NATIONAL REALTY L P, 10-K, 1994-03-30

NATIONAL REALTY L P
10-K, 1994-03-30
REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1993

Commission File Number 1-9648

NATIONAL REALTY, L.P.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 75-2163175
- ------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

10670 North Central Expressway, Suite 300, Dallas, Texas 75231
- -------------------------------------------------------- -----------
(Address of Principal Executive Offices) (Zip Code)

(214) 692-4700
-------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
- ------------------------------ ----------------------------
Units of Limited Partner Interest American Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:

Redeemable Unit Purchase Warrants

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No
___ ___

As of March 11, 1994, the Registrant had 2,139,573 units of limited partner
interest outstanding. Of the total units outstanding 1,131,035 were held by
other than those who may be deemed to be affiliates, for an aggregate value of
$31,386,000 based on the last trade as reported on the American Stock Exchange
on March 11, 1994. The basis of this calculation does not constitute a
determination by the Registrant that all of such persons or entities are
affiliates of the Registrant as defined in Rule 405 of the Securities Act of
1933, as amended.

- Exhibit Index Appears on Page 98 -
- Page 1 of 100 -
<PAGE> 2
INDEX TO
ANNUAL REPORT ON FORM 10-K

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

Item 1. Business........................................... 3

Item 2. Properties......................................... 11

Item 3. Legal Proceedings.................................. 18

Item 4. Submission of Matters to a Vote of Security Holders 21

PART II
-------

Item 5. Market for Registrant's Units of Limited Partner
Interest and Related Security Holder Matters.... 22

Item 6. Selected Financial Data............................ 23

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 24

Item 8. Financial Statements and Supplementary Data........ 35

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. 77

PART III
--------

Item 10. General Partner of the Registrant and Executive
Officers of the Registrant's General Partner.... 77

Item 11. Executive Compensation............................. 88

Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................... 90

Item 13. Certain Relationships and Related Transactions..... 90

PART IV
-------

Item 14. Exhibits, Consolidated Financial Statements,
Schedules and Reports on Form 8-K............... 94

Signature Page................................................. 97

2
<PAGE> 3
PART I
ITEM 1. BUSINESS

General

National Realty, L.P. ("National Realty" or the "Registrant") is a Delaware
limited partnership formed on January 29, 1987, the business of which is
primarily owning and operating through National Operating, L.P., also a
Delaware limited partnership (the "Operating Partnership"), a portfolio of real
estate more fully described in ITEM 2. "PROPERTIES." Most of National Realty's
properties were acquired in exchange transactions consummated on September 18,
1987, pursuant to which National Realty acquired all of the assets, and assumed
all of the liabilities, of 35 public and private limited partnerships.

The Operating Partnership was formed on February 27, 1987, to facilitate
compliance with recording and filing requirements by holding title to and
operating certain of National Realty's real estate and personal property then
owned or thereafter acquired by National Realty. National Realty and the
Operating Partnership operate as an economic unit and, unless the context
otherwise requires, all references herein to the "Partnership" shall constitute
references to National Realty and the Operating Partnership as a unit.
National Realty is the sole limited partner of the Operating Partnership and
owns a 99% beneficial interest in the Operating Partnership.

Unless earlier dissolved, in accordance with the provisions of National
Realty's First Amended and Restated Agreement of Limited Partnership, dated as
of January 29, 1987, as amended by the Certificate of Amendment of Limited
Partnership Agreement dated as of May 14, 1990 (together, the "Partnership
Agreement"), the Partnership will terminate December 31, 2086.

The general partner, and owner of 1% of the beneficial interest in each of
National Realty and the Operating Partnership, is Syntek Asset Management, L.P.
(the "General Partner" or "SAMLP"), a Delaware limited partnership of which
Gene E. Phillips is a general partner and until March 4, 1994, William S.
Friedman was a general partner. Syntek Asset Management, Inc. ("SAMI"), a
corporation of which Mr. Phillips is an officer and director, and until
February 15, 1994, of which Mr. Friedman was an officer and director, is the
Managing General Partner of SAMLP. Basic Capital Management, Inc. ("BCM") is
the sole shareholder of SAMI. The limited partners of SAMLP are Messrs.
Phillips and Friedman, Southmark Corporation ("Southmark") and American Realty
Trust, Inc. ("ART"), a real estate investment company. Messrs. Phillips and
Friedman served as directors and executive officers of ART until November 16,
1992, and December 31, 1992, respectively. As of March 11, 1994, ART owned
approximately 44% of the outstanding units of limited partner interest of
National Realty. In February 1992, Southmark became the owner of a 19.2%
limited partnership interest in SAMLP by assignment from ART. See ITEM 3.
"LEGAL PROCEEDINGS - Southmark Litigation".

In November 1992, the Partnership refinanced 52 of the apartment complexes in
its real estate portfolio and the underlying debt of a wraparound note
receivable with a financial institution. To facilitate

3
<PAGE> 4
ITEM 1. BUSINESS (Continued)

General (Continued)

such refinancing, the Operating Partnership transferred these assets to a
Delaware limited partnership, Garden Capital, L.P. ("GCLP"). The Operating
Partnership is the sole limited partner in GCLP with a 99.3% limited
partnership interest. Garden Capital Management Incorporated ("GCMI"), a
Nevada corporation, is the .7% managing general partner of GCLP.

GCLP is the sole limited partner and 99% owner of 52 single asset limited
partnerships which were formed for the purpose of acquiring, operating and
holding title to the 52 apartment complexes transferred by the Operating
Partnership. The transfer of the 52 apartment complexes and wraparound note
receivable from the Operating Partnership to GCLP was effective November 25,
1992. See ITEM 2. "PROPERTIES".

Each of the single asset limited partnerships has no significant assets other
than an apartment property encumbered by mortgage debt. Garden Capital
Incorporated ("GCI"), a Nevada corporation, is the 1% managing general partner
in each of the single asset limited partnerships. GCMI, as the managing
general partner of GCLP, makes all decisions relating to the operation of GCLP,
and GCI, as the managing general partner of the single asset limited
partnerships, makes all decisions relating to the operation of the properties.

GCMI originally received its .7% general partner interest in GCLP in exchange
for the contribution of 100% of its economic interest in an apartment complex
in Flagstaff, Arizona. In March 1993, GCMI contributed a mortgage note
receivable as a substitute capital contribution for its .7% general partner
interest in GCLP. National Realty subsequently acquired the mortgage note
receivable for a $900,000 note payable, as more fully described in ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." GCI received its 1% general
partner interest in each of the single asset partnerships in exchange for
agreeing to manage the property owned by each of the partnerships.

Except as described below and under ITEM 3. "LEGAL PROCEEDINGS - Moorman
Settlement," all decisions relating to the Partnership, including all decisions
with respect to the acquisition, disposition, improvement, financing or
refinancing of the Partnership's properties or other investments, are made by
the Managing General Partner. All decisions, however, relating to the
acquisition, disposition, improvement, financing or refinancing of GCLP's
assets are made jointly by GCLP's managing general partner and the
Partnership's Managing General Partner. BCM performs certain administrative
functions for the Partnership, such as accounting services, mortgage servicing
and portfolio review and analysis, on a cost reimbursement basis. BCM also
performs loan placement services, leasing services and real estate brokerage
and acquisition services, has performed property management services with
respect to certain of the Partnership's properties, and may perform other
services for the Partnership for fees and commissions. BCM is beneficially
owned by a trust for the benefit of the children of Gene E. Phillips. Messrs.
Phillips and Friedman served as directors of BCM

4
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ITEM 1. BUSINESS (Continued)

General (Continued)

until December 22, 1989 and Mr. Phillips served as Chief Executive Officer of
BCM until September 1, 1992 and Mr. Friedman served as President of BCM until
May 1, 1993.

GCMI performs administrative services for GCLP, similar to those performed by
BCM for the Partnership, also on a cost reimbursement basis. The common stock
of GCI and GCMI is owned by John A. Doyle (20%), Richard A. Green (40%) and
Henry W. Simon (40%).

Since February 1, 1990, affiliates of the Managing General Partner have
provided property management services for the Partnership's properties.
Currently, Carmel Realty Services, Ltd. ("Carmel, Ltd.") provides such property
management services for the Partnership's properties. See "Management and
Operations," below. Effective November 25, 1992, Carmel Ltd. ceased providing
property management services to the apartment complexes transferred to GCLP.

Business Plan

The Partnership's primary business and only industry segment is owning and
operating a portfolio of real estate. Information regarding the Partnership's
real estate portfolio is set forth in ITEM 2. "PROPERTIES - Real Estate" and
Schedule XI to the Consolidated Financial Statements, included at ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." In addition, the Partnership
owns interests in mortgage loans arising from the sale of Partnership
properties and mortgage note participations which are secured by various
apartment complexes and commercial properties, as set forth in ITEM 2.
"PROPERTIES - Mortgage Loans" and Schedule XII to the Consolidated Financial
Statements included at ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
As of March 11, 1994, the Partnership also owned 48,931 shares of common stock
of ART, approximately 1.7% of the ART shares then outstanding. Messrs.
Phillips and Friedman served as directors and executive officers of ART until
November 16, 1992 and December 31, 1992, respectively, ART owns a 76.8% limited
partner interest in SAMLP, the Partnership's General Partner. As of March 11,
1994, ART owned approximately 44% of National Realty's outstanding units of
limited partner interest, as set forth in ITEM 12. "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."

The objectives of the Partnership are to increase asset values and, to a lesser
extent, to generate cash available for distribution to unitholders through
aggressive management of the Partnership's real estate portfolio. The
Partnership's primary emphasis, however, is on capital appreciation rather than
current income. As discussed in ITEM 5. "MARKET FOR REGISTRANT'S UNITS OF
LIMITED PARTNER INTEREST AND RELATED SECURITY HOLDER MATTERS," National Realty
suspended cash distributions as of December 29, 1989. Pursuant to a plan (the
"Settlement Plan") established under the terms of the May 1990 settlement of
the Moorman class action litigation (the "Settlement Agreement"), the
Partnership has agreed to distribute to unitholders, during the five-year term
of the Settlement Plan, all of the Partner-

5
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ITEM 1. BUSINESS (Continued)

Business Plan (Continued)

ship's operating cash flow in excess of anticipated renovation costs, unless
the Partnership's Oversight Committee approves alternative uses for such
operating cash flow. No excess operating cash flow was available for
distributions in 1991 or 1992. On October 7, 1993, the Partnership announced a
resumption of regular distributions at the initial rate of $0.20 per unit and
on December 10, 1993 paid a distribution totaling $388,000. The Partnership
has announced a first quarter distribution of $0.20 per unit payable on March
30, 1994, to the unitholders of record on March 18, 1994.

The Settlement Agreement also provides that, if certain annually increasing
targets relating to the price of National Realty's units of limited partner
interest and distributions (hereafter the "Target") are not met, the Oversight
Committee may request the Partnership to use its best efforts to sell a portion
of its assets and to distribute resulting net proceeds to unitholders.

In May 1991, the first of the annual Targets was not met. The second annual
Target was not achieved in May 1992. Since the Target was not met for two
successive years, the Settlement Plan requires that the General Partner resign
effective upon the election and qualification of its successor and requires the
Partnership to purchase the General Partner's interest for its fair value. The
Settlement Plan will terminate upon the election and qualification of the
successor general partner. See ITEM 3. "LEGAL PROCEEDINGS - Moorman
Settlement."

At the discretion of the General Partner, the Partnership may, from time to
time, sell properties or other assets, make improvements to properties, make
additional investments or obtain additional or initial financing for its
properties. As more fully discussed in ITEM 7. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and
Capital Resources," cash flow from operations should be sufficient to meet the
Partnership's various cash needs only if the Partnership is successful in its
attempts to refinance or extend mortgage debt as it becomes due during 1994.
If the Partnership's efforts to refinance or extend such mortgage debt are not
successful, which the Managing General Partner believes is unlikely,
accelerated dispositions of Partnership properties or other assets would be
required.

The establishment, implementation and modification of the business objectives
and policies of the Partnership are the responsibility of the General Partner,
and, in general, the limited partners have no voting rights with respect to
such matters. With respect to the GCLP properties, such business objectives
and policies are the responsibility of GCMI. The Partnership's primary
business purpose is the ownership of improved, income-producing real estate,
but the Partnership may also conduct any business that may lawfully be
conducted under the Delaware Revised Uniform Limited Partnership Act. As long
as the Settlement Plan is in effect, Oversight Committee approval would be
required for the Partnership to enter into any new line of business. See
"Management and Operations" below.

6
<PAGE> 7
ITEM 1. BUSINESS (Continued)

Management and Operations

Since February 1, 1990, affiliates of the Managing General Partner have
provided property management services to the Partnership. Currently, Carmel,
Ltd. provides such property management services. In many cases, Carmel, Ltd.
subcontracts with other entities for the property-level management services to
the Partnership. The general partner of Carmel, Ltd. is BCM. The limited
partners of Carmel, Ltd. are (i) Syntek West, Inc. ("SWI") of which Mr.
Phillips is the sole shareholder, (ii) Mr. Phillips and (iii) a trust for the
benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts the
property-level management and leasing of nine of the Partnership's commercial
properties to Carmel Realty, Inc., which is owned by SWI. Effective November
25, 1992, Carmel, Ltd. ceased providing property management services for the
apartment complexes transferred to GCLP.

BCM performs administrative functions such as accounting services, mortgage
servicing and portfolio review and analysis for the Partnership on a cost
reimbursement basis. Affiliates of BCM also perform loan placement services,
leasing services and real estate brokerage, and other services, for the
Partnership for fees and commissions. GCMI performs similar administrative
functions for GCLP, also on a cost reimbursement basis.

Pending Withdrawal of General Partner

As described in ITEM 3. "LEGAL PROCEEDINGS - Moorman Settlement," the
Settlement Plan provides that, if certain aggressive, annually increasing
Targets relating to the price of National Realty's units of limited partner
interest and distributions to unitholders are not met for two successive years
of the Settlement Plan or the fifth and final year of the Settlement Plan, the
General Partner is required to resign and the Partnership is required to
repurchase the General Partner's interest for its fair value.

The withdrawal of the General Partner would require the Partnership to acquire
the General Partner's interest in the Partnership (the "Redeemable General
Partner Interest") at its then fair value, and to pay certain fees and other
compensation, as provided in the Partnership Agreement and the Settlement
Agreement. The Settlement Agreement provides that any payment for such
Redeemable General Partner Interest, fees and other compensation during the
pendency of the Settlement Plan may, at the Oversight Committee's option, be
made over three years pursuant to a secured promissory note bearing interest at
a financial institution's prime rate. The Managing General Partner has
calculated the Redeemable General Partner Interest at December 31, 1993 to be
$25.8 million and believes that there has been no material change in such value
since such date. However, the calculation of such Redeemable General Partner
Interest at any particular time depends primarily upon the appraised value of
the Partnership's properties at such time. The Partnership would be entitled
to offset against any such payment the then-outstanding principal balance ($4.2
million at December 31, 1993)

7
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ITEM 1. BUSINESS (Continued)

Pending Withdrawal of General Partner (Continued)

plus accrued unpaid interest ($3.5 million at December 31, 1993) on the note
receivable from SAMLP described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Indebtedness of Management."

The Oversight Committee has informed the Partnership that it intends to
calculate the amount of such Redeemable General Partner Interest in a
materially different manner than has the Managing General Partner which would
result in a much lower value of approximately $20.0 million. Upon the
withdrawal of SAMLP as general partner, the value of the Redeemable General
Partner Interest would depend on the value of the Partnership's assets at the
time of calculation and there can be no assurance that the value of the
Redeemable General Partner Interest payable on any such withdrawal will not be
substantially higher or lower than any current calculation. If at the time of
such withdrawal, SAMLP and the Oversight Committee are unable to agree on the
value of the Redeemable General Partner Interest, it is expected that such
disagreement would be resolved by means of a petition to the Judge appointed
pursuant to the Settlement Agreement to supervise its implementation.

If Targets are not met for any two successive years of the Settlement Plan or
for the final year of the Settlement Plan, SAMLP must withdraw as General
Partner effective at the time a successor general partner is selected. The
Settlement Plan terminates upon the withdrawal of SAMLP as General Partner and
the due election and taking office of a successor. Withdrawal of SAMLP as
General Partner pursuant to the Settlement Agreement would be subject to the
provisions of the Partnership Agreement, including the right of unitholders to
elect a successor general partner by majority vote. Upon the withdrawal or
removal of the General Partner without the election of a successor, the
Partnership would be dissolved.

The Target price for the first anniversary date, May 9, 1991, was $44.00 per
unit. The Partnership did not achieve this Target. The second anniversary
date was May 9, 1992, and the second annual Target was $57.00 per unit. The
Partnership did not achieve this Target and, accordingly, the General Partner
expects to resign effective upon the election and qualification of its
successor. SAMLP and the Oversight Committee are proceeding with the selection
of a nominee for successor general partner.

Separation of Messrs. Phillips and Friedman and the Partnership from Southmark

Until January 1989, Mr. Phillips, a general partner of SAMLP, and Mr. Friedman,
a general partner of SAMLP until March 4, 1994, were officers and directors of
Southmark and certain of Southmark's subsidiaries and affiliates, including
Southmark Asset Management, Inc., then the managing general partner of SAMLP
and a wholly-owned subsidiary of Southmark. Mr. Phillips served as Chairman of
the Board and a director (since 1980) and President and Chief Executive Officer
(since 1981) of

8
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ITEM 1. BUSINESS (Continued)

Separation of Messrs. Phillips and Friedman and the Partnership from Southmark
(Continued)

Southmark, and as a director and Chairman of the Board of Southmark Asset
Management, Inc. Mr. Friedman served as Vice Chairman of the Board (since
1982), Secretary (since 1984) and a director (since 1980) of Southmark, and as
a director, President and Chief Executive Officer of Southmark Asset
Management, Inc.

As a result of a deadlock on Southmark's Board of Directors, Messrs. Phillips
and Friedman entered into certain agreements with Southmark in January 1989
(the "January Agreements") and resigned their positions with Southmark and
various of Southmark's subsidiaries and affiliates, including Southmark Asset
Management, Inc. Southmark Asset Management, Inc. exchanged its general
partner interest in SAMLP for a limited partner interest representing an
equivalent 96% beneficial interest.

Following continual disputes, effective June 30, 1989, Messrs. Phillips and
Friedman entered into additional agreements with Southmark and its affiliates
(collectively, the "June Agreements") under which, among other things,
Southmark Asset Management, Inc. transferred its limited partner interest in
SAMLP to ART. On February 25, 1992, as part of the settlement of litigation
described in ITEM 3. "LEGAL PROCEEDINGS - Southmark Litigation", ART
transferred to Southmark a 19.2% limited partner interest in SAMLP. ART has a
three year option which expires December 27, 1994, to reacquire such limited
partner interest from Southmark for $2.4 million less any distributions
received.

As an additional component of the January Agreements, National Realty and
Southmark agreed to change the maturity date of the $50 million revolving line
of credit from Southmark (the "Southmark LOC"). Under the June Agreements,
National Realty paid to Southmark $7.5 million in cash as partial payment of
the then-outstanding balance of the Southmark LOC. Additionally, National
Realty and Southmark agreed to submit their respective claims with respect to
reconciliation of the balance out-standing to an arbitrator for final
settlement by binding arbitration.

In December 1991, Messrs. Phillips and Friedman and the Partnership entered
into a settlement with Southmark and its affiliates which concluded all
disputes among the parties. See ITEM 3. "LEGAL PROCEEDINGS - Southmark
Litigation."

Competition

The real estate business is highly competitive and the Partnership competes
with numerous entities engaged in real estate activities (including certain
entities described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - Certain Business Relationships,") some of which may have greater financial
resources than the Partnership. The Partnership believes that success against
such competition is dependent upon the geographic location of the property, the
performance of property managers in areas such as marketing, collection, and
the ability to control operating expenses, the amount of new construction in

9
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ITEM 1. BUSINESS (Continued)

Competition (Continued)

the area, and the maintenance and appearance of the property. Additional
competitive factors with respect to commercial properties are the ease of
access to the property, the adequacy of related facilities, such as parking,
and sensitivity to market conditions in setting rent levels. With respect to
apartment properties, competition is also based upon the design and mix of the
units and the ability to provide a community atmosphere for the tenants. The
Partnership believes that general economic circumstances and trends and the
rate at which new properties are developed in the vicinity of each of the
Partnership's properties are also competitive factors.

As discussed in "Business Plan" above, the Partnership does not anticipate
making material property acquisitions at the present time. However, to the
extent that the Partnership seeks to sell certain of its properties, the sales
price for such properties may be affected by competition from governmental and
financial institutions, whose assets are located in areas in which the
Partnership's properties are located, and are seeking to liquidate foreclosed
properties.

As described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Certain Business Relationships," Oscar W. Cashwell, the President and a
director of SAMI, the Managing General Partner of SAMLP, and the President of
BCM, is also the President or director of certain other entities, each of which
has business objectives similar to the Partnership's. Mr. Cashwell owes
fiduciary duties to such other entities and the Partnership under applicable
law.

In addition, the Partnership also competes with other entities which are
affiliates of BCM or for which BCM acts as advisor, and which may have
investment objectives similar to the Partnership's and that may compete with
the Partnership in purchasing, selling, leasing and financing real estate and
real estate related investments. In resolving any potential conflicts of
interest which may arise, BCM has informed the Partnership that it intends to
continue to exercise its best judgment as to what is fair and reasonable under
the circumstances in accordance with applicable law.

Special Considerations Relating to Investments in Real Estate

The Partnership is subject to all of the risks incident to the ownership of
real estate and interests therein, many of which relate to the general
illiquidity of real estate investments. These risks include, changes in
general or local economic conditions, changes in interest rates and the
availability of permanent mortgage financing which may render the sale or
refinancing of a property difficult or unattractive and which may make debt
service burdensome, changes in real estate and zoning laws, increases in real
estate taxes, federal or local economic or rent controls, floods, earthquakes
and other acts of God and other factors beyond the control of the Partnership.
The illiquidity of real estate investments generally impairs the ability of the
Partnership to respond promptly to changing circumstances. The Partnership
believes

10
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ITEM 1. BUSINESS (Continued)

Special Considerations Relating to Investments in Real Estate
(Continued)

that such risks are partially mitigated by the diversification by geographic
region and property type of the Partnership's real estate portfolio. The
Partnership's limited liquidity is discussed in ITEM 7. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

ITEM 2. PROPERTIES

The Partnership's principal offices are located at 10670 North Central
Expressway, Suite 300, Dallas, Texas 75231. The Partnership believes that its
offices are adequate for its present operations.

Details of the Partnership's real estate and mortgage notes receivable
portfolios at December 31, 1993, are set forth in Schedules XI and XII,
respectively, to the Consolidated Financial Statements included at ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." The discussions set forth below
under the headings "Real Estate" and "Mortgage Loans" provide certain summary
information concerning the Partnership's real estate and mortgage notes
receivable portfolios.

The Partnership's real estate consists of properties purchased and properties
obtained through foreclosure of mortgage notes. The discussion set forth below
under the heading "Real Estate" provides certain summary information concerning
the Partnership's real estate. The Partnership holds investments in 70
apartment complexes, 7 office buildings and 9 shopping centers in all
geographic regions of the continental United States, except for the Northeast
region, as shown more specifically in the table under "Real Estate" below. The
Partnership holds mortgage notes receivable secured by real estate in the
Pacific, Midwest and Mountain regions of the continental United States, as
shown more specifically in the table under "Mortgage Loans" below.

At December 31, 1993, no single asset of the Partnership accounted for 10% or
more of its total assets. At December 31, 1993, 85% of the Partnership's
assets consisted of real estate and 4% consisted of mortgage notes and interest
receivable. The remaining 11% of the Partnership's assets at December 31, 1993
consisted of cash, cash equivalents and other assets. It should be noted,
however, that the percentage of the Partnership's assets invested in any one
category is subject to change and that no assurance can be given that the
composition of the Partnership's assets in the future will approximate the
percentages listed above.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

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ITEM 2. PROPERTIES (Continued)

Geographic Regions

The Partnership has divided the continental United States into the following
six geographic regions.

Northeast region comprised of the states of Connecticut, Delaware,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont, and the District of Columbia.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia.

Southwest region comprised of the states of Arizona, Arkansas, Louisiana,
New Mexico, Oklahoma and Texas.

Midwest region comprised of the states of Illinois, Indiana, Iowa, Kansas,
Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, West Virginia and Wisconsin.

Mountain region comprised of the states of Colorado, Idaho, Montana, Nevada,
Utah and Wyoming.

Pacific region comprised of the states of California, Oregon and Washington.

Real Estate

At December 31, 1993, the Partnership owned 86 properties located in 22 states.
These properties consisted of 70 apartment complexes comprising 17,762 units
with a total Revaluation Equity (as defined in ITEM 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Current Value
Reporting") of $212.2 million, 7 office buildings with an aggregate of 495,594
square feet with a total Revaluation Equity of $14.4 million and 9 shopping
centers with an aggregate of 1.1 million square feet with a total Revaluation
Equity of $31.8 million.

12
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ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

All but five of the Partnership's properties are currently encumbered by
mortgage debt. Generally, the ability to make debt service payments under a
mortgage loan will be dependent upon the performance of the property, which is
subject to the risks associated with real estate investments, many of which are
beyond the control of the Partnership. In the event of default under one of
these mortgages, with the exception of GCLP mortgage debt discussed below, the
property securing such mortgage would be subject to foreclosure. Most of the
Partnership's borrowings are subject to substantial "balloon" payments at
maturity.

The apartment complexes and the wraparound note receivable transferred to GCLP
were refinanced under a ten-year blanket mortgage loan, evidenced by a single
mortgage with an original principal balance of $223 million. A portion of the
blanket mortgage debt was assigned to each apartment complex and the wraparound
note receivable, and each is cross-defaulted and cross-collateralized. In the
event of default, the servicer is entitled to accelerate all or any portion of
the principal amount of the loan and to exercise its remedies against any or
all of the mortgaged properties and the wraparound note receivable. However,
with respect to mortgaged properties located in certain states that impose a
mortgage recording tax, the recovery on the related mortgage would be limited
to 125% of the allocated loan amount.

Additional detailed information with respect to individual Partnership
properties and associated debt is set forth in Schedule XI to the Consolidated
Financial Statements included at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA."

The following table sets forth the percentages, by type and geographic region
of the Partnership's real estate at December 31, 1993.

