ARVIDA JMB PARTNERS L P, 10-Q, 1998-08-14

ARVIDA JMB PARTNERS L P
10-Q, 1998-08-14
OPERATIVE BUILDERS

Previous: AVITAR INC /DE/, 10QSB, 1998-08-14

Next: YOU BET INTERNATIONAL INC, 10QSB, 1998-08-14

SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarter ended
June 30, 1998 Commission file #0-16976

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

Delaware 36-3507015
(State of organization) (IRS Employer Identification No.)

900 N. Michigan Avenue., Chicago, IL 60611
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code 312/440-4800

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 a shorter period that
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]

<PAGE>

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements . . . . . . . . . . . . . . 3

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . 22

PART II OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 26

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 29

<PAGE>

<TABLE>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

CONSOLIDATED BALANCE SHEETS

JUNE 30, 1998 AND DECEMBER 31, 1997

(UNAUDITED)

ASSETS
------

<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- -----------
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 51,994,679 79,411,195
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,288,309 12,444,016
Trade and other accounts receivable (net of allowance for doubtful
accounts of $993,010 at June 30, 1998 and $692,940 at
December 31, 1997). . . . . . . . . . . . . . . . . . . . . . . . . 45,896,319 14,062,505
Mortgages receivable, net . . . . . . . . . . . . . . . . . . . . . . 22,810 384,445
Real estate inventories . . . . . . . . . . . . . . . . . . . . . . . 166,230,267 163,423,873
Property and equipment held for disposition or sale . . . . . . . . . 7,385,682 6,484,713
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . 34,338,079 35,279,528
Investments in and advances to joint ventures, net. . . . . . . . . . 1,183,352 2,151,694
Equity memberships. . . . . . . . . . . . . . . . . . . . . . . . . . 2,257,277 4,180,733
Amounts due from affiliates, net. . . . . . . . . . . . . . . . . . . 751,861 665,134
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . 8,067,705 8,135,020
------------ ------------

Total assets. . . . . . . . . . . . . . . . . . . . . . . . $334,416,340 326,622,856
============ ============

<PAGE>

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

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(UNAUDITED)

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

JUNE 30, DECEMBER 31,
1998 1997
------------- -----------
Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,774,827 16,260,574
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,338,826 21,930,275
Accrued expenses and other liabilities. . . . . . . . . . . . . . . 15,716,787 13,057,290
Notes and mortgages payable, net. . . . . . . . . . . . . . . . . . 73,494,799 78,136,007
------------ ------------
Commitments and contingencies

Total liabilities . . . . . . . . . . . . . . . . . . . . . 144,325,239 129,384,146
------------ ------------

Partners' capital accounts:
General Partner and Associate Limited Partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
Cumulative net income . . . . . . . . . . . . . . . . . . . . . . 41,379,897 39,766,027
Cumulative cash distributions . . . . . . . . . . . . . . . . . . (40,193,765) (38,508,251)
------------ ------------
1,206,132 1,277,776
------------ ------------
Limited Partners:
Capital contributions, net of offering costs. . . . . . . . . . . 364,841,815 364,841,815
Cumulative net income . . . . . . . . . . . . . . . . . . . . . . 101,860,725 78,613,984
Cumulative cash distributions . . . . . . . . . . . . . . . . . . (277,817,571) (247,494,865)
------------ ------------
188,884,969 195,960,934
------------ ------------
Total partners' capital accounts. . . . . . . . . . . . . . 190,091,101 197,238,710
------------ ------------

Total liabilities and partners' capital . . . . . . . . . . $334,416,340 326,622,856
============ ============

<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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997

(UNAUDITED)

<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1998 1997 1998 1997
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Housing . . . . . . . . . . . . . . . . . . . $ 45,120,065 45,120,200 99,578,472 77,890,164
Homesites . . . . . . . . . . . . . . . . . . 2,923,661 6,556,525 4,920,998 8,731,704
Land and property . . . . . . . . . . . . . . 13,910,226 2,821,789 16,096,326 3,280,349
Operating properties. . . . . . . . . . . . . 5,193,144 7,579,225 10,494,266 16,780,263
Brokerage and other operations. . . . . . . . 8,586,574 6,228,479 14,131,007 11,689,258
----------- ----------- ----------- -----------
Total revenues. . . . . . . . . . . . . 75,733,670 68,306,218 145,221,069 118,371,738
----------- ----------- ----------- -----------
Cost of revenues:
Housing . . . . . . . . . . . . . . . . . . . 36,233,785 38,805,717 78,784,783 67,382,639
Homesites . . . . . . . . . . . . . . . . . . 1,886,368 3,937,468 3,173,399 5,214,387
Land and property . . . . . . . . . . . . . . 6,383,017 2,284,766 8,112,336 2,527,779
Operating properties. . . . . . . . . . . . . 4,754,386 6,539,114 9,332,382 13,939,744
Brokerage and other operations. . . . . . . . 7,805,299 5,844,534 12,806,767 11,176,450
----------- ----------- ----------- -----------
Total cost of revenues. . . . . . . . . 57,062,855 57,411,599 112,209,667 100,240,999
----------- ----------- ----------- -----------
Gross operating profit. . . . . . . . . . . . . 18,670,815 10,894,619 33,011,402 18,130,739
Selling, general and administrative expenses. . (3,986,055) (5,098,646) (8,347,372) (12,199,315)
----------- ----------- ----------- -----------
Net operating income. . . . . . . . . . 14,684,760 5,795,973 24,664,030 5,931,424

