussed in detail below, as well as operating
cash on hand to pay off the remaining principal balance outstanding under
the income property term loan of $9,522,126 in July, 1997. As a result, at
September 30, 1997, there were no balances outstanding on the revolving
line of credit facility and income property term loan. Due to the
replacement of the Partnership's previous letter of credit facility by the
new credit facility, which is discussed below, the Partnership was required
to post approximately $4.2 million in cash as collateral with its previous
lender for the letters of credit which continue to be obligations of that
lender. The posting of this cash as collateral is the primary cause for
the increase in Restricted cash on the accompanying consolidated balance
sheets at September 30, 1997 as compared to December 31, 1996. Such
letters of credit are expected to be replaced by either letters of credit
issued under the new credit facility or by bonds. Once the letters of
credit are replaced, the cash collateral will be released to the
Partnership. As of September 30, 1997, approximately $609,000 of such cash
collateral had been released to the Partnership due to the replacement of
the letters of credit issued by the previous lender, leaving a balance
outstanding under this previous letter of credit facility of approximately
$3.6 million.

On July 31, 1997, the Partnership obtained a new credit facility from
Barnett Bank, N.A. ("Barnett") and certain other banks. The new credit
facility consists of a $75 million term loan, a $20 million revolving line
of credit and a $5 million letter of credit facility. The new term loan
has a term of four years with annual scheduled principal repayments of
$12.5 million, as well as additional annual principal repayments based upon
a specified percentage or amount of the Partnership's available cash. The
maximum required principal repayments, including the scheduled repayments,
generally will not exceed $18.75 million per annum. The remaining
outstanding balance on the new facility is due upon maturity. Interest on
the facility is based, at the Partnership's option, on the relevant LIBOR
plus 2.25% per annum or Barnett's prime rate (8.5% at September 30, 1997).
The Partnership has obtained an interest rate swap for two thirds of the
outstanding balance of the term loan. The Partnership paid loan fees
totaling 1% of the total facility upon the closing of the loan. Such fees
have been capitalized and are being amortized over the life of the loan.
The payment of these fees is the primary cause for the increase in Prepaid
expenses and other assets on the accompanying consolidated balance sheets
at September 30, 1997 as compared to December 31, 1996. The term loan,
revolving line of credit and letter of credit facility are secured by
recorded mortgages on real property of the Partnership (including certain
of its consolidated ventures) and pledges of certain other assets. All of
the loans under this new facility are cross-collateralized and cross-
defaulted. The proceeds from the new financing were used to make a
distribution during August 1997 in the amount of approximately $73.4
million, including a distribution of $175 per Interest to the Holders of
Interests, and to pay off the remaining balances outstanding under the
Partnership's previous credit facility, as discussed above. At September
30, 1997, the balances outstanding on the term loan, the revolving line of
credit and the letter of credit facility were approximately $75,000,000, $0
and $1,211,000, respectively. For the nine month period ended September
30, 1997, the combined effective interest rate for the Partnership's credit
facilities, including the amortization of loan origination fees, was
approximately 9.6% per annum.

During April 1996, the Partnership refinanced the loan on one of its
retail properties located in its Weston Community with a different lender.
The outstanding principal balance on such loan of approximately $7.9
million is included in Notes and mortgages payable at September 30, 1997.
In addition, $3.1 million of subordinated debt attributable to the
Cullasaja Joint Venture is included in Notes and mortgages payable at
September 30, 1997.

<PAGE>

During January 1996, the Partnership executed a note for a $7.5
million construction loan for the construction and development of a second
retail shopping center located in its Weston Community. The Partnership,
at its option, extended the loan upon its maturity, at which time it was
converted to a mini-permanent loan. The loan bears the same rate of
interest as the original construction loan (lender's prime rate (8.5% at
September 30, 1997) plus 1/2% per annum), and matures in July 2000.
Principal and interest on the loan are payable monthly, based on a 25-year
amortization schedule. The outstanding principal balance on this loan at
September 30, 1997 is approximately $7.5 million.

During September 1997, the Partnership borrowed against its $24
million revolving construction line of credit to fund construction of one
of the two remaining buildings within Arvida's Grand Bay. This line of
credit bears interest at the lender's prime rate (8.5% at September 30,
1997) plus 1/2% per annum. At September 30, 1997, there was approximately
$2.1 million outstanding under this line of credit. The Partnership
anticipates it will obtain funding under this line of credit during 1998
for the remaining building to be constructed within Arvida's Grand Bay.

INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

During March 1996, the Partnership closed on the sale of its 20% joint
venture interest in Coto de Caza, including the related promissory note for
advances previously made to the joint venture, to unaffiliated third
parties for a cash sales price of $12 million. This transaction is
reflected in Land and property revenues for the nine months ended September
30, 1996 on the accompanying consolidated statements of operations and is
the primary cause for the decrease in Land and property revenues and cost
of revenues for the nine months ended September 30, 1997 as compared to the
same period in 1996.

On December 31, 1996, the Partnership purchased its joint venture
partner's 50% interest in the Arvida Boose Joint Venture for a purchase
price of approximately $1.8 million and formed a new joint venture in the
name of Metrodrama Joint Venture. As a result of this transaction, the
Partnership changed from the equity method of accounting to the
consolidated method of accounting for the joint venture effective December
31, 1996. During October 1997, Metrodrama Joint Venture entered into a
contract for the sale of approximately 29 acres of undeveloped commercial
property to an unaffiliated third party. The closing of the sale is
currently expected to occur in the first quarter of 1998. The closing is
subject to the satisfaction of various conditions, and there can be no
assurance that the closing will occur. The sale, if consummated, is
expected to generate a profit for financial reporting and Federal income
tax purposes in 1998.

During July 1997, the Partnership entered into a joint venture
agreement with an unaffiliated third party to form A&D Title, L.P. The
joint venture was formed to act as an agent in connection with the issuance
of title insurance, primarily related to closings in the Partnership's
Weston community. The Partnership obtained a 50% ownership interest in the
joint venture, and is accounting for its investment in accordance with the
equity method of accounting.

During August 1997, the remaining properties owned by the Tampa 301
Associates and Ocala 202 joint ventures were sold. The net profit
generated by the sales of these properties resulted in approximately
$91,000 of earnings for the Partnership, which is the primary cause for the
increase in Equity in earnings (losses) of unconsolidated ventures on the
accompanying consolidated statements of operations for the three and nine
months ended September 30, 1997 as compared to the same periods in 1996.