Apartment Commercial
Region Properties Properties
--------- ---------- ----------
Southeast.................... 27% 38%
Southwest.................... 32 31
Midwest...................... 34 6
Mountain..................... 3 6
Pacific...................... 4 19
----- ------
100% 100%

The foregoing table is based solely on the number of apartment units and amount
of commercial square footage owned by the Partnership and does not reflect the
value of the Partnership's investment in each geographic region. See Schedule
XI to the Consolidated Financial Statements included at ITEM 8. "FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA" for a more detailed description of the
Partnership's real estate.

13
<PAGE> 14
ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

A summary of activity in the Partnership's real estate portfolio during 1993 is
as follows:

Properties in real estate portfolio at January 1, 1993........ 84
Property acquired through purchase of general partner interest 1
Property acquired through foreclosure......................... 1
--
Properties in real estate portfolio at December 31, 1993...... 86

The following table sets forth information at December 31, 1993, regarding the
Partnership's properties, grouped by region and type of property, including
number of properties, aggregate amount of leasable square footage in the case
of commercial properties, number of units and square footage in the case of
apartments, approximate weighted average occupancy, and Revaluation Equity
(dollars in thousands):

<TABLE>
<CAPTION>
Region/ Units/ Revaluation
Property Type Number Square Footage Occupancy Equity
- ------------------- ------ -------------- ---------- ------------
<S> <C> <C> <C> <C>
Southeast
Apartments........ 19 4,734 Units/ 92% $ 61,963
5.0 Million Sq.Ft.
Office Building... 1 41,840 Sq.Ft. 92% 1,643
Shopping Centers.. 5 475,288 Sq.Ft. 83% 14,779

Southwest
Apartments........ 22 5,801 Units/ 93% 63,170
4.5 Million Sq.Ft.
Office Buildings.. 4 307,172 Sq.Ft. 51% 3,283
Shopping Center... 1 250,068 Sq.Ft. 80% 5,235

Mountain
Apartments........ 2 729 Units/ 97% 12,126
504,623 Sq.Ft.
Shopping Center... 1 45,863 Sq.Ft. 91% 3,088

Pacific
Apartments........ 3 433 Units/ 90% 5,788
285,955 Sq.Ft.
Office Buildings.. 2 146,582 Sq.Ft. 91% 9,438
Shopping Center... 1 52,169 Sq.Ft. 54% 3,398

Midwest
Apartments........ 24 6,065 Units/ 93% 69,211
5.4 Million Sq.Ft.
Shopping Center... 1 304,575 Sq.Ft. 93% 5,290
----------
$ 258,412
==========
</TABLE>

Occupancy presented above is based on physical occupancy, without reference to
whether leases in effect are at, below or above market rates.

14
<PAGE> 15
ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

Revaluation Equity does not include any adjustments for the Redeemable General
Partner Interest as discussed in ITEM 3. "LEGAL PROCEEDINGS - Moorman
Settlement."

The Partnership owns a fee interest in each property except for the Katella and
Westwood shopping centers located in Orange, California and Tallahassee,
Florida, respectively, in each of which the Partnership owns a long-term
leasehold interest. Such leasehold interests permit some potential for capital
appreciation and marketability.

The following discussion briefly describes the events that affected the
Partnership's properties during 1993 and the first quarter of 1994.

The Partnership has a 75% general partnership interest in Southern Palms
Associates, which owns Southern Palms Shopping Center. On August 28, 1992,
Southern Palms Associates filed a voluntary petition in bankruptcy seeking to
restructure the $9.3 million nonrecourse mortgage secured by the shopping
center. On October 26, 1993, the bankruptcy court approved the plan of
reorganization and disclosure statement subject to certain conditions,
involving the 25% general partner of Southern Palms Associates, to be rectified
by the Partnership prior to the confirmation hearing tentatively scheduled for
the second quarter of 1994. The approved plan provides for the lender to
extend the maturity date of the mortgage debt by five years, and required the
Partnership to pay all past due real estate taxes on the property of $1.0
million in December 1993. If the plan of reorganization is not confirmed, and
the shopping center is foreclosed, the Partnership will record a loss on
foreclosure of $5.9 million equal to the amount by which the carrying value of
the property exceeds the mortgage debt.

In June 1993, a wholly-owned subsidiary of the Partnership acquired the 2.5%
general partner interest in Club Mar Realty Group, Ltd. for $17,500. The
Partnership also holds a senior preferred limited partnership interest and
receives 100% of the property's cash flow after debt service and is responsible
for funding any cash deficiencies. Club Mar Realty Group, Ltd. is a Florida
limited partnership which owns the Club Mar Apartments in Sarasota, Florida.
The Partnership recorded the purchase of the general partner interest and the
acquisition of the apartments at their fair market value of $6.2 million and
the assumption of $6.1 million in first lien mortgage debt. The mortgage debt
bears interest at 8.25% per annum, matures July 2023 and requires monthly
principal and interest payments of $45,941.

Also in June 1993, a wraparound mortgage note receivable with an original
principal balance of $5.8 million secured by the Whispering Pines Apartments in
Canoga Park, California became nonperforming and, accordingly, the Partnership
ceased accruing interest income. Negotiations with the borrower to restructure
the mortgage note receivable were unsuccessful and, on February 4, 1994, the
Partnership, obtained the collateral securing the note through foreclosure.
The Partnership recorded the property as an insubstance foreclosure at

15
<PAGE> 16
ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

December 31, 1993. No loss was recorded in 1993 in connection with the
insubstance foreclosure as the fair value of the collateral property (minus
estimated costs of sale) exceeded the carrying value, net of deferred gain, of
the mortgage note receivable.

In August 1993, the Partnership refinanced the Regency Pointe Shopping Center
in Jacksonville, Florida receiving net cash of $788,000 after the payment of
the then existing mortgage debt of $1.6 million, associated closing costs and
funding of required repair and maintenance escrows. The new $3.0 million
mortgage bears interest at 7.5% per annum for the first year and is adjusted
thereafter based on the average yield of United States Treasury Securities with
a floor of 7.5% per annum, matures September 2005 and requires monthly
principal and interest payments. The Partnership has guaranteed 50% of the
mortgage. The Partnership, in accordance with the Partnership Agreement, paid
BCM a 1% loan arrangement fee of $30,000 in connection with such refinancing.

In September 1993, the $2.3 million second lien mortgage secured by the Marina
Playa Office Building in Santa Clara, California was extended nine months from
its original maturity of October 19, 1993 to July 20, 1994. All other loan
terms remain unchanged.

In March 1994, the Partnership completed the refinancing of the Cross County
Mall in Mattoon, Illinois. The Partnership received no net cash from its first
draw on the loan of $4.7 million with loan proceeds of $3.8 million being used
to payoff the existing first mortgage, $475,000 being used to payoff the second
mortgage and with the remainder of the proceeds being used to fund required
real estate tax escrows and to pay various closing costs associated with the
financing. Both mortgages were scheduled to mature in 1994. The Partnership
has access to the remaining $2.8 million available under the loan as it
completes certain capital and tenant improvements to the mall. The new first
mortgage bears interest at prime plus 1.75% per annum and requires monthly
payments of principal and interest. Principal and accrued but unpaid interest
are due at maturity on March 1, 1997 which may be extended to March 1, 2002.
The mortgage debt is recourse to the Partnership. The Partnership, in
accordance with the Partnership Agreement, paid BCM a 1% loan arrangement fee
of $75,000 in connection with such refinancing.

Mortgage Loans

In addition to real estate, a portion of the Partnership's assets consist of
mortgage notes receivable, principally those originating from the sale of
Partnership properties and secured by income-producing properties. The
Partnership's mortgage notes consist of first and wraparound mortgage loans and
participations in first and junior mortgage loans.

First Mortgage Loans. These loans generally provide for level periodic
payments of principal and interest sufficient to substantially repay the

16
<PAGE> 17
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

loan prior to maturity, but may involve interest-only payments or moderate
amortization of principal and a "balloon" principal payment at maturity. With
respect to first mortgage loans, it is the Partnership's general policy to
require that the borrower provide a mortgagee's title policy or an acceptable
legal opinion of title as to the validity and the priority of the mortgage lien
over all other obligations, except liens arising from unpaid property taxes and
other exceptions normally allowed by first mortgage lenders in the relevant
area.

Wraparound Mortgage Loans. A wraparound mortgage loan, sometimes called an
all-inclusive loan, is a mortgage loan having an original principal amount
equal to the outstanding balance under the prior existing mortgage loan(s) plus
the amount actually advanced under the wraparound mortgage loan. Wraparound
mortgage loans may provide for full, partial or no amortization of principal.

At December 31, 1993, the Partnership's mortgage notes and participations in
mortgage notes had an aggregate face amount of $29.5 million and an aggregate
net carrying value of $11.5 million, net of deferred gains ($16.2 million),
discounts ($93,000) and allowance for estimated losses ($1.9 million).

The following table sets forth the percentage (based on the outstanding
mortgage note balance at December 31, 1993), by property type and geographic
region, of the properties that serve as collateral for the five mortgage notes
receivable, excluding participations, in the Partnership's mortgage notes
receivable portfolio at December 31, 1993. See Schedule XII to the
Consolidated Financial Statements included at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" for further details of the Partnership's mortgage notes
receivable portfolio.

Commercial
Region Apartments Properties Total
- ------ ---------- ---------- -----
Mountain.............. -% 15% 15%
Pacific............... 56 - 56
Midwest............... - 29 29
--- --- ---
56% 44% 100%

In 1991, the Partnership and an insurance company entered into an Asset Sales
Agreement to sell participations in certain of the Partnership's mortgage notes
receivable in exchange for participations in other mortgage notes or assets and
cash. The Partnership entered into the Asset Sales Agreement in an effort to
develop a potential source for future financing and to generate cash from
otherwise illiquid assets. The governing documents include put and guaranty
provisions. The Partnership sold participations and assigned certain mortgage
notes receivable totaling $4.7 million and in exchange received participations
and assignments in other notes receivable, a limited partnership interest and
$1.0 million in cash.

17
<PAGE> 18
ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

In March 1992, the insurance company was placed in receivership. In June 1992,
the Partnership provided notice to the insurance company, under the terms of
the put and guaranty provisions, of its desire to divest itself of all the
assets received. The Receiver has refused to allow the enforcement of the
terms of the Asset Sales Agreement. In September 1992, the Court approved the
Receivers' Petition for an Order of Liquidation for the insurance company. The
Partnership determined, in 1992, that the fair value of the underlying
collateral securing one of the participations received was not sufficient to
satisfy the Partnership's participation interest and accordingly, the
Partnership recorded a $1.6 million provision for loss to provide for such
deficiency.

In May 1993, the Partnership foreclosed on an assigned first mortgage note
secured by land in Denver, Colorado. In October 1993, the land was sold for
$225,000 in cash. The Partnership incurred no loss as a result of the
foreclosure or sale other than amounts previously provided. If the Partnership
forecloses on the collateral securing the participations and the remaining
assets acquired, no additional losses are anticipated as the estimated fair
values of the underlying collateral approximates their adjusted carrying
values. The Partnership is continuing to evaluate its options with regard to
these assets and is also in settlement negotiations with the Receiver.

Investment in Marketable Equity Securities of ART

At December 31, 1993, the Partnership owned 48,931 shares of common stock of
ART, a real estate investment company, representing approximately 2% of ART's
outstanding shares. Mr. Phillips is a general partner and Mr. Friedman was a
general partner of SAMLP, the General Partner of the Partnership. Messrs.
Phillips and Friedman served as executive officers and directors of ART until
November 16, 1992, and December 31, 1992, respectively. Mr. Cashwell, the
President and a director of SAMI, the Managing General Partner of SAMLP, is a
director of ART. See ITEM 12. "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT." At December 31, 1993, the market value of the ART common
stock owned by the Partnership was $593,000. ART owns a 76.8% limited partner
interest in SAMLP. In addition, as of March 11, 1994 ART owned 942,813 of
National Realty's units of limited partner interest, approximately 44% of the
units then outstanding.

ITEM 3. LEGAL PROCEEDINGS

Moorman Settlement

The Partnership is party to a Settlement Agreement, dated as of May 9, 1990,
between plaintiffs Joseph B. Moorman, et al. and defendants Robert A. McNeil,
National Realty, the Operating Partnership, SAMLP, Gene E. Phillips and William
S. Friedman, and Shearson Lehman Hutton Inc., successor-in-interest to
defendant E.F. Hutton & Company Inc., relating

18
<PAGE> 19
ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

to the action entitled Moorman, et al. v. Southmark Corporation, et al. Such
action was filed on September 2, 1987, in the Superior Court of the State of
California, County of San Mateo. On May 9, 1990, the Partnership agreed to
settle such action pursuant to the terms of a written agreement (the "Moorman
Settlement Agreement"). On June 29, 1990, after a hearing as to its fairness,
reasonableness and adequacy, the Moorman Settlement Agreement was granted final
court approval.

By agreeing to settle the Moorman action, the Partnership, SAMLP, the General
Partner of the Partnership, and Messrs. Phillips and Friedman, general partners
of SAMLP at the time of the settlement, did not and do not admit any liability
whatsoever.

The Target for the first anniversary date of May 9, 1991 was $44.00 per unit.
The average market price per unit for the averaging period was $13.30 and
therefore, the first Target was not met. The Target for the second anniversary
date of May 9, 1992 was $57.00 per unit. The average market price per unit for
the averaging period was $20.93 and therefore, the second Target was not met.
Since the Target was not met for two successive years, the Moorman Settlement
Agreement requires that SAMLP resign as General Partner, effective upon the
election and qualification of its successor. On July 8, 1992, SAMLP notified
the Oversight Committee of the failure to meet the Target for two successive
years.

Upon, among other things, the withdrawal of SAMLP as General Partner and the
due election and taking office of a successor, the Moorman Settlement Plan will
terminate. Withdrawal of SAMLP as General Partner pursuant to the Moorman
Settlement Agreement requires unitholders to elect a successor general partner
by majority vote. Upon the withdrawal or removal of the General Partner
without the selection of a successor, the Partnership would be dissolved.

19
<PAGE> 20
ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

consent of the Oversight Committee, purchase or sell any real estate or other
assets of the Partnership not in progress on said date, shall cooperate in the
election of a successor general partner and shall cooperate with its successor
to facilitate a change in the office of General Partner of the Partnership.
The resigning General Partner will continue to receive fees, expenses and
distributions, if any, while the solicitation is prepared.

The withdrawal of the General Partner will require the Partnership to acquire
the Redeemable General Partner Interest at its then fair value, and to pay
certain fees and other compensation, as provided in the Partnership Agreement
and the Moorman Settlement Agreement. Under the Moorman Settlement Agreement,
payment for such Redeemable General Partner Interest, fees and other
compensation may, at the Oversight Committee's option, be paid over a
three-year period pursuant to a secured promissory note bearing interest at the
prime rate and containing commercially reasonable terms and collateral. Under
the Moorman Settlement Plan, the purchase price for SAMLP's Redeemable General
Partner Interest will be calculated, as of the time it withdraws as General
Partner under the Partnership's governing documents. The Managing General
Partner has calculated the fair value of the Redeemable General Partner
Interest at December 31, 1993 to be $25.8 million, and believes there has been
no material change in such value since such date. The Partnership would be
entitled to offset against any such payment the then outstanding principal
balance ($4.2 million at December 31, 1993) plus all accrued but unpaid
interest ($3.5 million at December 31, 1993) on the note receivable from SAMLP
for its capital contribution to the Partnership. In the accompanying
Consolidated Financial Statements, the Redeemable General Partner Interest is
shown as a reduction of Partners' Equity. The note receivable from the General
Partner has been offset against the Redeemable General Partner Interest. The
Oversight Committee has informed the Partnership that it calculated the amount
of such Redeemable General Partner Interest at December 31, 1993, before the
note receivable and unpaid interest offset described above, to be approximately
$20.0 million. When SAMLP withdraws as General Partner of the Partnership, the
value of the Redeemable General Partner Interest would depend on the fair value
of the Partnership's assets at the time of calculation and there can be no
assurance that the Redeemable General Partner Interest, fees and other
compensation payable on any such withdrawal will not be substantially higher or
lower than any current estimate or calculation.

20
<PAGE> 21
ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

an agreement in principle to effect a restructuring of National Realty and the
spinoff by National Realty to its unitholders of shares of a newly formed
subsidiary which would qualify as a Real Estate Investment Trust ("REIT") for
federal tax purposes and would be the beneficial owner of 75% of NOLP's
partnership interest in GCLP. The Term Sheet also contains proposed amendments
to the Partnership Agreement. Pursuant to the Term Sheet, the Partnership will
be relieved of any obligation to acquire the Redeemable General Partner
Interest or to pay any other fees or compensation to SAMLP upon SAMLP's
withdrawal as General Partner.

The parties are preparing the agreements and other documents contemplated by
the Term Sheet. Upon execution of an agreement embodying the provisions of the
Term Sheet, the Oversight Committee and SAMLP will petition the Supervising
Judge for his approval of the agreement. The proposed restructuring of
National Realty and the formation and spinoff of the REIT, the election of the
new general partner and the proposed amendments to the Partnership Agreement
require unitholder approval before becoming effective.

Southmark Litigation

In December 1991, the Partnership and several other parties entered into a
comprehensive settlement of litigation with Southmark Corporation ("Southmark")
which settled all actions between Southmark and its affiliates and the
Partnership.

In connection with the settlement, the Partnership is obligated to pay
Southmark the net amount which it had recorded as due to Southmark ($1.8
million), on the date the settlement was entered into. To date, the
Partnership has made payments totaling $1.5 million. The balance of $265,000
is to be paid by the Partnership on June 27, 1994. To secure its settlement
payment obligation to Southmark, in February 1992, the Partnership issued
300,000 new units of limited partner interest to ATN Equity Partnership ("ATN")
which pledged such units to Southmark along with securities of ART and
Transcontinental Realty Investors, Inc. ("TCI"). As of December 31, 1993, all
collateral units had been released from the pledge and returned to the
Partnership by ATN and canceled.

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

Not applicable.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

21
<PAGE> 22
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNER INTEREST
AND RELATED SECURITY HOLDER MATTERS

National Realty's units of limited partner interest are traded on the American
Stock Exchange ("AMEX") using the symbol "NLP." National Realty does not meet
certain of the criteria of the AMEX for continued listing and may continue to
fail to meet such criteria. Although National Realty does not anticipate that
the AMEX will seek to delist its units, there can be no assurance that the AMEX
will not seek to do so.

The following table sets forth high and low sale prices of National Realty's
units of limited partner interest as reported by the AMEX:

QUARTER ENDED HIGH LOW
- ------------------ ------------ ------------
March 31, 1994........................... $ 28 1/4 $ 25
(through March 11, 1994)

March 31, 1993........................... 22 7/8 18 1/2
June 30, 1993............................ 25 1/4 19 7/8
September 30, 1993....................... 23 19 1/4
December 31, 1993........................ 30 3/4 22 3/4

March 31, 1992........................... 27 1/2 11 3/4
June 30, 1992............................ 24 1/4 17 1/2
September 30, 1992....................... 20 5/8 18 5/8
December 31, 1992........................ 20 1/4 18 3/8

As of March 11, 1994, the closing price of National Realty's units of limited
partner interest on the AMEX was $27.75 per unit.

As of March 11, 1994, National Realty's units of limited partner interest were
held by 9,509 holders of record.

Pursuant to the Moorman Settlement Agreement, on February 14, 1992, the
Partnership issued 2,692,773 warrants (the "Warrants") to purchase an aggregate
of 673,193 of its units of limited partner interest subject to adjustment.
Each Warrant initially entitled the holder thereof to purchase one quarter of
one unit at the exercise price ($11.00 per Warrant). The initial exercise
price was equal to $44.00 per unit and increased to $48.00 per unit on February
14, 1993, subject to adjustment. The Warrants may be exercised for five years
from the February 14, 1992 date of issuance, or until earlier redemption. See
ITEM 3. "LEGAL PROCEEDINGS - Moorman Settlement."

Prior to 1989, the Partnership's policy was to distribute operating cash flow
in excess of necessary reserves for property improvements and repairs.
However, due to liquidity problems, on December 29, 1989 the Partnership
announced a suspension of cash distributions. Pursuant to the terms of the
Moorman Settlement Agreement, the Partnership has agreed to distribute to
unitholders all of the Partnership's operating cash flow in excess of certain
renovation costs, unless the Oversight

22
<PAGE> 23
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNER INTEREST
AND RELATED SECURITY HOLDER MATTERS (Continued)

Committee approves alternative uses for such operating cash flow. On October
7, 1993, the Partnership announced a resumption of distributions at the initial
rate of $0.20 per unit, and on December 10, 1993 paid a total of $388,000 to
unitholders. On March 4, 1994, the Partnership announced a first quarter 1994
distribution of $0.20 per unit payable March 30, 1994. However, no assurance
can be given that the Partnership will be able to continue making such
distributions. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per unit)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Income.................. $ 103,044 $ 102,070 $ 97,314 $ 98,233 $ 96,554
Expenses
Interest............... 34,699 35,982 38,686 41,791 41,491
Property operations
expense.............. 65,972 64,570 64,576 63,562 63,296
Depreciation and
amortization......... 10,168 10,503 11,299 13,054 15,561
Provision for losses... - 1,972 5,026 - 7,737
------------ ----------- ---------- ----------- -----------
Total expenses....... 110,839 113,027 119,587 118,407 128,085
------------ ----------- ---------- ----------- -----------

(Loss) from operations (7,795) (10,957) (22,273) (20,174) (31,531)
Gain on sale of real
estate................. - 375 371 20,561 6,047
(Loss) on sale of
investments to
affiliate, net......... - - - - (1,491)
(Loss) on foreclosure... - - (13,439) (1,229) -
Litigation
settlements............ - 1,030 (721) - (5,489)
------------ ----------- ---------- ----------- -----------
(Loss) before
extraordinary gain..... (7,795) (9,552) (36,062) (842) (32,464)
Extraordinary gain...... 9,046 6,385 17,867 1,549 -
------------ ----------- ---------- ----------- -----------
Net income (loss)....... $ 1,251 $ (3,167) $ (18,195) $ 707 $ (32,464)
============ =========== ========== =========== ===========
PER UNIT DATA
(Loss) before
extraordinary gain..... $ (3.40) $ (3.98) $ (16.42) $ (.38) $ (14.38)
Extraordinary gain...... 3.94 2.66 8.14 .70 -
------------ ----------- ---------- ----------- -----------
Net income (loss)....... $ .54 $ (1.32) $ (8.28) $ .32 $ (14.38)
============ =========== ========== ============ ===========

Distributions........... $ .20 $ - $ - $ - $ 2.40

Weighted average units
of limited partner
interest used in
computing earnings
per unit............... 2,249,330 2,348,478 2,152,605 2,155,253 2,213,147
</TABLE>

23
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA (Continued)

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate........... $ 251,534 $ 251,059 $ 272,183 $ 301,858 $ 308,729
Notes and interest
receivable.......... 11,469 12,694 13,958 35,273 34,916
Total assets.......... 296,045 303,059 309,371 362,695 372,746
Notes and interest
payable............. 335,200 333,642 331,438 364,606 375,037
Redeemable General
Partner interest.... 21,600 14,700 15,000 13,000 12,000
Partners' equity
(deficit)........... (86,902) (81,150) (78,098) (58,867) (61,273)
</TABLE>

Units and per unit data have been restated to give effect to the one-for-four
reverse unit split, effected January 1, 1991.

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

Introduction

National Realty, L.P. ("National Realty") is a Delaware limited partnership
formed on January 29, 1987, the business of which consists primarily of owning
and operating through National Operating, L.P., also a Delaware limited
partnership (the "Operating Partnership"), a portfolio of real estate. Most of
the Operating Partnership's properties were acquired in transactions
consummated on September 18, 1987, pursuant to which National Realty acquired
all of the assets, and assumed all of the liabilities, of 35 public and private
limited partnerships. National Realty and the Operating Partnership operate as
an economic unit and, unless the context otherwise requires, all references
herein to the "Partnership" shall constitute references to National Realty and
the Operating Partnership as a unit.

In November 1992, the Operating Partnership, in conjunction with a refinancing
of 52 of its apartment complexes and a wraparound note receivable, transferred
such assets to Garden Capital, L.P. ("GCLP"), a Delaware limited partnership in
which the Operating Partnership holds a 99.3% limited partner interest. See
Note 7. "NOTES PAYABLE."

Liquidity and Capital Resources

Cash and cash equivalents aggregated $4.0 million at December 31, 1993 as
compared with $3.4 million at December 31, 1992. At December 31, 1992, the
Partnership had access to certain achievement escrows aggregating $3.0 million.
During 1993, achievement escrows totaling $1.0 million were received by the
Partnership and the remaining $2.0 million of achievement escrows were applied
to reduce the principal balances of the related mortgages, net of $228,000 of
prepayment penalties.

24
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

The Managing General Partner has discretion in determining methods of obtaining
funds for the Partnership's operations. The Partnership's governing documents
place no limitation on the amount of leverage that the Partnership may incur
either in the aggregate or with respect to any particular property or other
investment. At December 31, 1993, the aggregate loan-to-value ratio of the
Partnership's real estate portfolio, computed on the basis of the ratio of
total property-related debt to aggregate appraised values, was 52.1% compared
to 57.7% at December 31, 1992.

Historically, the Partnership's principal sources of cash flow have been and
will continue to be from property operations and externally generated funds.
Externally generated funds include borrowings, proceeds from the sale of
Partnership properties and other assets, proceeds from the issuance of debt
secured by Partnership properties or mortgage notes receivable and in the
future may include proceeds from the exercise of the Warrants which were issued
to the class members included in the Moorman litigation settlement. The
Partnership continues to experience liquidity problems and expects that cash
from operations together with externally generated funds will be sufficient to
meet the Partnership's various cash needs only if the Partnership is able to
renew and extend mortgage financings as they mature, obtain mortgage financing
on its unencumbered properties, or alternatively, increase the rate of property
and other asset sales, in amounts sufficient to provide adequate cash.

Currently, all but five of the Partnership's properties are encumbered by
mortgage debt. In 1994, mortgage debt totaling $21.6 million comes due. The
Partnership has reached a tentative agreement with a lender for the
modification and extension of a mortgage, which matured in 1993, with a
principal balance of $9.3 million at December 31, 1993. In addition, $4.2
million of scheduled 1994 principal maturities were successfully refinanced in
March 1994. The new $7.5 million loan, of which only $4.7 million has been
drawn to date, matures March 1, 1997. It is the Partnership's intention to
either pay the remaining mortgages that mature in 1994 when due, or seek to
extend the due dates one or more years while attempting to obtain long-term
financing. The Partnership also intends to seek to refinance certain mortgages
not due in 1994, and use excess financing proceeds for working capital
purposes. Due to the limited long-term financing available to the Partnership,
there can be no assurance that the Partnership will be successful in extending
such "balloon" payments or that it will not ultimately lose certain of its
properties to foreclosure. The General Partner believes it will continue to be
successful in obtaining at least the minimum amount of loan extensions or other
proceeds to enable the Partnership to maintain ownership of all properties in
which it has equity.

