NATIONAL REALTY L P, 10-K405, 1997-03-25

NATIONAL REALTY L P
10-K405, 1997-03-25
REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS

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<PAGE> 1
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, 1996

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:
NONE

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

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]

As of March 14, 1997, the Registrant had 6,330,085 units of limited partner
interest outstanding. Of the total units outstanding, 2,598,641 were held by
other than those who may be deemed to be affiliates, for an aggregate value of
$33,457,503 based on the last trade as reported on the American Stock Exchange
on March 14, 1997. 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.

Documents Incorporated by Reference:
NONE

<PAGE> 2

INDEX TO
ANNUAL REPORT ON FORM 10-K

<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I

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

Item 2. Properties ............................................. 8

Item 3. Legal Proceedings ...................................... 19

Item 4. Submission of Matters to a Vote of Security Holders .... 23

PART II

Item 5. Market for Registrant's Units of Limited Partner
Interest and Related Security Holder Matters ........ 23

Item 6. Selected Financial Data ................................ 26

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 27

Item 8. Financial Statements and Supplementary Data ............ 38

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................. 72

PART III

Item 10. General Partner of the Registrant and Executive
Officers of the Registrant's General Partner ........ 72

Item 11. Executive Compensation ................................. 77

Item 12. Security Ownership of Certain Beneficial Owners and
Management .......................................... 80

Item 13. Certain Relationships and Related Transactions ......... 80

PART IV

Item 14. Exhibits, Consolidated Financial Statements,
Schedules and Reports on Form 8-K ................... 83

Signature Page .................................................. 86

</TABLE>

<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" or "NOLP"), 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 the 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. Gene E. Phillips is a general partner of SAMLP. Syntek
Asset Management, Inc. ("SAMI") is the Managing General Partner of
SAMLP. Mr. Phillips served as a director, Chairman of the Board and
Chief Executive Officer of SAMI until May 15, 1996. Basic Capital
Management, Inc. ("BCM") is the sole shareholder of SAMI. The limited
partners of SAMLP are Mr. Phillips, William S. Friedman, a general
partner of SAMLP until March 4, 1994, 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 14,
1997, the Partnership owned 195,732 shares of ART common stock,
approximately 1.5% of the ART shares then outstanding. ART owns a 96%
limited partner interest in SAMLP, the Partnership's General Partner.
In August 1996, ART acquired Southmark Corporation's 19.2% limited
partner interest in SAMLP. As of March 14, 1997, ART owned
approximately 54.4% of National Realty's outstanding units of limited
partner interest. See ITEM 12. "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT."

<PAGE> 4

ITEM 1. BUSINESS (Continued)

General (Continued)

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

GCMI received its .7% general partner interest in GCLP in exchange for a
mortgage note receivable. National Realty subsequently purchased the mortgage
note receivable for a $900,000 note payable. GCI received its 1% general
partner interest in each of the single asset partnerships in exchange for
agreeing to manage the apartment complex 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 a company owned
by a trust for the benefit of the children of Mr. Phillips. Mr. Phillips served
as a director of BCM until December 22, 1989 and as Chief Executive Officer of
BCM until September 1, 1992.

<PAGE> 5

ITEM 1. BUSINESS (Continued)

General (Continued)

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 III to the Consolidated Financial Statements, included at ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." In addition, the Partnership
owns interests in mortgage loans primarily arising from the sale of Partnership
properties which are secured by various apartment complexes and commercial
properties, as set forth in ITEM 2. "PROPERTIES - Mortgage Loans" and Schedule
IV to the Consolidated Financial Statements included at ITEM 8. "FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA."

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 agreed to distribute to unitholders, during the pendency of the
Settlement Plan, all of the Partnership's operating cash flow in excess of
anticipated renovation costs, unless the Partnership's Oversight Committee
approved alternative uses for such operating cash flow. On October 7, 1993, the
Partnership announced a resumption of regular quarterly distributions at a rate
of $.07 per unit. In the first quarter of 1996, the Partnership increased its
regular quarterly distribution to $.10 per unit. In the first and second
quarters of 1996, in addition to the regular quarterly distribution of $.10 per
unit, the Partnership paid extra distributions of $.15 per unit and in the
third quarter of 1996, the Partnership paid an extra distribution of $.40 per
unit. The Partnership declared and paid total distributions of $1.10 per unit
or a total of $7.0 million in 1996.

<PAGE> 6

ITEM 1. BUSINESS (Continued)

Business Plan (Continued)

At the discretion of the Managing General Partner, the Partnership may, from
time to time, sell properties or other assets, renovate or make improvements to
properties, make additional investments or obtain additional or initial
financing for its properties.

The establishment, implementation and modification of the business objectives
and policies of the Partnership are the responsibility of the Managing 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 is required
for the Partnership to enter into any new line of business. See "Management and
Operations" below.

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. 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
twelve of the Partnership's commercial properties to Carmel Realty, Inc.
("Carmel Realty"), which is a company owned by SWI. Carmel Realty is
entitled to receive property and construction management fees and
leasing commissions in accordance with the terms of its property-level
management agreement with Carmel, Ltd. 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. GCMI performs similar administrative functions for GCLP,
also 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.

Pending Withdrawal of General Partner

As described in ITEM 3. "LEGAL PROCEEDINGS - Moorman Settlement," the
Settlement Plan provided that, if certain aggressive, annually increasing
Targets relating to the price of National Realty's units of limited partner
interest and distributions to unitholders were not met

<PAGE> 7

ITEM 1. BUSINESS (Continued)

Pending Withdrawal of General Partner (Continued)

for two successive years of the Settlement Plan or the fifth and final year of
the Settlement Plan, the General Partner would be required to resign and the
Partnership would be required to repurchase the General Partner's interest in
the Partnership (the "Redeemable General Partner Interest") for its fair value,
and to pay certain fees and other compensation, as provided in the Partnership
Agreement and the Settlement Agreement.

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 Targets for the first and second anniversary dates were not met. Since the
Targets were not met for two successive years, SAMLP expects to 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. See ITEM 3. "LEGAL PROCEEDINGS - Moorman
Settlement," for further information regarding the pending resignation of SAMLP
as General Partner.

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 the property managers in areas such as marketing, collection and
the ability to control operating expenses, the amount of new construction in
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
apartments, 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
properties are renovated or new properties are developed in the vicinity of
each of the Partnership's properties are also competitive factors.

<PAGE> 8

ITEM 1. BUSINESS (Continued)

Competition (Continued)

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 any of its properties, the sales
prices for such properties may be affected by competition from other real
estate entities and financial institutions also attempting to sell their
properties located in areas in which the Partnership's properties are located.

As described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Certain Business Relationships," the executive officers of SAMI, the Managing
General Partner of SAMLP, are also executive officers of certain other
entities, each of which has business objectives similar to the Partnership's.
These executive officers owe 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, hurricanes and other
acts of God and other factors beyond the control of the Partnership. Also, the
illiquidity of real estate investments may impair the ability of the
Partnership to respond promptly to changing circumstances. The Partnership
believes that such risks are partially mitigated by the diversification by
geographic region and property type of the Partnership's real estate portfolio.

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 suitable and adequate for its present operations.

Details of the Partnership's real estate and mortgage notes receivable
portfolios at December 31, 1996, are set forth in Schedules III and IV,

<PAGE> 9

ITEM 2. PROPERTIES (Continued)

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 67
apartment complexes, seven office buildings and nine shopping centers in all
geographic regions of the 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,
Mountain and Southwest regions of the United States, as shown more specifically
in the table under "Mortgage Loans" below.

At December 31, 1996, no single asset of the Partnership accounted for 10% or
more of its total assets. At December 31, 1996, 80% of the Partnership's assets
consisted of real estate and 5% consisted of mortgage notes and interest
receivable. The remaining 15% of the Partnership's assets at December 31, 1996
consisted of cash, cash equivalents and other assets. The percentage of the
Partnership's assets invested in any one category is subject to change and 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.]

<PAGE> 10

ITEM 2. PROPERTIES (Continued)

Geographic Regions

The Partnership has divided the 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.
The Partnership has no apartment complexes or commercial properties in
this region.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia.
This Partnership has 18 apartment complexes and 6 commercial
properties in this region.

Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. The Partnership has 22
apartment complexes and 5 commercial properties in this region.

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. The
Partnership has 22 apartment complexes and 1 commercial property in
this region.

Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. The Partnership has 2 apartment complexes
and 1 commercial property in this region.

Pacific region comprised of the states of Alaska, California, Hawaii,
Oregon and Washington. The Partnership has 3 apartment complexes and 3
commercial properties in this region.

Real Estate

At December 31, 1996, the Partnership owned 83 properties located in 22 states.
These properties consisted of 67 apartment complexes comprising 16,848 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 $297.6 million, seven office buildings with an aggregate of
495,594 square feet with a total Revaluation Equity of $18.0 million and nine
shopping centers with an aggregate of 1.1 million square feet with a total
Revaluation Equity of $30.3 million.

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

<PAGE> 11

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

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 $223.0 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 a 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 III to the Consolidated
Financial Statements included at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA."

The following table sets forth the percentages, by property type and geographic
region, of the Partnership's real estate at December 31, 1996.

<TABLE>
<CAPTION>
Commercial
Region Apartments Properties
- ------ ---------- ----------
<S> <C> <C>
Southeast .............................. 27.0% 31.9%
Southwest .............................. 34.4 34.3
Midwest ................................ 31.7 18.8
Mountain ............................... 4.3 2.8
Pacific ................................ 2.6 12.2
----- -----
100.0% 100.0%
</TABLE>

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
III 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.

[THIS SPACE INTENTIONALLY LEFT BLANK.]

<PAGE> 12

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

Set forth below are the Partnership's properties and the monthly rental rate
for apartments and the average annual rental rate for commercial properties and
occupancy thereof at December 31, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
Rent Per
Units/ Square Foot Occupancy
Property Location Square Footage 1996 1995 1994 1996 1995 1994
- ----------------- -------------- --------------- ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
Alexandria.............. Decatur, GA 406 units/
562,700 sq. ft. $ .44 $ .43 $ .41 92% 96% 92%
Arlington Place......... Pasadena, TX 230 units/
205,476 sq. ft. .62 .60 .60 91% 95% 88%
Barcelona............... Tampa, FL 368 units/
346,144 sq. ft. .49 .47 .49 93% 96% 85%
Bavarian................ Middletown, OH 259 units/
229,560 sq. ft. .62 .60 .59 96% 92% 95%
Bent Tree............... Addison, TX 292 units/
244,480 sq. ft. .66 .60 .56 97% 100% 99%
Blackhawk............... Ft. Wayne, IN 209 units/
190,520 sq. ft. .53 .53 .53 95% 94% 96%
Bridgestone............. Friendswood, TX 76 units/
65,519 sq. ft. .64 .62 .62 94% 97% 93%
Brookview Gardens....... Smyrna, GA 156 units/
155,600 sq. ft. .59 .54 .51 89% 94% 96%
Candlelight Square...... Lenexa, KS 119 units/
114,630 sq. ft. .55 .53 .51 97% 96% 92%
Chalet I................ Topeka, KS 162 units/
131,791 sq. ft. .61 .61 .61 96% 94% 87%
Chalet II............... Topeka, KS 72 units/
49,164 sq. ft. .67 .67 * 89% 97% *
Chateau................. Bellevue, NE 115 units/
99,220 sq. ft. .63 .60 .59 99% 97% 94%
Club Mar................ Sarasota, FL 248 units/
230,180 sq. ft. .59 .57 .59 91% 95% 92%
Confederate Point....... Jacksonville, FL 206 units/
277,860 sq. ft. .45 .44 .42 94% 98% 92%
Country Place........... Round Rock, TX 152 units/
119,808 sq. ft. .71 .68 .63 93% 95% 97%
Covered Bridge.......... Gainesville, FL 176 units/
171,416 sq. ft. .63 .60 .57 94% 100% 99%
Creekwood............... College Park, GA 300 units/
285,840 sq. ft. .48 .50 .49 91% 94% 87%
Fair Oaks............... Euless, TX 208 units/
166,432 sq. ft. .58 .55 .52 96% 98% 96%
Four Seasons............ Denver, CO 384 units/
254,900 sq. ft. .78 .77 .74 94% 93% 96%
Fox Club................ Indianapolis, IN 336 units/
317,600 sq. ft. .54 .54 .54 88% 91% 95%
Foxwood................. Memphis, TN 220 units/
212,000 sq. ft. .51 .49 .46 93% 95% 97%
Hidden Valley........... Grand Rapids, MI 176 units/
260,970 sq. ft. .52 .51 .49 93% 97% 96%
Horizon East............ Dallas, TX 166 units/
141,081 sq. ft. .52 .50 .48 92% 94% 93%
Kimberly Woods.......... Tucson, AZ 279 units/
249,678 sq. ft. .55 .54 .52 93% 94% 95%
La Mirada............... Jacksonville, FL 320 units/
341,400 sq. ft. .50 .47 .46 93% 98% 93%
Lake Nora Arms.......... Indianapolis, IN 588 units/
429,380 sq. ft. .63 .61 .60 91% 95% 94%
Lakewood Park........... St. Petersburg, FL 240 units/
279,720 sq. ft. .41 .40 .40 94% 91% 90%
Lantern Ridge........... Richmond, VA 120 units/
112,296 sq. ft. .51 .50 .49 95% 93% 98%
Mallard Lake............ Greensboro, NC 336 units/
295,560 sq. ft. .62 .59 .57 95% 97% 98%
Manchester Commons...... Manchester, MO 280 units/
331,820 sq. ft. .50 .49 .46 93% 95% 94%
</TABLE>

<PAGE> 13

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)
<TABLE>
<CAPTION>
Rent Per
Units/ Square Foot Occupancy
Property Location Square Footage 1996 1995 1994 1996 1995 1994
- ----------------- -------------- --------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments - Continued
Mesa Court.............. Mesa, AZ 224 units/
180,291 sq. ft. $ .66 $ .61 $ .57 90% 94% 94%
Mesa Ridge.............. Mesa, AZ 256 units/
206,045 sq. ft. .65 .61 .57 88% 92% 95%
Nora Pines.............. Indianapolis, IN 254 units/
254,676 sq. ft. .57 .55 .55 94% 97% 95%
Oak Hollow.............. Austin, TX 409 units/
290,072 sq. ft. .87 .81 .75 91% 97% 99%
Oak Tree................ Grandview, MO 189 units/
160,591 sq. ft. .54 .52 .52 94% 96% 95%
Oakmont................. Monroe, LA 212 units/
185,500 sq. ft. .48 .48 .48 94% 92% 93%
Olde Towne.............. Middletown, OH 199 units/
179,395 sq. ft. .57 .57 .57 92% 91% 94%
Outrigger............... Tulsa, OK 343 units/
327,190 sq. ft. .38 .36 .36 91% 92% 88%
Pheasant Ridge.......... Bellevue, NE 264 units/
243,960 sq. ft. .56 .51 .51 94% 97% 85%
Pines................... Little Rock, AR 257 units/
221,981 sq. ft. .41 .39 .37 93% 90% 88%
Place One............... Tulsa, OK 407 units/
302,263 sq. ft. .51 .49 .47 96% 96% 92%
Quail Point............. Huntsville, AL 184 units/
202,602 sq. ft. .42 .41 .41 96% 86% 90%
Regency................. Lincoln, NE 106 units/
111,700 sq. ft. .60 .56 .56 95% 88% 97%
Regency Falls........... San Antonio, TX 546 units/
348,692 sq. ft. .63 .63 .60 93% 93% 90%
Rockborough............. Denver, CO 345 units/
249,723 sq. ft. .70 .70 .67 92% 92% 96%
Royal Oaks.............. Stone Mountain, GA 300 units/
385,000 sq. ft. .45 .43 .41 94% 95% 90%
Santa Fe................ Kansas City, MO 225 units/
180,416 sq. ft. .53 .52 .51 91% 92% 90%
Shadowood............... Addison, TX 184 units/
134,616 sq. ft. .69 .66 .64 97% 97% 98%
Sherwood Glen........... Urbandale, IA 180 units/
143,745 sq. ft. .75 .74 .72 96% 93% 93%
Skipper's Pond.......... Tampa, FL 260 units/
233,760 sq. ft. .47 .46 .46 94% 93% 91%
Stonebridge............. Florissant, MO 100 units/
140,576 sq. ft. .43 .42 .42 98% 92% 92%
Summerwind.............. Reseda, CA 172 units/
114,711 sq. ft. .90 .97 .97 92% 91% 92%
Sun Hollow.............. El Paso, TX 216 units/
156,000 sq. ft. .64 .63 .63 90% 96% 92%
Tanglewood.............. Arlington Heights, IL 838 units/
612,816 sq. ft. .99 .96 .96 92% 95% 96%
Timber Creek............ Omaha, NE 180 units/
162,252 sq. ft. .64 .60 .59 98% 94% 91%
Towne Oaks.............. Monroe, LA 152 units/
153,488 sq. ft. .49 .49 .49 94% 95% 94%
Villa Del Mar........... Wichita, KS 162 units/
128,004 sq. ft. .58 .58 .57 94% 90% 89%
Village Square.......... Stone Mountain, GA 310 units/
403,900 sq. ft. .44 .41 .41 86% 84% 88%
Villas.................. Plano, TX 208 units/
156,632 sq. ft. .73 .70 .67 95% 95% 97%
Whispering Pines........ Canoga Park, CA 102 units/
61,671 sq. ft. 1.00 .98 .98 92% 93% 93%
Whispering Pines........ Topeka, KS 320 units/
299,264 sq. ft. .49 .49 .49 89% 90% 92%
Windridge............... Austin, TX 408 units/
281,778 sq. ft. .88 .85 .80 93% 95% 96%
</TABLE>