<PAGE>

TRANSACTIONS WITH AFFILIATES

The Partnership, subject to certain limitations, may engage affiliates
of the General Partner for property management, insurance and certain other
administrative services to be performed in connection with the
administration of the Partnership and its assets. The total of such costs
for the nine months ended September 30, 1997 was approximately $324,700,
all of which was paid as of September 30, 1997. The total of such costs
for the nine months ended September 30, 1996 was approximately $296,300.
In addition, the General Partner and its affiliates are entitled to
reimbursements for salaries and salary-related costs relating to the
administration of the Partnership and the operation of the Partnership's
properties. Such costs were approximately $154,500 and $151,500 for the
nine months ended September 30, 1997 and 1996, respectively, all of which
were paid as of September 30, 1997.

The Partnership receives reimbursements from or reimburses other
affiliates of the General Partner engaged in real estate activities for
certain general and administrative costs including, and without limitation,
salary and salary-related costs relating to work performed by employees of
the Partnership and certain out-of-pocket expenditures incurred on behalf
of such affiliates. For the nine month period ended September 30, 1997,
the amount of such costs incurred by the Partnership on behalf of these
affiliates totaled approximately $280,800. At September 30, 1997, approxi-
mately $267,900 was owed to the Partnership, of which approximately
$158,700 was received as of November 12, 1997. For the nine month period
ended September 30, 1996, the Partnership was entitled to reimbursements of
approximately $189,100.

Prior to June 1996, the Partnership and Arvida/JMB Partners, L.P.-II
(a publicly-held limited partnership affiliated with the General Partner)
each employed project related and administrative personnel who performed
services on behalf of both partnerships. In addition, certain out-of-
pocket expenditures related to such services and other general and
administrative costs were incurred and charged to each partnership as
appropriate. The Partnership receives reimbursements from Arvida/JMB
Partners, L.P.-II for these costs (including salary and salary-related
costs). Subsequent to June 1996, Arvida/JMB Partners, L.P.-II no longer
employed any project-related or administrative personnel and incurred no
costs on behalf of the Partnership. For the nine month periods ended
September 30, 1997 and 1996, the Partnership was entitled to receive
approximately $90,800 and $1,242,300, respectively, from Arvida/JMB
Partners, L.P.-II. At September 30, 1997, approximately $8,800 was owed to
the Partnership, none of which was received as of November 12, 1997. In
addition, for the nine month periods ended September 30, 1997 and 1996, the
Partnership was obligated to reimburse Arvida/JMB Partners, L.P.-II
approximately $0 and $113,700, respectively. At September 30, 1997,
approximately $1,800 was unpaid, which represents amounts owed from the
prior year, all of which was outstanding as of November 12, 1997.

Arvida Company ("Arvida"), pursuant to an agreement with the
Partnership, provides development, construction, management and other
personnel and services to the Partnership for all of its projects and
operations. Pursuant to such agreement, the Partnership reimburses Arvida
for all of its salary and salary-related costs incurred in connection with
work performed on behalf of the Partnership, subject to certain
limitations. The total of such costs for the nine month periods ended
September 30, 1997 and 1996 were approximately $5,141,000 and $5,020,500,
respectively, all of which were paid at September 30, 1997. In addition,
the Partnership was owed approximately $18,100 from Arvida at September 30,
1997, for overpayments of salary and salary related costs, all of which was
paid as of November 12, 1997.

The Partnership pays for certain general and administrative costs on
behalf of its equity clubs, homeowners associations and maintenance
associations (including salary and salary-related costs and legal fees).
The Partnership receives reimbursements from these entities for such costs.

For the nine month periods ended September 30, 1997 and 1996, the
Partnership was entitled to receive approximately $4,275,700 and

<PAGE>

$3,291,100, respectively, from these entities. At September 30, 1997,
approximately $119,200 was owed to the Partnership, of which approximately
$76,500 was received as of November 12, 1997. In addition, the Partnership
owes its equity clubs for certain costs incurred by the clubs which are
obligations of the Partnership. For the nine month periods ended September
30, 1997 and 1996, the Partnership was obligated to reimburse its equity
clubs approximately $35,000 and $13,700, respectively. At September 30,
1997, approximately $14,500 was unpaid, of which approximately $3,200 was
paid as of November 12, 1997.

The Partnership, pursuant to an agreement, provides management and
other personnel and services to one of its equity clubs. Pursuant to this
agreement, the Partnership is entitled to receive a management fee for the
services provided to the club. For the nine months ended September 30,
1997 and 1996, the Partnership was entitled to receive approximately
$387,800 and $295,000. At September 30, 1997, approximately $437,800 was
unpaid (including amounts owed from the previous year), none of which was
received as of November 12, 1997.

The Partnership funds certain capital expenditures, working capital
advances and operating deficits of its equity clubs, as well as operating
deficits of its homeowners associations as required or deemed necessary.
The working capital advances and certain capital expenditure fundings are
non-interest bearing, short-term in nature, and are expected to be
reimbursed from future cash flows of the equity clubs. The funding of
operating deficits is expensed by the Partnership. At September 30, 1997,
the Partnership was owed approximately $458,500 from its equity clubs, none
of which was received as of November 12, 1997.

The Partnership periodically incurs salary and salary-related costs on
behalf of an affiliate of the General Partner of the Partnership. The
Partnership was entitled to receive approximately $255,700 and $228,000 for
such costs for the nine months ended September 30, 1997 and 1996,
respectively, of which approximately $53,300 was owed to the Partnership at
September 30, 1997, none of which was received as of November 12, 1997.

In accordance with the Partnership Agreement, the General Partner and
Associate Limited Partners have deferred a portion of their distributions
of net cash flow from the Partnership totaling approximately $6,476,000 as
of September 30, 1997. This amount does not bear interest and is expected
to be paid in future periods subject to certain restrictions contained in
the partnership agreement of the Partnership. In addition, the General
Partner and Associate Limited Partners have deferred approximately
$1,259,000 of their share of the distribution made during August 1997,
pursuant to the terms of an agreement reached in the settlement of certain
litigation.

All amounts receivable from or payable to the General Partner or its
affiliates do not bear interest and are expected to be paid in future
periods.