25
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

Oversight Committee has approved the terms of the pending sales and the
Partnership anticipates finalizing such transactions during the second quarter
of 1994. The assets have been reclassified as real estate held for sale in the
Partnership's accompanying Consolidated Balance Sheet. The Partnership,
however, can give no assurance that it will successfully complete these
property sales.

In November 1992, in conjunction with the transfer of the net assets of 52
apartment complexes and a wraparound note receivable to GCLP, such assets were
refinanced under a $223 million blanket mortgage loan. The blanket mortgage
loan requires that cash flow from the GCLP properties be used to fund various
escrow and reserve accounts and limits the payment of distributions to the
Partnership. During 1993, the Partnership received distributions from GCLP
totaling $1.7 million. A total of $7.5 million of escrow and reserve deposits
are required to be funded by GCLP during 1994 in monthly installments. Such
escrowed amounts are included in escrow deposits and other assets in the
accompanying Consolidated Balance Sheets. GCLP is required to make monthly
deposits, from the cash flow of its properties, for (i) a recurring replacement
reserve, (ii) a capital replacement reserve, (iii) a credit enhancement reserve
and (iv) a tax and insurance reserve. As a result of the restrictions placed
on GCLP's use of its cash flow, excess cash of approximately $4.0 million is
expected to be remittable to the Partnership during 1994.

On October 7, 1993, the Partnership announced a resumption of distributions at
the initial rate of $0.20 per unit and on December 10, 1993 paid a total of
$388,000 to unitholders. The Partnership has also announced a first quarter of
1994 distribution of $0.20 per unit payable March 30, 1994.

The Partnership's rents collected increased from $98.0 million for 1992 to
$99.0 million for 1993 due to the Partnership's successful effort of increasing
and maintaining higher occupancy levels during 1993 as compared to 1992.
Occupancy rates at the Partnership's apartment complexes, which accounts for
over 80% of the properties included in the Partnership's portfolio, increased
2.5% as compared to 1992 occupancy levels. In addition, payments for property
operating expenses decreased from $62.7 million in 1992 to $57.6 million in
1993. 1992 property operating expense payments included $2.0 million of 1991
real estate taxes that were not paid until 1992, due to the Partnership's
constricted 1991 cash flow. Payments of property operating expenses during
1993 include only current year expenses indicative of a stabilization of the
Partnership's cash flow.

During 1993, the Partnership successfully refinanced mortgage debt totaling
$6.7 million. Also in 1993, the Partnership made other scheduled principal
paydowns on mortgage debt of $2.9 million.

As more fully discussed in NOTE 14. "COMMITMENTS AND CONTINGENCIES - Moorman
Settlement," the Moorman litigation settlement agreement (the

26
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

"Moorman Settlement Agreement") set forth certain aggressive, annually
increasing targets relating to the price of the Partnership's units of limited
partner interest which were not met, resulting in, among other things, the
required withdrawal of the Partnership's General Partner upon election of a
successor and the resulting required purchase of the Redeemable General Partner
Interest, as defined below. The effects of some or all of these provisions
could adversely affect the Partnership's already strained liquidity. However,
the General Partner and the Oversight Committee have agreed in principle, as
discussed below, to possible arrangements which would alleviate the adverse
effect of such provisions.

The withdrawal of the General Partner requires the Partnership to acquire the
General Partner's interest in the Partnership (the "Redeemable General Partner
Interest") at its then fair value, and to pay certain fees and other
compensation, as provided in the Partnership Agreement and the Moorman
Settlement Agreement. The Moorman Settlement Agreement provides that any
payment for such Redeemable General Partner Interest, fees and other
compensation during the pendency of the Moorman Settlement Agreement may, at
the option of the Oversight Committee (also established under the Moorman
Settlement Agreement), be made over three years pursuant to a secured
promissory note bearing interest at a financial institution's prime rate. The
Managing General Partner has calculated the fair value of the Redeemable
General Partner Interest at December 31, 1993 to be $25.8 million, and believes
that there has been no material change in such value since that date. The
Partnership would be entitled to offset against such payment the then
outstanding principal balance of the note receivable ($4.2 million at December
31, 1993) plus all accrued and unpaid interest ($3.5 million at December 31,
1993) on the note receivable from the General Partner representing its capital
contribution to the Partnership. The Oversight Committee has informed the
Partnership that it calculates the amount of such Redeemable General Partner
Interest at December 31, 1993, before the note receivable and unpaid interest
offset discussed above, to be approximately $20.0 million. When Syntek Asset
Management, L.P. ("SAMLP") withdraws as General Partner of the Partnership, the
fair value of the Redeemable General Partner Interest would depend on the value
of the Partnership's assets at the time of calculation and there can be no
assurance that the Redeemable General Partner Interest, fees and other
compensation payable on any such withdrawal will not be substantially higher or
lower than any current estimate or calculation.

In the accompanying Consolidated Financial Statements, the Redeemable General
Partner Interest is shown as a reduction of Partners' Equity and the note
receivable from the General Partner has been offset against the Redeemable
General Partner Interest.

In conjunction with the Moorman Settlement Agreement, the Partnership received
contributions from certain co-defendants of cash and notes including a
promissory note for $2.0 million from Gene E. Phillips and William S. Friedman,
at the time general partners of SAMLP, and guaran-

27
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

teed by SAMLP. On May 14, 1993, the third annual payment of $631,000 including
accrued interest was made. The final payment of $631,000 is due on May 14,
1994.

In October 1993, SAMLP and the Oversight Committee reached an agreement in
principle, evidenced by a detailed Term Sheet, to nominate a candidate for
successor general partner and to resolve all related matters under the Moorman
Settlement Agreement. The Term Sheet provides that the nominee for successor
General Partner will be a newly formed corporation which will be a wholly-owned
subsidiary of SAMLP. The Term Sheet also sets forth an agreement in principle
to effect a restructuring of National Realty and the spinoff by National Realty
to its unitholders of shares of a newly formed subsidiary which would qualify
as a Real Estate Investment Trust ("REIT") for federal tax purposes and would
be the beneficial owner of 75% of NOLP's partnership interest in GCLP. The
Term Sheet also contains proposed amendments to Partnership Agreement.
Pursuant to the Term Sheet, the Partnership will be relieved of any obligation
to acquire the Redeemable General Partner Interest or to pay any other fees or
compensation to SAMLP upon SAMLP's withdrawal as General Partner. However, if
the spinoff of the to be formed REIT shares occurs, the Partnership will no
longer receive 100% of the cash distributions from the GCLP properties which
amounted to $1.7 million in 1993.

In November 1987, the Board of Directors of the Managing General Partner
approved the Partnership's purchase of up to 10% of National Realty's units of
limited partner interest and on December 15, 1992, the Board of Directors of
the Managing General Partner approved the repurchase of up to 100,000
additional units in open-market transactions. Through December 31, 1993, the
Partnership had purchased a total of 134,320 units at an aggregate cost of $5.1
million. During 1993, the Partnership purchased 2,100 units at a cost of
$39,000. The Managing General Partner does not expect the Partnership to
purchase additional units during the term of the Moorman Settlement Plan,
unless such purchases are approved by the Oversight Committee.

Results of Operations

1993 Compared to 1992. The Partnership reported net income of $1.3 million for
1993 as compared to a net loss of $3.2 million for 1992. Included in the
Partnership's 1993 net income is an increase in

28
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

operating income of $3.2 million, as more fully discussed below, and an
extraordinary gain of $9.0 million related to the discounted payoff of a
mortgage obligation. See NOTE 8. "ACCRUING MORTGAGE."

Rental income increased $4.4 million in 1993 as compared to 1992 after
reduction of reported 1992 rental income of $3.0 million for four Partnership
properties which were either lost to foreclosure or sold during 1992. This
increase is attributable to higher rental rates ($2.8 million) and improved
occupancy levels ($1.6 million) related to the Partnership's apartment
complexes in the Southwest and Southeast regions of the United States.

Property operating expenses increased from $56.9 million in 1992 (after
reduction of operating expenses of $2.3 million related to four Partnership
properties which were either lost to foreclosure or sold during 1992) to $60.4
million in 1993. Of this $3.4 million increase, $2.0 million is related to
higher real estate taxes on Partnership apartment complexes in the Midwest,
Pacific and Southwest regions of the United States. In addition, utility
expenses were $598,000 higher in 1993 than in 1992 due to higher occupancy
levels and repairs and maintenance expenses were also higher in 1993 as
compared to 1992 by $913,000, as a result of the Partnership's continuing
effort to maintain and increase occupancy levels. Apartment occupancy levels
increased by 2.5% during 1993 with the largest increases being in the Southwest
and Southeast regions of the United States, where approximately 59% of the
Partnership's apartment units are located.

Interest income decreased from $3.9 million in 1992 to $3.1 million in 1993.
This decrease is primarily due to nonperforming mortgage note participations as
well as $222,000 related to one of the Partnership's mortgage notes receivable
which became nonaccruing in June 1993. In December 1993, the Partnership
recorded the insubstance foreclosure of the collateral property securing that
note, the Whispering Pines Apartments in Canoga Park, California. The
Partnership obtained title to the property in February 1994.

Interest expense decreased from $36.0 million in 1992 to $34.7 million in 1993.
Interest expense related to the GCLP properties, refinanced in November 1992,
increased by $4.0 million as compared to 1992. This increase, however, was
more than offset by a decrease in interest expense associated with the
Partnership's line of credit with Transcontinental Realty Investors, Inc.
("TCI"), which was paid in full in December 1992 with the refinancing proceeds
from the GCLP refinancing. Interest expense also declined as a result of the
acquisition at a discount of a mortgage obligation in March 1993 and from
Partnership properties sold or lost to foreclosure in 1992. See NOTE 8.
"ACCRUING MORTGAGE."

Depreciation and amortization in 1993 approximated that in 1992 after reduction
of $275,000 related to four Partnership properties which were either lost to
foreclosure or sold during 1992.

29
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

General and administrative expenses increased by $221,000 in 1993 as compared
to 1992. Legal expenses decreased $144,000 for the year due primarily to 1992
litigation expenses related to the Moorman Settlement which were not incurred
in 1993. See NOTE 14. "COMMITMENTS AND CONTINGENCIES." Also, the
Partnership's overhead reimbursements to Basic Capital Management, Inc.
decreased by $259,000 in 1993. Offsetting these decreases were increased
overhead costs associated with GCLP totaling $729,000 in 1993, GCLP's first
full year of operation. Overhead costs associated with GCLP in 1992 totaled
$108,000.

The Partnership made no provision for losses in 1993 compared to $2.0 million
in 1992. The 1992 provision includes a $416,000 write down of one of the
Partnership's office buildings to the related nonrecourse debt, which property
was subsequently lost to foreclosure, and $1.6 million related to the
Partnership's mortgage notes receivable.

During 1992, the Partnership recorded the receipt of $1.0 million upon the
settlement of litigation related to a lender's failure to honor a refinancing
commitment for two of the Partnership's apartment complexes. In addition, the
Partnership recognized a $375,000 gain on the sale of the Terrace View
Apartments in Burlen, Washington. No such gains were recognized in 1993.

The Partnership recognized extraordinary gains of $9.0 million in 1993 and $6.4
million in 1992. The 1993 gain resulted from the acquisition at a discount of
a mortgage obligation. See NOTE 8. "ACCRUING MORTGAGE." The 1992 gain is
attributable to the foreclosure of the Hunters Glen Apartments in Kansas City,
Missouri and the Lakes Apartments in Atlanta, Georgia and the forgiveness of
the related nonrecourse mortgage debt.

1992 Compared to 1991. The Partnership had a net loss of $3.2 million in 1992
as compared to a net loss of $18.2 million in 1991. In addition to a $11.3
million increase in operating income from 1991 to 1992, as more fully discussed
below, in 1991 the Partnership recorded a $13.4 million loss due to the
foreclosure of the Hidden Valley Land and an extraordinary gain of $17.9
million on the forgiveness of the related nonrecourse mortgage debt. The
Partnership recorded no losses on foreclosure of Partnership properties in 1992
but did recognize extraordinary gains of $7.0 million from the forgiveness of
nonrecourse mortgage debt related to two properties which were foreclosed by
lenders and a $614,000 extraordinary loss related to the refinancing of the 52
apartment complexes and a wraparound note receivable by GCLP which necessitated
the early payoff of existing mortgage debt. See NOTE 7. "NOTES PAYABLE."

Rental income increased from $93.0 million in 1991 to $97.8 million in 1992.
This increase is primarily attributable to higher occupancy levels reached in
1992 as compared to 1991 which generated additional

30
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

rental income of $4.1 million. With the exception of a few commercial
properties in the Pacific region of the United States, most Partnership
properties showed significant increases in occupancy levels: apartment
occupancy increased by 4.0% and commercial properties increased their occupancy
by 3.1%.

Interest expense decreased from $38.7 million in 1991 to $36.0 million in 1992.
This decrease is primarily due to lower interest rates on some of the
Partnership's mortgage debt which bears interest that fluctuates with the prime
interest rate and to a $986,000 reduction in interest expense related to
properties lost to foreclosure and a Partnership property sold in 1992. In
addition, $447,000 of the decrease is due to the payment of underlying liens
on mortgage notes receivable.

Depreciation and amortization decreased $796,000 in 1992 as compared to 1991.
$290,000 of the decrease relates to properties lost to foreclosure or sold
during 1992 and late 1991 and the remainder relates to several property
improvements that became fully depreciated during 1991.

Other property operation expenses increased from $4.0 million for the year
ended December 31, 1991 to $4.8 million for the year ended December 31, 1992.
During 1992, the Partnership incurred additional advertising and promotional
expenditures in a successful effort to increase occupancy levels in the
Partnership's apartment complexes. Apartment occupancy levels increased 4.0%,
from 86.5% in 1991 to 90.5% in 1992.

General and administrative expenses decreased from $5.9 million in 1991 to $5.4
million in 1992. This decrease is due primarily to lower legal expenditures of
$830,000 in connection with the Southmark adversary proceedings that were
concluded in 1991.

The Partnership recorded a $5.0 provision for losses in 1991 compared to $2.0
million in 1992. The 1992 provision includes a $416,000 writedown of one of
the Partnership's office buildings to the nonrecourse debt which was
subsequently foreclosed, and provision for losses totaling $1.6 million
related to the Partnership mortgage notes receivable, as more fully described
in NOTE 5. "ALLOWANCE FOR ESTIMATED LOSSES." The 1991 provision for losses
includes a $964,000 write down of the Partnership's investment in the common
stock of American Realty Trust, Inc. ("ART"), a $1.1 million permanent write
down of one of the Partnership's office buildings, a $525,000 loss recorded as
a result of the restructuring of one of the Partnership's mortgage notes
receivable and $2.4 million to write off uncollectible property-level
receivables.

Gains on sales of real estate recorded by the Partnership were $371,000 in
1991 and $375,000 in 1992. During 1992, the Partnership sold the Terrace View
Apartments for net cash of $700,000 and recorded a gain on the sale of
$375,000. In 1991, a payment on a mortgage note receivable generated from a
prior year property sale resulted in the partial recognition of $371,000 of
previously deferred gain.

31
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

In 1992, the Partnership recorded the receipt of $1.0 million upon the
settlement of litigation related to a lender's failure to honor a refinancing
commitment for two of the Partnership's apartment properties. In 1991, the
Partnership recorded litigation and settlement expenses of $721,000 related to
the settlement of a lawsuit involving a mortgage that was obtained by a
predecessor to the Partnership which was subsequently foreclosed, and to
unitholder litigation involving Southmark.

Environmental Matters

Under various federal, state and local environmental laws, ordinances and
regulations, the Partnership, may be potentially liable for removal or
remediation costs, as well as certain other potential costs relating to
hazardous or toxic substances (including governmental fines and injuries to
persons and property) where property-level managers have arranged for the
removal, disposal or treatment of hazardous or toxic substances. In addition,
certain environmental laws impose liability for release of asbestos- containing
materials into the air, and third parties may seek recovery from the
Partnership for personal injury associated with such materials.

The General Partner is not aware of any environmental liability relating to the
above matters that would have a material adverse effect on the Partnership's
business, assets or results of operations.

Impact of Inflation

The effects of inflation on the Partnership's operations are not quantifiable.
Revenues from property operations fluctuate proportionately with inflationary
increases and decreases in housing costs. Fluctuations in the rate of
inflation also affect the sales values of the Partnership's properties and,
correspondingly, the ultimate gains to be realized by the Partnership from
property sales. Inflation also has an effect on the Partnership's earnings from
short-term investments, and on its interest income and interest expense to the
extent that such income and expense depend on floating interest rates.

Recent Accounting Pronouncement

The Financial Accounting Standards Board ("FASB") has recently issued Statement
of Financial Accounting Standards ("SFAS") No. 114 - "Accounting by Creditors
for Impairment of a Loan" which amends SFAS No. 5 - "Accounting for
Contingencies" and SFAS No. 15 - "Accounting by Debtors and Creditors for
Troubled Debt Restructurings." The statement requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate. SFAS No. 114 is effective for fiscal years
beginning after December 15, 1994. The Partnership has not fully evaluated the
effects

32
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Recent Accounting Pronouncement (Continued)

of implementing this statement but expects that they will not be material as
the statement is applicable to debt restructurings and loan impairments after
the earlier of the effective date of the statement or the Partnership's
adoption of the statement.

At its January 26, 1994 meeting, the FASB directed its staff to prepare an
exposure draft, that if approved, would eliminate the provisions of SFAS No.
114 that describe how a creditor should recognize income on an impaired loan
and add disclosure requirements on income recognized on impaired loans. The
effective date of SFAS No. 114 is not anticipated to change.

Current Value Reporting

The Partnership believes that the historical cost basis financial statements
prepared in accordance with generally accepted accounting principles are not
representative of the economic value of the Partnership's real estate assets
because most of the properties have appreciated in value over their historical
cost basis. Nevertheless, generally accepted accounting principles require
periodic depreciation charges.

In conjunction with the exchange transaction, by which the Partnership was
formed, the Partnership retained independent appraisers to estimate the Current
Appraised Value of the Partnership's properties as of March 31, 1987, based in
part upon certain financial, lease and other information provided by the
general partners of the exchange transaction partnerships. The Current
Appraised Value of the Partnership's properties at March 31, 1987 was $758.0
million, and Revaluation Equity was $410.0 million at such date. Revaluation
Equity, is defined as the difference between the appraised value of the
Partnership's real estate, adjusted to reflect the Partnership's estimate of
disposition costs, and the face amount of the mortgage notes payable and
accrued interest, if any, encumbering such real estate. The Current Appraised
Value of the Partnership's properties at December 31, 1992, was $541.5 million,
and Revaluation Equity was $200.5 million at such date.

In 1993, the Partnership retained an independent appraiser to determine the
Current Appraised Value of the Partnership's properties as of December 31,
1993, in a manner consistent with the methodology used to determine Current
Appraised Value as of December 31, 1992 and March 31, 1987. The Current
Appraised Value of the Partnership's properties at December 31, 1993 was $607.7
million and Revaluation Equity was $258.4 million at such date.

Tax Legislation

National Realty is a publicly traded limited partnership and, for federal
income tax purposes, all income or loss generated by the Partnership is
included in the income tax returns of the individual

33
<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Tax Legislation (Continued)

partners. In December 1987, Congress passed legislation requiring certain
publicly traded partnerships to be taxed as corporations. National Realty
qualifies for "grandfather" treatment and will be treated as a partnership
until at least 1997, unless the Partnership adds a substantial new line of
business, which would require approval of the Oversight Committee, and will
continue to be so treated thereafter if 90% or more of its gross income
consists of qualifying income from real estate activities. As presently
operated, the Partnership meets these requirements. Under Internal Revenue
Service guidelines generally applicable to publicly traded partnerships and
thus to the Partnership, a limited partner's use of his or her share of
partnership losses is subject to special limitations.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

34
<PAGE> 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----
Report of Independent Certified Public Accountants................... 36

Consolidated Balance Sheets -
December 31, 1993 and 1992......................................... 38

Consolidated Statements of Operations -
Years Ended December 31, 1993, 1992 and 1991...................... 40

Consolidated Statements of in Partners' Equity (Deficit) -
Years Ended December 31, 1993, 1992 and 1991....................... 41

Consolidated Statements of Cash Flows -
Years Ended December 31, 1993, 1992 and 1991....................... 42

Notes to Consolidated Financial Statements........................... 44

Schedule X - Supplementary Income Statement Information.............. 69

Schedule XI - Real Estate and Accumulated Depreciation............... 70

Schedule XII - Mortgage Loans on Real Estate......................... 75

All other schedules are omitted because they are not required, are not
applicable or the information required is included in the Consolidated
Financial Statements or the notes thereto.

35
<PAGE> 36

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Partners
National Realty, L.P.

We have audited the accompanying consolidated balance sheets of National
Realty, L.P., a limited partnership, as of December 31, 1993 and 1992, and the
related consolidated statements of operations, partners' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1993.
We have also audited the schedules listed in the accompanying index. These
financial statements and schedules are the responsibility of the Partnership's
Managing General Partner. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National Realty, L.P. at December 31, 1993 and 1992, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.

Also, in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.

As discussed in Note 14, "Moorman Settlement", the Oversight Committee (the
committee formed to oversee the implementation of the Moorman Settlement
Agreement) has stated that it disputes the Managing General Partner's
calculation of the Redeemable General Partner Interest. The outcome of the
dispute cannot be presently determined and the consolidated financial
statements and schedules do not include any adjustments that might result from
the outcome of this dispute.

36
<PAGE> 37

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS (Continued)

The accompanying consolidated financial statements have been prepared
assuming that the Partnership will continue as a going concern. As described
in Note 14, the Moorman Settlement Agreement provides that the Oversight
Committee can require the Partnership to repurchase the General Partner's
interest for either cash or the issuance of a secured note, payable over three
years. As further discussed in Note 14, "Moorman Settlement", a Term Sheet
setting forth the general framework for the consummation of the Moorman
Settlement was entered into in October 1993. If finalized, the settlement will
result in, among other things, the spinoff of common stock in a newly organized
real estate investment trust whose sole asset is comprised of a limited
partnership investment in Garden Capital, L.P. The Term Sheet also proposes
that the Partnership would not be required to purchase the Redeemable General
Partner Interest calculated by the Partnership's Managing General
Partner at December 31, 1993 to be $25.8 million (before reductions for amounts
owed to the Partnership by the General Partner). The Partnership's operating
cash flow is not sufficient to repurchase the General Partner's interest
without asset sales and further refinancings. Also, the effects of the spinoff
and other provisions contained in the Term Sheet, if consummated, could
adversely affect the Partnership's liquidity and realization of its assets in
the ordinary course of business. These circumstances raise substantial doubt
about the Partnership's ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 15. The financial
statements and schedules do not include any adjustments that might result from
the outcome of this uncertainty.

BDO Seidman

Dallas, Texas
March 24, 1994

37
<PAGE> 38
NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS

December 31,
--------------------------
1993 1992
---------- ----------
(dollars in thousands)
Assets
------

Real estate held for investment
Land................................... $ 47,985 $ 47,502
Buildings and improvements............. 362,116 365,100
----------- ----------

410,101 412,602

Less - Accumulated depreciation........ (186,059) (182,706)
----------- ----------

224,042 229,896

Real estate held for sale................ 47,553 34,409
Less - Accumulated depreciation........ (20,061) (13,246)
----------- ----------

27,492 21,163

Notes and interest receivable, net of
deferred gains ($16,198 in 1993 and
$20,272 in 1992)....................... 13,379 14,683
Less - allowance for estimated losses.. (1,910) (1,989)
----------- ----------

11,469 12,694

Cash and cash equivalents................ 4,038 3,387
Accounts receivable...................... 2,005 2,271
Prepaid expenses......................... 1,066 1,156
Escrow deposits and other assets......... 7,815 13,435
Marketable equity securities of affiliate
(at market in 1993 and at adjusted cost
in 1992)............................... 593 269
Deferred financing costs................. 17,525 18,788
----------- ----------

$ 296,045 $ 303,059
=========== ==========

The accompanying notes are an integral part of these
Consolidated Financial Statements.

38
<PAGE> 39
NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS (Continued)

December 31,
-----------------------------
1993 1992
---------- ----------
(dollars in thousands)
Liabilities and Partners' Equity (Deficit)
- -----------------------------------------
Liabilities
Notes and interest payable............. $ 335,200 $ 333,642
Accruing mortgage and related
interest payable..................... - 9,946
Pension notes and related interest
payable, net......................... 9,618 8,590
Accrued property taxes................. 7,138 6,447
Accounts payable and other liabilities. 5,128 5,992
Tenant security deposits............... 2,813 2,683
Amounts due to affiliates.............. 1,450 2,209
---------- ----------

361,347 369,509

Commitments and contingencies

Redeemable General Partner Interest..... 21,600 14,700

Partners' equity (deficit)
General Partner........................ 2,480 2,455
Limited Partners (2,139,607 units in
1993 and 2,316,834 units in 1992).... (63,931) (64,730)
Unrealized gain on marketable equity
securities........................... 324 -
---------- ----------

(61,127) (62,275)

Redeemable General Partner Interest..... (25,775) (18,875)
---------- ----------

(86,902) (81,150)
---------- ----------

$ 296,045 $ 303,059
========== ==========

The accompanying notes are an integral part of these
Consolidated Financial Statements.