<PAGE> 14

ITEM 2. PROPERTIES (Continued)

Office Buildings
56 Expressway........... Oklahoma City, OK 54,649 sq. ft. 8.21 7.94 7.77 88% 93% 85%
Executive Court......... Memphis, TN 41,840 sq. ft. 10.11 9.87 9.91 95% 92% 92%
Fondren................. Houston, TX 47,808 sq. ft. 2.00 6.25 7.11 100% 100% 0%
Marina Playa............ Santa Clara, CA 124,322 sq. ft. 19.54 18.11 17.00 99% 97% 95%
Melrose Business Park... Oklahoma City, OK 124,200 sq. ft. 2.76 2.65 2.59 90% 97% 81%
Toll Hill............... Dallas, TX 81,115 sq. ft. 11.64 10.99 11.04 89% 88% 91%
University Square....... Anchorage, AK 22,260 sq. ft. 15.07 13.16 13.81 84% 90% 82%

Shopping Centers
Countryside Plaza....... Clearwater, FL 184,878 sq. ft. 5.00 3.37 3.36 16% 24% 83%
Crestview............... Crestview, FL 80,679 sq. ft. 2.98 2.96 3.01 90% 90% 90%
Cross County Mall....... Mattoon, IL 304,575 sq. ft. 4.90 4.86 4.39 90% 95% 87%
Cullman................. Cullman, AL 92,466 sq. ft. 3.86 3.83 3.82 98% 100% 96%
Harbor Plaza............ Aurora, CO 45,863 sq. ft. 8.73 8.42 7.82 97% 78% 87%
Katella Plaza........... Orange, CA 52,169 sq. ft. 7.73 9.97 11.34 71% 71% 71%
Regency Point........... Jacksonville, FL 67,410 sq. ft. 11.39 11.26 10.63 84% 81% 95%
Southern Palms.......... Tempe, AZ 250,068 sq. ft. 7.83 7.73 7.45 87% 93% 84%
Westwood................ Tallahassee, FL 149,855 sq. ft. 6.42 5.31 5.00 74% 59% 81%

</TABLE>
- ------------

* Property was purchased in 1995.

Occupancy presented here and throughout this ITEM 2. is without reference to
whether leases in effect are at, below or above market rates.

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 table sets forth information at December 31, 1996, regarding the
Partnership's properties, grouped by region and type of property, including
number of properties, aggregate amount of leasable

[THIS SPACE INTENTIONALLY LEFT BLANK.]

<PAGE> 15

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

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 .......... 18 4,552 Units/ 88% $ 79,005
4.8 Million Sq.Ft
Office Building ..... 1 41,840 Sq.Ft. 88% 2,059
Shopping Centers .... 5 475,288 Sq.Ft. 73% 16,048

Southwest
Apartments .......... 22 5,801 Units/
4.5 Million Sq.Ft 94% 107,657
Office Buildings .... 4 307,172 Sq.Ft. 93% 7,535
Shopping Center ..... 1 250,068 Sq.Ft. 89% 6,955

Mountain
Apartments .......... 2 729 Units/
504,623 Sq.Ft 93% 12,114
Shopping Center ..... 1 45,863 Sq.Ft. 86% 1,335

Pacific
Apartments .......... 3 433 Units/
285,955 Sq.Ft 92% 4,580
Office Buildings .... 2 146,582 Sq.Ft. 90% 8,374
Shopping Center ..... 1 52,169 Sq.Ft. 71% 621

Midwest
Apartments .......... 22 5,333 Units/
5.2 Million Sq.Ft 90% 94,295
Shopping Center ..... 1 304,575 Sq.Ft. 91% 5,312
--------
$345,890
========
</TABLE>

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

The following discussion briefly describes the events that affected the
Partnership's properties during 1996.

The Partnership has a 75% general partner interest in Southern Palms
Associates, which owns Southern Palms Shopping Center. In August 1992, Southern
Palms Associates filed a voluntary petition in bankruptcy, seeking, among other
things, to restructure the $9.3 million nonrecourse mortgage secured by the
shopping center. In December 1993, an agreement was reached with the lender to
modify the $9.3 million first mortgage, reducing the interest rate and
extending the maturity date. Southern Palms Associates remains in bankruptcy in
order to resolve certain partnership issues involving the 25% general partner.

<PAGE> 16

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

In March 1996, the Partnership refinanced the mortgage debt secured by the
Whispering Pines Apartments in Canoga Park, California in the amount of $2.4
million. The Partnership received net cash of $37,000 after the payoff of $2.3
million in existing mortgage debt, which matured in December 1995, and related
closing costs associated with the financing. The new mortgage bears interest at
the rate of 7.5% per annum, requires monthly payments of principal and interest
of $19,000 and matures in April 2001. The Partnership paid BCM a mortgage
brokerage and equity refinancing fee of $24,000 based on the $2.4 million
mortgage.

In September 1996, the Partnership obtained mortgage financing for the
previously unencumbered Harbor Plaza Shopping Center in Aurora, Colorado in the
amount of $1.8 million. The Partnership received net cash of $1.6 million after
payment of various closing costs associated with the financing. The mortgage
bears interest at 9.41% per annum, requires monthly payments of principal and
interest of $15,831 and matures in October 2006. The Partnership paid BCM a
mortgage brokerage and equity refinancing fee of $18,000 based on the $1.8
million mortgage.

In September 1994, the Partnership sold the Creekwood Apartments in College
Park, Georgia, for $6.0 million. The Partnership accounted for the sale as a
financing transaction, due to the Partnership having provided financing of the
purchaser's down payment. In July 1996, the purchaser refinanced the existing
mortgage debt in the amount of $4.7 million. The Partnership received $1.2
million in excess financing proceeds from the refinancing. The Partnership
continues to account for the Creekwood Apartments as an owned property and the
September 1994 sale and July 1996 refinancing as financing transactions of the
Partnership, as the Partnership's down payment loan to the purchaser remains
outstanding.

As discussed below under "Mortgage Loans," in August 1996, the Partnership
foreclosed on the note receivable secured by commercial condominiums in Granby,
Colorado. The Partnership assigned nominal value to this asset. In December
1996, the Partnership sold the condominiums for $80,000 in cash, recognizing a
gain of $61,000 on the sale.

Mortgage Loans

In addition to real estate, a portion of the Partnership's assets consists 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.

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

<PAGE> 17

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

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.

Junior Mortgage Loans. Junior mortgage loans are loans secured by mortgages
that are subordinate to one or more prior liens either on the fee or a
leasehold interest in real estate. Recourse on such loans ordinarily includes
the real estate on which the loan is made, other collateral and personal
guarantees by the borrower.

At December 31, 1996, the Partnership's mortgage notes had an aggregate face
amount of $31.6 million and an aggregate net carrying value of $13.2 million,
net of deferred gains ($15.8 million), discounts ($142,000) 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, 1996), by property type and geographic
region, of the properties that serve as collateral for the three mortgage notes
receivable in the Partnership's mortgage notes receivable portfolio at December
31, 1996 excluding the $3.0 million in mortgage notes secured by land as
discussed below. See Schedule IV 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.

<TABLE>
<CAPTION>
Commercial
Region Apartments Properties Total
- ------ ---------- ---------- -----
<S> <C> <C> <C>
Mountain ..................... - % 18.2% 18.2%
Pacific ...................... 62.2 - 62.2
Midwest ...................... - 19.6 19.6
---- ----- -----
62.2% 37.8% 100.0%
</TABLE>

In February 1995, as a part of a lawsuit settlement with an insurance company,
the Partnership, among other things, acquired from the insurance company a
mortgage note secured by land in Granby, Colorado and a mortgage note secured
by commercial condominiums also in Granby, Colorado. In August 1996, the
Partnership completed foreclosure on the collateral properties securing the
notes. As discussed above under "Real Estate," in August 1996, the Partnership
sold the commercial condominiums.

In June 1996, the Partnership funded a $1.5 million loan to JNC
Enterprises, Ltd. ("JNC"), secured by a first mortgage on 67 acres of

<PAGE> 18

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

unimproved land in Collin County, Texas and by a second mortgage on 182 acres
of unimproved land in McKinney, Texas. The loan bears interest at 16.0% per
annum and matures in June 1997. All principal and accrued but unpaid interest
is due at maturity.

In November 1996, the Partnership made a second loan to JNC in the amount of
$2.0 million, $1.0 million of which was funded in November 1996, and the
remaining $1.0 million was funded in December 1996. The loan is secured by a
73.7% limited partner interest in a partnership which owns 272 acres of
undeveloped land in The Colony, Texas. The note bears interest at 16% per
annum, requires monthly payments of interest only and matures in November 1997.
This loan is cross-collateralized with the loan made to JNC in June 1996.

In January 1997, the Partnership funded a $1.2 million loan to Bordeaux
Investments Two, L.L.C. ("Bordeaux"). The loan is secured by (i) a 100% limited
partnership interest in Bordeaux, which owns a shopping center in Oklahoma
City, Oklahoma; (ii) 100% of the stock of Bordeaux Investments One, Inc., which
owns 6.5 acres of undeveloped land in Oklahoma City, Oklahoma; and (iii) the
personal guarantees of the Bordeaux partners. The loan bears interest at 14.0%
per annum, requires monthly payments of interest only at 12.0% per annum, with
the deferred interest payable annually on December 15, 1997 and 1998, and
matures in January 1999. The Partnership has the option to reduce the principal
balance of the loan by $50,000 in exchange for 75% ownership of Bordeaux.

In February 1997, the Partnership funded a third loan to JNC in the amount of
$2.5 million. The loan is secured by a 70.87% limited partner interest in a
limited partnership which owns 250 acres of undeveloped land in Fort Worth,
Texas. The note bears interest at 12% per annum, requires quarterly payments of
interest only and matures in October 1997.

In January 1997, the note receivable secured by the Nellis Bonanza Shopping
Center in Las Vegas, Nevada matured. The borrower did not make the required
principal payment. Therefore, at December 31, 1996, the note balance has been
classified as non-performing. The Partnership has instituted foreclosure
proceedings and anticipates that it will not incur a loss on foreclosure as the
estimated value of the collateral property exceeds the carrying value of the
note.

Investment in Marketable Equity Securities of ART

At December 31, 1996, the Partnership owned 195,732 shares of common stock of
ART, a real estate investment company, representing approximately 1.5% of ART's
outstanding shares. Mr. Phillips, a general partner of SAMLP, the General
Partner of the Partnership, served as Chairman of the Board and as a director
of ART until November 16, 1992. The executive officers of the Managing General
Partner are also executive officers of ART. See ITEM 12. "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." At December 31, 1996, the market
value of the ART common stock owned by the Partnership was $1.3 million.

<PAGE> 19

ITEM 2. PROPERTIES (Continued)

Investment in Marketable Equity Securities of ART (Continued)

ART owns a 96% limited partner interest in SAMLP. In addition, as of March 14,
1997, ART owned 3,441,169 of National Realty's units of limited partner
interest, approximately 54.4% 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, William S.
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. 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.

The Moorman Settlement Agreement is complex and the following summary is
qualified in its entirety by reference to the text thereof, which was
previously included as an exhibit to the Partnership's Form 10-Q for the
quarter ended March 31, 1990, as filed 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 through May 1995, 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 2,019,579 units (the "Warrants") to
Class Members, (viii) the contribution by certain co-defendants of cash and
notes

<PAGE> 20

ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

payable to the Partnership aggregating $5.5 million (including $2.5 million
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 until SAMLP has resigned as
General Partner and a successor general partner is elected and takes office,
and the Warrants were exercisable for five years from the date of issuance and
expired on February 14, 1997. Prior to their expiration a total of 1,631
warrants were exercised for the purchase of 1,226 units.

SAMLP, on behalf of itself and its general partners, has made the payments of
$2.5 million (including accrued interest), to the Partnership, as required by
the Moorman Settlement Agreement.

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 Targets for the first and second anniversary dates were not met. Since the
Targets were 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.

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

<PAGE> 21

ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

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 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 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 Redeemable General Partner Interest would be
calculated, as of the time SAMLP withdraws as General Partner under the
Partnership's governing documents. The Managing General Partner has calculated
the Redeemable General Partner Interest at December 31, 1996 to be $42.0
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, 1996) plus
all accrued but unpaid interest ($6.2 million at December 31, 1996) 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 previously has informed the Partnership that
it calculated the amount of such Redeemable General Partner Interest to be less
than the amount calculated by the Managing General Partner. 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.

On January 27, 1995, National Realty, SAMLP, the Oversight Committee and
William H. Elliott executed an Implementation Agreement which provides for the
nomination of an entity controlled by Mr. Elliott as successor general partner
and for the resolution of all related matters under the Moorman Settlement. On
February 20, 1996, the parties to the Implementation Agreement executed an
Amended and Restated Implementation Agreement.

<PAGE> 22

ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

partner will be submitted to the unitholders of National Realty for a vote. In
addition, the unitholders will vote upon amendments to the National Realty
Partnership Agreement which relate to the proposed compensation of the
successor general partner and other related matters.

Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as General Partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.

Upon approval by the unitholders, SAMLP shall withdraw as General Partner and
the successor general partner shall take office. If the required approvals are
obtained, it is anticipated that the successor general partner will be elected
and take office during the third quarter of 1997.

The Amended and Restated Implementation Agreement provides that SAMLP, and its
affiliates owning units in the Partnership shall not vote to remove the
successor general partner, except for removal with cause, for a period of 36
months from the date the successor general partner takes office.

Upon the election and taking office of the successor general partner, the
Moorman Settlement Plan and the Oversight Committee shall be terminated. If the
successor general partner nominee is not elected, the existing Moorman
Settlement shall remain in full force and effect and all of the provisions of
the Amended and Restated Implementation Agreement shall be voided.