COMMITMENTS AND CONTINGENCIES

As security for performance of certain development obligations, the
Partnership is contingently liable under standby letters of credit and
performance bonds for approximately $4,851,000 and $9,959,000, respec-
tively, at September 30, 1997. In addition, certain joint ventures in
which the Partnership holds an interest are also contingently liable under
performance bonds for approximately $1,020,000 at September 30, 1997.

<PAGE>

On or about September 27, 1996, a lawsuit entitled Vanderbilt Income
and Growth Associates, L.L.C. and Raleigh Capital Associates L.P.,
individually and derivatively on behalf of Arvida/JMB Partners, L.P. v.
Arvida/JMB Managers, Inc., Judd D. Malkin, Neil G. Bluhm, Burton E. Glazov,
Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, BSS Capital II, L.L.C.,
Starwood Capital Group I, L.P., Starwood/Florida Funding, L.L.C., Starwood
Opportunity Fund, IV, L.P. and Barry Sternlicht, Defendants, and Arvida/JMB
Partners, L.P., nominal defendant, was filed in the Court of Chancery of
the State of Delaware in and for New Castle County, Civil Action No. 15238
("Raleigh action"). The Raleigh action was filed as a verified complaint
for declaratory and injunctive relief. Plaintiffs claimed that the
defendants in entering into the financing commitment letter for a proposed
$160 million term loan from Starwood/Florida Funding L.L.C. (the "Starwood
financing") violated, or aided and abetted, or participated in the
violation of, fiduciary duties owed to the Partnership and the Holders of
Interests, and put their personal interests ahead of the interests of the
Partnership and the Holders of Interests. In the first claim for relief,
plaintiffs sought a declaratory judgment that the terms of the financing be
declared null, void and unenforceable. In the second claim for relief,
plaintiffs asserted a claim derivatively on behalf of the Partnership
alleging, among other things, that the financing commitment letter was not
the product of a valid exercise of business judgment. In addition to
relief described above, plaintiffs sought to preliminarily and permanently
enjoin any actions in furtherance of the financing commitment letter, an
award of compensatory damages, interest, costs and disbursements, including
reasonable attorneys' and experts' fees and such other relief as the Court
might deem just and proper. The General Partner and the Partnership filed
a motion to dismiss the Raleigh action which was granted on November 7,
1996. In granting the motion, the Court held that Raleigh was not a
Limited Partner and did not have standing to file the derivative claims.
The Court further determined that Raleigh did not have the right to vote.
Plaintiffs asked the Court to reconsider its ruling, but the Court denied
the request to change its ruling.

Plaintiffs appealed the November 7, 1996 dismissal order. On December
12, 1996, the Delaware Supreme Court reversed the trial court order on a
procedural ground. The Delaware Supreme Court concluded that the trial
court should not have considered matters outside of the pleadings in
dismissing the Raleigh action without providing the plaintiffs some limited
discovery. Accordingly, the Delaware Supreme Court remanded the case back
to the trial court for further proceedings.

On December 16, 1996, the Partnership filed a counterclaim against
Vanderbilt Income and Growth Associates, L.L.C. and Raleigh Capital
Associates L.P. ("Raleigh"), seeking a declaratory judgment that Raleigh
had no right to vote on Partnership matters. On January 28, 1997, the
trial court granted plaintiffs leave to dismiss their own complaint
concerning the Starwood financing, leaving the Partnership's counterclaim
pending.

By letter dated January 10, 1997, Raleigh requested admission as a
Substituted Limited Partner of the Partnership. The Partnership referred
the request to the Special Committee. On February 11, 1997, the Special
Committee denied the request. Thereafter, the Partnership supplemented its
counterclaim, as amended, and sought a court declaration that Raleigh is
not entitled to be admitted as a Substituted Limited Partner. On February
20, 1997, Raleigh filed a reply and counterclaim against the Partnership,
the General Partner, and the Special Committee. The reply counterclaim
sought, among other things, a declaration that Raleigh has voting rights in
the Partnership and that defendants' breached their fiduciary duties by
failing to admit Raleigh as a Substituted Limited Partner. The reply
counterclaim also sought to enjoin the Partnership, the General Partner,
and the Special Committee from refusing to admit Raleigh as a Substituted
Limited Partner, an award of damages, interest, fees, and costs.

On or about February 28, 1997, Gladys Beasley, individually and as a
representative of a class of persons similarly situated, filed an
intervenor complaint for declaratory relief against the Partnership. In
the intervenor complaint, plaintiff sought a declaration that purchasers

<PAGE>

who obtained Interests in the Partnership in the public offering and
subsequent Holders of Interests in the Partnership by assignment from
original Holders have the same voting rights in the Partnership, among
other things, to remove and replace the General Partner. In addition,
plaintiff Gladys Beasley, sought an order adjudging and decreeing that the
intervenor action was properly maintained as a class, an award of her costs
and expenses of the litigation, and such other relief as the Court deemed
appropriate.

The trial of all claims in the Raleigh action was held on April 7
through April 9, 1997. In a memorandum opinion dated May 23, 1997, the
Court concluded that, while neither the partnership agreement nor the
assignment agreement of the Partnership expressly states whether subsequent
Holders of Interests have voting rights, a reasonable investor could have
read the operative agreements as providing that subsequent Holders of
Interests, such as Raleigh, have voting rights. The Partnership believes,
among other things, that the Court erred in its application of the law to
the facts on this issue and is appealing the Court's decision on this
aspect of the case. On the issue of whether Arvida/JMB Managers, Inc.
properly denied Raleigh's request for admission as a Substituted Limited
Partner, the Court upheld the denial of Raleigh's request.

The Partnership was named a defendant in a number of homeowner
lawsuits, certain of which purported to be class actions, that allegedly in
part arose out of or related to Hurricane Andrew, which on August 24, 1992
resulted in damage to a former community development known as Country Walk.

The homeowner lawsuits alleged, among other things, that the damage
suffered by the plaintiffs' homes and/or condominiums within Country Walk
was beyond what could have been reasonably expected from the hurricane
and/or was a result of the defendants' alleged defective design,
construction, inspection and/or other improper conduct in connection with
the development, construction and sales of such homes and condominiums,
including alleged building code violations. The various plaintiffs sought
varying and, in some cases, unspecified amounts of compensatory damages and
other relief. In certain of the lawsuits injunctive relief and/or punitive
damages were sought.