39
<PAGE> 40
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------
1993 1992 1991
--------------- --------------- --------------
(dollars in thousands, except per unit)
<S> <C> <C> <C>
Income
Rentals................................. $ 99,292 $ 97,849 $ 93,018
Interest (including $112 in 1993,
$129 in 1992 and $175 in 1991
from affiliates)..................... 3,064 3,921 4,079
Other................................... 688 300 217
--------------- --------------- --------------
103,044 102,070 97,314
Expenses
Interest (including $3,339 in 1992
and $3,406 in 1991 to affiliates).... 34,699 35,982 38,686
Depreciation & amortization............. 10,168 10,503 11,299
Property taxes & insurance.............. 12,991 11,213 11,122
Utilities............................... 11,073 10,925 11,218
Repairs and maintenance................. 21,467 21,293 21,577
Property-level payroll costs............ 6,059 6,166 6,027
Other property operation expenses....... 4,517 4,817 4,028
Provision for losses.................... - 1,972 5,026
Property management fees (including
$527 in 1993, $956 in 1992 and $935
in 1991 to affiliates)............... 4,267 4,779 4,673
General and administrative (including
$3,376 in 1993, $2,906 in 1992 and
$2,471 in 1991 to affiliates)........ 5,598 5,377 5,931
--------------- --------------- --------------

110,839 113,027 119,587
--------------- --------------- --------------

(Loss) from operations................... (7,795) (10,957) (22,273)
Gain on sale of real estate.............. - 375 371
(Loss) on foreclosure.................... - - (13,439)
Litigation settlements................... - 1,030 (721)
--------------- --------------- --------------
(Loss) before extraordinary gain......... (7,795) (9,552) (36,062)
Extraordinary gain....................... 9,046 6,385 17,867
--------------- --------------- --------------
Net income (loss)........................ $ 1,251 $ (3,167) $ (18,195)
================ =============== ==============

Earnings per unit
(Loss) before extraordinary gain......... $ (3.40) $ (3.98) $ (16.42)
Extraordinary gain....................... 3.94 2.66 8.14
--------------- --------------- --------------
Net income (loss)........................ $ .54 $ (1.32) $ (8.28)
================ =============== ==============

Weighted average units of limited
partner interest used in computing
earnings per unit....................... 2,249,330 2,348,478 2,152,605
=============== =============== ==============
</TABLE>

The accompanying notes are an integral part of these
Consolidated Financial Statements.

40
<PAGE> 41
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Unrealized
Gain/(Loss) Redeemable
on Marketable General Partners'
General Limited Equity Partner Equity
Partner Partners Securities Interest (Deficit)
--------- ---------- ------------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1991...... $ 2,880 $ (43,608) $ (964) $ (17,175) $ (58,867)

Adjustment to Redeemable
General Partner Interest....... - - - (2,000) (2,000)
Realized loss on marketable
equity securities of
affiliate...................... - - 964 - 964
Net(loss)....................... (362) (17,833) - - (18,195)
--------- ------------- ---------- ----------- -------------
Balance at December 31, 1991.... 2,518 (61,441) - $ (19,175) $ (78,098)

Adjustment to Redeemable
General Partner Interest....... - - - 300 300
Repurchase of units of limited
partner interest............... - (160) - - (160)
Other........................... - (25) - - (25)
Net income...................... (63) (3,104) - - (3,167)
--------- ------------- ---------- ----------- -------------

Balance at December 31, 1992.... 2,455 (64,730) - (18,875) (81,150)

Adjustment to Redeemable
General Partner Interest....... - - - (6,900) (6,900)
Repurchase of units of limited
partner interest............... - (39) - - (39)
Unrealized gain on marketable
equity securities of
affiliate...................... - - 324 - 324
Distributions................... - (388) - - (388)
Net income...................... 25 1,226 - - 1,251
--------- ------------- ---------- ----------- -------------

Balance at December 31, 1993.... $ 2,480 $ (63,931) $ 324 $ (25,775) $ (86,902)
========= ============= ========== =========== =============
</TABLE>

The accompanying notes are an integral part of these
Consolidated Financial Statements.

41
<PAGE> 42
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------
1993 1992 1991
------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Rentals collected......................... $ 99,022 $ 97,963 $ 91,682
Interest collected........................ 2,268 3,003 3,821
Interest paid (including $4,987 in
1992 and $2,444 in 1991 to
affiliates)............................ (30,786) (33,694) (32,929)
Payments for property operations..........
(including $527 in 1993, $956 in
1992 and $935 in 1991 to affiliates)... (57,604) (62,697) (52,498)
General and administrative expenses
paid (including $3,376 in 1993,
$2,557 in 1992 and $2,471 in 1991
to affiliates)......................... (5,707) (2,960) (8,538)
Litigation settlement..................... - 1,030 -
Deferred financing costs (including
$2,230 in 1992 to affiliate)........... (1,123) (16,710) (1,053)
Other..................................... (450) (1,150) -
------------ ------------ ------------
Net cash provided by (used in)
operating activities................... 5,620 (15,215) 485

Cash Flows From Investing Activities
Sales of real estate...................... 199 477 -
Real estate improvements.................. (2,836) (1,706) (2,620)
Collections on notes receivable........... 15 16 19,341
------------ ---------- ------------
Net cash provided by (used in)
investing activities................... (2,622) (1,213) 16,721

Cash Flows From Financing Activities
Borrowings from financial institutions.... 3,000 228,715 9,265
(Payments to) affiliates.................. - (19,489) (8,865)
Payments of mortgage notes payable........ (5,928) (191,048) (18,056)
Refinancing proceeds released
from escrow............................ 1,000 - 769
Repurchase of units of limited
partnership interest................... (39) (160) -
Borrowings (payments) on margin
account................................ 8 (109) 134
Distributions to unitholders.............. (388) - -
------------ ---------- ------------
Net cash provided by (used in)
financing activities................... (2,347) 17,909 (16,753)
------------ ---------- ------------

Net increase in cash and cash equivalents 651 1,481 453
Cash and cash equivalents at beginning of
year...................................... 3,387 1,906 1,453
------------ ---------- ------------

Cash and cash equivalents at end of year... $ 4,038 $ 3,387 $ 1,906
============ ========== ============
</TABLE>

The accompanying notes are an integral part of these
Consolidated Financial Statements.

42
<PAGE> 43
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1993 1992 1991
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided by (used in) operating
activities
Net income (loss).............................. $ 1,251 $ (3,167) $ (18,195)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization............ 10,168 10,503 11,299
Net realizable value provision........... - 1,972 1,098
Gain on sale of real estate.............. - (375) (371)
Realized loss on marketable equity
securities of affiliate............... - - 964
Loss on restructured note receivable..... - - 525
Deferred financing costs, net............ 1,374 (15,449) 382
Loss on foreclosure...................... - - 13,439
Extraordinary gain....................... (9,046) (6,385) (17,867)
Increase in interest payable............. 107 160 701
Increase (decrease) in other
liabilities........................... 1,593 (117) 7,932
(Increase) decrease in other assets...... 715 (2,018) 993
(Increase) in interest receivable........ (542) (339) (415)
------------ ------------ ------------
Net cash provided by (used in)
Operating activities................ $ 5,620 $ (15,215) $ 485
============ ============ ============
Schedule of noncash investing activities
Carrying value of real estate acquired
through foreclosure......................... $ 1,736 $ - $ -
Real estate returned to lender through
foreclosure or in lieu of foreclosure....... - 9,348 20,520
Notes payable assumed by buyer upon
sale of properties.......................... - 2,439 -
Forgiveness of notes payable through
foreclosure or deed in lieu of
foreclosure................................. - 15,563 25,230
Settlement of Accruing Mortgage of $9,946
in exchange for note payable................ 900 - -
Carrying value of real estate recorded upon
purchase of the general partner interest 6,241 - -
Assumption of mortgage note payable
recorded upon purchase of the general
partner interest............................ 6,115 - -
Unrealized gain on marketable equity
securities of affiliate..................... 324 - -
Notes payable reductions from use of
achievement escrows......................... 1,771 - -
</TABLE>

The accompanying notes are an integral part of these
Consolidated Financial Statements.

43
<PAGE> 44
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements of National Realty, L.P. and
consolidated entities (the "Partnership") have been prepared in conformity with
generally accepted accounting principles, the most significant of which are
described in NOTE 2. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES." These,
along with the remainder of the Notes to Consolidated Financial Statements, are
an integral part of the Consolidated Financial Statements. The data presented
in the Notes to Consolidated Financial Statements are as of December 31 of each
year or for the year then ended, unless otherwise indicated. Dollar amounts in
tables are in thousands, except per unit amounts.

Certain balances for 1992 and 1991 have been reclassified to conform to the
1993 presentation.

NOTE 1. ORGANIZATION

General. National Realty, L.P. ("National Realty") is a Delaware limited
partnership which commenced operations on September 18, 1987 when it acquired
through National Operating, L.P. (the "Operating Partnership") all of the
assets, and assumed all of the liabilities, of 35 public and private limited
partnerships.

National Realty is the sole limited partner of the Operating Partnership and
owns 99% of the beneficial interest in the Operating Partnership. The general
partner of, and owner of 1% of the beneficial interest in each of, National
Realty and the Operating Partnership is Syntek Asset Management, L.P. (the
"General Partner" or "SAMLP"). Gene E. Phillips is the sole general partner
and until March 4, 1994, William S. Friedman was also a general partner of
SAMLP, and each owns 1.95% of the beneficial interest in SAMLP. American
Realty Trust, Inc. ("ART"), a real estate investment company of which Messrs.
Phillips and Friedman served as executive officers and directors until November
16, 1992 and December 31, 1992, respectively, owns a 76.8% limited partner
interest in SAMLP. Southmark Corporation ("Southmark") owns a 19.2% limited
partner interest in SAMLP. Syntek Asset Management, Inc. ("SAMI"), a
corporation of which Messrs. Phillips is an officer and director, and until
February 15, 1994, Mr. Friedman served as an officer and director, owns a .10%
general partner interest in SAMLP. SAMI is the Managing General Partner of
SAMLP. See NOTE 14. "COMMITMENTS AND CONTINGENCIES -Southmark Litigation."

SAMI, as Managing General Partner of SAMLP, manages the affairs of the
Partnership. In addition, SAMI's corporate parent, Basic Capital Management,
Inc. ("BCM"), performs certain administrative functions such as accounting
services, mortgage servicing and portfolio review and analysis for the
Partnership on a cost reimbursement basis. Mr. Friedman served as President of
BCM until May 1, 1993. BCM is beneficially owned by a trust for the benefit of
the children of Mr. Phillips. Messrs. Phillips and Friedman served as
directors of BCM until December 22, 1989 and Mr. Phillips served as Chief
Executive Officer of BCM until September 1, 1992. Since February 1, 1990 BCM

44
<PAGE> 45
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. ORGANIZATION (Continued)

or affiliates of BCM have provided property management services for the
Partnership. Currently, Carmel Realty Services, Ltd. ("Carmel, Ltd."), an
affiliate of BCM, performs such property management services for the
Partnership. See NOTE 11. "GENERAL PARTNER FEES AND COMPENSATION."

In November 1992, the Partnership refinanced 52 of its apartment complexes and
a wraparound note receivable with a financial institution. To facilitate the
refinancing, the Operating Partnership transferred these assets to Garden
Capital, L.P. ("GCLP"), a Delaware limited partnership. The Operating
Partnership is the sole limited partner with a 99.3% limited partnership
interest in GCLP. The Operating Partnership received its limited partnership
interest in exchange for the transfer of the net assets of the 52 apartment
complexes and a wraparound note receivable to GCLP. Garden Capital Management
Incorporated ("GCMI"), a Nevada corporation, is the .7% managing general
partner of GCLP. See NOTE 8. "ACCRUING MORTGAGE."

GCLP transferred the acquired net apartment assets, in exchange for a 99%
limited partnership interest to each of 52 single asset limited partnerships
which were formed for the purpose of operating, refinancing and holding title
to the apartment complexes. The transfer of the 52 apartment complexes and the
wraparound note receivable were effective November 25, 1992.

Each of the single asset limited partnerships has no significant assets other
than an apartment complex encumbered by mortgage debt. Garden Capital
Incorporated ("GCI"), a Nevada corporation, is the 1% managing general partner
in each of the single asset limited partnerships.

Except as described under NOTE 14. "COMMITMENTS AND CONTINGENCIES - Moorman
Settlement," all decisions relating to the Partnership, including all decisions
with respect to the acquisition, disposition, improvement, financing or
refinancing of the Partnership's properties or other investments, are made by
the Managing General Partner. However, all decisions with respect to the
acquisition, disposition, improvement, financing or refinancing of the GCLP
properties are made by GCMI or GCI as managing general partner of GCLP or the
single asset partnerships, respectively. BCM performs certain administrative
functions for the Partnership, such as accounting services, mortgage servicing
and portfolio review and analysis, on a cost reimbursement basis. In addition
to property management services discussed above, BCM or affiliates of BCM also
perform loan placement services, leasing services and real estate brokerage and
acquisition services and other services for the Partnership for fees and
commissions. Mr. Friedman served as President of BCM until May 1, 1993, and
Mr. Phillips served as Chief Executive Officer of BCM until September 1, 1992.
BCM is beneficially owned by a trust for the benefit of the children of Mr.
Phillips. GCMI performs administrative functions, similar to those performed
for the

45
<PAGE> 46
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. ORGANIZATION (Continued)

Partnership by BCM, for GCLP on a cost reimbursement basis. The common stock
of GCI and GCMI is owned by John A. Doyle (20%), Richard A. Green (40%) and
Henry W. Simon (40%).

Participation in net income, net loss and distributions. The limited partners
of National Realty have a 99% interest and the General Partner has an aggregate
1% interest in the net income or net loss and distributions of National Realty.
National Realty has a 99% and the General Partner has a 1% interest in the net
income or net loss of the Operating Partnership. The 1% General Partner
interest in each of National Realty and the Operating Partnership is equal to a
1.99% interest on a combined basis. The Operating Partnership has a 99.3%
limited partnership interest and GCMI has a .7% general partnership interest in
the net income or net loss and distributions of GCLP. GCLP has a 99% interest
and GCI has a 1% interest in the net income or net loss and distributions of
the 52 single asset partnerships that hold the apartment complexes. GCMI's .7%
general partner interest in GCLP and GCI's 1% general partner interest in the
single asset partnerships is equal to a 1.68% interest on a combined basis.
For tax purposes limited partners are allocated their proportionate share of
net income or net loss commencing with the calendar month subsequent to their
entry into the Partnership. During the pendency of the Moorman Settlement Plan
(as defined in NOTE 14. "COMMITMENTS AND CONTINGENCIES - Moorman Settlement"),
the General Partner's base compensation, equal to 10% of the distributions to
unitholders from the Partnership's cash from operations, is waived.

General Partner's capital contribution. In return for its 1% interest in
National Realty, the General Partner was required to make aggregate capital
contributions to the Partnership in an amount equal to 1.01% of the total
initial capital contributions to the Partnership. The General Partner
contributed $500,000 in cash with the remaining contribution evidenced by a
promissory note bearing interest at the rate of 10% per annum compounded
semi-annually payable on the earlier of September 18, 2007, liquidation of the
Partnership or termination of the General Partner's interest in the
Partnership. The principal balance of such promissory note was $4.2 million at
December 31, 1993 and 1992.

In the accompanying Consolidated Balance Sheets, the note receivable from the
General Partner is offset against the Redeemable General Partner Interest as
described in NOTE 14. "COMMITMENTS AND CONTINGENCIES - Moorman Settlement."
The General Partner received its 1% interest in the Operating Partnership in
exchange for its agreement to serve as general partner of the Operating
Partnership. If National Realty issues additional units of limited partner
interest, the General Partner is entitled to maintain its aggregate 1% interest
in each of National Realty and the Operating Partnership without payment of
additional consideration.

46
<PAGE> 47
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. ORGANIZATION (Continued)

GCMI contributed 100% of its economic interest in an apartment complex in
Flagstaff, Arizona, to GCLP as its initial general partner capital
contribution. In March 1993, GCMI contributed the Accruing Mortgage as a
substitute capital contribution for its .7% general partner interest in GCLP.
National Realty subsequently purchased the Accruing Mortgage (as defined in
NOTE 8. "ACCRUING MORTGAGE") for a $900,000 note payable. GCI received its 1%
general partner interest in the single asset partnerships in exchange for
agreeing to manage the property owned by each such partnership.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation. The Consolidated Financial Statements include the
accounts of National Realty, the Operating Partnership, GCLP and consolidated
entities. All significant intercompany balances and transactions have been
eliminated. Minority interests (which are not significant) are included in
other liabilities.

Revenue recognition on the sale of real estate. Sales of real estate are
recognized when and to the extent permitted by Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS No.
66"). Until the requirements of SFAS No. 66 for full profit recognition have
been met, transactions are accounted for using either the deposit, the
installment, the cost recovery or the financing method, whichever is
appropriate.

Real estate and depreciation. Land, buildings and improvements are stated at
the lower of cost or estimated net realizable value, except for foreclosed
properties which are initially recorded at the lower of cost or fair value.
Properties held for sale are depreciated in accordance with the Partnership's
established depreciation policies. The subsequent classification of property
previously held for sale to held for investment does not result in a
restatement of previously reported revenues, expenses or net income (loss).

Depreciation is provided on buildings and improvements using the straight-line
method over estimated useful lives of 40 years for buildings and 7 to 25 years
for improvements. Expenditures for renewals and betterments are capitalized
and repairs and maintenance are charged against operations as incurred.

Allowance for estimated losses. A valuation allowance is provided for
estimated losses on notes receivable to the extent that the Partnership's
investment in the notes exceeds the Partnership's estimate of net realizable
value of the collateral of each such note, or fair value of the collateral if
foreclosure is probable. In estimating net realizable value, consideration is
given to the current estimated collateral value adjusted for costs to complete
or improve, hold and dispose. The provision for losses on notes receivable is
based on

47
<PAGE> 48
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

estimates, and actual losses may vary from current estimates. Such estimates
are reviewed periodically and any additional provision determined to be
necessary is charged against earnings in the period in which it becomes
reasonably estimable.

Foreclosed real estate held for sale. Foreclosed real estate is recorded at
new cost, defined as the lower of original cost or fair value minus estimated
costs of sale.

Interest recognition on notes receivable. It is the Partnership's policy to
cease recognizing interest income on notes receivable that have been delinquent
for 60 days or more. In addition, accrued but unpaid interest income is only
recognized to the extent that the net realizable value of underlying collateral
exceeds the carrying value of the receivable.

Deferred financing costs. Deferred financing costs are capitalized and
amortized on the interest-rate method over the term of the related loans.

Present value discounts. The Partnership provides for present value discounts
on notes receivable or payable that have interest rates that differ
substantially from prevailing market rates and amortizes such discounts by the
interest method over the lives of the related notes. The factors considered in
determining a market rate for receivables include the borrower's credit
standing, nature of the collateral and payment terms of the note.

Marketable equity securities of affiliate. Marketable equity securities are
considered to be available-for-sale and are carried at fair value, defined as
year end closing market value. Net unrealized holding gains and losses are
reported as a separate component of partners' equity until realized. Such
securities were carried at adjusted cost in the Partnership's December 31, 1992
Consolidated Balance Sheet.

Fair value of financial instruments. The Partnership used the following
assumptions in estimating the fair value of its notes receivable, marketable
equity securities and notes payable. For performing notes receivable, the fair
value was estimated by discounting future cash flows using current interest
rates for similar loans. For nonperforming notes receivable, the estimated
fair value of the Partnership's interest in the collateral property was used.
For marketable equity securities, fair value was the year end closing market
price of each security. The estimated fair values presented do not purport to
present amounts to be ultimately realized by the Partnership. The amounts
ultimately realized may vary significantly from the estimated fair values
presented. For notes payable, the fair value was estimated using current rates
for mortgages with similar terms and maturities, which, at December 31, 1992
and 1993, approximated carrying value.

48
<PAGE> 49
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash equivalents. For purposes of the Consolidated Statements of Cash Flows,
the Partnership considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.

Earnings per unit. Income (loss) per unit of limited partner interest is
computed based upon the weighted average number of units outstanding during
each year. Accordingly, net income (loss) per unit is derived by dividing
98.01% of the Partnership's net income (loss) by 2,249,330, 2,348,478 and
2,152,605 units for 1993, 1992 and 1991, respectively.

NOTE 3. REAL ESTATE AND DEPRECIATION

The Partnership has a 75% general partnership interest in Southern Palms
Associates, which owns Southern Palms Shopping Center. On August 28, 1992,
Southern Palms Associates filed a voluntary petition in bankruptcy seeking to
restructure the $9.3 million nonrecourse mortgage secured by the shopping
center. On October 26, 1993, the bankruptcy court approved the plan of
reorganization and disclosure statement subject to certain conditions,
involving the 25% general partner of Southern Palms Associates, to be rectified
by the Partnership prior to the confirmation hearing, tentatively scheduled for
the second quarter of 1994. The approved plan provides for the lender to
extend the maturity date of the mortgage debt by five years to March 1998, and
required the Partnership to pay all past due real estate taxes on the property
of $1.0 million in December 1993. If the plan of reorganization is not
confirmed, and the shopping center is foreclosed, the Partnership will record a
loss on foreclosure of $5.9 million equal to the amount by which the carrying
value of the property exceeds the mortgage debt.

In June 1993, a wholly-owned subsidiary of the Partnership acquired the 2.5%
general partner interest in Club Mar Realty Group, Ltd. for $17,500. The
Partnership also holds a senior preferred limited partnership interest and
receives 100% of the property's cash flow after debt service and is
responsible for funding such deficiencies. Club Mar Realty Group, Ltd. is a
Florida limited partnership which owns the Club Mar Apartments in Sarasota,
Florida. The Partnership recorded the purchase of the general partner interest
and the acquisition of the apartments at their fair market value of $6.2
million and the assumption of $6.1 million in first lien mortgage debt. The
mortgage debt bears interest at 8.25% per annum, matures July 2023 and requires
monthly principal and interest payments of $45,941.

Also in June 1993, a wraparound mortgage note receivable with an original
principal balance of $5.8 million secured by the Whispering Pines Apartments in
Canoga Park, California, became nonperforming. On February 4, 1994, the
Partnership, obtained through foreclosure proceedings, title to the collateral
property. The Partnership recorded an insubstance foreclosure of the
collateral property as of December 31,

49
<PAGE> 50
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)

1993. No loss resulted from the foreclosure as the fair market value of
the collateral property (minus estimated costs of sale) exceeded the carrying
value, net of deferred gains, of the mortgage note receivable.

In March 1994, the Partnership completed the refinancing of the Cross County
Mall Mattoon, Illinois. The Partnership received no net cash from its first
draw on the loan of $4.7 million with loan proceeds of $3.8 million being used
to payoff the existing first mortgage, $475,000 being used to payoff the second
mortgage and with the remainder of the proceeds being used to fund required
real estate tax escrows and to pay various closing costs associated with the
financing. Both mortgages were scheduled to mature in 1994. The Partnership
has access to the remaining $2.8 million available under the loan as it
completes certain capital and tenant improvements to the mall. The new first
mortgage bears interest at prime plus 1.75% per annum and requires monthly
payments of principal and interest. Principal and accrued but unpaid interest
are due at maturity on March 1, 1997 which may be extended to March 1, 2002.
The mortgage debt is recourse to the Partnership. The Partnership, in
accordance with the Partnership Agreement, paid BCM a 1% loan arrangement fee
of $75,000 in connection with such refinancing.

As of March 11, 1994, the Partnership had three apartment complexes under
contract for sale; Bavarian Woods Apartments in Middletown, Ohio and Brandywine
and Raintree Apartments in East Lansing, Michigan. The Oversight Committee has
approved the terms of the pending sales and the Partnership anticipates
finalizing such transaction during the second quarter of 1994. The assets have
been reclassified as real estate held for sale in the Partnership's
accompanying Consolidated Balance Sheet. The Partnership, however, can give no
assurance that it will successfully complete these property sales.

During 1992, the Partnership attempted to restructure $15.6 million of
nonrecourse mortgage debt related to three Partnership properties; Plaza One
Office Building in Earth City, Missouri, Hunters Glen Apartments in Kansas
City, Missouri and the Lakes Apartments located in Atlanta, Georgia. All of
the properties were placed in bankruptcy and negotiations with the respective
lenders were held in an attempt to restructure each of the mortgages. The
negotiations were unsuccessful and the properties were lost to foreclosure. As
a result, the Partnership recognized extraordinary gains totaling $7.0 million
representing the excess of the nonrecourse mortgage debt over the associated
carrying values of the properties. The estimated fair value of each of the
properties approximated the related mortgage debt at the respective dates of
foreclosure.

In July 1992, the Partnership sold the Terrace View Apartments in Burlen,
Washington for $700,000 in cash subject to the outstanding mortgage of $2.4
million. The Partnership recognized a $375,000 gain on the sale.

50
<PAGE> 51
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. NOTES RECEIVABLE

Notes and interest receivable consisted of the following:

<TABLE>
<CAPTION>
1993 1992
--------------------------------- -------------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Notes receivable
Performing................. $ 31,864 $ 26,122 $ 33,695 $ 31,432
Nonperforming.............. 1,891 3,447 2,245 3,677
-------------- ------------ ------------ ------------
$ 33,755 29,569 $ 35,940 35,109
============== ============

Interest receivable.......... 101 243
Unamortized discounts........ (93) (397)
Deferred gains............... (16,198) (20,272)
------------ ------------
$ 13,379 $ 14,683
============ ============
</TABLE>

The Partnership does not recognize interest income on nonperforming notes
receivable. Notes receivable are considered to be nonperforming when they
become 60 days or more delinquent. For 1993 and 1992, unrecognized interest
income on nonperforming notes totaled $924,100 and $325,000, respectively. All
notes receivable were performing in 1991.

The notes receivable mature from 1994 through 2000 with interest rates ranging
from 8.0% to 11.5% with a weighted average interest rate of 6.3%. Discounts
were based on interest rates at the time of origination. Notes receivable are
nonrecourse and are generally collateralized by real estate. The majority of
the notes require monthly payments of interest only with "balloon" principal
payments at the end of their one-to-ten-year terms. Scheduled principal
maturities of $1.5 million are due in 1994.

Deferred gains result from property sales where the buyer has either made an
inadequate down payment or has not met the continuing investment test of SFAS
No. 66. The Partnership recognized deferred gains of $371,000 in 1991 due to a
principal paydown on a wraparound note receivable.

As discussed in NOTE 3. "REAL ESTATE AND DEPRECIATION," at December 31, 1993,
the Partnership recorded the insubstance foreclosure of the collateral property
securing a wraparound mortgage note receivable.

In 1991, the Partnership and an insurance company entered into an Asset Sales
Agreement to sell participations in certain of its mortgage notes receivable in
exchange for participations in other mortgage notes or assets and cash. The
Partnership entered into the Asset Sales Agreement in an effort to develop a
potential source for future financing and to generate cash from otherwise
illiquid assets. The governing documents include put and guaranty provisions
whereby, at any time, either party may demand that the seller reacquire any
asset it sold pursuant to the

51
<PAGE> 52
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. NOTES RECEIVABLE (Continued)

terms of the Asset Sales Agreement. The Asset Sales Agreement
guaranteed a 10% per annum rate of return on the participations sold or
acquired. The Partnership sold participations and assigned certain mortgage
notes receivable totaling $4.7 million and in exchange received participations
and assignments in other notes receivable, a limited partnership interest and
$1.0 million in cash.