On September 3, 1996, Joseph B. Moorman filed a Motion for Orders Compelling
Enforcement of the Moorman Settlement Agreement, Appointment to a Receiver and
Collateral Relief with the Superior Court of the State of California in and for
the County of San Mateo. The motion alleged that the settling defendants had
failed or refused to perform their obligations under the Moorman Settlement
Agreement and had breached the Moorman Settlement Agreement. The motion also
requested that SAMLP be removed as general partner and a receiver be appointed
to manage the Partnership. The motion also requested that ART be ordered to
deliver to the court all units which had been purchased by ART since August 7,
1991. A hearing was held on this motion on October 4, 1996. On January 2, 1997,
the Supervising Judge entered an order denying the motion.

On January 27, 1997, Joseph B. Moorman filed motions to (i) discharge the
Oversight Committee and (ii) vacate the Court's orders and renewed his prior
motions to compel enforcement of the Moorman Settlement Agreement, appoint a
receiver over the Partnership, and for collateral relief against ART. Also on
January 27, 1997, Robert A. McNeil filed motions to (i) be installed as
receiver for the Partnership, (ii) vacate the Court's orders, and (iii) disband
the Oversight Committee.

A hearing on the motions to discharge or disband the Oversight Committee and to
vacate the Court's orders was held on March 21, 1997, and the Supervising Judge
ruled that neither Mr. NcNeil nor Mr. Moorman had standing to bring the
motions. The Supervising Judge also set June 27, 1997 as the hearing date for
final approval of the Amended and Restated Implementation Agreement.

<PAGE> 23

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

Not applicable.

_________________________________

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."

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

<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ------------------ ---------- --------
<S> <C> <C> <C>
March 31, 1997 ................... $13 1/2 $ 12 7/8
(through March 14, 1997)

March 31, 1996 ................... 11 1/2 10 1/8
June 30, 1996 .................... 10 3/4 9 7/8
September 30, 1996 ............... 12 7/8 10 5/8
December 31, 1996 ................ 13 1/4 12 1/8

March 31, 1995 ................... 10 7/16* 10 3/16*
June 30, 1995 .................... 10 3/8 * 10 *
September 30, 1995 ............... 10 1/8 * 10 *
December 31, 1995 ................ 12 11/16* 10 1/16*
</TABLE>

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

* Restated for the three for one forward unit split effected January 2,
1996.

As of March 14, 1997, the closing price of National Realty's units of limited
partner interest on the AMEX was $12.88 per unit.

As of March 14, 1997, National Realty's units of limited partner interest were
held by 5,942 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 2,019,579 of National Realty's units of limited partner

<PAGE> 24

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

interest subject to adjustment. Each Warrant initially entitled the holder
thereof to purchase three quarters of one unit at the exercise price ($11.00
per Warrant). The initial exercise price was equal to $14.67 per unit and
increased to $16.00 per unit on February 14, 1993, subject to adjustment. The
Warrants were exercisable for five years from the date of issuance and expired
on February 14, 1997. Prior to their expiration a total of 1,631 Warrants were
exercised for the purchase of 1,226 units.

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 Committee
approves alternative uses for such operating cash flow. In 1993, the
Partnership resumed the payment of regular quarterly distributions. During
1996, the Partnership paid regular quarterly distributions of $.10 per unit. In
each of the first and second quarters of 1996, in addition to the regular
quarterly distribution, the Partnership paid an extra distribution of $.15 per
unit and in the third quarter of 1996, the Partnership paid an extra
distribution of $.40 per unit. The Partnership paid total distributions of
$1.10 per unit or $7.0 million in 1996.

The distributions paid by the Partnership in 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
Date Declared Record Date Payable Date Amount
- ---------------- ---------------- ---------------- ------
<S> <C> <C> <C>
March 1, 1996 March 15, 1996 March 31, 1996 $ .10
March 1, 1996 March 15, 1996 March 31, 1996 .15
June 3, 1996 June 14, 1996 June 28, 1996 .10
June 3, 1996 June 14, 1996 June 28, 1996 .15
July 23, 1996 August 5, 1996 August 12, 1996 .10
July 23, 1996 August 5, 1996 August 12, 1996 .40
December 2, 1996 December 13, 1996 December 31, 1996 .10

March 3, 1995 March 15, 1995 March 31, 1995 $ .07*
May 23, 1995 June 15, 1995 June 30, 1995 .07*
August 25, 1995 September 15, 1995 September 30, 1995 .07*
November 30, 1995 December 15, 1995 January 2, 1996 .07*
November 30, 1995 December 15, 1995 January 2, 1996 1.00*
</TABLE>

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

* Restated for the three for one forward unit split effected January 2,
1996.

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 300,000
additional units in open-market transactions. Through December 31, 1996, the
Partnership had purchased a total of 402,960 units at an total cost of $5.1
million. The Partnership has not repurchased any additional units under such
repurchase program since January 1993.

<PAGE> 25

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

In May 1996, the Partnership announced an offer to buy back its units of
limited partner interest from unitholders owning 99 or fewer units. The
Partnership paid a premium of $.50 per unit over the average closing price of
its units as reported on the AMEX from May 10, 1996 through June 28, 1996, the
expiration date of the offer. On July 12, 1996, the Partnership repurchased
77,725 units at a total cost of $841,000. The Partnership extended this
repurchase offer through August 5, 1996. On August 16, 1996, the Partnership
repurchased an additional 9,677 units at a total cost of $113,000.

[THIS SPACE INTENTIONALLY LEFT BLANK.]

<PAGE> 26

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(dollars in thousands, except per unit)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenues ................ $ 112,681 $ 110,892 $ 107,546 $ 103,044 $ 102,070

Expenses
Interest ............. 33,759 34,956 34,145 34,699 35,982
Property operations
63,136 63,320 60,793 60,374 59,193
General and
administrative .... 5,975 6,252 5,809 5,598 5,377
Depreciation and
amortization ...... 10,247 10,268 10,034 10,168 10,503
Provision for losses . -- -- -- -- 1,972
----------- ----------- ----------- ----------- -----------
Total expenses .... 113,117 114,796 110,781 110,839 113,027
----------- ----------- ----------- ----------- -----------

(Loss) from operations .. (436) (3,904) (3,235) (7,795) (10,957)
Gain on sale of real
estate ............... 61 7,701 8,252 -- 375
Litigation
settlement ........... -- -- -- -- 1,030
----------- ----------- ----------- ----------- -----------

Income (loss) before
extraordinary gain ... (375) 3,797 5,017 (7,795) (9,552)
Extraordinary gain ...... -- -- -- 9,046 6,385
----------- ----------- ----------- ----------- -----------
Net income (loss) ....... $ (375) $ 3,797 $ 5,017 $ 1,251 $ (3,167)
=========== =========== =========== =========== ===========

PER UNIT DATA
Income (loss) before
extraordinary gain ... $ (.06) $ .58 $ .77 $ (1.13) $ (1.33)
Extraordinary gain ...... -- -- -- 1.31 .89
----------- ----------- ----------- ----------- -----------
Net income (loss) ....... $ (.06) $ .58 $ .77 $ .18 $ (.44)
=========== =========== =========== =========== ===========

Distributions per
unit ................. $ 1.10 $ 1.28 $ .44 $ .07 $ --

Weighted average units
of limited partner
interest used in
computing earnings
per unit ............. 6,387,270 6,418,104 6,418,572 6,747,990 7,045,434
</TABLE>

<PAGE> 27

ITEM 6. SELECTED FINANCIAL DATA (Continued)

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate, net .... $224,764 $229,482 $241,535 $251,534 $251,059
Notes and interest
receivable, net .. 13,279 10,246 11,532 11,469 12,694
Total assets ........ 281,333 292,930 290,140 296,045 303,059
Notes and interest
payable .......... 325,921 326,500 326,775 335,200 333,642
Redeemable General
Partner interest . 37,855 31,997 28,800 21,600 14,700
Partners' (deficit) . (112,946) (99,267) (91,823) (86,902) (81,150)
</TABLE>

Units and per unit data have been restated for the three for one forward unit
split, effected January 2, 1996.

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

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, 1996, 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 44.6% compared
to 47.3% at December 31, 1995.

<PAGE> 28

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

Liquidity and Capital Resources (Continued)

Cash and cash equivalents aggregated $5.9 million at December 31, 1996 as
compared with $20.7 million at December 31, 1995.

The Partnership's principal sources of cash have been and will continue to be
from property operations and externally generated funds. Externally generated
funds include borrowings, proceeds from the sale of the Partnership's
properties and other assets and proceeds from the issuance of debt secured by
the Partnership's properties or mortgage notes receivable. The Partnership
expects that cash flow from property operations together with externally
generated funds will be sufficient to meet the Partnership's various cash needs
in 1997, including, but not limited to, the payment of distributions, debt
service obligations coming due, including the "Pension Notes," and property
maintenance and improvements, as more fully discussed in the paragraphs below.

Currently, all but five of the Partnership's properties are encumbered by
mortgage debt. In 1997, mortgage debt totaling $7.8 million comes due. Also
maturing in September 1997 are the "Pension Notes" issued in conjunction with
the formation of the Partnership. Such notes had a principal balance of $13.5
million at December 31, 1996. The Partnership intends to seek to refinance
certain mortgages that mature in the next two years or where there is an
interest rate advantage to the Partnership, and use excess refinancing proceeds
for working capital purposes.

During 1996, the Partnership received $8.1 million from mortgage refinancings
secured by one commercial property and two apartment complexes, of which $5.2
million was used to payoff existing mortgage debt secured by the properties. In
addition, the Partnership made scheduled principal paydowns on mortgage debt
totaling $5.0 million.

In June 1996, the Partnership funded a $1.5 million loan to JNC Enterprises,
Ltd. ("JNC"), secured by a first mortgage on 67 acres of undeveloped land in
Collin County, Texas and by a second lien on 182 acres of undeveloped land in
McKinney, Texas. In November 1996, the Partnership made a second loan in the
amount of $2.0 million to JNC, $1.0 million of which was funded in November
1996 and the remaining $1.0 million was funded in December 1996. This loan is
secured by a 73.7% limited partner interest in a partnership that owns 272
acres of undeveloped land in The Colony, Texas. In February 1997, the
Partnership funded a third loan to JNC in the amount of $2.5 million. This loan
is secured by a 70.87% limited partner interest in a limited partnership which
owns 250 acres of undeveloped land in Fort Worth, Texas.

<PAGE> 29

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

Liquidity and Capital Resources (Continued)

In May 1996, the Partnership announced an offer to buy back its units of
limited partner interest from unitholders owning 99 or fewer units. The
Partnership paid a premium of $.50 per unit over the average closing price of
its units as reported on the American Stock Exchange from May 10, 1996 through
June 28, 1996, the expiration date of the offer. On July 12, 1996, the
Partnership repurchased 77,725 units at a total cost of $841,000. The
Partnership extended the repurchase offer through August 5, 1996. On August 16,
1996, the Partnership repurchased an additional 9,677 units at a total cost of
$113,000.

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 $223.0 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 1996, the Partnership received distributions from GCLP
totaling $2.5 million compared to $2.9 million in 1995. A total of $2.8 million
of escrow deposits, excluding tax and insurance escrows, are required to be
funded by GCLP during 1997 in monthly installments. Such escrowed amounts are
included in escrow deposits and other assets in the accompanying Consolidated
Balance Sheets. GCLP's excess cash flow of approximately $7.2 million is
expected to be remittable to the Partnership during 1997.

In 1996, GCLP entered into negotiations to replace the credit enhancement
escrow with a $18.5 million letter of credit. The negotiations were finalized
in January 1997. The letter of credit provided by a financial institution in
the amount of $18.5 million is for a term of not less than two years. The
letter of credit may be drawn upon to pay operating shortfalls of GCLP's
properties. The available amount under the letter of credit will be reduced by
the amount of each draw on the letter of credit. The Partnership received net
cash of $11.3 million from the released credit enhancement escrow, after the
payment of various costs associated with the letter of credit.

The Partnership has paid regular quarterly distributions since the fourth
quarter of 1993. During 1996, the Partnership increased the amount of its
regular quarterly distributions to $.10 per unit from $.07 per unit. In each of
the first and second quarters of 1996, in addition to the regular quarterly
distribution, the Partnership paid an extra distribution of $.15 per unit and
in the third quarter of 1996, the Partnership paid an extra distribution of
$.40 per unit. The Partnership paid total distributions of $1.10 per unit or
$7.0 million in 1996.

Rents collected increased from $107.9 million in 1995 to $109.2 million in 1996
due to the Partnership's continued success in increasing and maintaining higher
rental rates during 1996 as compared to 1995. Rental rates at the Partnership's
apartment complexes, which account for over 80% of the Partnership's
properties, increased an average of 3.0% in

<PAGE> 30

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

Liquidity and Capital Resources (Continued)

1996 as compared to 1995 rental rates. At the Partnership's commercial
properties rental rates increased an average of 1.2% as compared to 1995 rental
rates. However, payments for property operating expenses increased from $64.8
million in 1995 to $65.5 million in 1996. This increase is primarily due to an
increase in payments for property taxes.

The Partnership's management reviews the carrying values of the Partnership's
properties and mortgage notes receivable at least annually and whenever events
or a change in circumstances indicate that impairment may exist. Impairment is
considered to exist if, in the case of a property, the future cash flow from
the property (undiscounted and without interest) is less than the carrying
amount of the property. For notes receivable impairment is considered to exist
if it is probable that all amounts due under the terms of the note will not be
collected. In those instances where impairment is found to exist, a provision
for loss is recorded by a charge against earnings. The Partnership's mortgage
note receivable review includes an evaluation of the collateral property
securing such note. The property review generally includes selective property
inspections, a review of the property's current rents compared to market rents,
a review of the property's expenses, a review of maintenance requirements, a
review of the property's cash flow, discussions with the manager of the
property and a review of properties in the surrounding area.

As more fully discussed in NOTE 13. "COMMITMENTS AND CONTINGENCIES - Moorman
Settlement," the Moorman litigation settlement agreement (the "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 achieved, 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 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, 1996 to be $42.0 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, 1996) plus all accrued and unpaid interest ($6.2 million at December 31,
1996) on the note receivable from the General Partner representing its

<PAGE> 31

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

Liquidity and Capital Resources (Continued)

capital contribution to the Partnership. 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.

On January 27, 1995, National Realty, SAMLP, the Oversight Committee and
William H. Elliott executed an Implementation Agreement which provides for the
nomination of an entity controlled by William H. Elliott as successor general
partner and for the resolution of all related matters under the Moorman
Settlement. On February 20, 1996, the parties to the Implementation Agreement
executed an Amended and Restated Implementation Agreement.

On September 23, 1996, the Supervising Judge entered an order granting
tentative approval of the Amended and Restated Implementation Agreement and the
form of notice to be sent to the original class members. However, the order
reserved jurisdiction to determine other matters which must be resolved prior
to final approval. Upon final approval by the Supervising Judge, the proposal
to elect the successor general partner will be submitted to the unitholders of
National Realty for a vote. In addition, the unitholders will vote upon
amendments to the National Realty Partnership Agreement which relate to the
proposed compensation of the successor general partner and other related
matters.

Upon approval by the unitholders, SAMLP shall resign as General Partner and the
successor general partner shall take office. If the required approvals are
obtained, National Realty anticipates that the successor general partner may be
elected and take office during the third quarter of 1997.

The Amended and Restated Implementation Agreement provides that SAMLP, and its
affiliates owning units in National Realty, shall not vote to

<PAGE> 32

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

Liquidity and Capital Resources (Continued)

remove the successor general partner, except for removal with cause, for a
period of 36 months from the date the successor general partner takes office.

Upon the election and taking office of the successor general partner, the
Moorman Settlement Plan and the Oversight Committee shall terminate. If the
successor general partner is not elected, the existing Moorman Settlement
Agreement shall remain in full force and effect and all of the provisions of
the Amended and Restated Implementation Agreement shall be voided.