Several of these lawsuits alleged that the Partnership was liable,
among other reasons, as a result of its own alleged acts of misconduct or
as a result of the Partnership's alleged assumption of Arvida Corporation's
liabilities in connection with the Partnership's purchase of Arvida
Corporation's assets from Disney in 1987, which included certain assets
related to the Country Walk development. Pursuant to the agreement to
purchase such assets, the Partnership obtained indemnification by Disney
for certain liabilities relating to facts or circumstances arising or
occurring prior to the closing of the Partnership's purchase of the assets.

Over 80% of the Arvida-built homes in Country Walk were built prior to the
Partnership's ownership of the Community. Where appropriate, the
Partnership has tendered or will tender each of the above-described
lawsuits to Disney for defense and indemnification in whole or in part
pursuant to the Partnership's indemnification rights. Where appropriate,
the Partnership has also tendered these lawsuits to its various insurance
carriers for defense and coverage. The Partnership is unable to determine
at this time to what extent damages in these lawsuits, if any, against the
Partnership, as well as the Partnership's cost of investigating and
defending the lawsuits, will ultimately be recoverable by the Partnership
either pursuant to its rights of indemnification by Disney or under
contracts of insurance.

One of the Partnership's insurance carriers has been funding
settlements of various litigation related to Hurricane Andrew. In some,
but not all, instances, the insurance carrier has provided the Partnership
with written reservation of rights letters. The aggregate amount of the
settlements funded to date by this carrier is approximately $8.0 million.
The insurance carrier that funded these settlements pursuant to certain
reservations of rights has stated its position that it has done so pursuant
to various non-waiver agreements. The carrier's position was that these
non-waiver agreements permitted the carrier to fund settlements without

<PAGE>

barring the carrier from raising insurance coverage issues or waiving such
coverage issues. On May 23, 1995, the insurance carrier rescinded the
various non-waiver agreements currently in effect regarding the remainder
of the Hurricane Andrew litigation, allegedly without waiving any future
coverage defenses, conditions, limitations, or rights. For this and other
reasons, the extent to which the insurance carrier may recover any of these
proceeds from the Partnership is uncertain. Therefore, the accompanying
consolidated financial statements do not reflect any accruals related to
this matter.

Currently, the Partnership is involved in three subrogation lawsuits.
On April 19, 1993, a subrogation claim entitled Village Homes at Country
Walk Master Maintenance Association, Inc. v. Arvida Corporation et al., was
filed in the 11th Judicial Circuit for Dade County. Plaintiffs filed this
suit for the use and benefit of American Reliance Insurance Company
("American Reliance"). In this suit, as amended, plaintiffs seek to
recover damages and pre- and post-judgment interest in connection with
$10,873,000 American Reliance has allegedly paid, plus amounts it may have
to pay in the future, to the condominium association at Country Walk in the
wake of Hurricane Andrew. Disney is also a defendant in this suit. The
Partnership believes that the amount of this claim that allegedly relates
to units it built and sold is approximately $3,600,000. Plaintiffs also
seek a declaratory judgment seeking to hold the Partnership and other
defendants responsible for amounts American Reliance must pay in the future
to its insured as additional damages beyond the $10,873,000 previously
paid. The Partnership has filed motions directed to the complaint, as
amended, and the litigation is in the discovery stage. The Partnership
intends to vigorously defend itself. On or about May 10, 1996, a
subrogation claim entitled Juarez et al. v. Arvida Corporation et al. was
filed in the Circuit Court of the Eleventh Judicial Circuit in and for Dade
County. Plaintiffs filed this suit for the use and benefit of American
Reliance. In this suit, plaintiffs seek to recover damages, pre-and post-
judgment interest, costs and any other relief the Court may deem just and
proper in connection with $3,200,000 American Reliance allegedly paid on
specified claims at Country Walk in the wake of Hurricane Andrew. Disney
is also a defendant in this suit. The Partnership is advised that the
amount of this claim that allegedly relates to units it sold is
approximately $350,000. The Partnership intends to defend itself
vigorously in this matter. The Partnership was also involved in a
subrogation action brought by the Insurance Company of North America
("INA") arising out of a claim that INA allegedly paid on a single home in
Country Walk. The Partnership has settled this claim for approximately
$5,600 with the settlement being funded by the Partnership's insurance
carrier. On April 24, 1997, the Metropolitan Property and Casualty Company
("Metropolitan") filed a lawsuit entitled Metropolitan Property and
Casualty Company v. Arvida/JMB Partners in the Circuit Court of the 11th
Judicial Circuit in and for Dade County for subrogation in which it seeks
compensatory damages, costs, interest and any other relief the court may
deem just in connection with money Metropolitan allegedly paid to its
homeowner insureds in the wake of Hurricane Andrew. Metropolitan has
advised the Partnership that in connection with this suit there are three
claims, totaling approximately $505,000. The Partnership could be named in
other subrogation actions, and in such event, the Partnership intends to
vigorously defend itself in such actions. Due to the uncertainty of the
outcome of these subrogation actions, the accompanying consolidated
financial statements do not reflect any accruals related to these matters.

The Partnership has been advised by Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") that various investors have sought to
compel Merrill Lynch to arbitrate claims brought by certain investors of
the Partnership representing approximately 5% of the total of approximately
404,000 Interests outstanding. Merrill Lynch has asked the Partnership and
its General Partner to confirm an obligation of the Partnership and its
General Partner to indemnify Merrill Lynch in these claims against all
loss, liability, claim, damage and expense, including without limitation
attorneys' fees and expenses, under the terms of a certain Agency Agreement
dated September 15, 1987 ("Agency Agreement") with the Partnership relating
to the sale of Interests through Merrill Lynch on behalf of the
Partnership. These claimants have sought and are seeking to arbitrate