In May 1993, the Partnership foreclosed on an assigned first lien secured by
land in Denver, Colorado. The Partnership incurred no loss as a result of the
foreclosure. In October 1993, this land was sold for its carrying value. If
the Partnership forecloses on the collateral securing the participations and
the remaining assets acquired, no additional losses are anticipated as the
estimated fair values of the underlying collateral approximates their adjusted
carrying values. The Partnership is continuing to evaluate its options with
regard to these assets and is also in settlement negotiations with the
Receiver.

NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES

Activity in the allowance for estimated losses was as follows:

<TABLE>
<CAPTION>
1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Balance January 1,................ $ 1,989 $ 433 $ 433
Provision for losses.............. - 1,556 -
Amounts charged off............... (79) - -
---------- ---------- -----------
Balance December 31,.............. $ 1,910 $ 1,989 $ 433
========== ========== ===========
</TABLE>

In addition to the provision for losses in 1992, $416,000 was charged against
operations to write-down one of the Partnership's office buildings to the
balance of the related nonrecourse mortgage debt. The property was subsequently
foreclosed. The Partnership's 1991 provision for losses of $5.0 million was
comprised of direct charges against operations for the write-down of the
Partnership's investment in equity

52
<PAGE> 53
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES (Continued)

securities of ART of $964,000, a loss recorded on the restructuring of a
mortgage note receivable of $525,000, a $1.1 million permanent impairment of
value on one of the Partnership's office buildings, and the direct write-off of
uncollectible property-level receivables (rents, common area maintenance
charges, etc.) of $2.4 million.

NOTE 6. INVESTMENTS IN MARKETABLE EQUITY SECURITIES OF AFFILIATE

The Partnership owns 48,931 shares of the common stock of ART which the
Partnership acquired in open market purchases in 1990.

The Partnership has elected to adopt, effective December 31, 1993, Statement of
Financial Accounting Standards No. 115 - "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). SFAS No. 115 requires that
equity securities be carried at fair value. For trading securities, securities
bought and held principally for sale in the near term, any increase or decrease
in fair value is included in current earnings. All other equity securities are
to be considered as available-for-sale and any increase or decrease in fair
value is reported as a separate component of partners' equity until realized.

The Partnership's ART equity securities are considered available-for-sale and
are carried at fair value (market value) at December 31, 1993 and at adjusted
cost at December 31, 1992. The market value of the ART common stock was
$306,000 at December 31, 1992 and $593,000 at December 31, 1993. In 1991, the
Partnership determined that the decline in the market value of ART common stock
was other than temporary and, accordingly, the Partnership recorded a provision
for loss of $964,000 for such market value decline.

NOTE 7. NOTES PAYABLE

Notes payable at December 31, 1993 and 1992 are collateralized by land,
buildings and improvements and are generally nonrecourse to the Partnership.
The GCLP mortgage debt, as discussed below, is cross-collateralized and
cross-defaulted among the apartment complexes and wraparound note receivable
that serve as collateral for such debt. The notes payable outstanding at
December 31, 1993 bear interest at stated rates ranging from 5.0% to 15.0% with
a weighted average rate of 9.1% and such notes have maturities or call dates
ranging from one to 31 years.

53
<PAGE> 54
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. NOTES PAYABLE (Continued)

matures September 2005 and requires monthly principal and interest payments.
The Partnership has guaranteed 50% of the mortgage.

During 1993, achievement escrows totaling 1.8 million were applied against
principal balances on three mortgage loans, $524,000 was applied to reduce the
mortgage debt secured by the Granada Apartments in Bellevue, Nebraska, net of
$66,000 of prepayment penalties, $924,000 was applied against the mortgage debt
secured by the Vineyards Apartments in Broadview Heights, Ohio, net of $117,000
of prepayment penalties and $323,000 was applied against the mortgage debt
secured by the Brookview Apartments in Smyrna, Georgia, net of $45,000
prepayment penalties. The new principal balance of each loan is to be
amortized over their respective remaining terms of 371 months. All other terms
remained unchanged. All prepayment penalties are included in interest expense
in the accompanying Consolidated Statements of Operations.

In September 1993, the $2.3 million second lien mortgage loan secured by the
Marina Playa Office Building in Santa Clara, California was extended nine
months from its original maturity of October 19, 1993 to July 20, 1994. All
other loan terms remain unchanged.

In November 1992, the Partnership transferred the net assets of 52 apartment
complexes and a wraparound note receivable to GCLP, which then refinanced such
assets with a financial institution through the issuance of a $223 million
blanket mortgage. GCLP used the refinancing proceeds to pay off the related
nonrecourse mortgage debt of the 52 properties and the wraparound note
receivable of $175.1 million, after prepayment penalties and discounts, the
line of credit with Transcontinental Realty Investors, Inc. ("TCI") of $21.9
million, including accrued but unpaid interest, and make a $8.5 million
principal paydown on the Accruing Mortgage. (See NOTE 8. "ACCRUING
MORTGAGE.") Refinancing proceeds of $3.8 million were deposited in four escrow
accounts, as discussed below. After fees and other closing costs of $12.0
million were paid, net refinancing proceeds of $1.7 million remained. The
Partnership recorded an extraordinary loss of $614,000 as a result of
prepayment penalties and deferred borrowing costs.

In conjunction with the refinancing, four escrow accounts were established and
GCLP made an initial deposit totaling $3.8 million from the refinancing
proceeds. The recurring replacement escrow requires monthly deposits of
$232,000 and such funds will be used for capital repairs, replacements and
improvements. The capital replacement escrow requires monthly deposits
totaling $1.7 million in 1994 ($800,000 in 1993). These funds will also be
used for capital replacement, repair work and environmental compliance as
specified in the loan agreement. The credit enhancement escrow requires
monthly deposits totaling $3.0 million in 1994 ($3.0 million in 1993), $3.3
million in 1995, $3.5 million in 1996 and $2.0 million for each of 1997, 1998
and 1999 up to

54
<PAGE> 55
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. NOTES PAYABLE (Continued)

an aggregate maximum amount of $18.5 million. These funds will be used to fund
any operating shortfalls. A tax and insurance escrow was also established
which requires monthly payments based on projections of real estate taxes and
insurance.

Also in conjunction with the GCLP refinancing, a letter of credit was provided
by a financial institution for a term of not less than five years and in the
amount of $12.5 million. The letter of credit may be drawn upon by GCLP to pay
any operating shortfalls, provided such funds are not on deposit in the credit
enhancement escrow, described above, which will be used, first, to fund
operating shortfalls. The letter of credit will be reduced by the amount of
(i) each draw on the letter of credit, (ii) each credit enhancement escrow
deposit and (iii) any additional deposits made to the credit enhancement escrow
account in excess of the requirement. No amounts have been drawn under the
letter of credit.

Scheduled notes payable principal payments (including pension notes) are due as
follows:

1994............................................ $ 21,629
1995............................................ 9,318
1996............................................ 19,409
1997............................................ 14,682
1998............................................ 6,175
Thereafter...................................... 271,918
-----------
$ 343,131
===========

Included in 1994 maturities is $9.3 million in mortgage debt secured by the
Southern Palms Shopping Center in Tempe, Arizona, which is currently in
default. The Partnership has reached a tentative agreement to modify and
extend the mortgage for five years. Also included in 1994 maturities is $4.2
million in mortgage debt secured by the Cross County Mall in Mattoon, Illinois,
which was refinanced in March 1994. See NOTE 3. "REAL ESTATE AND
DEPRECIATION."

NOTE 8. ACCRUING MORTGAGE

In connection with its formation in January 1987, the Partnership restructured
$12.7 million of obligations due to Southmark Corporation ("Southmark") or its
affiliates (including certain mortgages, payables and accrued interest due to
Southmark) into an "Accruing Mortgage". The Accruing Mortgage had a maturity
date of September 18, 1994 and was secured by Partnership properties. In
November 1992, an affiliate of GCMI, the managing general partner of GCLP, a
99.3% owned limited partnership, acquired the Accruing Mortgage. In connection
with the GCLP refinancing $8.5 million was paid against the principal balance
and one of the Partnership's collateral apartment properties, the Oak Hollow
Apartments in Austin, Texas, was released and the recourse provisions of

55
<PAGE> 56
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8. ACCRUING MORTGAGE (Continued)

the Accruing Mortgage were canceled. In March 1993, the holder of the Accruing
Mortgage merged into GCMI and GCMI contributed such mortgage at an agreed value
of $900,000 as a substitute capital contribution for its .7% general partner
interest in GCLP. In March 1993, the Partnership acquired from GCLP and
canceled the Accruing Mortgage in exchange for a $900,000 noninterest bearing
unsecured demand note in full satisfaction of principal and accrued but unpaid
interest. The Partnership recognized an extraordinary gain of $9.0 million
from the discounted acquisition of the Accruing Mortgage.

NOTE 9. PENSION NOTES

In connection with its formation, the Partnership issued $4.7 million of 8%
subordinated Pension Notes to certain investors in exchange for their interest
in the net assets of certain of the "rolled-up" partnerships. The Pension
Notes were issued under an Indenture between the Partnership and Security
Pacific National Bank as successor Trustee. The Pension Notes are unsecured,
subordinated obligations of the Partnership and bear interest at the rate of 8%
compounded annually. Principal and interest are to be paid upon maturity on
September 18, 1997 or earlier redemption.

The Pension Notes are redeemable at the option of the Partnership at any time,
in whole or in part, at 100% of the principal amount plus accrued and unpaid
interest to the date of redemption. The Pension Notes are also subject to
mandatory redemption if the Partnership's current value net worth (as defined
in such Indenture) on the last day of each of any two consecutive fiscal
quarters is less than 175% of the aggregate redemption price of Pension Notes
then outstanding.

The 8% stated interest rate on the Pension Notes is different than the assumed
market rate at the time of issuance. Such discount is being amortized over the
term of the Pension Notes using the interest method. Interest expense of
$1,028,000, $918,000 and $936,000 was incurred on the Pension Notes for the
years 1993, 1992, 1991, respectively.

NOTE 10. WARRANTS

Pursuant to the Moorman Settlement Agreement, the Partnership issued on
February 14, 1992, 2,692,773 warrants to purchase an aggregate of 673,193 of
its units of limited partner interest subject to adjustment. Each warrant
initially entitled the holder thereof to purchase one quarter of one unit at
the exercise price ($11.00 per warrant). The initial exercise price was equal
to $44.00 per unit and increased to $48.00 per unit on February 14, 1993,
subject to adjustment. The warrants are exercisable for five years from the
February 14, 1992 date of issuance or until earlier redemption. See NOTE 14.
"COMMITMENTS AND CONTINGENCIES - Moorman Settlement."

56
<PAGE> 57
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. GENERAL PARTNER FEES AND COMPENSATION

General. Mr. Phillips is a general partner and until March 4, 1994, Mr.
Friedman was a general partner of SAMLP, the Partnership's General Partner.
Mr. Phillips serves as an officer and director of SAMI, the Partnership's
Managing General Partner. Messrs. Phillips and Friedman are also officers,
directors or trustees of various entities engaged in real estate and related
activities. These entities may have the same objectives and may be engaged in
activities similar to those of the Partnership.

Property Management Fees. As compensation for providing property management
services to the Partnership's property, as provided in the Partnership
Agreement, the General Partner or an affiliate of the General Partner is to
receive a reasonable property management fee. Since February 1, 1990,
affiliates of the Managing General Partner have provided property management
services to the Partnership. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides such property management services for a fee of 5% or less of
the monthly gross rents collected on the properties under management. In many
cases, Carmel, Ltd. subcontracts with other entities for the property-level
management services to the Partnership at various rates. The general partner
of Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (i) Syntek
West, Inc. ("SWI"), of which Mr. Phillips is the sole shareholder, (ii) Mr.
Phillips and (iii) a trust for the benefit of the children of Mr. Phillips.
Carmel, Ltd. subcontracts the property-level management and leasing of nine of
the Partnership's commercial properties to Carmel Realty, Inc. which is owned
by SWI. Carmel, Ltd. does not perform property management services for GCLP.

Leasing Commissions. As compensation for providing leasing and rent-up
services for a Partnership property, as provided in the Partnership Agreement,
the General Partner or an affiliate of the General Partner shall be paid a
reasonable leasing commission.

Reimbursement of Administrative Expenses. To the extent that officers or
employees of the general partners or any of their affiliates participate in the
operation or administration of the Partnership or GCLP, the general partners
and their affiliates are to be reimbursed under the partnership agreements for
salaries, travel, rent, depreciation, utilities or general overhead items
incurred and properly allocable to such services. Such amounts are included in
General and Administrative expense in the accompanying Consolidated Statements
of Operations.

General Partner Compensation. As base compensation for providing
administrative and management services under the Partnership Agreement, the
General Partner is entitled to receive from the Partnership an annual
partnership management fee equal to 10% of distributions made in each calendar
year of Cash from Operations, as defined in the Partnership Agreement, for the
calendar year, payable within 90 days

57
<PAGE> 58
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. GENERAL PARTNER FEES AND COMPENSATION (Continued)

after the end of that calendar year. As additional incentive compensation, the
General Partner is entitled to receive in each calendar year an amount equal to
1% of the Average Unit Market Price, as defined in the Partnership Agreement,
for that calendar year. Provided, however, that no incentive compensation is
payable unless distributions of cash from operations exceed 6% of the Exchange
Value of the original assets, also as defined in the Partnership Agreement.
The General Partner has waived its base compensation during the pendency of the
Moorman Settlement Agreement.

Real Estate Brokerage Commissions. The General Partner or an affiliate of the
General Partner may, pursuant to the Partnership Agreement, charge a reasonable
real estate brokerage commission, payable at the time the Partnership acquires
title to, or beneficial ownership in, an acquired property. Upon the sale of
any Property by the Partnership, the General Partner or an affiliate of the
General Partner may, pursuant to the Partnership Agreement, charge a reasonable
real estate brokerage commission, payable at the time the Partnership transfers
title to the property. In each case, such commissions are payable only if the
General Partner or such affiliate actually performed brokerage services.

Incentive Disposition Fee. Under the Partnership Agreement, the General
Partner or an affiliate of the General Partner is paid a fee equal to 10% of
the amount, if any, by which the Gross Sales Price, as defined in the
Partnership Agreement, of any property sold by the Partnership exceeds 110% of
the Adjusted Cost, also as defined in the Partnership Agreement, of such
property.

Acquisition Fees. As compensation under the Partnership Agreement for services
rendered in structuring and negotiating the acquisition by the Partnership of
any property, other than an Initial Property, as defined in the Partnership
Agreement, the General Partner or an affiliate of the General Partner is paid a
fee in an amount equal to 1% of the Original Cost, also as defined in the
Partnership Agreement, of such property.

Fees For Additional Services. Under the Partnership Agreement the General
Partner or an affiliate of the General Partner may provide services other than
those set out above for the Partnership in return for reasonable compensation.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

58
<PAGE> 59
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. GENERAL PARTNER FEES AND COMPENSATION (Continued)

Fees and cost reimbursement to SAMLP, the General Partner of the Partnership
and its affiliates:

<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Property management fees*......... $ 527 $ 956 $ 935
Loan placement fees............... 30 2,325 71
Real estate commissions........... - 93 -
Leasing commissions............... 159 93 32
Reimbursement of administrative
expenses........................ 2,539 2,798 2,471
------------- ------------- ---------
$ 3,255 $ 6,265 $ 3,509
============= ============= =============
</TABLE>
- ----------------------------------

* Net of property management fees paid to subcontractors.

Cost reimbursements to GCMI, the general partner of GCLP:

<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ -----------
<S> <C> <C> <C>
Reimbursement of administrative
expenses........................ $ 837 $ 108 $ -
============ ============ ============
</TABLE>

Rent. The office building which serves as headquarters for the Partnership,
BCM and other entities managed by BCM or Mr. Phillips is located in Dallas,
Texas. The office building is owned by Search/Lodges Diversified, L.P., in
which BCM is a limited partner. The Partnership leased its office space in
October 1989, under a five-year lease which expires in 1994. Total rental
expense paid by the Partnership to BCM or its affiliates was $301,000 in 1993,
$288,000 in 1992 and $272,000 in 1991.

Minimum future rents due under the remaining lease term are as follows:

1994........................................... $ 312
==========

NOTE 12. RENTALS UNDER OPERATING LEASES

The Partnership's rental operations include the leasing of office buildings and
shopping centers. The leases thereon expire at various dates through 2013.
The following is a schedule of minimum future rentals on non-cancelable
operating leases as of December 31, 1993:

1994.......................................... $ 8,693
1995.......................................... 7,834
1996.......................................... 6,581
1997.......................................... 4,587
1998.......................................... 3,159
Thereafter.................................... 14,567
------------
$ 45,421
============

59
<PAGE> 60
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13. INCOME TAXES

The Partnership's partners include their share of partnership income or loss in
their respective tax returns and, accordingly, no federal or state income taxes
have been provided in the accompanying Consolidated Financial Statements.

In December 1987, Congress passed legislation requiring certain publicly traded
partnerships to be taxed as corporations. National Realty qualifies for
"grandfather" treatment and will be treated as a partnership for federal tax
purposes until at least 1997, unless the Partnership adds a substantial new
line of business, which would require approval of the Oversight Committee (see
NOTE 14. "COMMITMENTS AND CONTINGENCIES - Moorman Settlement") and will
continue to be so treated thereafter if 90% or more of its gross income
consists of qualifying income from real estate activities. As presently
operated, National Realty meets this qualification.

Under the legislation, losses are suspended and carried forward to offset
future income or gain from the Partnership's operations or gain upon a
partner's disposition of all units held. Any remaining income will be taxed as
portfolio income.

NOTE 14. COMMITMENTS AND CONTINGENCIES

Moorman Settlement

The Partnership is party to a settlement agreement, dated as of May 9, 1990,
between plaintiffs Joseph B. Moorman, et al. and defendants Robert A. McNeil,
National Realty, the Operating Partnership, SAMLP, Messrs. Phillips and
Friedman, and Shearson Lehman Hutton Inc., successor-in-interest to defendant
E.F. Hutton & Company Inc., relating to the action entitled Moorman, et al. v.
Southmark Corporation, et al. Such action was filed on September 2, 1987, in
the Superior Court of the State of California, County of San Mateo. The
plaintiffs' motion for class certification, was granted, for purposes of
settlement only, on May 16, 1990. The "Class Members" are those persons who,
as of September 17, 1987, were limited partners of one or more of McNeil Real
Estate Fund VI, Ltd., McNeil Real Estate Fund VII, Ltd. and McNeil Real Estate
Fund VIII, Ltd. (each a California limited partnership that was merged into the
Operating Partnership by means of an exchange transaction), exclusive of (i)
the defendants in the action and certain affiliates of such defendants and (ii)
those persons who elected to be excluded from the plaintiff class. On May 9,
1990, the Partnership agreed to settle such action pursuant to the terms of a
written agreement (the "Moorman Settlement Agreement"). On June 29, 1990,
after a hearing as to its fairness, reasonableness and adequacy, the Moorman
Settlement Agreement was granted final court approval.

By agreeing to settle the Moorman action, the Partnership, SAMLP, and Messrs.
Phillips and Friedman did not and do not admit any liability whatsoever.

60
<PAGE> 61
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

The terms of the Moorman Settlement Agreement are complex and the following
summary is qualified in its entirety by reference to the text thereof, which
was previously included as an exhibit to a Partnership filing with the
Securities and Exchange Commission. The Moorman Settlement Agreement provides
for a plan (the "Moorman Settlement Plan") consisting of, among other things,
the following: (i) the appointment and operation of a committee (the "Oversight
Committee"), to oversee the implementation of the Moorman Settlement Plan, (ii)
the appointment and operation of an audit committee having a majority of
members unaffiliated with Messrs. Phillips and Friedman or SAMLP, (iii) the
establishment of specified annually increasing targets described below (each a
"Target") for each of the next five years, relating to the price of the units
of limited partner interest as decreased for certain distributions to
unitholders, (iv) an agreement by SAMLP not to seek reimbursement of greater
than $500,000 per year for Messrs. Phillips' and Friedman's salaries for
serving as general partners of SAMLP, (Mr. Friedman resigned as general partner
of SAMLP effective March 4, 1994) and a deferral of such payments until such
time as a Target may be met, and, if SAMLP resigns as General Partner, a waiver
of any compensation so deferred, (v) a deferral until such time as a Target may
be met of certain future annual General Partner compensation payable, pursuant
to the Partnership's governing documents, to SAMLP or its affiliates, and, if
SAMLP resigns as General Partner, a waiver of any compensation so deferred,
(vi) the required distribution to unitholders of all the Partnership's
operating cash flow in excess of certain renovation costs, unless the Oversight
Committee approves alternative uses for such operating cash flow, (vii) the
issuance of Warrants to purchase an aggregate of up to 687,500 units (the
"Warrants") to Class Members, (viii) the contribution by certain co-defendants
of cash and notes payable to the Partnership aggregating $5.5 million
(including $2.5 million to be contributed by SAMLP and its general partners
over a four-year period), (ix) the amendment of the Partnership Agreement to
reduce the vote required to remove the General Partner from a two-thirds vote
to a majority vote of the units, (x) the Partnership's redemption of its unit
purchase rights and an agreement not to adopt a similar rights plan without
Oversight Committee approval and (xi) the Partnership's payment of certain
settlement costs, including plaintiffs' attorneys' fees in the amount of $3.4
million. The Moorman Settlement Plan will remain in effect for a maximum
period of five years from the May 9, 1990 announcement of the Moorman
Settlement Agreement to the financial press, and the Warrants will remain
exercisable for five years from the February 14, 1992 date of issuance or until
earlier redemption.

In May 1991, 1992 and 1993, SAMLP, on behalf of itself and its general
partners, made the first three of its four annual payments of $631,000
(including accrued interest), to the Partnership, as required by the Moorman
Settlement Agreement. The final payment of $631,000 is to be paid in May 1994.

61
<PAGE> 62
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

If the Partnership falls short of a Target for any one year of the Moorman
Settlement Plan by 10% or more, then the Oversight Committee may request that
the Partnership dispose of a portion of its assets and distribute the resulting
net proceeds to unitholders. Specifically, (i) if the shortfall equals 10% or
more but less than 35% of a Target, then the Oversight Committee may request
that the Partnership sell assets having at least 10% of the Partnership's then
aggregate Equity Value, as defined in the Moorman Settlement Agreement, in real
estate and other assets, and (ii) if the shortfall equals 35% or more of a
Target, then the Oversight Committee may request that the Partnership sell
assets having at least 20% of the Partnership's then aggregate Equity Value in
real estate and other assets.

If Targets are not met for any two successive years of the Moorman Settlement
Plan or for the final year of the Moorman Settlement Plan, SAMLP will be
required to withdraw as General Partner effective at the time a successor
general partner is elected. Upon, among other things, the withdrawal of SAMLP
as General Partner and the due election and taking office of a successor, the
Moorman Settlement Plan would terminate.

The first two annual Targets, relating to unit market price were as follows:

Anniversary Date Target
---------------- ---------
May 9, 1991............................. $ 44.00
May 9, 1992............................. 57.00

Whether a given Target was achieved was determined by reference to the average
closing price per unit of National Realty's units of limited partner interest
on the American Stock Exchange ("AMEX") for the period beginning 30 days before
the corresponding Anniversary Date and ending 30 days thereafter. There shall
be added to this average closing price all distributions made after May 9,
1990, compounded at 9% per annum. Thus, achievement of the Targets may be
accomplished both through increases in the price of units and by distributions
to unitholders. The May 1991 Target of $44.00 per unit was not achieved and
the Oversight Committee formally requested that the Partnership sell real
property and other assets with an equity value of at least 20% of the aggregate
equity value of the real property and other assets owned by the Partnership as
of December 31, 1990. The General Partner selected a group of assets which it
offered for sale and such assets were classified as real estate held for sale.
Five of the assets selected were apartment complexes which were transferred to
GCLP and refinanced, and are no being longer offered for sale. Accordingly,
these assets were classified as held for investment in the Partnership's
Consolidated Balance Sheets at December 31, 1992 and 1993.

62
<PAGE> 63
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

The Target for the second anniversary date of May 9, 1992 was $57.00 per unit.
The average market price per unit for the averaging period was $20.93 and
therefore, the second Target was not met. Since the Target has not been met
for two successive years, the Moorman Settlement Agreement requires that SAMLP
resign as General Partner, effective upon the election and qualification of its
successor. On July 8, 1992, SAMLP notified the Oversight Committee of the
failure to meet the Target for two successive years.

Upon, among other things, the withdrawal of SAMLP as General Partner and the
due election and taking office of a successor, the Moorman Settlement Plan
would terminate. Withdrawal of SAMLP as General Partner pursuant to the Moorman
Settlement Agreement requires unitholders to elect a successor general partner
by majority vote. Upon the withdrawal or removal of the General Partner
without the selection of a successor, the Partnership would be dissolved.

The Moorman Settlement Agreement provides that between the date of the
certification causing the General Partner's resignation and the date a
successor general partner takes office, the resigning General Partner shall
limit its activities, as General Partner, to the conduct of the business of the
Partnership in the ordinary course, shall not, without consent of the Oversight
Committee, purchase or sell any real estate or other assets of the Partnership
not in progress on said date, shall cooperate in the election of a successor
general partner and shall cooperate with its successor to facilitate a change
in the office of General Partner of the Partnership. The resigning General
Partner will continue to receive fees, expenses and distributions, if any,
while the solicitation is prepared.

Any dispute between the General Partner and the Oversight Committee concerning
the operation of the Moorman Settlement Agreement is to be resolved by the
Judge appointed pursuant to the Moorman Settlement Agreement to supervise its
implementation.