On September 3, 1996, Joseph B. Moorman filed a Motion for Orders Compelling
Enforcement of the Moorman Settlement Agreement, Appointment to a Receiver and
Collateral Relief with the Superior Court of the State of California in and for
the County of San Mateo. The motion alleged that the settling defendants had
failed or refused to perform their obligations under the Moorman Settlement
Agreement and had breached the Moorman Settlement Agreement. The motion also
requested that SAMLP be removed as general partner and a receiver be appointed
to manage the Partnership. The motion also requested that American Realty
Trust, Inc. ("ART") be ordered to deliver to the court all units which had been
purchased by ART since August 7, 1991. A hearing was held on this motion on
October 4, 1996. On January 2, 1997, the Supervising Judge entered an order
denying the motion.

A hearing on the motions to discharge or disband the Oversight Committee and to
vacate the Court's orders was held on March 21, 1997, and the Supervising Judge
ruled that neither Mr. McNeil nor Mr. Moorman had standing to bring the motions.
The Supervising Judge also set June 27, 1997, as the hearing date for final
approval of the Amendment and Restated Implementation Agreement.

The outcome of this matter cannot presently be determined and the consolidated
financial statements do not include any adjustments that might result from the
outcome of this matter.

In November 1987, the Board of Directors of the Managing General Partner
approved the Partnership's repurchase 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 300,000
additional units in open-market transactions. Through December 31, 1996, the
Partnership had purchased a total of 402,960 units at a total cost of $5.1
million. The Partnership has not purchased any additional units under such
repurchase program since January 1993.

<PAGE> 33

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

Results of Operations

1996 COMPARED TO 1995. The Partnership reported a net loss of $375,000 for 1996
as compared to net income of $3.8 million for 1995. Included in the
Partnership's 1995 net income are gains on the sale of real estate of $7.7
million. The primary factors affecting the Partnership's operating results are
discussed in the following paragraphs.

Rents increased to $109.4 million for 1996 from $108.0 million in 1995. This
increase is primarily due to increased rental rates at the Partnership's
apartments and commercial properties. Rental rates at the Partnership's
apartment complexes, which represent over 80% of the Partnership's properties,
increased an average of 3.0% in 1996 as compared to 1995 rental rates. Rental
rates at the Partnership's commercial properties increased an average of 1.2%
in 1996 as compared to 1995 rental rates. Rents are expected to continue to
increase in 1997.

Interest income increased from $2.9 million in 1995 to $3.3 million in 1996.
This increase is primarily attributable to the notes funded in June and
November 1996, as well as increased short-term investment income primarily from
the credit enhancement escrow account. Interest income is expected to decrease
in 1997 due to notes maturing and release of the credit enhancement escrow
account as discussed in "Liquidity and Capital Resources," above. These
decreases will be offset in part by interest earned on loans funded in 1997.

Interest expense decreased from $35.0 million in 1995 to $33.8 million in 1996.
This decrease is due primarily to the sale of two apartment complexes in 1995,
as well as a decrease in the variable interest rate on the mortgage debt
secured by several apartment complexes and the variable rate portion of the
blanket mortgage secured by the GCLP properties. Interest expense is expected
to continue to decrease in 1997 due to the anticipated payoff of the pension
notes at maturity.

Depreciation and amortization, property taxes and insurance, utilities,
property-level payroll costs, repairs and maintenance, other property operation
expenses and property management fees for 1996 approximated those for 1995.

General and administrative expenses decreased from $6.3 million in 1995
to $6.0 million in 1996. This decrease is primarily due to a decrease
in cost reimbursements to Basic Capital Management, Inc. ("BCM"). This
decrease is partially offset by an increase in legal fees related to the
Moorman litigation. See NOTE 7. "LEGAL PROCEEDINGS."

In 1996, the Partnership recognized a gain on the sale of real estate of
$61,000 on the sale of commercial condominiums in Colorado, compared to gains
on sale of real estate in 1995 totaling $7.7 million from the sale of the
Harbour Pointe and Vineyards Apartments. See NOTE 3. REAL ESTATE AND
DEPRECIATION."

<PAGE> 34

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

Results of Operations (Continued)

1995 COMPARED TO 1994. The Partnership reported net income of $3.8 million for
1995 as compared to net income of $5.0 million for 1994. Contributing to the
Partnership's 1995 net income was a gain on sale of real estate of $7.7 million
compared to a gain on real estate of $8.3 million in 1994. See NOTE 3. "REAL
ESTATE AND DEPRECIATION."

Rents increased from $105.0 million in 1994 to $108.0 million in 1995. This
increase is primarily attributable to a 3.2% increase in average rental rates
combined with a 1.8% increase in average occupancy rates at the Partnership's
apartment complexes. In addition, an increase of $280,000 is attributable to
the acquisition of the Chalet II Apartments in March 1995. These increases are
partially offset by a decrease of $2.3 million due to the sale of the
Brandywine and Raintree Apartments in October 1994.

Interest income increased from $2.4 million in 1994 to $2.9 million in 1995. Of
this increase, $265,000 is due to interest earned on the Partnership's credit
enhancement escrow deposit, which increased $3.3 million from December 31, 1994
to December 31, 1995. An additional $211,000 is attributable to interest earned
on a $5.1 million note receivable, in which a senior participation previously
sold by the Partnership was returned in July 1995. See NOTE 4. "NOTES
RECEIVABLE."

Interest expense increased from $34.1 million in 1994 to $35.0 million in 1995.
Of this increase, $331,000 is due to an increase in interest expense on the
variable rate portion of the blanket mortgage secured by the GCLP properties.
An additional increase of $1.0 million is due to mortgage debt which was
refinanced in 1994 and 1995 and $89,000 is due to the acquisition of the Chalet
II Apartments in March 1995. These increases are offset by a decrease of
$713,000 due to the sale of Brandywine and Raintree Apartments in October 1994.

Repairs and maintenance expense increased from $21.9 million in 1994 to $23.9
million in 1995. This increase is attributable to the Partnership's effort to
obtain higher rental rates, which increased an average of 3.2% in 1995, and to
sustain occupancy levels in 1995. In addition, 1995 repairs and maintenance
expenses include fire and storm damage repairs made in 1995.

Property taxes and insurance, utilities, property-level payroll costs, other
property operation expenses and property management fees for 1995 approximated
those of 1994.

General and administrative expenses increased from $5.8 million in 1994 to $6.3
million in 1995. This increase is primarily attributable to an increase in
legal and consulting fees related to the Moorman litigation of $429,000 and an
increase in the Partnership's overhead reimbursements to BCM.

In 1995, the Partnership recognized gains on the sale of real estate totaling
$7.7 million on the sale of the Harbour Pointe and Vineyards

<PAGE> 35

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

Results of Operations (Continued)

Apartments, compared to gains on sale of real estate in 1994 totaling
$8.3 million on the sale of the Brandywine and Raintree Apartments. See
NOTE 3. "REAL ESTATE AND DEPRECIATION."

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 Managing 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.

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

<PAGE> 36

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

Current Value Reporting

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, 1995, was $654.1 million, and Revaluation Equity was
$310.0 million at such date.

In 1996, the Partnership retained an independent appraiser to determine the
Current Appraised Value of the Partnership's properties as of December 31,
1996, in a manner consistent with the methodology used to determine Current
Appraised Value as of December 31, 1995 and March 31, 1987. The Current
Appraised Value of the Partnership's properties at December 31, 1996 was $691.5
million and Revaluation Equity was $345.9 million at such date.

Taxes

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 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.

Recent Accounting Pronouncement

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of".
The statement requires that long-lived assets be considered impaired "...if the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset." If impairment exists,
an impairment loss shall be recognized, by a charge against earnings, equal to
"...the amount by which the carrying amount of the asset exceeds the fair value
of the asset." If impairment of a long-lived asset is recognized, the carrying
amount of the asset shall be reduced by the amount of the impairment, shall be
accounted for as the asset's "new cost" and such new cost shall be depreciated
over the asset's remaining useful life.

<PAGE> 37

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

Recent Accounting Pronouncement

SFAS No. 121 further requires that long-lived assets held for sale "...be
reported at the lower of carrying amount or fair value less cost to sell." If a
reduction in a held for sale asset's carrying amount to fair value less cost to
sell is required, a provision for loss shall be recognized by a charge against
earnings. Subsequent revisions, either upward or downward, to a held for sale
asset's fair value less cost to sell shall be recorded as an adjustment to the
asset's carrying amount, but not in excess of the asset's carrying amount when
originally classified as held for sale. A corresponding charge or credit to
earnings is to be recognized. Long-lived assets held for sale are not to be
depreciated. The Partnership adopted SFAS No. 121 effective January 1, 1996.

The adoption of SFAS No. 121 had no effect on the Partnership's depreciation or
reported net loss for 1996.

[THIS SPACE INTENTIONALLY LEFT BLANK.]

<PAGE> 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants ........................ 39

Consolidated Balance Sheets -
December 31, 1996 and 1995 ............................................ 40

Consolidated Statements of Operations -
Years Ended December 31, 1996, 1995 and 1994 ......................... 41

Consolidated Statements of in Partners' Equity (Deficit) -
Years Ended December 31, 1996, 1995 and 1994 ......................... 42

Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, 1995 and 1994 ......................... 43

Notes to Consolidated Financial Statements ................................ 45

Schedule III - Real Estate and Accumulated Depreciation ................... 65

Schedule IV - Mortgage Loans on Real Estate .............................. 70
</TABLE>

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.

<PAGE> 39

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, 1996 and 1995, 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, 1996.
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.

As described in Note 13. "COMMITMENTS AND CONTINGENCIES - Moorman Settlement,"
the Moorman Settlement requires the Partnership to purchase the Redeemable
General Partner Interest upon the election of a successor general partner.
Although the parties have reached an agreement on the amount to be paid and the
terms of payment, the agreement has not received final approval of the
Supervising Judge or the unitholders.

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, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

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

BDO Seidman, LLP

Dallas, Texas
March 14, 1997

<PAGE> 40

NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
--------- ---------
Assets (dollars in thousands)
<S> <C> <C>
Real estate held for investment
Land .................................... $ 51,342 $ 51,342
Buildings and improvements .............. 396,626 391,097
--------- ---------
447,968 442,439

Less - Accumulated depreciation ......... (223,204) (212,957)
--------- ---------
224,764 229,482

Notes and interest receivable, net of
deferred gains ($15,787 in 1996 and
1995) ................................... 15,189 12,156
Less - allowance for estimated losses ... (1,910) (1,910)
--------- ---------
13,279 10,246

Cash and cash equivalents .................. 5,872 20,699
Accounts receivable ........................ 2,040 1,220
Prepaid expenses ........................... 1,663 1,253
Escrow deposits and other assets ........... 18,496 14,930
Marketable equity securities of affiliate
(at market) ............................. 1,272 722
Deferred financing costs ................... 13,947 14,378
--------- ---------
$ 281,333 $ 292,930
========= =========

Liabilities and Partners' Equity (Deficit)
Liabilities
Notes and interest payable .............. $ 325,921 $ 326,500
Pension notes and related interest
payable, net ......................... 13,478 12,034
Accrued property taxes .................. 6,928 6,792
Tenant security deposits ................ 3,040 2,908
Accounts payable and other liabilities
(including $85 in 1996 and $272 in
1995 to affiliates) .................. 7,057 11,966
--------- ---------
356,424 360,200

Commitments and contingencies

Redeemable General Partner Interest ........ 37,855 31,997
Partners' equity (deficit)
General Partner ......................... 2,649 2,656
Limited Partners (6,328,303 units in
1996 and 6,417,981 units in 1995) .... (74,568) (66,204)
Unrealized gain on marketable equity
securities ........................... 1,003 453
--------- ---------
(70,916) (63,095)
Redeemable General Partner Interest ........ (42,030) (36,172)
--------- ---------
(112,946) (99,267)
--------- ---------
$ 281,333 $ 292,930
========= =========
</TABLE>

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

<PAGE> 41

NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
(dollars in thousands, except per unit)
<S> <C> <C> <C>
Revenues
Rents ................................ $ 109,384 $ 108,017 $ 105,014
Interest ............................. 3,297 2,875 2,430
Other ................................ -- -- 102
----------- ----------- -----------
112,681 110,892 107,546

Expenses
Interest ............................. 33,759 34,956 34,145
Depreciation ......................... 10,247 10,268 10,034
Property taxes & insurance ........... 12,511 12,196 11,976
Utilities ............................ 11,712 11,498 11,750
Repairs and maintenance .............. 23,726 23,875 21,896
Property-level payroll costs ......... 6,338 6,545 6,252
Other property operation expenses .... 4,160 4,563 4,401
Property management fees (including
$811 in 1996, $674 in 1995 and $619
in 1994 to affiliates) ............ 4,689 4,643 4,518
General and administrative (including
$3,329 in 1996, $3,907 in 1995 and
$3,596 in 1994 to affiliates) ..... 5,975 6,252 5,809
----------- ----------- -----------

113,117 114,796 110,781
----------- ----------- -----------

(Loss) from operations .................. (436) (3,904) (3,235)
Gain on sale of real estate ............. 61 7,701 8,252
----------- ----------- -----------

Net income (loss) ....................... $ (375) $ 3,797 $ 5,017
=========== =========== ===========

Earnings per unit
Net income (loss) ....................... $ (.06) $ .58 $ .77
=========== =========== ===========

Weighted average units of limited
partner interest used in computing
earnings per unit .................... 6,387,270 6,418,104 6,418,572
=========== =========== ===========
</TABLE>

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

<PAGE> 42

NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Unrealized
Gain on Redeemable
Marketable General Partners'
General Limited Equity Partner Equity
Partner Partners Securities Interest (Deficit)
--------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 ....... $ 2,480 $ (63,931) $ 324 $ (25,775) $ (86,902)

Adjustment to Redeemable
General Partner Interest ...... -- -- -- (7,200) (7,200)
Unrealized gain on marketable
equity securities of
affiliate ..................... -- -- 43 -- 43
Distributions ($.44 per unit) .... -- (2,781) -- -- (2,781)
Net income ....................... 100 4,917 -- -- 5,017
--------- --------- --------- --------- ---------

Balance at December 31, 1994 ..... 2,580 (61,795) 367 (32,975) (91,823)

Adjustment to Redeemable
General Partner Interest ...... -- -- -- (3,197) (3,197)
Unrealized gain on marketable
equity securities of
affiliate ..................... -- -- 86 -- 86
Distributions ($1.28 per unit) ... -- (8,130) -- -- (8,130)
Net income ....................... 76 3,721 -- -- 3,797
--------- --------- --------- --------- ---------

Balance at December 31, 1995 ..... 2,656 (66,204) 453 (36,172) (99,267)

Adjustment to Redeemable
General Partner Interest ...... -- -- -- (5,858) (5,858)
Repurchase of units of limited
partner interest .............. -- (954) -- -- (954)
Distributions ($1.10 per unit) ... -- (7,042) -- -- (7,042)
Unrealized gain on marketable
equity securities of affiliate -- -- 550 -- 550
Net (loss) ....................... (7) (368) -- -- (375)
--------- --------- --------- --------- ---------

Balance, December 31, 1996 ....... $ 2,649 $ (74,568) $ 1,003 $ (42,030) $(112,946)
========= ========= ========= ========= =========
</TABLE>

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

<PAGE> 43

NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1996 1995 1994
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Rents collected ........................... $ 109,230 $ 107,935 $ 105,415
Interest collected ........................ 3,098 2,754 2,354
Interest paid ............................. (29,238) (30,737) (30,673)
Payments for property operations
(including $811 in 1996, $674 in
1995 and $619 in 1994 to affiliates) .. (65,505) (64,803) (63,407)
General and administrative expenses
paid (including $3,329 in 1996,
$3,907 in 1995 and $3,596 in 1994
to affiliates) ......................... (5,892) (6,556) (5,894)
Other ..................................... -- -- 14
--------- --------- ---------
Net cash provided by operating
activities .......................... 11,693 8,593 7,809