<PAGE>

claims involving unspecified damages against Merrill Lynch based on Merrill
Lynch's alleged violation of applicable state and/or federal securities
laws and alleged violations of the rules of the National Association of
Securities Dealers, Inc., together with pendent state law claims. The
Partnership believes that Merrill Lynch has resolved some of these claims
through litigation and otherwise, and that Merrill Lynch is defending other
claims. The Agency Agreement generally provides that the Partnership and
its General Partner shall indemnify Merrill Lynch against losses occasioned
by any actual or alleged misstatements or omissions of material facts in
the Partnership's offering materials used in connection with the sale of
Interests and suffered by Merrill Lynch in performing its duties under the
Agency Agreement, under certain specified conditions. The Agency Agreement
also generally provides, under certain conditions, that Merrill Lynch shall
indemnify the Partnership and its General Partner for losses suffered by
the Partnership and occasioned by certain specified conduct by Merrill
Lynch in the course of Merrill Lynch's solicitation of subscriptions for,
and sale of, Interests. The Partnership is unable to determine the
ultimate investment of investors who have filed arbitration claims as to
which Merrill Lynch might seek indemnification in the future. At this
time, and based upon the information presently available about the
arbitration statements of claims filed by some of these investors, the
Partnership and its General Partner believe that they have meritorious
defenses to demands for indemnification made by Merrill Lynch and intend to
vigorously pursue such defenses. Although there can be no assurance
regarding the outcome of the claims for indemnification, at this time,
based on information presently available about such arbitration statements
of claims, the Partnership and its General Partner do not believe that the
demands for indemnification by Merrill Lynch will have a material adverse
effect on the financial condition of the Partnership.

On or about October 16, 1995, a lawsuit was filed against the
Partnership and others in the Circuit Court of the 15th Judicial Circuit,
in and for Palm Beach County, Florida, and amended on or about February 20,
1996, entitled Council of Villages, Inc. et al v. Arvida/JMB Partners,
Arvida/JMB Managers, Inc., Arvida/JMB Partners, Ltd., Broken Sound Club,
Inc., and Country Club Maintenance Association, Inc. The multi-count
complaint, as amended, is brought as a class action, and individually, on
behalf of various residents of the Broken Sound Community, and alleges that
defendants engaged in various acts of misconduct in, among other things,
the establishment, operation, management and marketing of the Broken Sound
golf course and recreational facilities, as well as the alleged improper
failure to turn over such facilities to the Broken Sound homeowners on a
timely basis. Plaintiffs seek, through various theories, including but not
limited to breach of ordinance, breach of fiduciary duty, fraud, unjust
enrichment and civil theft, damages in excess of $45 million, the
appointment of a receiver for the Broken Sound Club, other unspecified
compensatory damages, the right to seek punitive damages, treble damages,
prejudgment interest, attorneys' fees and costs. The Partnership believes
that the lawsuit is without merit and intends to vigorously defend itself
in this matter.

On or about July 30, 1996, Savoy v. Arvida/JMB Partners, Arvida/JMB
Managers, Inc., Arvida/JMB Partners, Ltd., and Broken Sound Club, Inc. was
filed against the Partnership and others in the Circuit Court of the 15th
Judicial Circuit, in and for Palm Beach County, Florida. The lawsuit is
filed as a three-count complaint for dissolution of the Broken Sound Club,
Inc. ("Club"), and seeks, among other things, the appointment of a
custodian or receiver for the Club, a determination that certain acts be
deemed wrongful, the return to the Club of in excess of $2.5 million in
alleged "operating profits", an injunction against the charging of certain
dues, an injunction requiring the Club to produce certain financial
statements, and such other relief as the Court deems just, fair and proper.

The Partnership believes the lawsuit is without merit and intends to
vigorously defend itself.

The Partnership owns a 50% joint venture interest in 31 commercial/
industrial acres in Pompano Beach, Florida, which is encumbered by a
mortgage loan in the principal amount of approximately $4 million at
September 30, 1997. During April 1992, as a result of the Partnership's

<PAGE>

previous determination that the development of the land was no longer
economically profitable, the Partnership and its joint venture partner each
tendered payment in the amount of approximately $3.1 million to the lender
for their respective shares of the guarantee payment required under the
loan agreement and certain other holding costs, the majority of which
reduced the outstanding mortgage loan to its current balance. The venture
also intended at that time to convey title to the property to the lender;
however, such conveyance is pending until resolution of certain
environmental issues. The joint venture had been negotiating with the
lender regarding the scope of the development work required to be done.
Negotiations with the lender were unsuccessful, and the lender filed a
lawsuit entitled Bankers' Trust Company v. Arvida/JMB Partners, L.P., et
al., Case No. 95-2780 in the Broward County Circuit Court in which the
lender asserted, among other things, that the mortgage loan is with
recourse to the joint venture partners as a result of the partners' failure
to perform in accordance with the terms of the loan agreement. The lender
demanded payment of the outstanding loan balance plus interest thereon.
The lawsuit has been resolved. On or about July 18, 1997, the parties
entered into a settlement agreement which provides for, among other things,
the payment of $300,000 by the Partnership, $300,000 on behalf of the joint
venture partner, the payment of back taxes on the property by the joint
venture in the amount of $302,398, a commitment by the joint venture to
remediate the property on or before June 30, 2000 in accordance with the
settlement agreement, issuance of a new non-recourse note, a mortgage
modification and dismissal of the lawsuit with prejudice and without costs.
With respect to the environmental issues, the previous owner remains
obligated to undertake the clean-up. The clean-up began in July 1994, and
the first phase of the remedial action plan was completed in October 1994.
Further action plans are now being discussed with state environmental
officials. If the previous owner is unable to fulfill all its obligations
as they relate to this environmental issue, the venture and ultimately the
Partnership may be obligated for such costs. Should this occur, the
Partnership does not anticipate the cost of this clean-up to be material to
its operations.

The Partnership is also a defendant in several actions brought against
it arising in the normal course of business. It is the belief of the
General Partner, based on knowledge of facts and advice of counsel, that
the claims made against the Partnership in such actions will not result in
any material adverse effect on the Partnership's consolidated financial
position or results of operations.

The Partnership may be responsible for funding certain other ancillary
activities for related entities in the ordinary course of business which
the Partnership does not currently believe will have any material adverse
effect on its consolidated financial position or results of operations.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The Partnership adopted the Financial Accounting Standard's Board's
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", effective January 1, 1995.
Reference is made to the "Subsequent Events" section of the Notes for a
discussion regarding the sale of certain of the Partnership's operating
properties. In accordance with Statement No. 121, the Partnership
discontinued recording depreciation on its assets held for disposal in the
first quarter of 1997. The combined results of operations for the
Partnership's assets held for disposal totaled approximately $4.1 million
and $1.7 million for the nine months ended September 30, 1997 and 1996,
respectively, and are included in operating properties revenues and cost of
revenues on the accompanying consolidated statements of operations. The
Partnership requires no impairment losses or other adjustments to be
recorded as of September 30, 1997 as a result of the application of this
statement.