63
<PAGE> 64
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

Partner under the Partnership's governing documents. The Managing General
Partner has calculated the Redeemable General Partner Interest at December 31,
1993 to be $25.8 million, and believes there has been no material change in
such value since such date. The Partnership would be entitled to offset
against any such payment the then outstanding principal balance ($4.2 million
at December 31, 1993) plus all accrued but unpaid interest ($3.5 million at
December 31, 1993) on the note receivable from SAMLP described in NOTE 1.
"ORGANIZATION." In the accompanying Consolidated Financial Statements, the
Redeemable General Partner Interest is shown as a reduction of Partners'
Equity. The note receivable from the General Partner has been offset against
the Redeemable General Partner Interest. The Oversight Committee has informed
the Partnership that it calculated the amount of such Redeemable General
Partner Interest at December 31, 1993, before the note receivable and unpaid
interest offset described above, to be approximately $20.0 million. When SAMLP
withdraws as General Partner of the Partnership, the value of the Redeemable
General Partner Interest would depend on the fair value of the Partnership's
assets at the time of calculation and there can be no assurance that the
Redeemable General Partner Interest, fees and other compensation payable on any
such withdrawal will not be substantially higher or lower than any current
estimate or calculation.

In October 1993, SAMLP and the Oversight Committee reached an agreement in
principle, evidenced by a detailed Term Sheet, to nominate a candidate for
successor General Partner and to resolve all related matters under the Moorman
Settlement Agreement. The following summary is qualified in its entirety by
reference to the text of the Term Sheet filed as an exhibit to the
Partnership's Current Report on Form 8-K dated October 6, 1993. The Term Sheet
provides that the nominee for successor General Partner will be a newly formed
corporation which will be a wholly-owned subsidiary of SAMLP. The Term Sheet
also sets forth an agreement in principle to effect a restructuring of National
Realty and the spinoff by National Realty to its unitholders of shares of a
newly formed subsidiary which would qualify as a Real Estate Investment Trust
("REIT") for federal tax purposes and would be the beneficial owner of 75% of
NOLP's partnership interest in GCLP. The Term Sheet also contains proposed
amendments to the National Realty partnership agreement. Pursuant to the Term
Sheet, the Partnership will be relieved of any obligation to acquire the
Redeemable General Partner Interest or to pay any other fees or compensation to
SAMLP upon SAMLP's withdrawal as General Partner.

64
<PAGE> 65
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

agreement. The proposed restructuring of National Realty and the formation and
spinoff of the REIT, the election of the new general partner and the proposed
amendments to the Partnership Agreement require unitholder approval before
becoming effective.

Southmark Litigation

During 1990 and 1991, several adversary proceedings were initiated against the
Partnership and others by Southmark and its affiliates. On December 27, 1991,
the Partnership and several other parties entered into a comprehensive
settlement of litigation with Southmark (the "Southmark Settlement Agreement").
The settlement covered all actions between Southmark and its affiliates and
National Realty and its affiliates.

Pursuant to the Southmark Settlement Agreement, Southmark is to receive $13.2
million from the various settling parties. As of December 31, 1993, Southmark
had received payments totaling $11.9 million. The remaining balance of $1.3
million is to be paid on June 27, 1994. Southmark also received from ART a
19.2% limited partnership interest in SAMLP, the general partner of the
Partnership. ART has an option to repurchase the SAMLP partnership interest
from Southmark for $2.4 million. Such option expires December 27, 1994. The
unpaid balance of the settlement is secured by a pledge of ART securities
having a minimum market value of 145% of the unpaid balance and by ART's
remaining limited partnership interest in SAMLP not conveyed to Southmark.

In addition to the pledge of securities securing the payment to Southmark,
Messrs. Phillips and Friedman, ART and SWI each executed and delivered
separate, final, nonappealable judgments in favor of Southmark, each in the
amount of $25 million. In the event of default, Southmark is entitled to entry
of those judgments and to recover from the parties an aggregate of $25 million,
subject to reduction for any amounts previously paid. If the settlement
obligations are met, the judgments will be returned to the defendants.

Of the $13.2 million to be paid to Southmark, the Partnership is to pay $1.8
million, the net amount which it had recorded as due to Southmark as of the
date the Southmark Settlement Agreement was entered into. To date, the
Partnership has made payments totaling $1.5 million. The remaining balance of
$265,000 is to be paid by the Partnership on June 27, 1994. To secure its
settlement payment obligation to Southmark, the Partnership issued 300,000 new
units of limited partner interest to ATN Equity Partnership ("ATN") which
pledged such units to Southmark along with securities of ART and
Transcontinental Realty Investors, Inc. As of December 31, 1993, all 300,000
units had been released from the pledge, returned to the Partnership and
canceled.

65
<PAGE> 66
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)

Other Litigation

The Partnership is also involved in various other lawsuits arising in the
ordinary course of business. Management of the Partnership is of the opinion
that the outcome of these lawsuits will have no material impact on the
Partnership's financial condition.

NOTE 15. LIQUIDITY

The Partnership's principal sources of cash flow have been and will continue to
be from property operations and externally generated funds. Externally
generated funds include borrowings, proceeds from the sale of Partnership
properties and other assets, proceeds from the issuance of debt secured by
Partnership properties or mortgage notes receivable. As discussed in NOTE 14.
"COMMITMENTS AND CONTINGENCIES - Moorman Settlement," the Managing General
Partner is required to resign upon the election and qualification of its
successor. The Oversight Committee can require the Partnership to purchase the
Redeemable General Partner Interest for either cash or the issuance of a
secured note, payable over three years. The Partnership's operating cash flow
is not expected to be sufficient to purchase the Redeemable General Partner
Interest without asset sales and/or further refinancings. However, the General
Partner and the Oversight Committee have reached an agreement in principle
whereby the Partnership will be relieved of any obligation to acquire the
Redeemable General Partner Interest. However, if the spinoff of the to be
formed REIT shares occurs, the Partnership will no longer receive 100% of the
cash distributions from the GCLP properties which amounted to $1.7 million in
1993.

Currently, all but five of the Partnership's properties are encumbered by
mortgage debt. In addition to the possibility of purchasing the Redeemable
General Partner Interest, mortgage debt totaling $21.6 million is in default or
comes due in 1994. It is the Partnership's intention to either pay the
mortgages when due, or seek to extend the due dates one or more years while
attempting to obtain long-term financing. The Partnership also intends to seek
to refinance certain mortgages not due in 1994 and use the proceeds for working
capital purposes. Due to the limited long-term financing available to the
Partnership, there can be no assurance that the Partnership will be successful
in extending such "balloon" payments or that it will not ultimately lose
certain of its properties to foreclosure.

However, the General Partner believes it will continue to be successful in
obtaining at least the minimum amount of extensions or other proceeds to enable
the Partnership to maintain ownership of all properties in which it has equity.

The Partnership has reached a tentative agreement with a lender for the
modification and extension of a mortgage, which matured in 1993, with a

66
<PAGE> 67
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15. LIQUIDITY (Continued)

principal balance of $9.3 million at December 31, 1993. In addition, $4.2
million of scheduled 1994 principal maturities were successfully refinanced in
March 1994. See NOTE 3. "REAL ESTATE AND DEPRECIATION."

As of March 11, 1994, the Partnership had three apartment complexes under
contract for sale. The Partnership anticipates finalizing such transactions
during the second quarter of 1994. The assets have been reclassed as real
estate held for sale in the Partnership's accompanying Consolidated Balance
Sheet. The Partnership, however, can give no assurance that it will
successfully complete these property sales. See NOTE 3. "REAL ESTATE AND
DEPRECIATION."

NOTE 16. QUARTERLY DATA

The following is a tabulation of the unaudited quarterly results of operations
for the years 1993 and 1992.

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
March 31 June 30 September 30 December 31
---------- --------- ------------ -----------
<S> <C> <C> <C> <C>
1993
- ----
Revenues...................... $ 25,460 $ 25,689 $ 25,981 $ 25,914
Expenses...................... (26,822) (26,473) (28,507) (29,037)
----------- ------------ ------------ ------------
(Loss) from operations........ (1,362) (784) (2,526) (3,123)

(Loss) before
extraordinary gain......... (1,362) (784) (2,526) (3,123)
Extraordinary gain (loss)..... 9,046 - - -
----------- ------------ ------------ ------------

Net income (loss)............. $ 7,684 $ (784) $ (2,526) $ (3,123)
============ ============ ============ ============

Earnings per unit
(Loss) before extraordinary
gain....................... $ (.58) $ (.33) $ (1.13) $ (1.40)
Extraordinary gain............ 3.83 - - -
----------- ----------- ------------ ------------

Net income (loss) per unit.... $ 3.25 $ (.33) $ (1.13) $ (1.40)
============ ============ ============ ============
</TABLE>

In the first quarter of 1993, the Partnership recorded a $9.0 million
extraordinary gain as a result of its acquisition, at a discount, of the
Accruing Mortgage. See NOTE 8. "ACCRUING MORTGAGE."

(THIS SPACE INTENTIONALLY LEFT BLANK.)

67
<PAGE> 68
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 16. QUARTERLY DATA (Continued)

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
March 31 June 30 September 30 December 31
---------- --------- ------------ -----------
<S> <C> <C> <C> <C>
1992
- ----
Revenues...................... $ 25,166 $ 25,534 $ 25,960 $ 25,410
Expenses...................... (27,849) (28,061) (29,089) (28,028)
------------ ------------ ------------ ------------

(Loss) from operations........ (2,683) (2,527) (3,129) (2,618)
Gain on sale of real estate... - - 375 -
Litigation settlement......... 1,030 - - -
------------ ------------ ------------ ------------

(Loss) before
extraordinary gain......... (1,653) (2,527) (2,754) (2,618)
Extraordinary gain (loss)..... - - 6,942 (557)
------------ ------------ ------------ ------------

Net income (loss)............. $ (1,653) $ (2,527) $ 4,188 $ (3,175)
============= ============ ============ ============

Earnings per unit
(Loss) before extraordinary
gain....................... $ (.70) $ (1.03) $ (1.15) $ (1.10)
Extraordinary gain............ - - 2.90 (.23)
------------ ------------ ------------ -----------

Net income (loss) per unit.... $ (.70) $ (1.03) $ 1.75 $ (1.33)
============= ============ ============ ============
</TABLE>

In the first quarter of 1992, the Partnership recorded a $416,000 provision for
loss to write-down the carrying value of one of the Partnership's office
buildings to the related nonrecourse debt balance. The office building was
foreclosed by the lienholder in June 1992.

In the third quarter of 1992 the Partnership recorded a $500,000 provision for
loss to reserve against the carrying value of a note participation. The
Partnership also recorded extraordinary gains from the forgiveness of
nonrecourse mortgage debt related to the foreclosure of three apartment
properties.

In the fourth quarter of 1992, the Partnership recorded a $1.1 million
provision for loss to reserve against a note participation. The Partnership
also recorded $557,000 extraordinary loss primarily related to the GCLP
refinancing resulting from negotiated discounts net of prepayment penalties and
deferred borrowing costs.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

68
<PAGE> 69
SCHEDULE X

NATIONAL REALTY, L.P.
SUPPLEMENTARY INCOME STATEMENT INFORMATION

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Items Charged to Expense

Maintenance and repairs............. $ 21,467 $ 21,293 $ 21,577

Taxes, other than payroll
and income taxes.................. 11,281 9,363 9,280

Marketing and leasing............... 4,488 4,817 4,028
</TABLE>

69
<PAGE> 70

SCHEDULE XI
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993

Life on
Which
Date Depreciation
of in Latest
Con- Statement
Accumulated struct- Date of Operation
Description Depreciation tion Acquired is Computed
- ----------------------------- ------------ ------ -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
56 Expressway Office Building.. $ 1,865 1981 03/82 7 - 40 years
Oklahoma City, OK
Alexandria Apartments.......... 4,556 1973 09/77 7 - 40 years
Decatur, GA
Arlington Place Apartments..... 2,506 1973 11/76 7 - 40 years
Pasadena, TX
Barcelona Apartments........... 491 1971 09/90 7 - 40 years
Tampa, FL
Bavarian Apartments............ 2,317 1972 01/84 7 - 40 years
Middletown, OH
Bent Tree Apartments........... 3,602 1980 06/80 7 - 40 years
Addison, TX
Blackhawk Apartments........... 2,572 1972 12/78 7 - 40 years
Ft. Wayne, IN
Brandywine Apartments.......... 4,455 1975 03/79 7 - 40 years
East Lansing, MI
Bridgestone Apartments......... 908 1979 06/82 7 - 40 years
Friendswood, TX
Brookview Gardens Apartments... 1,525 1964 12/77 7 - 40 years
Smyrna, GA
Candlelight Square Apartments.. 1,194 1971 11/77 7 - 40 years
Lenexa, KS
Chalet Apartments.............. 1,439 1964/ 04/82 7 - 40 years
Topeka, KS 74/78
Chateau Apartments............. 878 1968 02/81 7 - 40 years
Bellevue, NE
Club Mar Apartments............ 52 07/93 7 - 40 years
Sarasota, FL
Confederate Point Apartments... 2,448 1969 05/79 7 - 40 years
Jacksonville, FL
Country Place Apartments....... 1,524 1980 07/82 7 - 40 years
Round Rock, TX
Countryside Plaza Shopping
Center......................... 1,295 1978 05/85 7 - 40 years
Clearwater, FL
Covered Bridge Apartments...... 2,669 1972 10/79 7 - 40 years
Gainesville, FL
Creekwood Apartments........... 331 1973 04/90 7 - 40 years
College Park, GA
Crestview Shopping Center...... 840 1979 05/78 7 - 40 years
Crestview, FL
Cross County Mall Shopping
Center....................... 4,831 1971 08/79 7 - 40 years
Mattoon, IL
Cullman Shopping Center...... 986 1979 02/79 7 - 40 years
Cullman, AL
</TABLE>

70
<PAGE> 71

SCHEDULE XI
(Continued)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993

<TABLE>
<CAPTION>
Initial Cost to Partnership Gross Amount Carried at Close of Period (1)
--------------------------------- ------------------------------------------------------------
Cost Capitalized
Subsequent to
Building Acquisition Building
and Improve- ---------------------- and Improve-
Description Encumbrances Land ments Improvements Other Land ments Total
- ----------------------------- ------------ -------- ------------ ------------ --------- ---------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Executive Court Office
Building..................... $ 586 $ 271 $ 2,099 $ 644 $ - $ 271 $ 2,743 $ 3,014
Memphis, TN
Fair Oaks Apartments......... 3,110 470 2,661 112 - 470 2,773 3,243
Euless, TX
Fondren Office Building...... - 366 5,100 140 (3,421)(3) 366 1,819 2,185
Houston, TX
Four Seasons Apartments...... 5,105 1,264 8,447 699 - 1,264 9,146 10,410
Denver, CO
Fox Club Apartments.......... 6,786 902 7,294 441 - 902 7,735 8,637
Indianapolis, IN
Foxwood Apartments........... 3,564 218 3,188 308 - 218 3,496 3,714
Memphis, TN
Granada Apartments........... 4,685 231 4,682 482 - 231 5,164 5,395
Bellevue, NE
Harbor Plaza Shopping Center. - 817 2,587 188 - 821 2,771 3,592
Aurora, CO
Harbour Point Apartments..... 3,119 252 3,730 1,444 - 252 5,174 5,426
Miami, FL
Hidden Valley Apartments..... 4,353 274 3,636 198 (13) 261 3,834 4,095(4)
Grand Rapids, MI
Horizon East Apartments...... 1,535 592 2,628 417 - 592 3,045 3,637
Dallas, TX
Katella Plaza Shopping Center 1,812 - 2,844 482 - - 3,326 3,326
Orange, CA
Kimberly Woods Apartments.... 3,318 571 3,802 802 - 571 4,604 5,175
Tucson, AZ
King Village Apartments...... 2,212 184 2,716 253 - 184 2,969 3,153
Huntsville, AL
La Mirada Apartments......... 5,689 392 5,454 884 - 392 6,338 6,730
Jacksonville, FL
Lake Nora Arms Apartments.... 10,290 737 10,774 570 - 737 11,344 12,081(4)
Indianapolis, IN
Lakewood Park Apartments..... 3,150 800 3,200 19 - 800 3,219 4,019
St. Petersburg, FL
Lantern Ridge Apartments..... 1,540 130 1,721 21 - 177 1,695 1,872
Richmond, VA
Mallard Lake Apartments...... 6,764 534 7,099 601 - 534 7,700 8,234
Greensboro, NC
Manchester Commons........... 5,106 635 4,654 505 - 635 5,159 5,794
Manchester, MO
Marina Playa Office Building. 4,632 1,237 4,339 4,411 - 1,237 8,750 9,987(4)
Santa Clara, CA
Melrose Business Park........ - 367 2,674 41 (1,000) 367 1,715 2,082
Oklahoma City, OK
Mesa Court Apartments........ 1,813 492 1,968 55 - 492 2,023 2,515
Mesa, AZ
</TABLE>
<TABLE>
<CAPTION>
Life on
Which
Date Depreciation
of in Latest
Con- Statement
Accumulated struct- Date of Operation
Description Depreciation tion Acquired is Computed
- ----------------------------- ------------ ------ -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Executive Court Office
Building..................... $ 1,148 1980 09/82 7 - 40 years
Memphis, TN
Fair Oaks Apartments......... 325 1978 07/89 7 - 40 years
Euless, TX
Fondren Office Building...... 1,454 1982 07/83 7 - 40 years
Houston, TX
Four Seasons Apartments...... 3,102 1970 07/84 7 - 40 years
Denver, CO
Fox Club Apartments.......... 3,281 1972 11/83 7 - 40 years
Indianapolis, IN
Foxwood Apartments........... 2,111 1974 08/79 7 - 40 years
Memphis, TN
Granada Apartments........... 2,758 1974 10/78 7 - 40 years
Bellevue, NE
Harbor Plaza Shopping Center. 1,408 1979 09/81 7 - 40 years
Aurora, CO
Harbour Point Apartments..... 2,757 1972 12/77 7 - 40 years
Miami, FL
Hidden Valley Apartments..... 1,909 1973 07/81 7 - 40 years
Grand Rapids, MI
Horizon East Apartments...... 1,892 1972 05/78 7 - 40 years
Dallas, TX
Katella Plaza Shopping Center 1,764 1971 12/80 7 - 40 years
Orange, CA
Kimberly Woods Apartments.... 2,938 1973 12/77 7 - 40 years
Tucson, AZ
King Village Apartments...... 1,912 1960 08/75 7 - 40 years
Huntsville, AL
La Mirada Apartments......... 3,655 1971 01/79 7 - 40 years
Jacksonville, FL
Lake Nora Arms Apartments.... 6,727 1973 06/78 7 - 40 years
Indianapolis, IN
Lakewood Park Apartments..... 242 1976 12/90 7 - 40 years
St. Petersburg, FL
Lantern Ridge Apartments..... 1,347 1974 03/79 7 - 40 years
Richmond, VA
Mallard Lake Apartments...... 4,184 1974 05/79 7 - 40 years
Greensboro, NC
Manchester Commons........... 3,224 1972 06/78 7 - 40 years
Manchester, MO
Marina Playa Office Building. 4,244 1972 12/76 7 - 40 years
Santa Clara, CA
Melrose Business Park........ 1,158 1980 03/82 7 - 40 years
Oklahoma City, OK
Mesa Court Apartments........ 189 1972 05/90 7 - 40 years
Mesa, AZ
</TABLE>

71
<PAGE> 72

SCHEDULE XI
(Continued)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993
<TABLE>
<CAPTION>

Initial Cost to Partnership Gross Amount Carried at Close of Period (1)
--------------------------------- ------------------------------------------------------------
Cost Capitalized
Subsequent to
Building Acquisition Building
and Improve- ---------------------- and Improve-
Description Encumbrances Land ments Improvements Other Land ments Total
- ----------------------------- ------------ -------- ------------ ------------ --------- ---------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mesa Ridge Apartments........ $ 2,423 $ 955 $ 3,820 $ 116 $ - $ 955 $ 3,936 $ 4,891
Mesa, AZ
Nora Pines Apartments........ 4,895 221 3,872 218 - 221 4,090 4,311(4)
Indianapolis, IN
Oak Hollow Apartments........ 7,762 745 6,118 571 - 745 6,689 7,434
Austin, TX
Oakmont Apartments........... 2,983 251 1,423 24 (100) 251 1,347 1,598
Monroe, LA
Oak Tree Apartments.......... 2,278 304 3,543 196 - 304 3,739 4,043
Grandview, MO
Olde Towne Apartments........ 3,745 209 3,272 196 - 209 3,468 3,677
Middletown, OH
Outrigger Apartments......... 3,252 683 4,871 380 - 683 5,251 5,934
Tulsa, OK
Pines Apartments............. 2,735 278 3,490 187 - 278 3,677 3,955
Little Rock, AR
Place One Apartments......... 5,271 784 5,186 723 - 784 5,909 6,693
Tulsa, OK
Raintree Apartments.......... 2,461 190 2,530 108 - 190 2,638 2,828(4)
East Lansing, MI
Regency Apartments........... 2,532 304 1,865 50 - 304 1,915 2,219
Lincoln, NE
Regency Falls Apartments..... 2,720 888 7,261 1,366 (100)(3) 888 8,527 9,415
San Antonio, TX
Regency Point Shopping Center 2,955 647 5,156 2,048 - 1,792 6,059 7,851
Jacksonville, FL
Rockborough Apartments....... 6,045 702 4,495 550 - 702 5,045 5,747
Denver, CO
Royal Oaks Apartments......... 2,825 738 5,348 848 - 738 6,196 6,934
Stone Mountain, GA
Santa Fe Apartments.......... 2,925 529 5,351 144 - 529 5,495 6,024
Kansas City, MO
Shadowood Apartments.......... 3,834 477 3,208 124 - 477 3,332 3,809
Addison, TX
Sherwood Glen Apartments...... 3,991 352 2,550 441 - 352 2,991 3,343
Urbandale, IA
Skipper's Pond Apartments..... 2,766 360 3,123 102 - 339 3,246 3,585
Tampa, FL
Southern Palms Shopping Center 9,348 4,226 17,757 1,039 - 4,285 18,737 23,022
Tempe, AZ
Stonebridge Apartments........ 1,803 193 2,076 155 - 193 2,231 2,424
Florissant, MO
Summerwind Apartments......... 5,348 493 2,990 138 - 493 3,128 3,621
Reseda, CA
Sun Hollow Apartments......... 4,041 385 4,159 38 - 385 4,197 4,582
El Paso, TX
Tanglewood Apartments........ 17,882 682 18,340 8,023 - 5,682 21,363 27,045(4)
Arlington Heights, IL
</TABLE>
<TABLE>
<CAPTION>
Life on
Which
Date Depreciation
of in Latest
Con- Statement
Accumulated struct- Date of Operation
Description Depreciation tion Acquired is Computed
- ----------------------------- ------------ ------ -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Mesa Ridge Apartments........ $ 370 1972 05/90 7 - 40 years
Mesa, AZ
Nora Pines Apartments........ 2,495 1970 05/78 7 - 40 years
Indianapolis, IN
Oak Hollow Apartments........ 3,987 1974 05/78 7 - 40 years
Austin, TX
Oakmont Apartments........... 164 1974 06/89 7 - 40 years
Monroe, LA
Oak Tree Apartments.......... 1,416 1968 03/82 7 - 40 years
Grandview, MO
Olde Towne Apartments........ 1,771 1968 03/81 7 - 40 years
Middletown, OH
Outrigger Apartments......... 3,251 1974 11/77 7 - 40 years
Tulsa, OK
Pines Apartments............. 2,085 1977 11/77 7 - 40 years
Little Rock, AR
Place One Apartments......... 3,991 1970 04/77 7 - 40 years
Tulsa, OK
Raintree Apartments.......... 1,472 1974 03/79 7 - 40 years
East Lansing, MI
Regency Apartments........... 889 1973 05/82 7 - 40 years
Lincoln, NE
Regency Falls Apartments..... 5,108 1974 11/78 7 - 40 years
San Antonio, TX
Regency Point Shopping Center 1,710 1982 06/84 7 - 40 years
Jacksonville, FL
Rockborough Apartments....... 3,004 1973 01/78 7 - 40 years
Denver, CO
Royal Oaks Apartments......... 3,676 1973 12/77 7 - 40 years
Stone Mountain, GA
Santa Fe Apartments.......... 2,374 1964/ 04/83 7 - 40 years
Kansas City, MO 67
Shadowood Apartments.......... 1,813 1976 02/79 7 - 40 years
Addison, TX
Sherwood Glen Apartments...... 1,976 1970 12/77 7 - 40 years
Urbandale, IA
Skipper's Pond Apartments..... 2,077 1971 07/76 7 - 40 years
Tampa, FL
Southern Palms Shopping Center 7,807 1981 03/83 7 - 40 years
Tempe, AZ
Stonebridge Apartments........ 1,304 1975 10/77 7 - 40 years
Florissant, MO
Summerwind Apartments......... 2,168 1976 02/77 7 - 40 years
Reseda, CA
Sun Hollow Apartments......... 2,178 1977 09/79 7 - 40 years
El Paso, TX
Tanglewood Apartments........ 11,893 1974 03/78 7 - 40 years
Arlington Heights, IL
</TABLE>

72
<PAGE> 73

SCHEDULE XI
(Continued)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993

Life on
Which
Date Depreciation
of in Latest
Con- Statement
Accumulated struct- Date of Operation
Description Depreciation tion Acquired is Computed
- ----------------------------- ------------ ------ -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Timber Creek Apartments....... $ 1,727 1974 10/78 7 - 40 years
Omaha, NE
Toll Hill Office Building..... 2,134 1979 06/79 7 - 40 years
Dallas, TX
Towne Oaks Apartments......... 1,678 1974 07/82 7 - 40 years
Monroe, LA
University Square Office
Building...................... 1,282 1981 12/81 7 - 40 years
Anchorage, AK
Villa Del Mar Apartments...... 1,532 1971 10/81 7 - 40 years
Wichita, KS
Village Square Apartments..... 3,826 1973 12/77 7 - 40 years
Stone Mountain, GA
Villas Apartments............. 2,214 1977 04/79 7 - 40 years
Plano, TX
Vineyards Apartments.......... 3,783 1974/ 12/83 7 - 40 years
Broadview Heights, OH 75
Westwood Shopping Center...... 2,044 1980 10/83 7 - 40 years
Tallahassee, FL
Whispering Pines Apartments... - 1977 12/93 7 - 40 years
Canoga Park, CA
Whispering Pines Apartments.... 2,915 1972 02/78 7 - 40 years
Topeka, KS
Windridge Apartments.......... 4,483 1974 09/78 7 - 40 years
Austin, TX
Windtree I & II Apartments.... 1,907 1976 11/76 7 - 40 years
Resede, CA
Wisperwood Apartments......... 1,536 1975 07/76 7 - 40 years
Tampa, FL
Woodlake Apartments........... 3,321 1979 08/78 7 - 40 years
Carrollton, TX
Woodsong II Apartments........ 2,896 1975 08/80 7 - 40 years
Smyrna, GA
Woodstock Apartments........ .. 2,850 1977 12/78 7 - 40 years
----------
Dallas, TX
$ 206,120
==========
</TABLE>

__________________________________

(1) The aggregate cost for financial statement purposes approximates that
for federal tax purposes.