Cash Flows From Investing Activities
Sales of real estate ...................... 61 6,947 4,544
Real estate improvements .................. (5,529) (4,105) (5,411)
Acquisition of real estate ................ -- (1,663) --
Acquisition and settlement of notes
receivable ............................. -- (1,207) --
Collections on notes receivable ........... 500 3,700 639
Funding of notes receivable ............... (3,500) -- --
--------- --------- ---------
Net cash provided by (used in)
investing activities ................ (8,468) 3,672 (228)

Cash Flows From Financing Activities
Borrowings from financial institutions .... 8,116 40,808 9,986
Payments from (to) affiliates, net ........ (191) 3,558 (4,648)
Payments of mortgage notes payable ........ (10,159) (37,242) (9,701)
Deferred financing costs (including
$89 in 1996 and $423 in 1995 to
affiliate) ............................. (1,459) (627) (727)
Repurchase of units of limited
partner interest ....................... (954) -- --
Distributions to unitholders .............. (13,405) (1,811) (2,781)
--------- --------- ---------
Net cash provided by (used in)
financing activities ................ (18,052) 4,686 (7,871)
--------- --------- ---------

Net increase (decrease) in cash and cash
equivalents ............................... (14,827) 16,951 (290)
Cash and cash equivalents at beginning of
year ...................................... 20,699 3,748 4,038
--------- --------- ---------

Cash and cash equivalents at end of year ..... $ 5,872 $ 20,699 $ 3,748
========= ========= =========
</TABLE>

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

<PAGE> 44

NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided by operating activities
Net income (loss) .......................... $ (375) $ 3,797 $ 5,017
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities
Depreciation and amortization ........ 10,465 10,254 9,972
Gain on sale of real estate .......... (61) (7,701) (8,252)
Amortization of deferred financing
costs ............................. 2,222 2,425 2,315
Increase in interest payable ......... 1,854 1,763 1,146
Increase in other liabilities ........ 1,146 876 749
(Increase) decrease in interest
receivable ........................ 13 76 (14)
(Increase) in other assets ........... (3,571) (2,897) (3,124)
-------- -------- --------
Net cash provided by operating
activities ........................ $ 11,693 $ 8,593 $ 7,809
======== ======== ========

Schedule of noncash investing activities
Notes payable assumed by buyer upon
sale of properties ...................... $ -- $ 8,165 $ --
Unrealized gain on marketable equity
securities of affiliate ................. 550 86 43

</TABLE>

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

<PAGE> 45

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements of National Realty, L.P. and
consolidated subsidiaries and partnerships (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 1995 and 1994 have been reclassified to conform to the
1996 presentation. Units and per unit data have been restated for the three for
one forward unit split effected January 2, 1996.

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" or "NOLP") 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 a general partner of SAMLP
with a .95% general partner interest. Syntek Asset Management, Inc. ("SAMI") is
the managing general partner of SAMLP, with a .10% general partner interest in
SAMLP. SAMI, of which Mr. Phillips served as a director, Chairman of the Board
and Chief Executive Officer until May 15, 1996, is a company owned by Basic
Capital Management, Inc. ("BCM"). American Realty Trust, Inc. ("ART"), a
publicly held real estate investment company of which Mr. Phillips served as
Chairman of the Board and director until November 16, 1992, owns a 96% limited
partner interest in SAMLP. Mr. Phillips and William S. Friedman own the
remaining 2.95% limited partner interest in SAMLP. Mr. Friedman was a general
partner of SAMLP until March 4, 1994.

SAMI, as Managing General Partner of SAMLP, manages the affairs of the
Partnership. The executive officers of SAMI also serve as executive officers of
BCM. BCM is a company 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 as officers of BCM until September 1, 1992 and May 1,
1993, respectively.

In November 1992, the Partnership refinanced 52 of its apartment complexes and
a wraparound mortgage note receivable with a financial institution. To
facilitate the refinancing, the Operating Partnership transferred those assets
to Garden Capital, L.P. ("GCLP"), a Delaware

<PAGE> 46

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. ORGANIZATION (Continued)

limited partnership. The Operating Partnership is the sole limited partner with
a 99.3% limited partner interest in GCLP. The Operating Partnership received
its limited partner interest in exchange for the transfer of the net assets of
the 52 apartment complexes and the wraparound mortgage note receivable to GCLP.
Garden Capital Management Incorporated ("GCMI"), a Nevada corporation, is the
.7% managing general partner of GCLP.

GCLP transferred the acquired net apartment assets, in exchange for a 99%
limited partner interest in 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 mortgage note receivable were effective November 25, 1992.

Except as described under NOTE 13. "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, SAMI's corporate parent, performs certain administrative functions for the
Partnership, such as accounting services, mortgage servicing and portfolio
review and analysis, on a cost reimbursement basis. Since February 1, 1990 BCM
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. 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. See NOTE 10. "GENERAL
PARTNER FEES AND COMPENSATION." GCMI performs administrative functions, similar
to those performed for the 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 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 Partner-

<PAGE> 47

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. ORGANIZATION (Continued)

ship. 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 partner interest and GCMI has a .7%
general partner 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 title
to 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 13. "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, 1996 and 1995.

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 13. "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.

GCMI received its .7% general partner interest in GCLP in exchange for a
mortgage note receivable. National Realty subsequently purchased the mortgage
note receivable 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 apartment complexes owned by each of the partnerships.

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

<PAGE> 48

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

consolidated entities. All significant intercompany balances and transactions
have been eliminated. Minority interests (which are not significant) are
included in other liabilities.

Accounting estimates. In the preparation of the Partnership's Consolidated
Financial Statements in conformity with generally accepted accounting
principles it was necessary for the Managing General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the Consolidated
Financial Statements and the reported amounts of revenues and expenses for the
year then ended. Actual results could differ from these estimates.

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 Held for Investment and Depreciation. Real estate held for
investment is carried at cost. Statement of Financial Accounting Standards No.
121 ("SAFS No. 121") requires that a property be considered impaired, if the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the property. If impairment
exists, an impairment loss is recognized, by a charge against earnings, equal
to the amount by which the carrying amount of the property exceeds the fair
value of the property. If impairment of a property is recognized, the carrying
amount of the property is reduced by the amount of the impairment, and a new
cost for the property is established. Such new cost is depreciated over the
property's remaining useful life. Depreciation is provided by the straight-line
method over estimated useful lives, which range from 7 to 40 years.

Real Estate Held for Sale. Foreclosed real estate is initially recorded at new
cost, defined as the lower of original cost or fair value minus estimated costs
of sale. SFAS No. 121 also requires that properties held for sale be reported
at the lower of carrying amount or fair value less costs of sale. If a
reduction in a held for sale property's carrying amount to fair value less
costs of sale is required, a provision for loss shall be recognized by a charge
against earnings. Subsequent revisions, either upward or downward, to a held
for sale property's estimated fair value less costs of sale is recorded as an
adjustment to the property's carrying amount, but not in excess of the
property's carrying amount when originally classified as held for sale. A
corresponding charge against or credit to earnings is recognized. Properties
held for sale are not to be depreciated.

<PAGE> 49

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for estimated losses. A valuation allowance is provided for estimated
losses on notes receivable considered to be impaired. Impairment is considered
to exist when it is probable that all amounts due under the terms of the note
will not be collected. Valuation allowances are provided for estimated losses
on notes receivable to the extent that the Partnership's investment in the note
exceeds the Partnership's estimate of net realizable value of the collateral
securing such note, or fair value of the collateral if foreclosure is probable.

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, which include bank, legal,
appraisal and consulting fees, 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
period end closing market value. Net unrealized holding gains are reported as a
separate component of partners' equity until realized.

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. For notes payable, the fair value was estimated using current
rates for mortgages with similar terms and maturities, which, at December 31,
1996 and 1995, approximated carrying value.

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

<PAGE> 50

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 by 6,387,270, 6,418,104 and 6,418,572
units for 1996, 1995 and 1994, respectively.

NOTE 3. REAL ESTATE AND DEPRECIATION

In 1991, the General Partner of the Partnership selected a group of assets
which it offered for sale in accordance with the terms of the Moorman
Settlement Agreement classifying those properties as held for sale. The
Partnership, among others, has entered into an agreement which provides for the
nomination of a successor general partner and for the resolution of all matters
under the Moorman Settlement Agreement. In contemplation of the election of
such successor general partner and termination of the Moorman Settlement Plan,
the Partnership classified all of the Partnership's properties as held for
investment at December 31, 1995. See NOTE 13. "COMMITMENTS AND CONTINGENCIES -
Moorman Settlement."

In March 1995, the Partnership purchased the Chalet II Apartments, a 72 unit
apartment complex in Topeka, Kansas, for $1.6 million. The Partnership paid
$439,000 in cash and obtained new mortgage financing of $1.2 million. The
mortgage bears interest at a variable rate, (10% per annum, at December 31,
1996), requires monthly payments of principal and interest, currently $12,000,
and matures in March 2002.

In December 1995, the Partnership sold the Harbour Pointe Apartments in Miami,
Florida for $5.2 million. The Partnership received $2.1 million in cash after
the payoff of $3.0 million in existing mortgage debt and the payment of various
closing costs associated with the sale. The Partnership recognized a gain of
$2.8 million on the sale.

Also in December 1995, the Partnership sold the Vineyards Apartments in
Broadview Heights, Ohio for $10.7 million. The Partnership received net cash of
$2.4 million after the payoff of $8.2 million in existing mortgage debt and the
payment of various closing costs associated with the sale. The Partnership
recognized a gain of $4.9 million on the sale.

In October 1994, the Partnership sold the Brandywine and Raintree Apartments,
both located in Meridian Township, Michigan, to a single buyer for a total of
$14.8 million. The Partnership received net cash of $4.5 million after the
payoff of $9.4 million in existing mortgage debt, the payment of $82,000 in
prepayment penalties and various closing costs associated with the sale. The
Partnership recognized gains totaling $8.3 million on the sale.

<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>
1996 1995
------------------- -------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Notes receivable
Performing ........... $ 26,189 $ 25,950 $ 28,216 $ 28,050
Nonperforming ........ 5,108 5,100 -- --
-------- -------- -------- --------
$ 31,297 31,050 $ 28,216 28,050
======== ======== ========

Interest receivable ..... 68 80
Unamortized (discounts).. (142) (187)
Deferred gains .......... (15,787) (15,787)
-------- --------
$ 15,189 $ 12,156
======== ========
</TABLE>

The Partnership does not recognize interest income on nonperforming notes
receivable. For 1994, unrecognized interest income on nonperforming notes
totaled $372,000. All notes were performing in 1996 and 1995.

Notes receivable mature from 1997 through 2002 with interest rates ranging from
9.0% to 16.0% with a weighted average interest rate of 11.1%. 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 receivable require monthly payments of interest only with "balloon"
principal payments at the end of their respective terms.

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. See NOTE 2. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue
Recognition on the Sale of Real Estate."

Effective December 1993, the Partnership ceased accruing interest income in
excess of the "pay rate" (cash received) on the note receivable secured by the
Warner Creek Apartments in Woodland Hills, California, as the carrying value of
the note receivable approximates the net realizable value of the collateral
securing such note. Unrecognized interest income was $541,000, $524,000 and
$466,000 in 1996, 1995 and 1994, respectively.

In June 1996, the Partnership funded a $1.5 million loan to JNC Enterprises,
Ltd. ("JNC"), secured by a first mortgage on 67 acres of unimproved land in
Collin County, Texas and by a second mortgage on 182 acres of unimproved land
in McKinney, Texas. The loan bears interest at 16.0% per annum and matures in
June 1997. All principal and accrued but unpaid interest is due at maturity.

<PAGE> 52

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. NOTES RECEIVABLE (Continued)

In November 1996, the Partnership made a second loan to JNC in the amount of
$2.0 million, $1.0 million of which was funded in November 1996 and the
remaining $1.0 million was funded in December 1996. The loan is secured by a
73.7% limited partner interest in a partnership which owns 272 acres of
undeveloped land in The Colony, Texas. The note bears interest at 16% per
annum, requires monthly payments of interest only and matures in November 1997.
This loan is cross-collateralized with the loan made to JNC in June 1996.

In February 1995, as part of a lawsuit settlement with an insurance company,
the Partnership, among other things, acquired from the insurance company a
mortgage note secured by land in Granby, Colorado and a mortgage note secured
by commercial condominiums also in Granby, Colorado. In August 1996, the
Partnership completed foreclosure on the collateral properties securing the
notes. Also in August 1996, the Partnership sold the commercial condominiums
for $80,000 in cash. The Partnership received net cash of $61,000 after payment
of related closing costs. The Partnership recognized a gain of $61,000 on the
sale having assigned nominal value to the condominiums.

In October 1995, the Partnership accepted a $3.7 million discounted payoff of
three wraparound mortgage notes secured by the Hurstbourne Business Park in
Louisville, Kentucky. The Partnership received $1.5 million in cash after the
payoff of $2.2 million in underlying mortgage debt. No loss was recorded as the
discounted note payoff was equal to the Partnership's net carrying value of the
loans.

NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES

The allowance for estimated losses was as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Balance December 31,...... $1,910 $1,910 $1,910
====== ====== ======
</TABLE>

NOTE 6. INVESTMENTS IN MARKETABLE EQUITY SECURITIES OF AFFILIATE

The Partnership owns 195,732 shares of the common stock of ART, a publicly held
real estate investment company, which the Partnership acquired in open market
purchases in 1990 at an adjusted cost of $269,000. The Partnership considers
the ART common stock to be available-for-sale and the shares are therefore
carried at fair value (period end market value). The market value of the ART
common stock was $1.3 million at December 31, 1996 and $722,000 at December 31,
1995. See NOTE 1. "ORGANIZATION."

NOTE 7. NOTES PAYABLE

Notes payable at December 31, 1996 and 1995 are collateralized by land,
buildings and improvements and are generally nonrecourse to the partnership.
The GCLP mortgage debt, as discussed below, is cross-

<PAGE> 53

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. NOTES PAYABLE
(Continued)

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, 1996 bear interest at stated rates ranging from
5.0% to 11.5% with a weighted average rate of 8.6% and such notes have
maturities or call dates ranging from one to 27 years.

In March 1996, the Partnership refinanced the mortgage debt secured by the
Whispering Pines Apartments in Canoga Park, California in the amount of $2.4
million. The Partnership received net cash of $37,000 after the payoff of $2.3
million in existing mortgage debt, which had matured in December 1995, and
related closing costs associated with the financing. The new mortgage bears
interest at the rate of 7.5% per annum, requires monthly payments of principal
and interest of $19,000 and matures in April 2001.

In April 1996, the mortgage debt secured by the Club Mar Apartments in
Sarasota, Florida was voluntarily placed into default to facilitate a request
for debt relief under the Housing and Urban Development ("HUD") Partial Payment
of Claim program. The request was necessitated due to the negative impact of
road improvements in front of the property which have been ongoing since
January 1995. The Partnership expects a modification of the mortgage to be
completed in the second quarter of 1997.

In September 1994, the Partnership sold the Creekwood Apartments in College
Park, Georgia, for $6.0 million. The Partnership has accounted for the sale as
a financing transaction, due to the Partnership having provided financing of
the purchaser's down payment. In July 1996, the purchaser refinanced the
existing mortgage debt in the amount of $4.7 million. The Partnership received
$1.2 million in excess financing proceeds from the refinancing, after the
payoff of the existing mortgage debt and the funding of various closing costs
associated with the loan. The Partnership continues to account for the
Creekwood Apartments as an owned property and the September 1994 sale and July
1996 refinancing as financing transactions of the Partnership, as the
Partnership's down payment loan to the purchaser remains outstanding.