<PAGE>

During the second quarter of 1997, Statements of Financial Accounting
Standards No. 128 ("Earnings per Share") and No. 129 ("Disclosure of
Information about Capital Structure") were issued. As the Partnership's
capital structure consists of only general and limited partnership
interests, the Partnership does not expect any significant impact on its
consolidated financial statements upon adoption of these standards when
required at the end of 1997.

ADJUSTMENTS

In the opinion of the General Partner, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation
have been made to the accompanying consolidated financial statements as of
September 30, 1997 and December 31, 1996 and for the three and nine months
ended September 30, 1997 and 1996.

SUBSEQUENT EVENTS

During October 1997, the Partnership closed on the sale of its mixed-
use center in Boca Raton, Florida known as Parkway Center to an
unaffiliated third party for $38.5 million. The Partnership made certain
representations, warranties and indemnities for the benefit of the buyer
under the Sale and Purchase Agreement which will survive the closing for a
period of one year from the date of closing. Parkway Center consists of
approximately 258,000 square feet of space in a mix of offices,
restaurants, retail, financial institutions and a Radisson Suite Hotel.
The sale generated a profit for financial reporting and Federal income tax
purposes.

Pursuant to Section 5.5 J of the Partnership Agreement, on October 23,
1997, the Board of Directors of the General Partner met and approved a
resolution selecting the option set forth in Section 5.5 J.(i)(c) of the
Partnership Agreement for the Partnership to commence an orderly
disposition of its remaining assets that is to be completed within the next
five years.

During November 1997, the Partnership closed on the sale of the Cabana
Club, located within its Sawgrass Community, to an unaffiliated third party
for $3.5 million. The sale generated a profit for financial reporting and
Federal income tax purposes.

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Reference is made to the notes to the accompanying consolidated
financial statements ("Notes") contained in this report for additional
information concerning certain of the Partnership's investments.

At September 30, 1997 and December 31, 1996, the Partnership had cash
and cash equivalents of approximately $15,617,000 and $53,636,000,
respectively. The decrease in Cash and cash equivalents at September 30,
1997 as compared to December 31, 1996 is due primarily to distributions to
partners and Holders of Interests of approximately $25.6 million made in
February 1997, the payoff of the balance of $5,234,008 outstanding under
the Partnership's term loan in January 1997, and the payoff of the
remaining $9,522,126 balance outstanding under the income property term
loan in July 1997.

The Partnership's previous revolving line of credit, income property
term loan and letter of credit agreement matured in July 1997. On July 31,
1997, the Partnership obtained a new credit facility from Barnett Bank,
N.A. ("Barnett") and certain other banks. The proceeds from the new
financing were used to make a distribution during August 1997 in the amount
of approximately $73.4 million, including a distribution of $175 per
Interest to the Holders of Interests, and to payoff the remaining balance
outstanding under the Partnership's previous credit facility. The new
credit facility consists of a $75 million term loan, a $20 million to the
Partnership's revolving line of credit and a $5 million letter of credit
facility. The new facility has a term of four years with annual scheduled
principal repayments of $12.5 million, as well as additional annual
principal repayments based upon a specified percentage or amount of the
Partnership's available cash. The maximum principal repayments, including
the scheduled repayments, generally will not exceed $18.75 million per
annum. The remaining outstanding balance on the new facility is due upon
maturity. Interest on the facility is based, at the Partnership's option,
on the relevant LIBOR plus 2.25% per annum or Barnett's prime rate. The
Partnership has obtained an interest rate swap for two-thirds of the
outstanding balance of the term loan. The Partnership paid loan fees
totaling 1% of the total facility upon the closing of the loan. Such fees
have been capitalized and are being amortized over the life of the loan.
The payment of these fees is the primary cause for the increase in Prepaid
expenses and other assets on the accompanying consolidated balance sheets
at September 30, 1997 as compared to December 31, 1996. In addition, due
to the replacement of the Partnership's existing letter of credit facility
by the new credit facility, the Partnership was required to post
approximately $4.2 million cash as collateral with its previous lender for
letters of credit which continue to be obligations of that lender. The
posting of this cash as collateral is the primary cause for the increase in
Restricted cash on the accompanying consolidated balance sheets at
September 30, 1997 as compared to December 31, 1996. The letters of credit
are expected to be replaced by either letters of credit issued under the
Barnett facility or by bonds, at which time the cash collateral will be
released to the Partnership. As of September 30, 1997, approximately
$609,000 of such cash collateral had been released to the Partnership due
to the replacement of the letters of credit issued by the previous lender,
leaving a balance outstanding under this previous letter of credit facility
of approximately $3.6 million. The term loan, revolving line of credit and
letter of credit facility are secured by recorded mortgages on real
property of the Partnership (including certain of its consolidated
ventures) and pledges of certain other assets. All of the loans under this

<PAGE>

new facility are cross-collateralized and cross-defaulted. At September
30, 1997, the balances outstanding under the term loan, the revolving line
of credit and the letter of credit facility were approximately $75,000,000,
$0 and $1,211,000, respectively.

During October 1997, Metrodrama Joint Venture entered into a contract
for the sale of approximately 29 acres of undeveloped commercial property
to an unaffiliated third party. The closing of the sale is currently
expected to occur in the first quarter of 1998. The closing is subject to
the satisfaction of various conditions, and there can be no assurance the
closing will occur. The sale, if consummated, is expected to generate a
profit for financial reporting and Federal income tax purposes in 1998.

The Holders of Interests have received several unsolicited offers to
purchase their Interests in the Partnership. The General Partner of the
Partnership has established a special committee (the "Special Committee")
to review such offers and make a recommendation to the Holders of Interests
with respect to the offers. In addition, the Partnership has engaged
Lehman Brothers Inc. ("Lehman") as a financial advisor to assist the
Special Committee in evaluating and responding to the offers. Lehman was
asked to render its estimate of the present discounted value ("Estimated
Liquidation Value") of an Interest based on the assumption that the
Partnership commences an orderly liquidation in October 1997 and completes
that liquidation by October 2002. In preparing its Estimated Liquidation
Value, Lehman has relied upon the Partnership's estimate of the gross cash
distributions that a Holder of Interests would receive through the assumed
liquidation period, discounted to reflect the present value of such
distributions. Certain assumptions and other factors, including risk
factors, that should be considered when analyzing the projected budgets
which were the basis of such estimate of gross distributions can be found
in the Partnership's Schedule 14D-9 dated July 3, 1996, as amended, which
was filed with the Securities and Exchange Commission. Reference to such
Schedule 14D-9 is hereby made for a discussion of such assumptions and
other factors.