Interest income . . . . . . . . . . . . . . . . 786,576 203,469 1,767,316 1,031,386
Equity in earnings (losses) of unconsolidated
ventures. . . . . . . . . . . . . . . . . . . 146,980 (27,336) 224,102 19,805
Interest and real estate taxes, net . . . . . . (959,144) (1,039,483) (1,794,837) (1,972,050)
----------- ----------- ----------- -----------

<PAGE>

ARVIDA/JMB PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1998 1997 1998 1997
----------- ---------- ----------- ----------

Net income. . . . . . . . . . . . . . . $14,659,172 4,932,623 24,860,611 5,010,565
=========== =========== =========== ===========

Net income per Limited
Partnership Interest. . . . . . . . . $ 21.62 12.21 57.54 9.07
=========== =========== =========== ===========

Cash distributions per
Limited Partnership
Interest. . . . . . . . . . . . . . . $ -- -- 75.06 60.04
=========== =========== =========== ===========

<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

SIX MONTHS ENDED JUNE 30, 1998 AND 1997

(UNAUDITED)

<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,860,613 5,010,565
Charges (credits) to net income not requiring (providing) cash:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 1,784,566 1,991,957
Equity in earnings of unconsolidated ventures . . . . . . . . . . . . . . (224,102) (19,804)
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . (44,460) 40,983
Gain on sale of joint venture interest. . . . . . . . . . . . . . . . . . (450,546) --
Gain on sale of property and equipment. . . . . . . . . . . . . . . . . . (2,989) --
Changes in:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,844,293) (1,106,643)
Trade and other accounts receivable . . . . . . . . . . . . . . . . . . . (31,789,354) (3,955,590)
Real estate inventories:
Additions to real estate inventories. . . . . . . . . . . . . . . . . . (81,734,045) (75,225,917)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,937,045 70,766,098
Capitalized interest. . . . . . . . . . . . . . . . . . . . . . . . . . (3,209,812) (1,315,767)
Capitalized real estate taxes . . . . . . . . . . . . . . . . . . . . . (1,799,582) (1,878,655)
Equity memberships. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,923,456 472,962
Amounts due from affiliates, net. . . . . . . . . . . . . . . . . . . . . (86,727) (178,396)
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . (254,517) (870,568)
Accounts payable, accrued expenses and other liabilities. . . . . . . . . 6,157,242 (3,630,992)
Deposits and unearned income. . . . . . . . . . . . . . . . . . . . . . . 13,408,551 4,806,572
------------ -----------

Net cash provided by (used in) operating activities . . . . . . . 8,631,046 (5,093,195)
------------ -----------

<PAGE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

1998 1997
------------ -----------
Cash flows from investing activities:
Mortgages receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 361,635 512,280
Acquisitions of property and equipment. . . . . . . . . . . . . . . . . . (1,422,482) (1,857,832)
Proceeds from disposals of property and equipment . . . . . . . . . . . . 3,215 --
Joint venture distributions (contributions), net. . . . . . . . . . . . . 138,336 (500,857)
Proceeds from sale of joint venture interest. . . . . . . . . . . . . . . 1,521,162 --
------------ -----------
Net cash provided by (used in) investing activities . . . . . . . 601,866 (1,846,409)
------------ -----------
Cash flows from financing activities:
Proceeds from notes and mortgages payable . . . . . . . . . . . . . . . . 8,958,461 1,200,880
Payments of notes and mortgages payable . . . . . . . . . . . . . . . . . (13,599,669) (7,866,744)
Distributions to General Partner and Associate Limited Partners . . . . . (1,685,515) (1,347,510)
Distributions to Limited Partners . . . . . . . . . . . . . . . . . . . . (30,322,705) (24,255,458)
------------ -----------
Net cash used in financing activities . . . . . . . . . . . . . . (36,649,428) (32,268,832)
------------ -----------
Decrease in Cash and cash equivalents . . . . . . . . . . . . . . . . . . . (27,416,516) (39,208,436)

Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . . . 79,411,195 53,635,737
------------ -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . $ 51,994,679 14,427,301
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest, net of amounts capitalized . . $ 225,021 --
============ ===========
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

JUNE 30, 1998 AND 1997

(UNAUDITED)

Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1997,
which are included in the Partnership's 1997 Annual Report on Form 10-K
(File No. 0-16976) filed on March 31, 1998, 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 1997 Annual Report.