(2) Does not include discounts and mortgages payable totaling $16,806 on
real estate which has been sold but for which the Partnership remains
liable on the underlying mortgage note.

(3) Write-down of property to estimated net realizable value.

(4) Held for sale.

73
<PAGE> 74

SCHEDULE XI
(Continued)

NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of Real Estate

Balance at January 1........... $ 447,011 $ 469,099 $ 488,638

Acquisitions and improvements 10,813 1,692 3,355
Sales and foreclosures....... (170) (23,780) (21,683)
Write-downs due to permanent
impairment ................ - - (1,211)
----------- ---------- ----------

Balance at December 31,........ $ 457,654 $ 447,011 $ 469,099
=========== ========== ==========

Reconciliation of Accumulated
Depreciation

Balance at January 1,.......... $ 195,952 $ 196,916 $ 186,780

Depreciation................. 10,168 10,503 11,299
Sales and foreclosures....... - (11,467) (1,163)
----------- ---------- ----------

Balance at December 31,........ $ 206,120 $ 195,952 $ 196,916
=========== ========== ==========
</TABLE>

74
<PAGE> 75
SCHEDULE XII
NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE
December 31, 1993

Interest Maturity Periodic Prepayment
Description Rate Date Payment Terms Penalty
- --------------------- -------- -------- --------------------- -------------------------------
<S> <C> <C> <C>
FIRST MORTGAGE LOANS
- --------------------

Aquarian 10.00% 03/96 Interest due monthly. Not addressed.
- --------
Secured by apartments
located in Tumwater, WA.

WRAPAROUND MORTGAGE LOANS
- -------------------------

Nellis 8.50% 01/97 Monthly interest only. None
- ------ to
Secured by shopping 9.50%
center located in
Las Vegas, Nevada.

Hurstbourne 7.00% 10/98 Monthly interest only. None
- ----------- to
Secured by office 9.00%
complex located in
Louisville, Kentucky.

Warner Creek 7.00% 08/96 Monthly interest only. 30 days notice, penalty of 3.00%
- ------------ to
Secured by apartments 11.00%
located in
Woodland Hills, CA.

Bridgeview 8.00% 02/00 Monthly interest only. May prepay up to 25% of the wrap
- ---------- to equity upon 60 days written
Secured by shopping 9.50% notice without penalty.
center located in
La Crosse, WI.

PARTICIPATION
- -------------

Silver Creek 10.00% 12/95 Annual principal Not addressed
- ------------ payments of $50,000
Secured by land in Interest due quarterly
Granby, CO.

South Point Land 11.5% 01/93 Monthly principal None
- ---------------- and interest
Secured by South Point
Country Club in
Ka'u District, HI.

South Point L.P. 10.0% 1/93 Monthly interest only None
- ----------------
Secured by 10% limited
partnership interst in
South Point Country
Club Partners.

Interest receivable
Deferred gains
Allowance for estimated
losses

</TABLE>
<TABLE>
<CAPTION>
Principal
Carrying Amount of
Amount of Loans Subject
Mortgage to Delinquent
Prior Face Amount Net of Principal
Description Liens of mortgage discount or interest
- --------------------- ----- ----------- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
FIRST MORTGAGE LOANS
- --------------------

Aquarian $ - $ 1,223 $ 13 $ -
- -------- 1,210(1)
Secured by apartments
located in Tumwater, WA

WRAPAROUND MORTGAGE LOA
- -----------------------

Nellis 2,032 5,100 384 -
- ------ 2.494(1)
Secured by shopping
center located in
Las Vegas, Nevada.

Hurstbourne 2,383 4,172 3,972 -
- -----------
Secured by office
complex located in
Louisville, Kentucky.

Warner Creek 11,970 17,503 17,450 -
- ------------
Secured by apartments
located in
Woodland Hills, CA.

Bridgeview 2,643 5,500 4,223 -
- ---------- 1,000(1)
Secured by shopping
center located in
La Crosse, WI.

PARTICIPATION
- -------------

Silver Creek - 447 447 447
- ------------
Secured by land in
Granby, CO.

South Point Land - 1,487 1,487 1,487
- ----------------
Secured by South Point
Country Club in
Ka'u District, HI.

South Point L.P. - 1,500 1,500 1,500
- ----------------
Secured by 10% limited
partnership interst in
South Point Country
Club Partners.

-------- -------- --------- ---------
$ 22,732 $ 36,932 29,476 $ 3,434
======== ======== =========
Interest receivable 101
Deferred gains (16,198)
Allowance for estimated
losses (1,910)
---------
$ 11,469
=========
</TABLE>

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

(1) Represents mortgage participations sold.

75
<PAGE> 76
SCHEDULE XII
(Continued)

NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE

<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Balance at January 1,.......... $ 34,712 $ 34,337 $ 55,962

Additions
Amortization of discount..... 304 130 724
Principal advances........... - 30 -
Participations/assignments... - - 3,661
Compounded interest.......... 464 - -
Other........................ 4 261 166

Deductions
Foreclosures................. (5,993) - -
Collection of principal...... (15) (46) (19,341)

Participations/Assignments... - - (6,310)
Write-down................... - - (525)
---------- --------- ---------

Balance at December 31,........ $ 29,476 $ 34,712 $ 34,337
========== ========= =========
</TABLE>

76
<PAGE> 77
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Not applicable.

_________________________________

PART III

ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER

As partnerships, neither National Realty, L.P. ("National Realty" or the
"Registrant") nor National Operating, L.P. (the "Operating Partnership")
(collectively the "Partnership") has officers or directors. The General Partner
of the Partnership is Syntek Asset Management, L.P. ("SAMLP"), whose general
partners are Gene E. Phillips and Syntek Asset Management, Inc. ("SAMI"), which
also serves as Managing General Partner. Mr. Phillips is associated with a
number of entities which have business objectives that are similar in certain
respects to those of the Partnership. The Managing General Partner manages the
day-to-day affairs of the Partnership which includes all decisions with respect
to the acquisition, disposition, improvement, financing or refinancing of the
Partnership's properties, subject to the limitations of the Moorman Settlement
Agreement. See ITEM 3. "LEGAL PROCEEDINGS - Moorman Settlement." In addition,
SAMI's corporate parent, Basic Capital Management, Inc. ("BCM"), performs
certain administrative functions and other services for the Partnership for cost
reimbursements and fees as described in ITEM 1. "BUSINESS - Management and
Operations." The individual general partner of SAMLP and the executive officers
of SAMI are listed below, together with their ages, terms of service, their
principal occupations, business experience, and directorships with other
companies during the last five years or more.

(THIS SPACE INTENTIONALLY LEFT BLANK.)

77
<PAGE> 78
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

GENE E. PHILLIPS: Age 56, General Partner (since 1987) of SAMLP; and
Chairman of the Board, Director and Chief Executive Officer (since March 1989)
of SAMI, the Managing General Partner of SAMLP and a corporation owned by BCM.

Chief Executive Officer (February 1989 to September 1992) and
Chairman of the Board and Director (February 1989 to December 1989)
of BCM; Director and President (November 1989 to September 1992) of
Carmel Realty Services, Inc. ("CRSI"); Limited Partner (since January
1991) of Carmel Realty Services, Ltd. ("Carmel, Ltd."); Chairman of
the Board (1984 to November 1992), Director (1981 to November 1992),
Chief Executive Officer (1982 to July 1991) and President (February
1989 to July 1991) of American Realty Trust, Inc. ("ART"); Trustee or
Director (January 1989 to December 1992) of Transcontinental Realty
Investors, Inc. ("TCI"), Vinland Property Trust ("VPT"), National
Income Realty Trust ("NIRT"), Continental Mortgage and Equity Trust
("CMET") and Income Opportunity Realty Trust ("IORT"); Secretary
(1982 to 1990) and Chairman of the Board (since 1982) of Syntek
Investment Properties, Inc. ("SIPI"), which has invested in,
developed and syndicated real estate through its subsidiaries and
other related entities since 1973; Director and Secretary (since
1982) and the sole shareholder of Syntek West, Inc. ("SWI"); Chairman
of the Board (since 1978) of Hungry Bull, Inc., which owns mortgages
on restaurant properties; Trustee (1988 to November 1989) of Wespac
Investors Trust ("Wespac"); and Director of Pratt Hotel Corporation
(1986 to April 1989). Until January 1989, Mr. Phillips served in the
following positions: Chairman of the Board and Director (from 1980)
and President and Chief Executive Officer (from 1981) of Southmark
Corporation ("Southmark"); Chairman of the Board and Director of
Integon Corporation (from 1982), Director of NACO Finance Corporation
(from 1982), Pacific Standard Life Insurance Company (from 1984),
Servico, Inc. (from 1986), Southmark San Juan, Inc. (from 1987),
National Heritage, Inc. (from 1987), J.M. Peters Company, Inc. (1987)
and San Jacinto Savings Association (1987); Director and Chairman of
the Board of Thousand Trails, Inc. (from 1987) and MGF Oil
Corporation (from 1988).

(THIS SPACE INTENTIONALLY LEFT BLANK.)

78
<PAGE> 79
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

OSCAR W. CASHWELL: Age 66, Director and President (since February 1994) of
SAMI.

President (since February 1994) of CMET, IORT and TCI; President and
Director of Property and Asset Management (since January 1994) of
BCM; Assistant to the President, Real Estate Operations (July 1989 to
December 1993) of BCM; Assistant to the President, Real Estate
Operations (March 1982 to June 1989) of Southmark; and Director
(since November 1992) of ART.

KARL L. BLAHA: Age 45, Executive Vice President and Director of Commercial
Management (since April 1992) of SAMI.

President (since October 1993) of ART; Executive Vice President and
Director of Commercial Management (April 1993 to September 1993) of
ART; Executive Vice President and Director of Commercial Management
(since April 1992) of BCM, ART, CMET, IORT and TCI; Executive Vice
President and Director of Commercial Management (April 1992 to
February 1994) of NIRT and VPT; Partner - Director of National Real
Estate Operations of First Winthrop Corporation (August 1988 to March
1992); Corporate Vice President of Southmark (April 1984 to August
1988); and President of Southmark Commercial Management (March 1986
to August 1988).

HAMILTON P. SCHRAUFF: Age 58, Executive Vice President and Chief Financial
Officer (since October 1991) of SAMI.

Executive Vice President and Chief Financial Officer (since October
1991) of BCM, ART, CMET, IORT, and TCI; Executive Vice President and
Chief Financial Officer (October 1991 to February 1994) of NIRT and
VPT; Vice President - Finance of Partnership Investments, Hallwood
Group (December 1990 to October 1991); Vice President - Finance and
Treasurer (October 1980 to October 1990) and Vice President - Finance
(November 1976 to September 1980) of Texas Oil & Gas Corporation; and
Assistant Treasurer - Finance Manager (February 1975 to October 1976)
of Exxon U.S.A.

THOMAS A. HOLLAND: Age 51, Senior Vice President and Chief Accounting Officer
(since July 1990) of SAMI.

Senior Vice President and Chief Accounting Officer (since July 1990)
of BCM, ART, CMET, IORT, and TCI; Senior Vice President and Chief
Accounting Officer (July 1990 to February 1994) of NIRT and VPT; Vice
President and Controller of Southmark (December 1986 to June 1990);
Vice President - Finance of Diamond Shamrock Chemical Company
(January 1986 to December 1986); Assistant Controller of Maxus Energy
Corporation (formerly Diamond Shamrock Corporation) (May 1976 to
January 1986); Trustee of Arlington Realty Investors, Inc. (August
1989 to June 1990); and Certified Public Accountant (since 1970).

79
<PAGE> 80
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Under the securities laws of the United States, the directors and
executive officers of the Partnership's Managing General Partner, and any
persons holding more than 10% of the Partnership's units of limited partner
interest are required to report their ownership of the Partnership's units and
any changes in that ownership to the Securities and Exchange Commission (the
"Commission"). Specific due dates for these reports have been established and
the Partnership is required to report any failure to file by these dates during
1993. All of these filing requirements were satisfied by the directors and
executive officers of the Partnership's Managing General Partner and 10%
holders. In making these statements, the Partnership has relied on the written
representations of the directors and executive officers of the Partnership's
Managing General Partner and its ten percent holders and copies of the reports
that they have filed with the Commission.

Administrative Agent. Pursuant to an agreement, BCM, of which Mr.
Phillips served as Chief Executive Officer until September 1, 1992, performs
certain administrative functions such as accounting services, mortgage servicing
and real estate portfolio review and analysis for the Partnership on a cost
reimbursement basis.

Affiliates of BCM perform property management, loan placement services,
leasing services and real estate brokerage and acquisition services, and may
perform other services, for the Partnership for fees and commissions. BCM's
principal business activity is the providing of advisory services for real
estate companies. See ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."

The directors and principal officers of BCM are set forth below.

MICKEY NED PHILLIPS: Director

RYAN T. PHILLIPS: Director

OSCAR W. CASHWELL: President and Director of Property and
Asset Management

KARL L. BLAHA: Executive Vice President and Director of
Commercial Management

HAMILTON P. SCHRAUFF: Executive Vice President and Chief
Financial Officer

CLIFFORD C. TOWNS, JR.: Executive Vice President, Finance

THOMAS A. HOLLAND: Senior Vice President and Chief Accounting
Officer

DREW D. POTERA: Vice President, Treasurer and Securities
Manager

80
<PAGE> 81
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

ROBERT A. WALDMAN: Vice President, Corporate Counsel and
Secretary

Mickey Ned Phillips is Gene E. Phillips' brother and Ryan T. Phillips is Gene
E. Phillips' son.

Oversight Committee. As more fully described under ITEM 3. "LEGAL
PROCEEDINGS - Moorman Settlement," the Partnership is a party to the Moorman
Settlement Agreement that, among other things, established an Oversight
Committee which will exist only until termination of the Moorman Settlement
Plan. The current members of the Oversight Committee are Ronald T. Baker,
Joseph S. Radovsky and Kenneth R. Kelly. Messrs. Baker and Kelly are the
current Chairman and Secretary, respectively, of the Oversight Committee.

Unanimous consent of the Oversight Committee is required, during the
term of the Moorman Settlement Plan, for the Partnership to adopt a new unit
purchase rights plan, or for SAMLP, on behalf of the Partnership, to enter into
or modify any transaction (other than certain transactions expressly permitted
by the Partnership Agreement) with an affiliate (as defined below) of the
Partnership, SAMLP, or Mr. Phillips or William S. Friedman, a general partner of
SAMLP until March 4, 1994. Majority consent of the Oversight Committee is
required, during the term of the Moorman Settlement Plan, for SAMLP, on behalf
of the Partnership, to purchase securities of other issuers other than certain
money market instruments and mortgages in the ordinary course of the
Partnership's business, or to enter any new line of business. For purposes of
the Moorman Settlement Agreement, an "Affiliate" of the Partnership, SAMLP, or
Messrs. Phillips and Friedman (each, a "Specified Party") is any person or
entity that (i) directly or indirectly through one or more intermediaries
controls or is controlled by or is under common control with the Specified
Party, (ii) owns or controls 10% or more of the outstanding voting securities of
the Specified Party, or (iii) is an officer or director of, general partner in,
or serves in a similar capacity to the Specified Party or of which the Specified
Party is an officer, director, or general partner or with respect to which the
Specified Party serves in a similar capacity.

On July 8, 1992, SAMLP notified the Oversight Committee of the failure to meet
the Targets (as defined in ITEM 3. "LEGAL PROCEEDINGS - Moorman Settlement") for
two successive years. The Moorman Settlement Agreement provides that between
the date of the certification causing the General Partner's resignation and
the date a successor general partner takes office, the resigning General Partner
shall limit its activities, as General Partner, to the conduct of the business
of the Partnership in the ordinary course, shall not, without consent of the
Oversight Committee, purchase or sell any real property or other assets of the
Partnership not in progress on said date, shall cooperate in the election of a
successor general partner and shall cooperate with its successor to facilitate a
change in the office of General Partner of the Partnership. The resigning
General Partner will continue to receive fees, expenses and distributions, if
any, while the solicitation is prepared. See ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA."

81
<PAGE> 82
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

Pursuant to the Moorman Settlement Agreement, the Partnership pays each
member of the Oversight Committee $50,000 per year. The Partnership also pays
the salary of an Oversight Committee employee, and reimburses certain of the
Oversight Committee's expenses including legal fees.

The principal occupations and relevant affiliations of the Oversight
Committee members, as furnished to the Partnership by such members, are as
follows:

RONALD T. BAKER: Age 46, Chairman (since July 1990) of the Oversight Committee.

President of INVENEX (formerly known as Partnership Securities
Exchange, Inc.) ("INVENEX") , a company engaged in the trading of
partnership securities. INVENEX was one of the initial plaintiffs
in the Moorman action discussed in ITEM 3. "LEGAL PROCEEDINGS -
Moorman Settlement."

KENNETH R. KELLY: Age 47, Secretary (since July 1990) of the Oversight
Committee.

President (since 1986) of Proximity Research Corporation, a real
estate partnership due diligence and income property consulting firm
based in Auburn, California. Mr. Kelly has been involved in the
real estate investment business throughout the United States for the
past twenty years and is presently a member of Partnerships
Committee of the Business Law Section of the State Bar of
California.

JOSEPH S. RADOVSKY: Age 50, member (since July 1992) of the Oversight
Committee.

Partner with Greene, Radovsky, Maloney and Share, a law firm in San
Francisco, California.

Fairness Committee. National Realty's Fairness Committee periodically reviews
certain transactions between the Partnership and its affiliates. The
Partnership Agreement requires Fairness Committee approval of the interest rate
to be paid on loans from the General Partner or its affiliates, the terms of any
property sales to or purchases from the General Partner or its affiliates, the
purchase of securities from the General Partner or its affiliates and, upon any
withdrawal of the General Partner, the purchase price of the General Partner's
interest in the Partnership and in the fees and other compensation to be paid
under the Partnership Agreement.

The Partnership Agreement provides that the Fairness Committee shall consist
of two or more natural persons, none of whom shall be affiliates (as defined in
the Partnership Agreement) of the General Partner except as directors of the
Managing General Partner or holders of not more than one percent of Southmark's
outstanding capital stock.

82
<PAGE> 83
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

The members of the Fairness Committee are: (i) Willie K. Davis, who is
Chairman and 50% shareholder of Mid-South Financial Corporation, a holding
company for Mid-South Mortgage Company and Gibbs Mortgage Company; Chairman,
President and sole shareholder of FMS, Inc., a property management and real
estate development firm; President of BVT Management Services, Inc., a real
estate advisory and tax service firm; Director of SouthTrust Bank of Middle
Tennessee; and Trustee and Treasurer of Baptist Hospital, Inc., a Tennessee
general welfare nonprofit corporation, and (ii) Raymond V.J. Schrag, an attorney
with the Law Offices of Paul J. Schrag in New York, New York. Messrs. Davis and
Schrag serve as trustees or directors of CMET, IORT, NIRT, TCI and VPT. Since
January 1, 1993, FMS, Inc., has been providing property-level management
services, as a subcontractor to Carmel, Ltd., for two properties owned by NIRT.

Audit Committee. National Realty's Audit Committee, which reviews certain
matters relating to the Partnership's auditors and annual and quarterly
financial statements, was established effective August 3, 1990, pursuant to the
Moorman Settlement Agreement. The chairman of the Audit Committee is Harry J.
Reidler, an attorney in private practice in New York, New York and its other
member is J. Darrell Jordan, an insurance industry consultant.

Mr. Reidler shares offices with Mr. Friedman and has performed legal services
for the Partnership and other entities of which Mr. Friedman is a director or
trustee and officer.

Litigation and Claims Involving Messrs. Phillips and Friedman

Southmark Bankruptcy. Until January 1989, Mr. Phillips, a Director of SAMI,
and Mr. Friedman, the President and a Director, until February 15, 1994 of SAMI,
were executive officers and directors of Southmark. Mr. Phillips served as
Chairman of the Board and Director (since 1980) and President and Chief
Executive Officer (since 1981) and Mr. Friedman served as Vice Chairman of the
Board (since 1982), Director (since 1980) and Secretary (since 1984) of
Southmark.

As a result of a deadlock on Southmark's Board of Directors, Messrs. Phillips
and Friedman reached a series of related agreements with Southmark on January
17, 1989 (collectively, the "Separation Agreement"), whereby Messrs. Phillips
and Friedman resigned their positions with Southmark and certain of Southmark's
subsidiaries and affiliates. The Separation Agreement was later modified by
certain agreements in another set of agreements dated as of June 30, 1989
(collectively, the "June Agreements"). Southmark filed a voluntary petition in
bankruptcy under Chapter 11 of the United States Bankruptcy Code on July 14,
1989.

San Jacinto Savings Association. On November 30, 1990, San Jacinto Savings
Association ("SJSA"), a savings institution that was owned by Southmark since
1983 and for which Mr. Phillips served as a director from 1987 to January 1989,
was placed under conservatorship of the

83
<PAGE> 84
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

Litigation and Claims Involving Messrs. Phillips and Friedman
(Continued)

Resolution Trust Corporation ("RTC") by federal banking authorities. On
December 14, 1990, SJSA was converted into a Federal Association and placed in
receivership. The government has reportedly alleged that SJSA's poor financial
condition was attributable in part to "a pattern of high-risk real estate
investments made after Southmark bought it in 1983," and that it had "poor
procedures for determining loss reserves and relied 'excessively' on deposits
gathered through brokerage houses that enable(d) it to grow rapidly." The RTC
is conducting an investigation of matters involving SJSA during the period in
which it was owned by Southmark. On November 26, 1993, the RTC filed lawsuits
in Dallas and New York City against Mr. Phillips, six former directors, auditors
and lawyers of SJSA, alleging that the auditors and former directors could and
should have stopped SJSA's poor lending practices during the period it was owned
by Southmark and that the former directors abdicated their responsibility for
reviewing loans during the same period. The Office of Thrift Supervision is
also conducting a formal examination of SJSA and its affiliates.

Litigation Against Southmark and its Affiliates Alleging Fraud or
Mismanagement. In addition to the litigation related to the Southmark
bankruptcy, there were several lawsuits pending against Southmark, its former
officers and directors (including Messrs. Phillips and Friedman) and others,
alleging, among other things, that such persons and entities engaged in conduct
designed to defraud and mislead the investing public by intentionally
misrepresenting the financial condition of Southmark. Insofar as such
allegations related to them, Messrs. Phillips and Friedman deny them. Those
lawsuits in which Messrs. Phillips and Friedman were also defendants are
summarized below. NEITHER NATIONAL REALTY, THE OPERATING PARTNERSHIP, SAMLP NOR
SAMI WAS A DEFENDANT IN ANY OF THESE LAWSUITS.

In Burt v. Grant Thornton, Gene E. Phillips and William S. Friedman, the
plaintiff, a purchaser of Southmark preferred stock, alleged that the defendants
disseminated false and misleading corporate reports, financial analysis and news
releases in order to induce the public to continue investing in Southmark.
Grant Thornton served as independent certified public accountants to Southmark.
The plaintiff sought actual damages in the amount of less than $10,000, treble
damages and punitive damages in an unspecified amount and attorneys' fees and
costs. This case was settled in October 1993.

Consolidated actions entitled Salsitz v. Phillips, et al., purportedly brought
as class actions on behalf of purchasers of Southmark securities during
specified periods, were pending before the United States District Court for the
Northern District of Texas. These actions alleged violations of the federal
securities laws and state laws, based upon claims of fraud, deceit and negligent
misrepresentations made in connection with the sale of Southmark securities.
The plaintiffs sought unspecified damages, attorneys' fees and costs. The
defendants included

84
<PAGE> 85
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

Litigation and Claims Involving Messrs. Phillips and Friedman
(Continued)

Messrs. Phillips and Friedman, among others. Messrs. Phillips and Friedman
entered into a settlement agreement with the plaintiffs, which was approved by
the court in October 1993.

Messrs. Phillips and Friedman also served as directors of Pacific Standard
Life Insurance Company ("PSL"), a wholly-owned subsidiary of Southmark, from
October 1984 to January 1989. In a proceeding brought by the California
Insurance Commissioner, a California superior Court appointed a conservator for
PSL on December 11, 1989, and directed that PSL cease doing business. On
October 12, 1990, the California Insurance Commissioner filed suit against
Messrs. Phillips and Friedman and other former directors of PSL seeking damages
of $12 million and additional punitive damages. Such lawsuit alleged, among
other things, that the defendants knowingly and willfully conspired among
themselves to breach their duties as directors of PSL and to loot and waste
corporate assets of PSL to benefit Southmark and its other subsidiaries and
certain of the defendants (including Messrs. Phillips and Friedman), resulting
in a required write-down of $25 million, PSL's insolvency and conservatorship.
Such suit further alleged that the defendants caused PSL to make loans to, or
enter into transactions with, Southmark, Southmark affiliates and others in
violation of applicable state laws, and to make loans and investments that could
not be included as assets on PSL's balance sheet to entities controlled by
Charles H. Keating, Jr. It was also alleged that PSL's board of directors
failed to convene meetings and delegated to Mr. Phillips authority to make
decisions regarding loans, investments and other transfers and exchanges of PSL
assets. In August 1993, five former directors of PSL, including Messrs.
Phillips and Friedman, settled the lawsuit without admitting any liability.

Litigation Relating to Lincoln Savings and Loan Association, F.A. In an
action filed in the United States District Court for the District of Arizona on
behalf of Lincoln Savings and Loan Association, F.A. ("Lincoln") and captioned
RTC v. Charles H. Keating, Jr., et al, the RTC alleges that Charles H. Keating,
Jr. and other persons, including Mr. Phillips, fraudulently diverted funds from
Lincoln.

The RTC alleges that Mr. Phillips aided and abetted the insider defendants in a
scheme to defraud Lincoln and its regulators; that Southmark, its subsidiaries
and affiliates, including SJSA, facilitated and concealed the use of Lincoln
funds to finance the sale, at inflated prices, of assets of Lincoln's parent,
American Continental Corp. ("ACC"), in return for loans from Lincoln and
participations in contrived transactions; and that the insider defendants caused
Southmark to purchase ACC assets at inflated prices. The RTC alleges that
Lincoln and/or ACC engaged in three illegal transactions with Southmark or its
affiliates while Mr. Phillips was associated with Southmark. Neither Mr.
Friedman nor Southmark is a defendant in this action.