<PAGE>

During April 1997, Smithtown Bay, L.L.C. ("Smithtown") commenced an
offer to acquire up to 17,000 Interests, which represents approximately
4.2% of the outstanding Interests in the Partnership. Smithtown's offer had
a purchase price of $475 and expired on May 30, 1997. In connection with
the Smithtown offer, Lehman prepared an Estimated Liquidation Value as of
March 31, 1997 (the "March Estimated Liquidation Value"). In arriving at
the March Estimated Liquidation Value, Lehman relied upon the Partnership's
estimate of the gross cash distributions that the Holders of Interests
would receive through the assumed liquidation period. These estimated
gross distributions were then discounted to reflect the present value of
such distributions as of March 31, 1997, which ranged from $540 to $585 per
Interest, depending on the different discount rates used.

Based on its analysis and its consultation with its advisors, the
Special Committee determined that with respect to Holders of Interests who
had the expectation of retaining their Interests through an anticipated
orderly liquidation of the Partnership's assets by October 2002 and who had
no current or anticipated need or desire for liquidity, the Smithtown offer
was inadequate and not in the best interests of such Holders of Interests.
Accordingly, the Special Committee recommended that such Holders of
Interests reject the Smithtown offer and not tender their Interests
pursuant to such offer. However, the Special Committee recommended that
Holders of Interests who had a current need or desire for liquidity tender
their Interests to Smithtown.

During July 1997, Lafayette Bay, LLC ("Lafayette") commenced an offer
to acquire up to 10,400 Interests, which represents approximately 2.6% of
the outstanding Interests in the Partnership. Lafayette's offer had a
purchase price of $540 per Interest. However, under the terms of
Lafayette's offer, Lafayette reduced its offer price of $540 per Interest
by the $175 per Interest distributed to the Holders of Interests during
August 1997 (for a new purchase price under the Lafayette offer of $365 per
Interest). Lafayette's offer expired on August 29, 1997. During November
1997, Lafayette re-commenced its offer at $365 per Interest but reduced the
maximum number of Interests to be acquired to 8,000 Interests, which
represents approximately 2.0% of the outstanding Interests in the
Partnership. Lafayette's offer is currently scheduled to expire on
December 4, 1997.

The Special Committee expressed no opinion and remained neutral in
regard to the Lafayette offer for those Holders of Interests who had no
current or anticipated need or desire for liquidity and who expect to
retain the Interests through an anticipated orderly liquidation of the
Partnership by October 2002. However, the Special Committee recommended
that Holders of Interests who had a current need or desire for liquidity
tender their Interests to Lafayette. Lehman was not requested to render,
and did not render, any opinion as to the adequacy or fairness of the
Lafayette offer.

The Partnership's estimate of the present discounted value (the
"Partnership's Estimated Liquidation Value") of an Interest on a
liquidation basis, as of June 30, 1997, was a range of approximately $590
to $640 per Interest. The Partnership's Estimated Liquidation Value is
based on the Partnership's projected budgets and the underlying assumptions
thereto, and the assumption that the Partnership completes an orderly
liquidation of its assets by October 2002. The Partnership's Estimated
Liquidation Value represents the Partnership's estimate of the gross cash
distributions that a Holder of Interest would receive per Interest from
June 30, 1997, through the assumed liquidation, discounted to reflect the
present value of such distributions. Based upon its estimate of the gross
cash distributions to be received, the Partnership believes that a Holder
of Interest would receive total distributions from June 30, 1997, through
October 2002 in excess of $1,000, including the distribution of $175 per
Interest made in August 1997 from the proceeds of the new credit facility
discussed above.

<PAGE>

The Partnership began incurring significant expenditures in connection
with the various unsolicited tender offers for Interests during the third
quarter of 1996, and may incur significant additional costs in the future
in connection therewith.

In November 1997, St. Joe Corporation completed its acquisition of a
controlling interest in a new venture that holds the major assets of
Arvida. Affiliates of JMB Realty Corporation own a minority interest in
the new venture. Arvida has provided development, construction, management
and other personnel and services to the Partnership for all of its projects
and operations. The services provided to the Partnership by Arvida
pursuant to its management agreement will continue to be provided by the
same personnel. The transaction did not involve the sale of any assets of
the Partnership, nor the sale of the General Partner's interest in the
Partnership.

RESULTS OF OPERATIONS

The results of operations for the three and nine months ended
September 30, 1997 are primarily attributable to the development and sale
or operation of the Partnership's assets.

For the three months ended September 30, 1997, the Partnership
(including its consolidated ventures and its unconsolidated ventures
accounted for under the equity method) closed on the sale of 311 housing
units, 66 homesite lots and approximately 37 acres of developed land. This
compares to closings in the third quarter of 1996 of 296 housing units, 82
homesite lots and approximately 16 acres of undeveloped land. Outstanding
contracts ("backlog") as of September 30, 1997 were for 674 housing units
and 71 homesites. This compares to a backlog as of September 30, 1996 of
730 housing units, 47 homesites and approximately 44 acres of developed and
undeveloped land tracts.

The Partnership's Communities are in various stages of development,
with estimated remaining build-outs ranging from one to nine years.
Notwithstanding the estimated duration of the remaining build-outs, the
Partnership currently expects to complete its orderly liquidation by
October 2002. The Weston Community, located in Broward County, Florida, is
the Partnership's largest Community and is in its mid-stage of development.

Also in their mid-stages of development are the River Hills Country Club in
Tampa, Florida; the Water's Edge Community in Atlanta, Georgia; The
Cullasaja Club, near Highlands, North Carolina and the Partnership's
condominium project on Longboat Key, Florida known as Arvida's Grand Bay.
The Partnership's Jacksonville Golf & Country Club Community in Florida is
in its late stage of development. All of the remaining units in the
Partnership's Sawgrass Country Club and Dockside Communities in
Jacksonville, Florida and Atlanta, Georgia, respectively, closed during
1996. In addition, the Broken Sound Community, located in Boca Raton,
Florida, had its final closings in 1995; however, the Partnership still has
equity memberships in the Broken Sound Club to sell. Future revenues will
be impacted to the extent that there are lower levels of inventories
available for sale as the Partnership's remaining Communities approach or
undertake their final phases.