GENERAL

Capitalized Interest and Real Estate Taxes

Interest, including the amortization of loan fees, of $3,209,812 and
$1,315,767 was incurred for the six months ended June 30, 1998 and 1997,
respectively, all of which was capitalized. Interest payments, including
amounts capitalized, of $3,434,833 and $1,275,291 were made during the six
months ended June 30, 1998 and 1997, respectively. Interest, including the
amortization of loan fees, of $1,598,813 and $681,238 was incurred for the
three months ended June 30, 1998 and 1997, respectively, all of which was
capitalized. Interest payments, including amounts capitalized of
$1,575,352 and $714,665 were made during the three months ended June 30,
1998 and 1997, respectively. The increase in interest incurred and paid
during the three and six months ended June 30, 1998 as compared to the same
period in 1997 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 $3,594,419 and $3,850,705 were incurred for the
six months ended June 30, 1998 and 1997, respectively, of which $1,799,582
and $1,878,655 were capitalized, respectively. Real estate tax payments of
$189,677 and $322,313 were made during the six months ended June 30, 1998
and 1997, respectively. In addition, real estate tax reimbursements
totaling $267,106 and $244,706 were received from the Partnership's escrow
agent during the six months ended June 30, 1998 and 1997, respectively.
Real estate taxes of $1,938,861 and $1,892,581 were incurred for the three
months ended June 30, 1998 and 1997, respectively, of which $979,717 and
$853,098 were capitalized, respectively. Real estate tax payments of
$123,291 and $209,670 were made during the three months ended June 30, 1998
and 1997, respectively. In addition, real estate tax reimbursements
totaling $10,332 and $0, were received from the Partnership's escrow agent
during the three months ended June 30, 1998 and 1997, 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 $1,462,736 and $1,841,345 was incurred for the
six months ended June 30, 1998 and 1997, respectively. The decrease in
depreciation expense for the six months ended June 30, 1998 as compared to
the same period in 1997 resulted from the Partnership discontinuing the
recording of depreciation on its assets held for disposal in the first
quarter of 1997, in accordance with FASB Statement No. 121. Amortization
of other assets, excluding loan fees, of $196,830 and $42,754 was incurred

<PAGE>

for the six months ended June 30, 1998 and 1997, respectively.
Amortization of loan fees, which is included in interest expense, of
$125,000 and $108,058 was incurred for the six months ended June 30, 1998
and 1997, respectively. Depreciation expense of $728,769 and $768,517 was
incurred for the three months ended June 30, 1998 and 1997, respectively.
Amortization of other assets, excluding loan fees, of $98,415 and $22,555
was incurred for the three months ended June 30, 1998 and 1997,
respectively. Amortization of loan fees, which is included in interest
expense, of $62,500 and $71,478 was incurred for the three months ended
June 30, 1998 and 1997, respectively.

Partnership Distributions

During February 1998, the Partnership made a distribution for 1997 of
$30,300,000 to its Holders of Interests ($75.00 per Interest) and
$1,683,313 to the General Partner and Associate Limited Partners,
collectively. These distributions are the primary cause for the decrease
in Cash and cash equivalents at June 30, 1998 as compared to December 31,
1997. In addition, during 1998 distributions totaling $22,706
(approximately $.06 per Interest) were deemed to be paid to the Holders of
Interests, as they were remitted to North Carolina tax authorities on their
behalf for the 1997 non-resident withholding tax. Distributions totaling
$2,201 were also deemed to be made during 1998 to the General Partner and
Associate Limited Partners, collectively, as such amount was remitted to
the North Carolina tax authorities on their behalf.

Reclassifications

Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 presentation.

INVESTMENT PROPERTIES

On August 27, 1991, the General Partner, on behalf of the Partnership,
initiated a lawsuit in the Circuit Court of Cook County (County Department,
Chancery Division), Illinois against The Walt Disney Company ("Disney").
The litigation arises out of the Partnership's acquisition of substantially
all of the real estate and other assets of Arvida Corporation, a subsidiary
of Disney, in September 1987. In the complaint filed on its behalf, the
Partnership alleges that under the terms of the contract with Disney for
the acquisition, the purchase price of the assets was to be reduced by the
amount of certain payments made prior to the closing (the "Closing") of the
transaction out of funds of Arvida Corporation in order to satisfy certain
obligations that were not assumed by the Partnership. The complaint also
alleges that the contract entitles the Partnership to (i) reimbursement by
Disney for amounts advanced by the Partnership to pay certain other claimed
obligations of Arvida Corporation, including certain post-Closing
adjustments, in connection with the acquisition and (ii) indemnification by
Disney for additional costs and expenses incurred by the Partnership
subsequent to the Closing in order to remedy certain environmental
conditions that existed prior to the Closing. The complaint further
alleges that the Partnership has made various demands on Disney for payment
of these amounts and that Disney has refused to make such payments. The
Partnership seeks declaratory judgments that the Partnership is entitled to
a purchase price reduction from Disney and reimbursements or
indemnification by Disney for amounts advanced or costs and expenses
incurred by the Partnership for certain obligations of Arvida Corporation
together with interest on all such amounts and costs. During the second
quarter of 1992, the Partnership received approximately $0.8 million in
settlement of portions of this claim. During July 1993, Disney filed an
answer denying the substantive allegations of the Partnership's complaint
and raising various affirmative defenses. The Partnership believes
Disney's defenses are without merit and will continue to pursue its claims.