The Partnership holds a wraparound mortgage note receivable secured by a
shopping center in Las Vegas, Nevada. The underlying note payable has

<PAGE> 54

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. NOTES PAYABLE (Continued)

matured. The lender has not issued a notice of default or demand for payment.
The mortgage payments continue to be made in accordance with the terms of the
matured note.

In 1995, the Partnership refinanced the mortgage debt secured by the Mallard
Lake Apartments in Greensboro, North Carolina in the amount of $8.2 million,
the Four Seasons Apartments in Denver, Colorado in the amount of $9.9 million,
the Nora Pines Apartments in Indianapolis, Indiana in the amount of $6.2
million, the Covered Bridge Apartments in Gainesville, Florida in the amount of
$4.7 million, the Marina Playa Office Building in Santa Clara, California in
the amount of $8.3 million and the Timbercreek Apartments in Omaha, Nebraska in
the amount of $5.0 million. The Partnership received net cash of $10.7 million
after the payoff of $27.8 million in existing mortgage debt including $315,000
in prepayment penalties. The remainder of the refinancing proceeds were used to
fund escrows for replacements and repairs and to pay various closing costs
associated with the refinancings. The new mortgages bear interest at rates
ranging from 7.75% to 8.75% per annum, require monthly payments of principal
and interest and mature from June 2005 to January 2006.

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 $223.0 million
blanket mortgage. GCLP used the refinancing proceeds to pay off the mortgage
debt of the 52 properties and the wraparound note receivable.

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 required monthly deposits of
$232,000 to be used for capital repairs, replacements and improvements. The
capital replacement escrow required monthly deposits which totaled $1.7 million
in 1994. No capital replacement escrow deposits were required in 1995 or 1996.
The credit enhancement escrow required monthly deposits (totaling $3.5 million
in 1996, $3.3 million in 1995 and $3.0 million in each of 1993 and 1994). In
1996, GCLP entered into negotiations to replace the credit enhancement escrow
with a $18.5 million letter of credit. The negotiations were finalized in
January 1997. The letter of credit provided by a financial institution in the
amount of $18.5 million is for a term of not less than two years. The letter of
credit may be drawn upon to pay operating shortfalls of GCLP's properties. The
available amount under the letter of credit will be reduced by the amount of
each draw on the letter of credit. The Partnership received net cash of $11.3
million from the released credit enhancement escrow, after the payment of
various costs associated with the letter of credit. A tax and insurance escrow
was also established which requires monthly payments based on projections of
real estate taxes and insurance.

<PAGE> 55

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. NOTES PAYABLE (Continued)

Under the blanket mortgage, GCLP is prohibited from further encumbering,
financing or selling any of the fifty-two properties or the wraparound note
receivable for a five year period ending November 22, 1997. At such time, GCLP
may retire the blanket mortgage in whole or part, with some restrictions.

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

<TABLE>
<C> <C>
1997 .................................................. $ 21,320
1998 .................................................. 14,274
1999 .................................................. 28,997
2000 .................................................. 6,399
2001 .................................................. 10,831
Thereafter ............................................ 255,207
--------
$337,028
</TABLE> ========

NOTE 8. 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
are issued under an Indenture between the Partnership and Bank of America Texas
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. At December 31, 1996, such redemption amount was $13.5
million, including accrued but unpaid interest.

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
$1,444,000, $1,289,000 and $1,151,000 was recognized on the Pension Notes in
1996, 1995 and 1994, respectively.

NOTE 9. WARRANTS

Pursuant to the Moorman Settlement Agreement, on February 14, 1992 the
Partnership issued warrants to purchase an aggregate of 2,019,579 of its units
of limited partner interest subject to adjustment. Each warrant initially
entitled the holder thereof to purchase three quarters of one

<PAGE> 56

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9. WARRANTS (Continued)

unit at the exercise price ($11.00 per warrant). The initial exercise price was
equal to $14.67 per unit and increased to $16.00 per unit on February 14, 1993,
subject to adjustment. The warrants were exercisable for five years from the
date of issuance and expired on February 14, 1997. Prior to their expiration a
total of 1,631 warrants were exercised for the purchase of 1,226 units. See
NOTE 13. "COMMITMENTS AND CONTINGENCIES - Moorman Settlement."

NOTE 10. GENERAL PARTNER FEES AND COMPENSATION

General. Gene E. Phillips is a general partner of SAMLP, the Partnership's
General Partner. Mr. Phillips served as a director, Chairman of the Board and
Chief Executive Officer of SAMI, the Partnership's Managing General Partner
until May 15, 1996. Mr. Phillips and the executive officers of SAMI also serve
as officers or directors of various other real estate entities. 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 properties, as provided in the Partnership
Agreement, the General Partner or an affiliate of the General Partner is to
receive a reasonable property management fee. Currently, Carmel Realty
Services, Ltd. ("Carmel, Ltd."), an affiliate of the General Partner, provides
such property management services for a fee of 5% of the monthly gross rents
collected on the properties under its management. 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 twelve of the Partnership's commercial
properties to Carmel Realty, Inc. ("Carmel Realty") which is a company owned by
SWI. Carmel Realty is entitled to receive property and construction management
fees and leasing commissions in accordance with the terms of its property-level
management agreement with Carmel, Ltd. 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, deprecia-

<PAGE> 57

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. GENERAL PARTNER FEES AND COMPENSATION (Continued)

tion, utilities and 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 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.

<PAGE> 58

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. GENERAL PARTNER FEES AND COMPENSATION (Continued)

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

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Property and construction
management fees* ........................ $ 744 $ 700 $ 725
Loan placement fees ........................ 89 423 30
Real estate commissions .................... -- 576 444
Leasing commissions ........................ 67 73 102
Reimbursement of administrative
expenses ................................ 2,610 3,232 2,868
------ ------ ------
$3,510 $5,004 $4,169
====== ====== ======
</TABLE>

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

* Net of property management fees paid to subcontractors, other than Carmel
Realty.

Cost reimbursements to GCMI, the general partner of GCLP:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reimbursement of administrative
expenses ................................ $719 $675 $728
==== ==== ====
</TABLE>

NOTE 11. RENTS UNDER OPERATING LEASES

The Partnership's operations include the leasing of commercial properties
(office buildings and shopping centers). The leases thereon expire at various
dates through 2013. The following is a schedule of minimum future rents on
non-cancelable operating leases as of December 31, 1996:

<TABLE>
<S> <C>
1997 .................................................. $ 9,599
1998 .................................................. 7,276
1999 .................................................. 5,837
2000 .................................................. 4,380
2001 .................................................. 4,363
Thereafter ............................................ 14,383
-------
$45,838
=======
</TABLE>

NOTE 12. INCOME TAXES

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

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 13. "COMMITMENTS AND

<PAGE> 59

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12. INCOME TAXES (Continued)

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, the Partnership meets this
qualification.

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

NOTE 13. 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, Gene E. Phillips, William S.
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. 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.

The Moorman Settlement Agreement is complex and the following summary is
qualified in its entirety by reference to the text thereof, which was
previously included as an exhibit to the Partnership's Form 10-Q for the
quarter ended March 31, 1990, as filed 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 through May 1995, 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,

<PAGE> 60

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

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 2,019,579 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 until SAMLP has
resigned as General Partner and a successor general partner is elected and
takes office, and the Warrants remained exercisable for five years from the
date of issuance and expired on February 14, 1997. Prior to their expiration a
total of 1,631 Warrants were exercised for the purchase of 1,226 units.

SAMLP, on behalf of itself and its general partners, has made the payments of
$2.5 million (including accrued interest), to the Partnership, as required by
the Moorman Settlement Agreement.

<PAGE> 61

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

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 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 Redeemable General Partner Interest would be
calculated, as of the time SAMLP withdraws as General Partner under the
Partnership's governing documents. The Managing General Partner has calculated
the Redeemable General Partner Interest at December 31, 1996 to be $42.0
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, 1996) plus
all accrued but unpaid interest ($6.2 million at December 31, 1996) 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 previously has informed the Partnership that it calculated
the amount of such Redeemable General Partner Interest to be less than the
amount calculated by the Managing General Partner. 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.

On January 27, 1995, National Realty, SAMLP, the Oversight Committee and
William H. Elliott executed an Implementation Agreement which provides

<PAGE> 62

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

for the nomination of an entity controlled by Mr. Elliott as successor general
partner and for the resolution of all related matters under the Moorman
Settlement. On February 20, 1996, the parties to the Implementation Agreement
executed an Amended and Restated Implementation Agreement.

The Amended and Restated Implementation Agreement provides that SAMLP, and its
affiliates owning units in National Realty, shall not vote to remove the
successor general partner, except for removal with cause, for a period of 36
months from the date the successor general partner takes office.

Upon the election and taking office of the successor general partner, the
Moorman Settlement Plan and the Oversight Committee shall terminate. If the
successor general partner nominee is not elected, the existing Moorman
Settlement Agreement shall remain in full force and effect and all of the
provisions of the Amended and Restated Implementation Agreement shall be
voided.

<PAGE> 63

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

of California in and for the County of San Mateo. The motion alleged that the
settling defendants had failed or refused to perform their obligations under
the Moorman Settlement Agreement and had breached the Moorman Settlement
Agreement. The motion also requested that SAMLP be removed as general partner
and a receiver be appointed to manage the Partnership. The motion also
requested that ART be ordered to deliver to the court all units which had been
purchased by ART since August 7, 1991. A hearing was held on this motion on
October 4, 1996. On January 2, 1997, the Supervising Judge entered an order
denying the motion.

A hearing on the motions to discharge or disband the Oversight Committee and to
vacate the Court's orders was held on March 21, 1997, and the Supervising Judge
ruled that neither Mr. McNeil nor Mr. Moorman had standing to bring the
motions. The Supervising Judge also set June 27, 1997 as the hearing date for
final approval of the Amended and Restate Implementation Agreement.

Other Litigation

The Partnership is also involved in various other lawsuits arising in the
ordinary course of business. In the opinion of the Managing General Partner,
the outcome of these lawsuits will not have a material effect on the
Partnership's financial condition, results of operations or liquidity.

NOTE 14. QUARTERLY DATA

The following is a tabulation of the Partnership's quarterly results of
operations for the years 1996 and 1995.

<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1996
Revenues ........................... $ 27,760 $ 27,935 $ 28,476 $ 28,510
Expenses ........................... 28,228 28,313 29,149 27,427
-------- -------- -------- --------

Income (loss) from operations ...... (468) (378) (673) 1,083
Gain on sale of real estate ........ -- -- -- 61
-------- -------- -------- --------
Net income (loss) .................. $ (468) $ (378) $ (673) $ 1,144
======== ======== ======== ========

Earnings per unit
Net income (loss) .................. $ (.07) $ (.06) $ (.10) $ .18
======== ======== ======== ========
</TABLE>

<PAGE> 64

NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. QUARTERLY DATA (Continued)

During the fourth quarter of 1996, the Partnership sold three commercial
condominiums for a gain of $61,000. See NOTE 3. "REAL ESTATE AND DEPRECIATION."
Also during the fourth quarter of 1996, the Partnership received $670,000 in
insurance reimbursements which reduced repair and maintenance expenses.

<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
1995 March 31 June 30 September 30 December 31
- ---- -------- -------- ----------- -----------

<S> <C> <C> <C> <C>
Revenues ....................... $ 26,913 $ 27,542 $ 28,118 $ 28,319
Expenses ....................... 28,117 28,919 29,157 28,603
-------- -------- -------- --------

(loss) from operations ......... (1,204) (1,377) (1,039) (284)
Gain on sale of real estate .... -- -- -- 7,701
-------- -------- -------- --------

Net income (loss) .............. $ (1,204) $ (1,377) $ (1,039) $ 7,417
======== ======== ======== ========

Earnings per unit
Net income (loss) .............. $ (.18) $ (.21) $ (.16) $ 1.13
======== ======== ======== ========
</TABLE>

In fourth quarter 1995, the Partnership sold two of its apartment
complexes for an aggregate gain of $7.7 million. See "NOTE 3. REAL
ESTATE AND DEPRECIATION."

NOTE 15. SUBSEQUENT EVENTS

In January 1997, the Partnership funded a $1.2 million loan to Bordeaux
Investments Two, L.L.C. ("Bordeaux"). The loan is secured by (i) a 100% limited
partnership interest in Bordeaux, which owns a shopping center in Oklahoma
City, Oklahoma; (ii) 100% of the stock of Bordeaux Investments One, Inc., which
owns approximately 6.5 acres of undeveloped land in Oklahoma City, Oklahoma;
and (iii) the personal guarantees of the Bordeaux partners. The loan bears
interest at 14.0% per annum, requires monthly payments of interest only at
12.0% per annum, with the deferred interest payable annually on December 15,
1997 and 1998, and matures in January 1999. The Partnership has the option to
reduce the principal balance of the loan by $50,000 in exchange for 75%
ownership of Bordeaux.

In January 1997, the note receivable secured by the Nellis Bonanza Shopping
Center in Las Vegas, Nevada matured. The borrower did not make the required
principal payment. Therefore at December 31, 1996, the note has been classified
as non-performing. The Partnership has instituted foreclosure proceedings and
anticipates that it will not incur a loss on foreclosure as the estimated value
of the collateral property exceeds the carrying value of the note.

64
<PAGE> 65
SCHEDULE III
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996

<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>
APARTMENTS
Alexandria ......... $ 6,489 $ 612 $ 6,778 $ 1,194 $ -- $ 612 $ 7,972 $ 8,584
Decatur, GA
Arlington Place .... 2,720 330 3,275 672 -- 330 3,947 4,277
Pasadena, TX
Barcelona .......... 4,049 1,400 5,600 272 -- 1,400 5,872 7,272
Tampa, FL
Bavarian ........... 6,811 547 5,528 185 -- 547 5,713 6,260
Middletown, OH
Bent Tree .......... 4,781 1,047 7,036 635 -- 1,047 7,671 8,718
Addison, TX
Blackhawk .......... 3,471 253 4,081 238 -- 253 4,319 4,572
Ft. Wayne, IN
Bridgestone ........ 1,356 169 1,780 169 -- 169 1,949 2,118
Friendswood, TX
Brookview Gardens .. 2,921 385 2,085 242 -- 385 2,327 2,712
Smyrna, GA
Candlelight Square . 1,926 148 1,928 169 -- 145 2,100 2,245
Lenexa, KS
Chalet I ........... 2,942 260 2,994 65 -- 260 3,059 3,319
Topeka, KS ......
Chalet II .......... 1,163 440 1,322 -- -- 440 1,322 1,762
Topeka, KS
Chateau ............ 1,913 130 1,723 104 -- 130 1,827 1,957
Bellevue, NE
Club Mar ........... 5,976 1,248 4,993 235 -- 1,248 5,228 6,476
Sarasota, FL
Confederate Point .. 4,109 246 3,736 609 -- 246 4,345 4,591
Jacksonville, FL,
Country Place ...... 1,990 246 3,268 49 -- 246 3,317 3,563
Round Rock, TX
Covered Bridge ..... 4,653 219 3,425 106 -- 219 3,531 3,750
Gainesville, FL
Creekwood .......... 4,641 489 1,955 786 -- 489 2,741 3,230
College Park, GA
Fair Oaks .......... 2,992 470 2,661 160 -- 470 2,821 3,291
Euless, TX
Four Seasons ....... 9,754 1,264 8,447 757 -- 1,264 9,204 10,468
Denver, CO
Fox Club ........... 6,530 902 7,294 819 -- 902 8,113 9,015
Indianapolis, IN
Foxwood ............ 3,428 218 3,188 400 -- 218 3,588 3,806
Memphis, TN
Hidden Valley ...... 4,189 274 3,636 289 -- 261 3,938 4,199
Grand Rapids, MI
Horizon East ....... 1,477 592 2,628 469 -- 592 3,097 3,689
Dallas, TX