The increase in housing revenues for the three months ended September
30, 1997 as compared to the same period in 1996 is due to a higher volume
of units closed in Weston during the third quarter of 1997 as compared to
the same quarter in 1996. This favorable variance was partially offset by
decreased revenue recognition on the condominiums at Arvida's Grand Bay,
and a lower volume of units closed at the Partnership's Waters Edge and
Jacksonville Golf & Country Club Communities, as discussed more fully
below. The decrease in housing revenues for the nine months ended
September 30, 1997 as compared to the same period in 1996 is due primarily
to a decrease in revenues recognized on the condominiums at Arvida's Grand
Bay. Substantial revenues were recognized from three of the buildings at
Arvida's Grand Bay in 1996. The Partnership expects to recognize the
remaining revenues from these buildings prior to the end of 1997. The
Partnership commenced construction on one of the two buildings still to be

<PAGE>

completed at Arvida's Grand Bay during the second quarter of 1997.
However, no revenues are expected to be recognized for this building until
1998. The decrease in revenues for the nine months ended September 30,
1997 as compared to the same period in 1996 is also due to a lower volume
of units closed in the Partnership's Jacksonville Golf & Country Club and
Water's Edge Communities during 1997 as compared to 1996. The lower volume
of units closed in Waters Edge is attributable to a decrease in the
availability of lower priced product within the Community during 1997 as
compared to 1996. In addition, the Partnership's sales of higher priced
product in Waters Edge have been slower than anticipated due to competition

from third party builders. These unfavorable variances are partially
offset by an overall increase in the average sales price for units closed
in 1997 as compared to 1996. The lower volume of units closed in
Jacksonville Golf & Country Club is due to the late stage of development of
the Community and decreased levels of inventory as it nears completion.
The close out of the remaining units in Sawgrass Country Club in
Jacksonville and Dockside in Atlanta in 1996 also contributed to the
decrease in revenues for 1997 as compared to 1996.

The decrease in homesite revenues for the three months ended September
30, 1997 as compared to the same period in 1996 is due primarily to a
decrease in the number of lots closed in Jacksonville Golf & Country Club
due to the late stage of development of the Community. The decrease in
revenues was partially offset by an increase in the number of lots closed
and revenues generated at Waters Edge as compared to the same period in
1996, as well as an increase in the average sales price of lots closed in
Waters Edge and Weston. Homesite revenues for the nine months ended
September 30, 1997 were slightly higher than the same period in 1996,
despite fewer lot closings in 1997. This favorable variance is due
primarily to the recognition of deferred income in 1997 for lot sales at
Weston recorded in previous years which did not yet meet the requirements
for income recognition. The increase in the average sales prices at Weston
and Waters Edge also contributed to the favorable variance.

The increase in the gross operating profit margin from homesite
activities resulted from the favorable pricing of lots in Weston and
Water's Edge, as well as the recognition of the deferred income in 1997 for
lots in Weston, which closed in previous years.

The decrease in land and property revenues for the three months ended
September 30, 1997 as compared to the same period in 1996 due primarily to
the closing in August 1996 of an approximate sixteen acre developed
commercial parcel located in Palm Beach County, Florida. The decrease in
land and property revenues for the nine months ended September 30, 1997 as
compared to the same period in 1996 is due primarily to the sale of the
Partnership's 20% joint venture interest in the Coto de Caza Joint Venture
and related promissory note in March 1996 for a cash sales price of $12
million.

The increase in operating properties revenues for the three and nine
months ended September 30, 1997 as compared to the same periods in 1996 is
due primarily to rental income generated at the Partnership's new retail
shopping center in Weston, which opened in the fourth quarter of 1996. In
addition, revenues from the Partnership's club operations increased in 1997
as compared to 1996 due primarily to an overall increase in membership dues
and golf revenues at the Partnership's country clubs in Weston and River
Hills, and increased revenues from the restaurant operations at one of the
Partnership's clubs in Jacksonville, Florida.

The increase in the gross operating profit margin from operating
properties activities is due primarily to the elimination of depreciation
expense recorded on assets held for disposal. Due to the intended sale of
the assets, and in accordance with FASB Statement 121, the Partnership
discontinued recording depreciation on its two retail shopping centers and
cable operation in Weston, the beach club in Jacksonville, Florida, as well
as its hotel operation and mixed use office/retail plaza in Boca Raton,
Florida.

<PAGE>

The decrease in revenues from brokerage and other operations for the
three and nine months ended September 30, 1997 as compared to the same
periods in 1996 is due primarily to a decrease in the volume of resale
brokerage activity in Palm Beach County, Florida, as well as the
Partnership's sale of its resale operation located in Longboat Key near
Sarasota, Florida in October 1996. Also contributing to the unfavorable
variance are decreased commissions earned from the sales of builders' homes
within the Partnership's Weston Community due to a decrease in the number
of builder units closed in 1997 as compared to 1996.

The increase in the gross operating profit margin from brokerage and
other operations for the three and nine months ended September 30, 1997 as
compared to the same periods in 1996 is primarily due to the expansion and
improved operating results of the mortgage brokerage operation in Weston,
as well as an increase in management fees received from the various
homeowners associations in Weston.

The increase in selling, general and administrative expenses for the
nine months ended September 30, 1997 as compared to the same period in 1996
is due primarily to the approximate $1.8 million payment of certain
attorneys' fees and expenses as a result of the approved settlement in
certain litigation. In addition, the Partnership began incurring
significant expenditures in the third quarter of 1996 in connection with
the various unsolicited tender offers made for Interests. Such
expenditures incurred during the nine months ended September 30, 1997 also
contributed to the increase in selling, general and administrative expenses
as compared to the same periods in 1996.

The average balances invested in interest bearing accounts increased
for the three and nine months ended September 30, 1997 as compared to the
same period in 1996 resulting in increased interest income for the periods.

The increase in interest and real estate taxes for the three and nine
months ended September 30, 1997 as compared to the same periods in 1996 is
due primarily to the levying of taxes by the Indian Trace Community
Development District (the "District") on property in Weston which was not
previously taxable by the District. Also contributing to the increase is
an increase in interest expense resulting from a decrease in the amount of
interest eligible for capitalization.