In addition, Disney has filed a three count counterclaim in which it seeks
among other things: a complete accounting of liabilities allegedly assumed

<PAGE>

but not discharged by the Partnership to ascertain whether certain funds,
not to exceed $2.9 million, are due Disney in accordance with the purchase
agreement; an unspecified amount of damages exceeding $500,000 allegedly
representing workers compensation and warranty payments made by Disney,
which Disney alleges are obligations of the Partnership; an accounting for
funds disbursed from a claims pool in the amount of $3,000,000 established
by the parties; and attorney fees and costs. The Partnership intends to
defend itself vigorously against them.

By order dated July 29, 1998, the court granted the Partnership's
motion for summary judgment against Disney on the issue of whether the
Partnership is entitled to a purchase price reduction under the terms of
the contract with Disney for the acquisition of substantially all of the
real estate and other assets of Arvida Corporation. By an order of the
same date, the court denied Disney's motion for summary judgment on the
issue of whether the Partnership is entitled to indemnification for various
environmental issues. The case is set for further proceedings before the
court, which may include, among other things, motions for reconsideration
of the July 29 rulings, a motion to set for trial the determination of the
damages that the Partnership may be entitled to under the July 29 purchase
price reduction ruling, and resolution of the remaining issues in the case.

There are no assurances relating to the amount of damages that the
Partnership may receive or the amount of liability that the Partnership may
incur in connection with the remaining issues to be addressed by the court.

NOTES AND MORTGAGES PAYABLE

At June 30, 1998, the balances outstanding on the term loan, the revolving
line of credit and the letter of credit facility were approximately
$56,250,000, $0 and $776,000, respectively. For the six month period ended
June 30, 1998, the combined effective interest rate for the Partnership's
credit facilities, including the amortization of loan origination fees, was
approximately 8.4% per annum.

Due to the replacement of the Partnership's previous letter of credit
facility by the new credit facility, which is discussed above, 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. 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 June 30, 1998,
approximately $1.9 million of such cash collateral had been released to the
Partnership, leaving a balance outstanding under this previous letter of
credit facility of approximately $2.3 million.

<PAGE>

The Partnership is currently negotiating with its lenders regarding a
rate reduction on its credit facility of 50 basis points. The
Partnership's lenders required a prepayment on the term loan in the amount
of $7.25 million in exchange for the interest rate reduction. Such
prepayment was made during August 1998. It is currently anticipated that
the negotiations between the Partnership and its lenders will be finalized
during the third quarter of 1998.

Construction of one of the two remaining buildings to be completed at
Arvida's Grand Bay commenced in 1997. Revenues recognized for this
building under the percentage of completion method of accounting are the
primary cause for the increase in housing revenues for the six month period
ended June 30, 1998 as compared to the same period in 1997, as well as the
increase in Trade and other accounts receivable on the accompanying
consolidated balance sheets at June 30, 1998 as compared to December 31,
1997. During 1998, the Partnership continued to borrow against its $21
million revolving construction line of credit to fund the construction of
this building. This line of credit bears interest, at the Partnership's
option, at either the relevant LIBOR plus 2.0% per annum or at the lender's
prime rate (8.5% at June 30, 1998), and matures in August 1999. At
June 30, 1998, there was approximately $11,955,000 outstanding under this
line of credit, which is expected to be repaid with future proceeds from
sales of units within this building. The Partnership anticipates it will
borrow additional funds 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 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. The Partnership's recognition of its share of
this venture's earnings is the primary cause for the increase in equity in
earnings (losses) of unconsolidated ventures on the accompanying
consolidated statements of operations.

During August 1997, the remaining properties owned by the Tampa 301
Associates Joint Venture and substantially all of the remaining properties
owned by the Ocala 202 Joint Venture were sold. The net profit generated
by the sales of these properties resulted in approximately $91,000 of
earnings for the Partnership.

In January 1998, the Partnership sold its approximate 33% interest in
the H.A.E. Joint Venture to one of its venture partners. This sale is
reflected in land and property revenues and cost of revenues on the
accompanying consolidated statements of operations. This sale is the
primary cause for the decrease in Investments in and advances to joint
ventures on the accompanying consolidated balance sheets at June 30, 1998
as compared to December 31, 1997.

In April 1998, the Metrodrama Joint Venture closed on the sale of
approximately 29 acres of undeveloped commercial property to an
unaffiliated third party. This sale is reflected in land and property
revenues and cost of revenues on the accompanying consolidated statements
of operations, and is the primary cause for the increase in land and
property operations for the three and six month periods ended June 30, 1998
as compared to the same periods in 1997. This transaction generated a
profit for financial reporting and Federal income tax purposes.