85
<PAGE> 86
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

Litigation and Claims Involving Messrs. Phillips and Friedman
(Continued)

The RTC alleges nine separate causes of action against Mr. Phillips,
including aiding and abetting the violation of, and conspiracy to violate,
federal and state Racketeer Influenced and Corrupt Organizations Act ("RICO")
statutes, violations of Arizona felony statutes, common law fraud, civil
conspiracy and breach of fiduciary duty. The RTC seeks to recover from the
defendants more than $1 billion, as well as treble damages under the federal
RICO statutes, punitive damages of at least $100 million and attorneys' fees and
costs. Mr. Phillips motion to dismiss the complaint for failure to state a
cause of action and for summary judgment was heard in February 1992. The motion
was denied in June 1992. Trial was scheduled to begin in June 1993, however,
the case was removed from the trial docket to facilitate settlement
negotiations.

It has been reported that the Justice Department and the Securities and
Exchange Commission have been asked to investigate Lincoln's possible links to
Southmark.

Southmark Partnership Litigation. One of Southmark's principal businesses was
real estate syndication and from 1981 to 1987 Southmark raised over $500 million
in investments from limited partners in several hundred limited partnerships.
The following actions relate to and involve such activities.

In an action filed in November 1990 in a Texas state court captioned
Adkisson, et al. v. Friedman et al., the plaintiffs who invested approximately
$50,000 in a limited partnership sponsored by Southmark, alleged breach of the
partnership agreement, breach of fiduciary duty, violations of state consumer
protection laws, negligence and fraud. The defendants included Messrs. Phillips
and Friedman. In addition to actual damages in an unspecified amount, punitive
and statutory damages, and attorneys' fees and court costs, the plaintiffs
sought to rescind the partnership agreement and to obtain restitution of their
capital contributions. This case was settled in July 1993 for a nominal
payment.

In a class action suit filed in December 1990 in the United States District
Court for the Southern District of New York captioned Sable et al. v.
Southmark/Envicon Capital Corp. et al., the plaintiffs, limited partners in nine
Southmark-sponsored limited partnerships, alleged several claims, including
conspiracy, fraud and violation of the federal and state RICO statutes. The
plaintiffs also brought derivative actions on behalf of the partnerships
alleging breach of fiduciary duty and waste or mismanagement of partnership
assets. The plaintiffs sought to recover actual damages in an unspecified
amount, treble damages pursuant to RICO, costs and injunctive relief. The
defendants included, among others, Messrs. Phillips and Friedman. In April
1993, the court granted defendants' motion to dismiss for failure to state a
claim and awarded sanctions against plaintiffs' counsel.

86
<PAGE> 87
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

Litigation and Claims Involving Messrs. Phillips and Friedman
(Continued)

In an action filed in May 1992 in a Texas state court captioned HCW Pension
Real Estate Fund, et al. v. Phillips et al., the plaintiffs, fifteen former
Southmark related public limited partnerships, allege that the defendants
violated the partnership agreements by charging certain administrative costs and
expenses to the plaintiffs. The complaint alleges claims for breach of
fiduciary duty, fraud and conspiracy to commit to fraud and seeks to recover
actual damages of approximately $12.6 million plus punitive damages, attorneys'
fees and costs. The defendants include, among others, Messrs. Phillips and
Friedman. In October 1993, the court granted partial summary judgment in favor
of Messrs. Phillips and Friedman on the plaintiffs' breach of fiduciary duty
claims. The plaintiffs have not pursued the remaining claims.

In an action filed in May 1992 in a Texas state court captioned Cedarwood Hills
Associates, Ltd., et al. v. Phillips, et al., the plaintiffs, six former
Southmark related private limited partnerships, alleged that the defendants
charged the plaintiff partnerships for Southmark's corporate overhead and
operating costs. The complaint alleged claims for breach of fiduciary duty,
fraud and conspiracy to commit fraud and sought to recover actual damages in an
unspecified amount, plus punitive damages, attorneys' fees and costs. The
defendants included, among others, Messrs. Phillips and Friedman. Notice of
non-suit in favor of the defendants was entered on January 20, 1994.

In an action filed in June 1992 in a Georgia state court captioned
Southmark/CRCA Healthcare Fund VIII, L.P. v. Southmark Investment Group 87,
Inc., et al., the plaintiff, a former Southmark related public limited
partnership, alleged that in 1988 the defendants caused the plaintiff to
purchase five nursing homes in violation of the Partnership agreement and for
the sole purpose of benefitting the defendants. The complaint alleged claims
for breach of fiduciary duty and conspiracy to cause the plaintiff to acquire
the properties so as to obtain improper financial benefits for the defendants.
The plaintiff sought to recover actual damages in an unspecified amount, plus
punitive damages, attorneys' fees and costs. The defendants included, among
others, Messrs. Phillips and Friedman and TCI, which provided refinancing for
the plaintiffs' purchase of the properties. This case was settled in October
1993.

In an action filed in January 1993 in a Michigan state court captioned Van
Buren Associates Limited Partnership, et al. v. Friedman, et al., the
plaintiff, a former Southmark sponsored limited partnership, alleges a claim for
breach of fiduciary duty in connection with the 1988 transfer of certain
property by the partnership. The plaintiff seeks damages in an unspecified
amount, plus costs and attorneys' fees. The plaintiff also seeks to quiet title
to the property at issue. The defendants include, among others, Messrs.
Phillips and Friedman.

87
<PAGE> 88
ITEM 11. EXECUTIVE COMPENSATION

Neither National Realty nor the Operating Partnership has any employees,
payroll or benefit plans and pays no salary or other cash compensation directly
to any person other than (i) $50,000 per year to each member of the Oversight
Committee plus additional sums to an employee of the Oversight Committee, (ii)
$4,000 per year to each member of the Fairness and Audit Committees and (iii)
fees and expense reimbursements in accordance with the Partnership Agreement to
the General Partner or its affiliates for services provided to the Partnership.
See ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

SAMI has no employees, payroll or benefit plans and pays no compensation to
its officers or directors.

The Moorman Settlement Agreement provides that effective May 1, 1990 the
Partnership's future reimbursement of any salaries which may be paid to Messrs.
Phillips and Friedman shall be limited to an aggregate of $500,000 per year, for
any such reimbursement of salaries to be deferred until such time as a Target,
as defined in the Moorman Settlement Agreement, may be met and, if SAMLP resigns
as General Partner during the pendency of the Moorman Settlement Plan, for the
waiver of any reimbursement of salary so deferred. Accordingly, no
reimbursement for the salaries of Messrs. Phillips and Friedman was charged to
or paid by the Partnership in 1993, 1992 or 1991. Mr. Friedman resigned as a
general partner of SAMLP on March 4, 1994.

Mr. Phillips may indirectly benefit from other payments made by the
Partnership to certain related parties.

Messrs. Davis and Schrag each received $4,000 in 1993 for serving on the
Partnership's Fairness Committee. Messrs. Jordan and Reidler each received
$4,000 in 1993 for serving on the Partnership's Audit Committee. Messrs. Baker,
Kelly and Radovsky each received $50,000 for serving on the Oversight Committee.
See ITEM 10. "GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER."

(THIS SPACE INTENTIONALLY LEFT BLANK.)

88
<PAGE> 89
ITEM 11. EXECUTIVE COMPENSATION (Continued)

Performance Graph

The following performance graph compares the cumulative total unitholder
return on the Partnership's units of limited partner interest with the Dow Jones
Market Index ("DJ Market Index") and the Dow Jones Real Estate Index ("DJ Real
Estate Index"). The comparison assumes that $100 was invested on December 31,
1988 in the Partnership's units of limited partner interest and in each of the
indices and further assumes the reinvestment of all dividends. Past performance
is not necessarily an indicator of future performance.

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
THE PARTNERSHIP 100 26 23 32 54 69
DJ EQUITY MARKET INDEX 100 131 126 167 181 199
DJ REAL ESTATE INDEX 100 153 102 114 103 120
</TABLE>

89
<PAGE> 90
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of National Realty's units of limited partnership interest,
both beneficially and of record, both individually and in the aggregate, for
those persons known by National Realty to be beneficial owners of more than 5%
of its units of limited partner interest, as of the close of business on March
11, 1994.

Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
--------------------------- ----------------- ----------
American Realty Trust, Inc. 942,813 44.1%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

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

(1) Percentages are based upon 2,139,607 units of limited partner
interest outstanding at March 11, 1994.

Security Ownership of Management. The following table sets forth the
ownership of National Realty's units of limited partner interest, both
beneficially and of record, both individually and in the aggregate, by SAMLP,
the general partners of SAMLP, and the executive officers and directors of SAMI,
as of the close of business on March 11, 1994.

Percent of
Name of Beneficial Owner Number of Units Units (1)
- ----------------------------- --------------------- ----------
SAMLP, the general 1,008,538 (2) 47.1%
partners of SAMLP, and
the executive officers
and directors of SAMI
as a group (5 individuals)

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

(1) Percentages are based upon 2,139,607 units of limited partner interest
outstanding as of March 11, 1994.

(2) Includes 942,813 units owned by ART and 65,725 units owned by BCM, of
which the general partners of SAMLP and executive officers of SAMI, ART
and BCM may be deemed to be the beneficial owners by virtue of their
positions as general partners of SAMLP and executive officers of SAMI,
ART and BCM. SAMLP's general partners and the executive officers of
ART and BCM disclaim beneficial ownership of such units.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Business Relationship

National Realty is the sole limited partner of the Operating Partnership and
owns 99% of the beneficial interest in the Operating Partnership. SAMLP is the
general partner of, and owner of a 1% beneficial interest

90
<PAGE> 91
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Certain Business Relationships (Continued)

in, each of National Realty and the Operating Partnership. Southmark Asset
Management, Inc., a wholly-owned subsidiary of Southmark, was the managing
general partner of SAMLP until January 17, 1989, when (as part of the agreement
described in ITEM 1. "BUSINESS - Separation of Messrs. Phillips and Friedman and
the Partnership from Southmark") Southmark Asset Management, Inc. exchanged its
general partnership interest in SAMLP for a limited partnership interest
representing an equivalent 96% beneficial interest. As a result, Messrs.
Phillips and Friedman became the sole general partners of SAMLP, and each owned
2% of the beneficial interest in SAMLP. As part of the June Agreements
(described and defined in ITEM 1. "BUSINESS - Separation of Messrs. Phillips and
Friedman and the Partnership From Southmark"), Southmark Asset Management, Inc.
subsequently transferred its 96% limited partnership interest to ART, a real
estate investment company of which Messrs. Phillips and Friedman served as
officers and directors until November 16, 1992 and December 31, 1992,
respectively. On February 25, 1992, ART transferred a 19.2% limited partner
interest in SAMLP to Southmark pursuant to the settlement of litigation with
Southmark in December 1991. In addition, ART has pledged its remaining 76.8%
interest in SAMLP to Southmark as collateral for the payments to be made to
Southmark pursuant to the settlement of litigation. See ITEM 3. "LEGAL
PROCEEDINGS - Southmark Litigation".

On July 18, 1989, Messrs. Phillips and Friedman each assigned .05% of their
general partner interest in SAMLP to SAMI, a corporation of which Mr. Phillips
is an officer and director and of which BCM is the sole shareholder. On March
4, 1994, Mr. Friedman resigned as a general partner of SAMLP. As a result, Mr.
Phillips and SAMI are the general partners of SAMLP, with 1.95% and .10%,
respectively, of the beneficial interest in SAMLP. Mr. Friedman's 1.95%
interest in SAMLP is now a limited partner interest. SAMI was appointed
Managing General Partner of SAMLP on June 18, 1990. Oscar W. Cashwell,
President and director of SAMI, was Assistant to the President, Real Estate
Operations of Southmark from March 1982 to June 1989. Karl Blaha, Executive
Vice President and Director of Commercial Management of SAMI, was Corporate Vice
President of Southmark from April 1984 to August 1988 and President of Southmark
Commercial Management from March 1986 to August 1988. Thomas A. Holland, Senior
Vice President and Chief Accounting Officer of SAMI, was Vice President and
Controller of Southmark from December 1986 to June 1990.

Since February 1, 1990, affiliates of the Managing General Partner have
provided property management services to the Partnership. Currently, Carmel
Realty Services, Ltd. ("Carmel, Ltd.") provides property management services for
a fee of 5% or less of the monthly gross rents collected on the properties under
management. In some cases, Carmel, Ltd. subcontracts with other entities for
the property-level management services to the Partnership at various rates. The
general partner of Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd.
are (i) SWI, of which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips
and (iii) a trust for the benefit of Mr. Phillips' children. BCM is a

91
<PAGE> 92
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Certain Business Relationships (Continued)

corporation which is beneficially owned by a trust for the benefit of the
children of Mr. Phillips. BCM performs certain administrative and other
functions for the Partnership. See ITEM 1. "BUSINESS - Management and
Operations" and ITEM 11. "EXECUTIVE COMPENSATION." Search/Lodges Diversified,
L.P., in which BCM is a limited partner, currently serves as landlord for the
Partnership and certain other entities.

Messrs. Cashwell, Blaha, Schrauff and Holland serve as executive officers
of BCM. Messrs. Phillips and Friedman served as directors of BCM until December
1989 and executive officers of BCM until September 1, 1992 and May 1, 1993,
respectively. Mr. Phillips is a limited partner of Carmel, Ltd., which since
February 1, 1991 has performed property management services for the
Partnership's properties. Messrs. Cashwell, Blaha, Schrauff and Holland serve
as executive officers of CMET, IORT, TCI and ART. BCM serves as advisor to
CMET, IORT, NIRT, TCI and ART. BCM has resigned as advisor to NIRT effective
March 31, 1994.

FMS, Inc., a company of which Mr. Davis, who serves on the Fairness Committee,
is Chairman, President and the sole shareholder, provides property-level
management services, as a subcontractor to Carmel, Ltd., for two properties
owned by NIRT. Mr. Schrag, who serves on the Partnership's Fairness Committee,
and Mr. Davis both serve as trustees or directors of CMET, IORT, NIRT, TCI and
VPT. Proximity Research Corporation, a company of which Mr. Kelly, who serves
as Secretary of the Oversight Committee, has provided professional services to
the Partnership.

Related Party Transactions

The Partnership has engaged in business transactions with certain related
parties and may continue to do so, subject to unanimous approval of the
Oversight Committee during the term of the Moorman Settlement Plan as discussed
under ITEM 10. "GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER - Oversight Committee." The Partnership believes
that all of the related party transactions were at least as advantageous to the
Partnership as could have been obtained from unrelated third parties.

In November 1992, the Partnership refinanced 52 of its apartment complexes and
a wraparound note receivable with a financial institution. Garden Capital,
L.P. ("GCLP"), a Delaware limited partnership, was formed to facilitate such
refinancing. The Operating Partnership is the sole limited partner with a
99.3% limited partnership interest in GCLP. The Operating Partnership
received its limited partnership interest in exchange for the transfer of the
52 apartment complexes and the wraparound note receivable to GCLP. Garden
Capital Management Incorporated ("GCMI"), a Nevada corporation, is the .7%
managing general partner of GCLP.

92
<PAGE> 93
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Related Party Transactions (Continued)

GCLP transferred the acquired apartment assets in exchange for a 99% limited
partnership interest in each of 52 single asset limited partnerships which were
formed for the purpose of operating, refinancing and holding title to the 52
apartment complexes previously owned by the Operating Partnership. The transfer
of the 52 apartment complexes and the wraparound note receivable were effective
November 25, 1992. The common stock of Garden Capital Incorporated ("GCI") and
GCMI is owned by John A. Doyle (20%), Richard A. Green (40%) and Henry W. Simon
(40%).

The Partnership has paid and pays cost reimbursements, property management fees
or other cash compensation to BCM and its affiliates and other related parties
as described in ITEM 11. "EXECUTIVE COMPENSATION" and ITEM 1. "BUSINESS -
Management and Operations." BCM performs certain administrative functions for
the Partnership on a cost reimbursement basis. The Fairness Committee has
approved the formula for computing the Partnership's proportionate share of
certain of BCM's reimbursable costs. GCMI performs administrative functions,
similar to those performed for the Partnership by BCM, for GCLP on a cost
reimbursement basis. Since February 1, 1990, affiliates of BCM have provided
property management services to the Partnership. Currently, Carmel, Ltd.,
provides such property management services. In many cases, Carmel, Ltd.
subcontracts with other entities for some of the property-level management
services to the Partnership. Carmel, Ltd. subcontracts the property-level
management and leasing of nine of the Partnership's commercial properties to
Carmel Realty, Inc., which is owned by SWI. Carmel, Ltd. does not perform
property management services to the properties transferred to GCLP. Carmel,
Ltd. also performs similar services for ART, CMET, IORT, TCI and through March
31, 1994, NIRT. See NOTE 11. "GENERAL PARTNER FEES AND COMPENSATION" included
in Notes to Consolidated Financial Statements at ITEM 8. "FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA," for a summary of fees paid and costs reimbursed by the
Partnership.

The Partnership's Fairness Committee periodically reviews certain
transactions between the Partnership and its affiliates. See ITEM 1. "BUSINESS
- - Management and Operations." The Fairness Committee has approved the terms of
the Partnership's contracts and terms for services and reimbursements with
affiliates.

The Partnership's Oversight Committee must approve certain types of
transactions between the Partnership and SAMLP or its affiliates, as defined in
the Moorman Settlement Agreement. See ITEM 3. "LEGAL PROCEEDINGS - Moorman
Settlement."

Indebtedness of Management

In return for its 1% interest in National Realty, the General Partner was
required to make aggregate capital contributions to National Realty in an amount
equal to 1.01% of the total initial capital contributions to the Partnership.
The General Partner contributed $500,000 cash with the remaining portion
evidenced by a promissory note in the principal

93
<PAGE> 94
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Indebtedness of Management (Continued)

amount of $4.2 million, bearing interest at the rate of 10% per annum
compounded semi-annually is payable on the earlier of September 18, 2007,
liquidation of the Partnership or a termination of the General Partner's
interest in the Partnership. As of December 31, 1993, no payments had been
received on such note. At December 31, 1993, accrued and unpaid interest on the
note totaled $3.5 million.

_____________________________________

PART IV

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

(a) The following documents are filed as part of this Report:

1. Consolidated Financial Statements

Report of Independent Certified Public Accountants

Consolidated Balance Sheets -
December 31, 1993 and 1992

Consolidated Statements of Operations -
Years Ended December 31, 1993, 1992 and 1991

Consolidated Statements of Changes in Partners' Equity (Deficit) -
Years Ended December 31, 1993, 1992 and 1991

Consolidated Statements of Cash Flows -
Years Ended December 31, 1993, 1992 and 1991

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Schedule X - Supplementary Income Statement Information

Schedule XI - Real Estate and Accumulated Depreciation

Schedule XII - Mortgage Loans on Real Estate

All other schedules are omitted because they are not applicable or because the
required information is shown in the Consolidated Financial Statements or the
Notes thereto.

94
<PAGE> 95
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

3. Exhibits

The following documents are filed as Exhibits to this Report:

Exhibit
Number Description
- ------- -----------

3.1 National Realty, L.P. Amended and Restated Certificate of Limited
Partnership, dated March 4, 1987 (incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement No. 33-16215
on Form S-4).

3.2 National Realty, L.P. First Amended and Restated Agreement of Limited
Partnership, dated as of January 29, 1987 (incorporated by reference
to Exhibit 4.1 to the Registrant's Registration Statement No.
33-16215 on Form S-4).

3.3 Certificate of Amendment of Limited Partnership Agreement of
National Realty, L.P. dated as of May 14, 1990 (incorporated by
reference to Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1990).

4.1 Indenture, dated as of September 18, 1987, by and between National
Realty, L.P. and Mellon Bank, N.A. (incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement No. 33-16215
on Form S-4).

4.2 Amendment No. 1, dated as of December 28, 1987, to Trust Indenture
between National Realty, L.P. and Mellon Bank, N.A. (incorporated by
reference to Exhibit 4.2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988).

4.3 Form of Warrant Agreement between National Realty, L.P. and American
Stock Transfer and Trust Company, as Warrant Agent (Incorporated by
reference to Exhibit No. 4.5 to the Registrant's Registration
Statement No. 33-38352 on Form S-11)

10.1 Loan Agreement dated as of November 24, 1992 by and among First
Commonwealth Realty Credit Corporation as Lender, and Garden
Kimberly Woods L.P. et. al., as Borrower. (incorporated by
reference to Exhibit No. 10.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).

11.1 Computation of Earnings Per Unit.

22.1 Subsidiaries of the Registrant.

28.1 Agreement of Limited Partnership of National Operating, L.P.
(incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement No. 33-16215 on Form S-4).

95
<PAGE> 96
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

Exhibit
Number Description
- ------- -----------

28.2 Limited Partnership Agreement of Garden Capital, L.P. between
Garden Capital Management Incorporated and National Operating, L.P.
(incorporated by reference to Exhibit No. 28.2 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992).

28.3 Settlement Agreement, dated as of May 9, 1990, relating to the
action entitled Moorman et. al v. Southmark Corporation et al.
(incorporated by reference to Exhibit 5.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1990).

28.4 Settlement Agreement and Mutual Release, dated as of December 27,
1991, between Southmark Corporation, et al and Gene E. Phillips, et
al (incorporated by reference to the Registrant's Current Report on
Form 8-K, dated December 27, 1991).

28.5 Term Sheet, dated October 6, 1994, among National Realty, L.P.,
Syntek Asset Management, L.P., National Realty, L.P. Oversight
Committee and American Realty Trust, Inc. (incorporated by
reference to Exhibit No. 2 to the Registrant's Current Report on
Form 8-K, dated October 6, 1993).

(b) Reports on Form 8-K

A Current Report on Form 8-K, dated October 6, 1993, was filed with
respect to Item 5, which reports that Syntek Asset Management, L.P.
(the Registrant's General Partner) and the National Realty Oversight
Committee reached an agreement in principle evidenced by a detailed
Term Sheet, to nominate a successor general partner for the
Registrant and to consummate the 1990 Moorman Settlement.

96
<PAGE> 97
NATIONAL REALTY, L.P.
Signature Page

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

NATIONAL REALTY, L.P.

By its General Partner:

SYNTEK ASSET MANAGEMENT, L.P.

By its General Partners:

SYNTEK ASSET MANAGEMENT, INC.

By: /s/ Oscar W. Cashwell
Oscar W. Cashwell
President and Director

/s/ Gene E. Phillips
Gene E. Phillips

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Syntek Asset
Management, L.P., as General Partner of the Registrant and in the capacities and
on the dates indicated.

Signature Title Date
--------- ----- ----
<S> <C> <C>
SYNTEK ASSET MANAGEMENT, INC. Managing General Partner March 30, 1994

By: /s/ Oscar W. Cashwell
Oscar W. Cashwell
President and Director

/s/ Gene E. Phillips General Partner of March 30, 1994
Gene E. Phillips Syntek Asset Management, L.P.
and Director of Syntek Asset
Management, Inc.

</TABLE>

97
<PAGE> 98
NATIONAL REALTY, L.P.

EXHIBITS TO
ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 1993

Exhibit
Number Description Page
- ------- ----------- ----

11.1 Computation of Earnings Per Unit. 99

22.1 Subsidiaries of the Registrant. 100

<PAGE> 1
Exhibit 11.1

NATIONAL REALTY, L.P.
COMPUTATION OF EARNINGS PER UNIT

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1993 1992 1991
------------ ------------ ------------
(dollars in thousands, except per unit)
<S> <C> <C> <C>
(Loss) before extraordinary gain..... $ (7,795) $ (9,552) $ (36,062)

Less - General Partners' 1.99%
interest........................... (155) (190) (718)
----------- ------------ -----------
(Loss) allocable to Limited Partners
before extraordinary gain.......... $ (7,640) $ (9,362) $ (35,344)
=========== ============ ===========

Extraordinary gain................... $ 9,046 $ 6,385 $ 17,867

Less - General Partners' 1.99%
interest........................... 180 127 356
----------- ------------ -----------
Extraordinary gain allocable to
Limited Partners................... $ 8,866 $ 6,258 $ 17,511
=========== ============ ===========

Net income (loss).................... $ 1,251 $ (3,167) $ (18,195)

Less - General Partners' 1.99%
interest........................... 25 (63) (362)
----------- ------------ -----------

Net income (loss) allocable to
Limited Partners................... $ 1,226 $ (3,104) $ (17,833)
=========== ============ ===========

Earnings per unit
(Loss) before extraordinary gain..... $ (3.40) $ (3.98) $ (16.42)
Extraordinary gain................... 3.94 2.66 8.14
----------- ------------ -----------
Net income (loss).................... $ .54 $ (1.32) $ (8.28)
=========== ============ ===========
Weighted average units of limited
partner interest used in computing
earnings per unit.................. 2,249,330 2,348,478 2,152,605
=========== ============ ===========
</TABLE>

<PAGE> 1
EXHIBIT 22.1

SUBSIDIARIES OF THE REGISTRANT

1. National Operating, L.P., a Delaware limited partnership.

2. SM Subsidiary Corp., a Nevada corporation, wholly-owned by National
Operating, L.P.

3. Hunter's Glen, Inc., a Texas corporation, wholly-owned by National
Operating, L.P.

4. Regency National Associates, Inc., a Texas corporation, wholly-owned by
National Operating, L.P.

5. National Subsidiary Corp., a Florida corporation, wholly-owned by
National Realty, L.P.

6. Bavarian Woods National Associates, an Ohio general partnership;
Brookview National Associates, a Georgia general partnership; Covered
Bridge National Associates, a Florida general partnership; Four Seasons
National Associates, a Colorado general partnership; Granada National
Associates, a Nebraska general partnership; Nora Pines National Associates,
an Indiana general partnership; Palisades National Associates, a
Washington general partnership; Regency National Associates, a Nebraska
general partnership; Sherwood Glen National Associates, an Iowa general
partnership; Timber Creek National Associates, a Nebraska general
partnership; The Vineyards National Associates, an Ohio general
partnership; Raintree National Associates, a Michigan general partnership;
Country Associates, L.P., a Texas general partnership; Southern Palms
Associates, an Arizona general partnership; King Village National
Associates, an Alabama limited partnership; Shoreview Towers Associates
II, a Florida limited partnership; Creekwood National Associates Limited
Partnership, a Texas limited partnership; Cross County National
Associates, L.P., an Illinois limited partnership; Pines Whisper Limited
Partnership, a California limited partnership.

7. Garden Capital, L.P., a Delaware limited partnership. National Operating,
L.P. is the sole limited partner.

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