<CAPTION>
Life on
Which
Date Depreciation
of in Latest
Con- Statement
Accumulated struct- Date of Operation
Depreciation tion Acquired is Computed
------------ ------- -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
APARTMENTS
Alexandria ......... $ 5,151 1973 09/77 7 - 40 years
Decatur, GA
Arlington Place .... 2,728 1973 11/76 7 - 40 years
Pasadena, TX
Barcelona .......... 963 1971 09/90 7 - 40 years
Tampa, FL
Bavarian ........... 2,677 1972 01/84 7 - 40 years
Middletown, OH
Bent Tree .......... 4,130 1980 06/80 7 - 40 years
Addison, TX
Blackhawk .......... 2,800 1972 12/78 7 - 40 years
Ft. Wayne, IN
Bridgestone ........ 1,027 1979 06/82 7 - 40 years
Friendswood, TX
Brookview Gardens .. 1,630 1964 12/77 7 - 40 years
Smyrna, GA
Candlelight Square . 1,318 1971 11/77 7 - 40 years
Lenexa, KS
Chalet I ........... 1,628 1964/ 04/82 7 - 40 years
Topeka, KS 74/78
Chalet II .......... 58 1986 03/95 7 - 40 years
Topeka, KS
Chateau ............ 988 1968 02/81 7 - 40 years
Bellevue, NE
Club Mar ........... 449 1973 07/93 7 - 40 years
Sarasota, FL
Confederate Point .. 2,762 1969 05/79 7 - 40 years
Jacksonville, FL,
Country Place ...... 1,712 1980 07/82 7 - 40 years
Round Rock, TX
Covered Bridge ..... 2,798 1972 10/79 7 - 40 years
Gainesville, FL
Creekwood .......... 759 1973 04/90 7 - 40 years
College Park, GA
Fair Oaks .......... 588 1978 07/89 7 - 40 years
Euless, TX
Four Seasons ....... 3,809 1970 07/84 7 - 40 years
Denver, CO
Fox Club ........... 3,796 1972 11/83 7 - 40 years
Indianapolis, IN
Foxwood ............ 2,312 1974 08/79 7 - 40 years
Memphis, TN
Hidden Valley ...... 2,147 1973 07/81 7 - 40 years
Grand Rapids, MI
Horizon East ....... 2,082 1972 05/78 7 - 40 years
Dallas, TX
</TABLE>

<PAGE> 66

SCHEDULE III
NATIONAL REALTY, L.P. (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<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>
APARTMENTS - Continued
Kimberly Woods ......... $ 3,192 $ 571 $ 3,802 $ 974 $ -- $ 571 $ 4,776 $ 5,347
Tucson, AZ
La Mirada .............. 5,474 392 5,454 1,278 -- 392 6,732 7,124
Jacksonville, FL
Lake Nora Arms ......... 9,901 737 10,774 759 -- 737 11,533 12,270
Indianapolis, IN
Lakewood Park .......... 3,031 800 3,200 68 -- 800 3,268 4,068
St. Petersburg, FL
Lantern Ridge .......... 1,481 130 1,721 40 -- 177 1,714 1,891
Richmond, VA
Mallard Lake ........... 8,054 534 7,099 768 -- 534 7,867 8,401
Greensboro, NC
Manchester Commons ..... 4,913 635 4,654 851 -- 635 5,505 6,140
Manchester, MO
Mesa Court ............. 1,745 492 1,968 146 -- 492 2,114 2,606
Mesa, AZ
Mesa Ridge ............. 2,332 955 3,820 237 -- 955 4,057 5,012
Mesa, AZ
Nora Pines ............. 6,059 221 3,872 352 -- 221 4,224 4,445
Indianapolis, IN
Oak Hollow ............. 7,469 745 6,118 747 -- 745 6,865 7,610
Austin, TX
Oakmont ................ 2,869 251 1,423 62 (100) 251 1,385 1,636
Monroe, LA
Oak Tree ............... 2,192 304 3,543 246 -- 304 3,789 4,093
Grandview, MO
Olde Towne ............. 3,603 209 3,272 308 -- 209 3,580 3,789
Middletown, OH
Outrigger .............. 3,130 683 4,871 647 -- 683 5,518 6,201
Tulsa, OK
Pheasant Ridge ......... 4,595 231 4,682 852 -- 231 5,534 5,765
Bellevue, NE
Pines .................. 2,632 278 3,490 243 -- 278 3,733 4,011
Little Rock, AR
Place One .............. 5,072 784 5,186 796 -- 784 5,982 6,766
Tulsa, OK
Quail Point ............ 2,158 184 2,716 249 -- 184 2,965 3,149
Huntsville, AL
Regency ................ 2,483 304 1,865 159 -- 304 2,024 2,328
Lincoln, NE
Regency Falls .......... 2,617 888 7,261 1,471 (100)(3) 888 8,632 9,520
San Antonio, TX
Rockborough ............ 5,817 702 4,495 861 -- 702 5,356 6,058
Denver, CO
Royal Oaks ............. 2,719 738 5,348 956 -- 738 6,304 7,042
Stone Mountain, GA

<CAPTION>
Life on
Which
Date Depreciation
of in Latest
Con- Statement
Accumulated struct- Date of Operation
Depreciation tion Acquired is Computed
------------ ------- -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
APARTMENTS - Continued
Kimberly Woods ......... $ 3,284 1973 12/77 7 - 40 years
Tucson, AZ
La Mirada .............. 4,215 1971 01/79 7 - 40 years
Jacksonville, FL
Lake Nora Arms ......... 7,410 1973 06/78 7 - 40 years
Indianapolis, IN
Lakewood Park .......... 492 1976 12/90 7 - 40 years
St. Petersburg, FL
Lantern Ridge .......... 1,398 1974 03/79 7 - 40 years
Richmond, VA
Mallard Lake ........... 4,717 1974 05/79 7 - 40 years
Greensboro, NC
Manchester Commons ..... 3,604 1972 06/78 7 - 40 years
Manchester, MO
Mesa Court ............. 372 1972 05/90 7 - 40 years
Mesa, AZ
Mesa Ridge ............. 724 1972 05/90 7 - 40 years
Mesa, AZ
Nora Pines ............. 2,735 1970 05/78 7 - 40 years
Indianapolis, IN
Oak Hollow ............. 4,389 1974 05/78 7 - 40 years
Austin, TX
Oakmont ................ 281 1974 06/89 7 - 40 years
Monroe, LA
Oak Tree ............... 1,736 1968 03/82 7 - 40 years
Grandview, MO
Olde Towne ............. 2,025 1968 03/81 7 - 40 years
Middletown, OH
Outrigger .............. 3,579 1974 11/77 7 - 40 years
Tulsa, OK
Pheasant Ridge ......... 3,141 1974 10/78 7 - 40 years
Bellevue, NE
Pines .................. 2,335 1977 11/77 7 - 40 years
Little Rock, AR
Place One .............. 4,287 1970 04/77 7 - 40 years
Tulsa, OK
Quail Point ............ 2,068 1960 08/75 7 - 40 years
Huntsville, AL
Regency ................ 1,016 1973 05/82 7 - 40 years
Lincoln, NE
Regency Falls .......... 5,750 1974 11/78 7 - 40 years
San Antonio, TX
Rockborough ............ 3,340 1973 01/78 7 - 40 years
Denver, CO
Royal Oaks ............. 4,191 1973 12/77 7 - 40 years
Stone Mountain, GA
</TABLE>

<PAGE> 67

SCHEDULE III
NATIONAL REALTY, L.P. (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996

<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>
APARTMENTS - Continued
Santa Fe ................. $ 2,815 $ 529 $ 5,351 $ 214 $ -- $ 529 $ 5,565 $ 6,094
Kansas City, MO
Shadowood ................ 3,690 477 3,208 207 -- 477 3,415 3,892
Addison, TX
Sherwood Glen ............ 3,915 352 2,550 518 -- 352 3,068 3,420
Urbandale, IA
Skipper's Pond ........... 2,662 360 3,123 128 -- 339 3,272 3,611
Tampa, FL
Stonebridge .............. 1,735 193 2,076 212 -- 193 2,288 2,481
Florissant, MO
Summerwind ............... 5,145 493 2,990 138 -- 493 3,128 3,621
Reseda, CA
Sun Hollow ............... 3,889 385 4,159 65 -- 385 4,224 4,609
El Paso, TX
Tanglewood ............... 17,206 5,682 18,340 3,578 -- 5,682 21,918 27,600
Arlington Heights, IL
Timber Creek ............. 4,938 154 2,327 604 -- 154 2,931 3,085
Omaha, NE
Towne Oaks ............... 2,687 188 3,576 170 -- 188 3,746 3,934
Monroe, LA
Villa Del Mar ............ 2,541 387 3,134 96 -- 387 3,230 3,617
Wichita, KS
Village Square ........... 2,039 769 5,566 1,235 -- 769 6,801 7,570
Stone Mountain, GA
Villas ................... 3,336 516 3,948 595 -- 516 4,543 5,059
Plano, TX
Whispering Pines ......... 2,371 311 1,255 163 -- 311 1,418 1,729
Canoga Park, CA
Whispering Pines ......... 4,949 228 4,330 622 -- 228 4,952 5,180
Topeka, KS
Windridge ................ 7,352 711 5,812 1,624 -- 711 7,436 8,147
Austin, TX
Windtree I & II .......... 5,159 460 2,739 181 -- 460 2,920 3,380
Reseda, CA
Wisperwood ............... 2,167 237 1,964 393 -- 258 2,336 2,594
Tampa, FL
Woodlake ................. 4,394 585 5,848 1,016 -- 585 6,864 7,449
Carrollton, TX
Woodsong II .............. 1,411 322 3,705 199 -- 322 3,904 4,226
Smyrna, GA
Woodstock ................ 3,122 888 5,193 395 -- 888 5,588 6,476
Dallas, TX

OFFICE BUILDINGS
56 Expressway ............ -- 406 3,976 557 (2,386)(3) 406 2,147 2,553
Oklahoma City, OK

<CAPTION>
Life on
Which
Date Depreciation
of in Latest
Con- Statement
Accumulated struct- Date of Operation
Depreciation tion Acquired is Computed
------------ ------- -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Santa Fe ................. $ 2,742 1964/ 04/83 7 - 40 years
Kansas City, MO 67
Shadowood ................ 2,020 1976 02/79 7 - 40 years
Addison, TX
Sherwood Glen ............ 2,156 1970 12/77 7 - 40 years
Urbandale, IA
Skipper's Pond ........... 2,297 1971 07/76 7 - 40 years
Tampa, FL
Stonebridge .............. 1,452 1975 10/77 7 - 40 years
Florissant, MO
Summerwind ............... 2,312 1976 02/77 7 - 40 years
Reseda, CA
Sun Hollow ............... 2,423 1977 09/79 7 - 40 years
El Paso, TX
Tanglewood ............... 13,966 1974 03/78 7 - 40 years
Arlington Heights, IL
Timber Creek ............. 1,977 1974 10/78 7 - 40 years
Omaha, NE
Towne Oaks ............... 1,932 1974 07/82 7 - 40 years
Monroe, LA
Villa Del Mar ............ 1,739 1971 10/81 7 - 40 years
Wichita, KS
Village Square ........... 4,362 1973 12/77 7 - 40 years
Stone Mountain, GA
Villas ................... 2,591 1977 04/79 7 - 40 years
Plano, TX
Whispering Pines ......... 122 1977 12/93 7 - 40 years
Canoga Park, CA
Whispering Pines ......... 3,198 1972 02/78 7 - 40 years
Topeka, KS
Windridge ................ 5,008 1974 09/78 7 - 40 years
Austin, TX
Windtree I & II .......... 2,070 1976 11/76 7 - 40 years
Reseda, CA
Wisperwood ............... 1,664 1975 07/76 7 - 40 years
Tampa, FL
Woodlake ................. 3,755 1979 08/78 7 - 40 years
Carrollton, TX
Woodsong II .............. 3,087 1975 08/80 7 - 40 years
Smyrna, GA
Woodstock ................ 3,273 1977 12/78 7 - 40 years
Dallas, TX

OFFICE BUILDINGS
56 Expressway ............ 1,907 1981 03/82 7 - 40 years
Oklahoma City, OK
</TABLE>

<PAGE> 68
SCHEDULE III
(Continued)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996

SHOPPING CENTERS
Countryside Plaza ............. 2,014 843 3,179 715 -- 843 3,894 4,737
Clearwater, FL
Crestview ..................... 708 239 1,512 108 -- 239 1,620 1,859
Crestview, FL
Cross County Mall ............. 7,473 608 6,468 5,878 -- 608 12,346 12,954
Mattoon, IL
Cullman ....................... 728 400 1,830 132 -- 400 1,962 2,362
Cullman, AL
Harbor Plaza .................. 1,822 817 2,587 380 -- 821 2,963 3,784
Aurora, CO
Katella Plaza ................. 1,644 -- 2,844 504 -- -- 3,348 3,348
Orange, CA
Regency Point ................. 2,442 647 5,156 2,263 -- 1,792 6,274 8,066
Jacksonville, FL
Southern Palms ................ 8,815 4,226 17,757 1,630 -- 4,285 19,328 23,613
Tempe, AZ
Westwood ...................... 779 -- 5,424 632 -- -- 6,056 6,056
-------- -------- -------- -------- -------- -------- -------- --------
Tallahassee, FL
$308,370(2) $ 50,103 $353,132 $ 54,713 $ (9,980) $ 51,342 $396,626 $447,968
======== ======== ======== ======== ======== ======== ======== ========

SHOPPING CENTERS
Countryside Plaza ............. 1,790 1978 05/85 7 - 40 years
Clearwater, FL
Crestview ..................... 970 1979 05/78 7 - 40 years
Crestview, FL
Cross County Mall ............. 6,539 1971 08/79 7 - 40 years
Mattoon, IL
Cullman ....................... 1,120 1979 02/79 7 - 40 years
Cullman, AL
Harbor Plaza .................. 1,619 1979 09/81 7 - 40 years
Aurora, CO
Katella Plaza ................. 2,039 1971 12/80 7 - 40 years
Orange, CA
Regency Point ................. 2,255 1982 06/84 7 - 40 years
Jacksonville, FL
Southern Palms ................ 9,203 1981 03/83 7 - 40 years
Tempe, AZ
Westwood ...................... 2,555 1980 10/83 7 - 40 years
--------
Tallahassee, FL
$223,204
========
</TABLE>

(1) The aggregate cost for financial statement purposes approximates that for
federal tax purposes.
(2) Does not include discounts and mortgages payable totaling $15,181 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.

<PAGE> 69
SCHEDULE III
(Continued)

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

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(dollars in thousands)

<S> <C> <C> <C>
Reconciliation of Real Estate

Balance at January 1 ............. $ 442,439 $ 451,572 $ 457,654

Acquisitions and improvements 5,529 5,705 5,411
Sales ........................ -- (14,838) (11,493)
--------- --------- ---------

Balance at December 31, .......... $ 447,968 $ 442,439 $ 451,572
========= ========= =========

Reconciliation of Accumulated
Depreciation

Balance at January 1, ............ $ 212,957 $ 210,037 $ 206,120

Depreciation ................. 10,247 10,268 10,034
Sales ........................ -- (7,348) (6,117)
--------- --------- ---------

Balance at December 31, ........... $ 223,204 $ 212,957 $ 210,037
========= ========= =========
</TABLE>

<PAGE> 70

SCHEDULE IV
NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE
December 31, 1996

Final
Interest Maturity
Description Rate Date Periodic Payment Terms
- ------------------- -------- -------- -----------------------------------------------
<S> <C> <C> <C>
FIRST MORTGAGE LOAN
JNC Enterprises, Ltd...... 16.00% 06/97 All principal and interest is due at maturity.
Secured by 67 acres of
unimproved land in Collin
County, TX and by a
second mortgage on 182
acres of unimproved
land in McKinney, TX

WRAPAROUND MORTGAGE LOANS
Nellis ................... 9.50% 01/97 Monthly interest only.
Secured by shopping
center in Las Vegas, NV

Warner Creek ............. 9.50% 11/02 Monthly interest only at pay rates ranging from
Secured by apartments 6.9% to 10.5%. Prepayment with 30 days notice,
in Woodland Hills, CA penalty of 3.00%.