<PAGE>

EQUITY MEMBERSHIPS

In May 1998, the Partnership sold its remaining Sawgrass Country Club
memberships to the Sawgrass Country Club, Inc. for a total sales price of
approximately $2.4 million. This transaction is reflected in land and
property revenues and cost of revenues on the accompanying consolidated
statements of operations, and is the primary cause for the decrease in
equity memberships on the accompanying consolidated balance sheets at
June 30, 1998 as compared to December 31, 1997. This transaction generated
a profit for financial reporting and Federal income tax purposes.

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 six months ended June 30, 1998 was approximately $200,400, all of
which was paid as of June 30, 1998. The total of such costs for the six
months ended June 30, 1997 was approximately $72,700. 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 $104,300 and $198,900 for the six months ended June 30,
1998 and 1997, respectively, all of which were paid as of June 30, 1998.

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 six month period ended June 30, 1998, the
amount of such costs incurred by the Partnership on behalf of these
affiliates totaled approximately $921,800. At June 30, 1998, approximately
$309,000 was owed to the Partnership, of which approximately $155,200 was
received as of August 10, 1998. For the six month period ended June 30,
1997, the Partnership was entitled to reimbursements of approximately
$486,800.

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 six month periods ended
June 30, 1998 and 1997, the Partnership was entitled to receive
approximately $60,000 and $56,000, respectively, from Arvida/JMB Partners,
L.P.-II, all of which was received as of June 30, 1998.

Through December 31, 1997, Arvida Company ("Arvida"), pursuant to an
agreement with the Partnership, provided development and management
supervisory and advisory services and personnel therefor to the Partnership
for all of its projects and operations. Pursuant to such agreement, the
Partnership reimbursed Arvida for all of its out-of-pocket expenditures
(including salary and salary-related costs), subject to certain
limitations. The total of such costs for the six month period ended
June 30, 1997 was approximately $4,297,200, all of which was paid in 1997.
In addition, the Partnership was owed approximately $51,200 from Arvida at
June 30, 1998, for overpayments of certain salary and salary related costs
from 1997 as well as services performed by employees of the Partnership on
behalf of Arvida, none of which was paid as of August 10, 1998.

<PAGE>

In November 1997, St. Joe Corporation, an unaffiliated third party,
completed its acquisition of a majority interest in St. Joe/Arvida Company,
L.P. ("St. Joe/Arvida"), which acquired the major assets of Arvida. In
connection with this transaction, Arvida entered into a sub-management
agreement with St. Joe/Arvida, effective January 1, 1998, whereby St.
Joe/Arvida provides (and is reimbursed for) a substantial portion of the
development and management supervisory and advisory services (and personnel
with respect thereto) to the Partnership that Arvida would otherwise
provide pursuant to its management agreement with the Partnership.
Effective January 1, 1998, St. Joe/Arvida employs most of the same
personnel previously employed by Arvida, and the services provided to the
Partnership pursuant to this sub-management agreement are provided by the
same personnel. Affiliates of JMB Realty Corporation own a minority
interest in St. Joe/Arvida. 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.

For the six month period ended June 30, 1998, the Partnership was
obligated to reimburse St. Joe/Arvida or its affiliates approximately
$522,100. Of this amount, approximately $150,100 was unpaid at June 30,
1998, all of which was paid as of August 10, 1998. In addition, the
Partnership receives reimbursement from St. Joe/Arvida for certain general
and administrative costs including, and without limitation, salary and
salary-related costs relating to work performed by employees of the
Partnership on behalf of St. Joe/Arvida. For the six month period ended
June 30, 1998, the Partnership was entitled to receive approximately
$323,000 from St. Joe/Arvida or its affiliates. Of this amount,
approximately $75,500 was owed to the Partnership at June 30, 1998, all of
which was received as of August 10, 1998.

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 six month periods ended June 30, 1998 and 1997, the Partnership was
entitled to receive approximately $461,000 and $970,900, respectively, from
these entities. At June 30, 1998, approximately $50,700 was owed to the
Partnership, of which approximately $28,600 was received as of August 10,
1998.

The Partnership, pursuant to certain agreements, provides management
and other personnel and services to certain of its equity clubs. Pursuant
to these agreements, the Partnership is entitled to receive management fees
for the services provided to these clubs. For the six months ended
June 30, 1998 and 1997, the Partnership was entitled to receive
approximately $286,000 and $258,500, respectively. At June 30, 1998,
approximately $379,400 was unpaid (including amounts owed from the previous
year), none of which was received as of August 10, 1998.

The Partnership funds 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
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. The Partnership also
funds, at its option, certain capital expenditures of its equity clubs. In
April 1998, control of Jacksonville Golf & Country Club ("JG&CC") was
turned over to the club members. As a result, effective April 1, 1998, the
Partnership is no longer involved in the ownership or management of JG&CC
and has no further responsibility to fund JG&CC's operations. In addition,
all outstanding balances between the Partnership and JG&CC were paid upon
the turnover of the club to its members. At June 30, 1998, the Partnership
owed one of its homeowner associations approximately $34,200 for prior year
amounts funded by the association which were the Partnership's obligation,
none of which was paid as of August 10, 1998.

<PAGE>

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 $366,100 and $0 for such
costs for the six months ended June 30, 1998 and 1997, respectively, of
which approximately $70,300 was owed to the Partnership at June 30, 1998
(including amounts owed from the previous year), of which $33,200 was
received as of August 10, 1998.

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 $7,995,000 as
of June 30, 1998. 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, in connection with
the settlement of certain litigation, the General Partner and the Associate
Limited Partners deferred approximately $1,259,000 of their share of the
August 1997 distribution which was otherwise distributable to them, and
such deferred distribution amount was used by the Partnership to pay a
portion of the legal fees and expenses in such litigation. The General
Partner and Associate Limited Partners will be entitled to receive such
deferred amount after the Holders of Interests have received a specified
amount of distributions from the Partnership after July 1, 1996.

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 $776,000 and $10,253,000, respectively,
at June 30, 1998. In addition, certain joint ventures in which the
Partnership holds an interest are also contingently liable under
performance bonds for approximately $1,012,000 at June 30, 1998.

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 a 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 Starwood
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 for the Starwood financing 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 motion 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

<PAGE>

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 a special committee (the "Special Committee") consisting of
certain directors of the General Partners. On February 11, 1997, the
Special Committee denied the request. Thereafter, the Partnership
supplemented its counterclaim, as amended, to seek 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
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,
1997 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 believed,
among other things, that the Court erred in its application of the law to
the facts on this issue and appealed the Court's decision on this aspect of
the case. On the issue of whether the Special Committee properly denied
Raleigh's request for admission as a Substituted Limited Partner, the Court
upheld the denial of Raleigh's request. By order dated June 9, 1998, and
after appeal of this matter to the Delaware Supreme Court, the Delaware
Supreme Court affirmed the trial court on all issues.

<PAGE>

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.

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. The Partnership has tendered
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
preventing 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

<PAGE>

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. 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 sought 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. The
Partnership has settled the Metropolitan lawsuit for $120,000, which
settlement was funded by one of the Partnership's insurers. The extent to
which the insurer may recover these proceeds from the Partnership is
uncertain. 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
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

<PAGE>

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, 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, fiduciary duty, fraud 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.

This action has been consolidated with the Council of Villages case. The
Partnership believes the lawsuit is without merit and intends to vigorously
defend itself.

In April 1997, the Court issued an order certifying as a class action
claims respecting the alleged violation of the Boca Raton ordinances. Both
plaintiffs and defendants appealed the certification order. On appeal, the
appellate court affirmed the trial court and extended the certification to
all counts of the complaint. The Partnership is considering filing a
motion for rehearing of the issues before the appellate court. Plaintiffs
in the Savoy action moved for an appointment to a receiver over the Club.
The Partnership moved to strike the motion and the Court granted the
Partnership's motion. The Partnership has filed a third-party complaint
for indemnification and contribution against Disney in these consolidated
actions in the event the Partnership is held liable for acts taken by a
subsidiary of Disney prior to the Partnership's involvement in the Club and
property.

<PAGE>

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 $3.4 million at
June 30, 1998. During April 1992, as a result of the Partnership's
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 was deferred until resolution of certain general
development obligations of the venture as well as 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 was 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 an
agreement for the settlement of the lawsuit which provided 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 which began in July 1994
is in a "monitoring only" phase pursuant to an informal arrangement with
state environmental officials. There are no assurances that further clean-
up will not be required. If further action is required and the previous
owner is unable to fulfill all its obligations as they relate to this
environmental issue, the joint 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.

In June 1998, the joint venture entered into a contract with an
unaffiliated third party for the sale of the 31 acres of land in Pompano
Beach, Florida. The closing is scheduled to occur prior to year end.
However, such closing is contingent upon the satisfaction of various
conditions, and there can be no assurance the closing will occur.

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.

ASSETS HELD FOR DISPOSITION

Several of the Partnership's assets which had been held for
disposition were sold during the fourth quarter of 1997. The results of
operations for the Partnership's cable operation in Weston, which continues
to be held for disposition at June 30, 1998, totaled approximately $0.5
million for the six months ended June 30, 1998, and are included in
operating properties revenues and cost of revenues on the accompanying
consolidated statements of operations. The combined results of operations
for the Partnership's assets held for disposition during the six months
ended June 30, 1997 totaled approximately $2.8 million.

<PAGE>

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
June 30, 1998 and December 31, 1997 and for the three and six months ended
June 30, 1998 and 1997.

SUBSEQUENT EVENTS

In July 1998, the Partnership entered into a contract with an
unaffiliated third party for the sale of the Partnership's cable operation
in Weston. The sale, if consummated, is expected to generate a profit for
financial reporting and Federal income tax purposes in 1998. The closing
is subject to the satisfaction of various conditions, and there can be no
assurance the closing will occur.

<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 the Partnership and its operations.

At June 30, 1998 and December 31, 1997, the Partnership had cash and
cash equivalents of approximately $51,995,000 and $79,411,000,
respectively. The decrease in Cash and cash equivalents at June 30, 1998
as compared to December 31, 1997 is due primarily to distributions to
partners and Holders of Interests made during February 1998 totaling
approximately $32 million.

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.

The Partnership's credit facility consists of a $75 million term loan,
a $20 million revolving line of credit and a $5 million letter of credit
facility. This credit facility matures on July 31, 2001. The term loan
has 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. In February 1998, the Partnership prepaid
the $12.5 million principal repayment scheduled for July 1998. 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
interest rate swaps covering two-thirds of the outstanding balance of the
term loan. The interest rate swap agreements terminate July 31, 2001. 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. In addition, due to the replacement
of the Partnership's previous letter of credit facility by the existing
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 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 June 30, 1998, approximately $1.9
million of such cash collateral had been released to the Partnership,
leaving a balance outstanding under this previous letter of credit facility
of approximately $2.3 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
facility are cross-collateralized and cross-defaulted. At June 30, 1998,
the balances outstanding under the term loan, the revolving line of credit
and the letter of credit facility were approximately $56,250,000, $0 and
$776,000, respectively.

<PAGE>

During 1998, the Partnership borrowed against its $21 million
revolving construction line of credit to fund the construction of one of
the two remaining buildings within Arvida's Grand Bay. This line of credit
bears interest, at the Partnership's option, at either the relevant LIBOR
plus 2.0% per annum or at the lender's prime rate (8.5% at June 30, 1998),
and matures in August 1999. At June 30, 1998, there was approximately
$11.9 million outstanding under this line of credit, which is expected to
be repaid with future proceeds from sales of units within this building.
The Partnership anticipates it will borrow additional funds under this line
of credit during 1998 for the remaining building to be constructed within
Arvida's Grand Bay.

RESULTS OF OPERATIONS

The results of operations for the three and six months ended June 30,
1998 are primarily attributable to the development and sale or operation of
the Partnership's assets.

For the three months ended June 30, 1998, the Partnership (including
its consolidated ventures and its unconsolidated ventures accounted for
under the equity method) closed on the sale of 180 housing units, 34
homesites, approximately 41 acres of developed and undeveloped land, as
well as the remaining Sawgrass Country Club memberships owned by the
Partnership. This compares to closings in the second quarter of 1997 of
261 housing units, 76 homesites and approximately six acres of developed
land. Outstanding contracts ("backlog") as of June 30, 1998, were for 832
housing units, 54 homesites and approximately 39 acres of developed and
undeveloped land tracts. This compares to a backlog as of June 30, 1997 of
670 housing units, 32 homesites and approximately 37 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 six years.
Notwithstanding the estimated duration of the 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. 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.

<PAGE>

Construction of one of the two remaining buildings to be completed at
Arvida's Grand Bay commenced in 1997. Revenues recognized for this
building under the percentage of completion method of accounting are the
primary cause for the increase in housing revenues for the six month period
ended June 30, 1998 as compared to the same period in 1997, as well as the
increase in Trade and other accounts receivable on the accompanying
consolidated balance sheets at June 30, 1998 as compared to December 31,
1997. Such revenues also generated a favorable variance for the three
months ended June 30, 1998 as compared to the same period in 1997.
However, the favorable revenue variance generated by Arvida's Grand Bay in
the second quarter was offset by decreased revenues at the Partnership's
Weston and Jacksonville Golf & Country Club Communities. Revenues
generated at Weston during the second quarter of 1998 were lower than those
generated in the same period in 1997 due to the timing of the availability
of town homes and certain other housing products to be sold within the
Community. Revenues to be generated from closings of these products prior
to the end of 1998 are expected to reverse this unfavorable variance by
year end. The decrease in revenues at Jacksonville Golf & Country Club is
attributable to decreased closings as this Community continues to sell out
its final phases.

The Partnership's current plan for the Weston Community includes an
increase in its home building operations, thereby resulting in a reduced
number of lots available for sale to third party builders. As a result,
homesite revenues decreased for the three and six month periods ended
June 30, 1998 as compared to the same periods in 1997, and are expected to
continue to decrease in future periods. The decrease in homesite revenues
is also due to the close-out of the remaining lots in Jacksonville Golf &
Country Club in February 1998.

Land and property revenues increased for the three and six month
periods ended June 30, 1998 as compared to the same periods in 1997 due to
the sale of approximately 29 acres of undeveloped commercial property owned
by the Metrodrama Joint Venture, as well as the sale of approximately
twelve acres of developed land in Weston and the sale of the Partnership's
remaining Sawgrass Country Club memberships. In addition, the Partnership
sold its 33% interest in the H.A.E. Joint Venture to one of its venture
partners in January 1998. These compare to the sale of approximately six
acres of developed land in Weston during the three and six month periods
ended June 30, 1997.

The decrease in revenues and the related cost of revenues from
operating properties for the three and six months ended June 30, 1998 as
compared to the same periods in 1997 is due primarily to the closings of
several of the Partnership's operating properties during the fourth quarter
of 1997. These closings included the Partnership's mixed-use center in
Boca Raton, Florida (consisting of retail shops, an office building and a
hotel), the Cabana Club located within its Sawgrass Community, and the
Partnership's two retail shopping centers in Weston.

Revenues from brokerage and other operations increased for the three
and six months ended June 30, 1998 as compared to the same period in 1997
due primarily to increased commissions generated by the Partnership's
resale operations in Weston, Boca Raton and Jacksonville. In addition, the
Partnership received revenue in January 1998 associated with the 1996 sale
of its resale brokerage operation on Longboat Key near Sarasota, Florida.
Receipt of such revenue was contingent upon future operations of the sales
office, and therefore, was not recognized upon the closing of the sale.
This receipt also contributed to the increase in revenues for the six
months ended June 30, 1998 as compared to the same period in 1997.

<PAGE>

The decrease in selling, general and administrative expenses for the
six month period ended June 30, 1998 as compared to the same period in 1997
is due primarily to the decrease in expenses incurred in connection with
certain litigation in which the Partnership was previously involved. The
Partnership accrued approximately $1.8 million in March 1997 to reflect
expenses incurred for certain attorneys' fees and other expenses to be paid
as a result of the court-approved settlement in this litigation. Also
contributing to the decrease in selling, general and administrative
expenses for the three and six month periods ended June 30, 1998 as
compared to the same periods in 1997 is a reduction in the amount of
expenditures incurred by the Partnership in connection with the various
unsolicited tender offers made for Partnership Interests.

The increase in interest income for the three and six month periods
ended June 30, 1998 as compared to the same periods in 1997 is due
primarily to an increase in the average balances invested in interest
bearing accounts during 1998.

The increase in equity in earnings (losses) of unconsolidated ventures
for the three and six months ended June 30, 1998 as compared to the same
periods in 1997 is due to the Partnership's recognition of its share of the
earnings generated by A&D Title, L.P., a joint venture in which the
Partnership obtained a 50% ownership interest in July 1997.

<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to the Commitments and Contingencies Section of
Notes for a detailed discussion regarding certain lawsuits which 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, which discussion is hereby incorporated herein by reference.

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 a 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 Starwood
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 for the Starwood financing 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 motion 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.

<PAGE>

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.

The trial of all claims in the Raleigh action was held on April 7,
1997 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 believed,
among other things, that the Court erred in its application of the law to
the facts on this issue and appealed the Court's decision on this aspect of
the case. On the issue of whether the Special Committee properly denied
Raleigh's request for admission as a Substituted Limited Partner, the Court
upheld the denial of Raleigh's request. By order dated June 9, 1998, and
after appeal of this matter to the Delaware Supreme Court, the Delaware
Supreme Court affirmed the trial court on all issues.

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, 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 lawsuit, 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 said
facilities to the Broken Sound homeowners on a timely basis. Plaintiffs
seek, through various theories, including but not limited to breach of
ordinance, fiduciary duty, fraud, 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.

<PAGE>

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.
This lawsuit has been consolidated with the Council of Village case. The
Partnership believes the lawsuit is without merit and intends to vigorously
defend itself.

Other than as described above, the Partnership is not subject to any
material pending legal proceedings, other than ordinary routine litigation
incidental to the business of the Partnership. However, reference is made
to the Commitments and Contingencies Section of the Notes for a discussion
of certain claims asserted by Merrill Lynch for indemnification by the
Partnership and the General Partner in connection with claims for
arbitration filed by certain investors in the Partnership.

<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1. Amended and Restated Agreement of Limited Partnership.*

3.2. Assignment Agreement by and among the General Partner, the
Initial Limited Partner and the Partnership.*

27. Financial Data Schedule

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

* Previously filed with the Securities and Exchange
Commission as Exhibits 3. and 4.0, respectively, to the Partnership's Form
10-K Report (File No. 0-16976) filed on March 27, 1990 and incorporated
herein by reference.

(b) No reports on Form 8-K have been filed since the beginning
of the last quarter of the period covered by this report.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company 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, Vice President
Date: August 12, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.

By: GAILEN J. HULL
Gailen J. Hull, Principal Accounting Officer
Date: August 12, 1998

<ARTICLE> 5

<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998

<CASH> 68,282,988
<SECURITIES> 0
<RECEIVABLES> 46,889,329
<ALLOWANCES> 993,010
<INVENTORY> 166,230,267
<CURRENT-ASSETS> 0
<PP&E> 70,916,930
<DEPRECIATION> 29,193,169
<TOTAL-ASSETS> 334,416,340
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 190,091,101
<TOTAL-LIABILITY-AND-EQUITY>334,416,340
<SALES> 145,221,069
<TOTAL-REVENUES> 145,221,069
<CGS> 112,209,667
<TOTAL-COSTS> 112,209,667
<OTHER-EXPENSES> 8,150,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,860,611
<INCOME-TAX> 0
<INCOME-CONTINUING> 24,860,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,860,611
<EPS-PRIMARY> 57.54
<EPS-DILUTED> 57.54

</TABLE>