Bridgeview ............... 9.00% 02/00 Monthly interest only. May prepay up to 25%
Secured by shopping to of the wrap equity upon 60 days written notice
center in La Crosse, WI 9.50% without penalty.

OTHER
JNC Enterprises, Ltd. .... 16.00% 11/97 Monthly interest only.
Secured by a 73.7%
limited partner interest
in a partnership which
owns 272 acres of
undeveloped land in
The Colony, TX

Interest receivable ......

Deferred gains ...........

Allowance for estimated
losses .................

<CAPTION>
Carrying Amount Principal Amount of
of Mortgage Net Loans Subject to
Prior Face Amount of unamortized Delinquent Principal
Description Liens of Mortgage discount or Interest
- --------------------------- ------- ----------- --------------- --------------------
(dollars in thousands)

<S> <C> <C> <C> <C>
FIRST MORTGAGE LOAN
JNC Enterprises, Ltd. ... $ -- $ 1,500 $ 1,000 $ --
Secured by 67 acres of
unimproved land in Collin
County, TX and by a
second mortgage on 182
acres of unimproved
land in McKinney, TX

WRAPAROUND MORTGAGE LOANS
Nellis .................. 1,191 5,100 5,100 --
Secured by shopping
center in Las Vegas, NV

Warner Creek ............ 11,518 17,503 17,450 --
Secured by apartments
in Woodland Hills, CA

Bridgeview .............. 2,472 5,500 5,358 --
Secured by shopping
center in La Crosse, WI

OTHER
JNC Enterprises, Ltd. ... -- 2,000 2,000 --
Secured by a 73.7%
limited partner interest
in a partnership which
owns 272 acres of
undeveloped land in
The Colony, TX -------- -------- -------- --------
$ 15,181 $ 31,603 30,908 $ --
======== ======== ========

Interest receivable ..... 68

Deferred gains .......... (15,787)

Allowance for estimated
losses ................ (1,910)
--------
$ 13,279
========
</TABLE>

<PAGE> 71
SCHEDULE IV
(Continued)

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

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(dollars in thousands)

<S> <C> <C> <C>
Balance at January 1, ............. $ 27,863 $ 29,525 $ 29,476

Additions
Amortization of discount ...... 45 45 73
Acquisition and settlement
of notes receivable ....... -- 2,268 --
Funding of notes receivable ... 3,500 -- --

Deductions

Collection of principal ....... (500) (3,975) (24)
-------- -------- --------

Balance at December 31, ........... $ 30,908 $ 27,863 $ 29,525
======== ======== ========
</TABLE>

71
<PAGE> 72

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" or
"NOLP") (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"). SAMI 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.]

72
<PAGE> 73
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

GENE E. PHILLIPS: Age 59, General Partner (since 1987) of SAMLP; and Chairman
of the Board, Director and Chief Executive Officer (March 1989 to May 1996) of
SAMI, the Managing General Partner of SAMLP and a company owned by BCM.

Director and Secretary (since 1982), Chief Executive Officer (since
September 1992), President (since July 1994) and the sole shareholder of
Syntek West, Inc. ("SWI"); Chairman of the Board (since 1978) and
President (since July 1994) of Restaurant Properties, Inc., formerly
Hungry Bull, Inc.; Limited Partner (since January 1991) of Carmel Realty
Services, Ltd. ("Carmel, Ltd."); 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"); 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"); and 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 Investors, Inc. ("IORI").

RANDALL M. PAULSON: Age 50, President and Director (since August 1995) and
Executive Vice President (January 1995 to August 1995) of SAMI.

President (since August 1995) and Executive Vice President (January 1995
to August 1995) of CMET, IORI and TCI and (October 1994 to August 1995)
of BCM; Executive Vice President (since January 1995) of ART; Vice
President (1993 to 1994) of GSSW, LP, a joint venture of Great Southern
Life and Southwestern Life; Vice President (1990 to 1993) of Property
Company of America Realty, Inc.; President (1990) of Paulson Realty
Group; President (1983 to 1989) of Johnstown Management Company; and
Vice President (1979 to 1982) of Lexton-Ancira.

BRUCE A. ENDENDYK: Age 48, Executive Vice President (since January 1995) of
SAMI.

President (since January 1995) of Carmel Realty, Inc.("Carmel Realty");
Executive Vice President (since January 1995) of BCM, ART, CMET, IORI
and TCI; Management Consultant (November 1990 to December 1994);
Executive Vice President (January 1989 to November 1990) of Southmark
Corporation ("Southmark"); President and Chief Executive Officer (March
1988 to January 1989) of Southmark Equities Corporation; and Vice
President/Resident Manager (December 1975 to March 1988) of Coldwell
Banker Commercial/Real Estate Services in Houston, Texas.

73
<PAGE> 74
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS
OF THE REGISTRANT'S GENERAL PARTNER (Continued)

THOMAS A. HOLLAND: Age 54, Executive Vice President and Chief Financial
Officer (since August 1995) and Senior Vice President and Chief Accounting
Officer (July 1990 to August 1995) of SAMI.

Executive Vice President and Chief Financial Officer (since August
1995), Secretary (since February 1997) and Senior Vice President (July
1990 to August 1995) of CMET, IORI and TCI; Executive Vice President and
Chief Financial Officer (since August 1995) and Senior Vice President
and Chief Accounting Officer (July 1990 to August 1995) of BCM and ART;
Senior Vice President and Chief Accounting Officer (July 1990 to
February 1994) of NIRT and VPT; Vice President and Controller (December
1986 to June 1990) of Southmark; Vice President-Finance (January 1986 to
December 1986) of Diamond Shamrock Chemical Company; Assistant
Controller (May 1976 to January 1986) of Maxus Energy Corporation
(formerly Diamond Shamrock Corporation); Trustee (August 1989 to June
1990) of Arlington Realty Investors; and Certified Public Accountant
(since 1970).

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 1996. 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. BCM, of which Mr. Phillips served as Chief Executive
Officer until September 1, 1992, and of which Mr. Paulson serves as President,
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,leasing 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."

74
<PAGE> 75
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)

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

<TABLE>
<S> <C>
MICKEY N. PHILLIPS: Director

RYAN T. PHILLIPS: Director

RANDALL M. PAULSON: President

MARK W. BRANIGAN: Executive Vice President - Residential Asset
Management

BRUCE A. ENDENDYK: Executive Vice President

THOMAS A. HOLLAND: Executive Vice President and Chief Financial
Officer

COOPER B. STUART: Executive Vice President

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

DAN S. ALLRED: Senior Vice President - Land Development

LYNN W. HUMPHRIES: Senior Vice President - Commercial Asset Management

ROBERT A. WALDMAN: Senior Vice President, Secretary and General
Counsel

DREW D. POTERA: Vice President, Treasurer and Securities Manager
</TABLE>

Mickey N. 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 Kenneth R. Kelly, Ronald T. Baker and
Joseph S. Radovsky. Mr. Kelly is the current Chairman and Secretary 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

75
<PAGE> 76
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)

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."

Pursuant to the Moorman Settlement Agreement, the Partnership pays each member
of the Oversight Committee $50,000 per year. The Partnership's obligation to
pay such compensation ceased May 9, 1995. However, the Supervising Judge
entered an order on May 19, 1995, providing that the obligation to pay such
compensation shall continue until the Moorman Settlement Plan has been
terminated and the Oversight Committee has been dissolved. 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:

KENNETH R. KELLY: Age 50, member (since July 1990), Chairman (since January
1995) and Secretary (since July 1990) of the Oversight Committee.

Attorney in private practice in Auburn, California. Mr. Kelly has been
involved in the real estate investment business throughout the United
States for the past twenty years. Mr. Kelly is a member of the State
Bar of California.

76
<PAGE> 77
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)

RONALD T. BAKER: Age 49, member (since July 1990) and Chairman (July 1990 to
January 1995) of the Oversight Committee.

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

Mr. Baker filed for bankruptcy protection on April 1, 1996.

JOSEPH S. RADOVSKY: Age 53, member (since July 1992) of the Oversight
Committee.

Partner with Greene, Radovsky, Maloney & Share, L.L.P., a law firm in
San Francisco, California.

Fairness Committee. National Realty's Fairness Committee periodically reviewed
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.

The Fairness Committee consisted of two members until February 1995, when
Raymond V. J. Schrag resigned. The remaining member of the Fairness Committee,
Willie K. Davis, resigned in August 1995.

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 and only member of the Audit
Committee is Harry J. Reidler, an attorney in private practice in Englewood,
New Jersey.

Mr. Reidler has performed legal services for the Partnership.

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

77
<PAGE> 78
ITEM 11. EXECUTIVE COMPENSATION (Continued)

the Oversight Committee plus $48,000 per year to an analyst engaged by 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 the period January 1, 1991 through December
31, 1996. 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.

Mr. Reidler received $4,000 in 1996 for serving on the Partnership's Audit
Committee. Messrs. Kelly, Baker and Radovsky each received $50,000 in 1996 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.]

78
<PAGE> 79
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,
1991 in the Partnership's units of limited partner interest and in each of the
indices and further assumes the reinvestment of all distributions. Past
performance is not necessarily an indicator of future performance.

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
THE PARTNERSHIP 100 168 212 270 335 424

DJ EQUITY MARKET INDEX 100 109 119 120 166 206

DJ REAL ESTATE INDEX 100 90 106 100 124 166
</TABLE>

79
<PAGE> 80
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 partner 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
14, 1997.

<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
- --------------------------- ----------------- ----------
<S> <C> <C>
American Realty Trust, Inc. 3,441,169 54.4%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

</TABLE>
- ----------------------------

(1) Percentage is based upon 6,330,085 units of limited partner interest
outstanding at March 14, 1997.

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 14, 1997.

<TABLE>
<CAPTION>
Percent of
Name of Beneficial Owner Number of Units Units (1)
- ----------------------------- --------------------- ----------
<S> <C> <C> <C>
SAMLP, the general 3,731,444 (2) 58.9%
partners of SAMLP, and
the executive officers
and directors of SAMI
as a group (4 individuals)

</TABLE>
- -----------------------

(1) Percentage is based upon 6,330,085 units of limited partner interest
outstanding as of March 14, 1997.

(2) Includes 3,441,169 units owned by ART and 290,275 units owned by BCM, of
which the general partners of SAMLP and the directors 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
directors and executive officers of SAMI, ART and BCM disclaim
beneficial ownership of such units.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Business Relationships

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

80
<PAGE> 81
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 it 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. As a result, Messrs. Phillips
and Friedman became the sole general partners of SAMLP, and each owned 2% of
the beneficial interest in SAMLP.

On July 18, 1989, Messrs. Phillips and Friedman each assigned .05% of their
general partner interest in SAMLP to SAMI, a company of which Mr. Phillips
served as a director, Chairman of the Board and Chief Executive Officer until
May 15, 1996, 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. Bruce A. Endendyk, Executive Vice President of SAMI,
was Executive Vice President from January 1989 to November 1990 of Southmark
and President and Chief Executive Officer of Southmark Equities Corporation
from March 1988 to January 1989. Thomas A. Holland, Executive Vice President
and Chief Financial Officer of SAMI, was Vice President and Controller of
Southmark from December 1986 to June 1990.

Since February 1, 1990, affiliates of the General Partner have provided
property management services to the Partnership. Currently, Carmel, Ltd.
provides property management services for a fee of 5% of the monthly gross
rents collected on the properties under its management. 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 company which is 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."

Messrs. Paulson, Endendyk and Holland serve as executive officers of BCM. Mr.
Phillips served as a director until December 1989 and Chief Executive Officer
until September 1, 1992, of BCM. Messrs. Paulson, Endendyk and Holland serve
as executive officers of CMET, IORI, TCI and ART. BCM serves as advisor to
CMET, IORI, TCI and ART.

Mr. Kelly, who serves as Chairman and Secretary of the Oversight Committee, has
provided professional services to the Partnership.

81
<PAGE> 82
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

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.

The Partnership has paid and pays cost reimbursements, property management fees
or other cash compensation to the General Partner and its affiliates and other
related parties as described in ITEM 11. "EXECUTIVE COMPENSATION" and ITEM 1.
"BUSINESS - Management and Operations." BCM, an affiliate of the General
Partner, 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 the General Partner have provided
property management services to the Partnership. Currently, Carmel, Ltd.,
provides such property management services. Carmel, Ltd. subcontracts with
other entities for the property-level management services to the Partnership.
Carmel, Ltd. subcontracts the property-level management and leasing of twelve
of the Partnership's commercial properties to Carmel Realty, which is a company
owned by SWI. Carmel Realty is entitled to receive property and construction
management fees and leasing commissions in accordance with the terms of its
property-level management agreement with Carmel, Ltd. Carmel, Ltd. does not
perform property management services to the properties of GCLP. Carmel, Ltd.
and Carmel Realty also perform similar services for ART, CMET, IORI and TCI.
See NOTE 10. "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 reviewed certain transactions
between the Partnership and its affiliates. See ITEM 1. "BUSINESS - Management
and Operations." The Fairness Committee approved the terms of the Partnership's
contracts and terms for services and reimbursements with affiliates. Messrs.
Schrag and Davis, the members of the Fairness Committee, resigned from the
committee in February and August 1995, respectively.

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."

82
<PAGE> 83
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

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 amount of $4.2 million,
bearing interest at the rate of 10% per annum compounded semi-annually and
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, 1996, no payments had been received on such note. At December 31,
1996, accrued and unpaid interest on the note totaled $6.2 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, 1996 and 1995

Consolidated Statements of Operations -
Years Ended December 31, 1996, 1995 and 1994

Consolidated Statements of Changes in Partners' Equity (Deficit) -
Years Ended December 31, 1996, 1995 and 1994

Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, 1995 and 1994

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Schedule III - Real Estate and Accumulated Depreciation

Schedule IV - 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.

83
<PAGE> 84
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:

<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -------------------------------------------------------------
<S> <C>
3.0 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).

3.1 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).

3.2 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).

4.0 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).

4.1 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).

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

10.0 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 10.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).

11.0 Computation of Earnings Per Unit, filed herewith.

21.0 Subsidiaries of the Registrant, filed herewith.

27.0 Financial Data Schedule, filed herewith.
</TABLE>

84
<PAGE> 85
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM
8-K (Continued)

<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -------------------------------------------------------------
<S> <C>
99.0 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).

99.1 Limited Partnership Agreement of Garden Capital, L.P. between
Garden Capital Management Incorporated and National Operating,
L.P. (incorporated by reference to Exhibit 28.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992).

99.2 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).

99.3 Amended and Restated Implementation Agreement, dated February 20,
1996, among National Realty, L.P., Syntek Asset Management, L.P.,
National Realty, L.P. Oversight Committee and William H. Elliott
(incorporated by reference to Exhibit 99.2 to the Registrant's
Current Report on Form 8-K, dated February 27, 1996).
</TABLE>

(b) Reports on Form 8-K

None.

85
<PAGE> 86
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/ Randall M. Paulson
-------------------------------------------
Randall M. Paulson
Director and President

/s/ Gene E. Phillips
-------------------------------------------
Gene E. Phillips
General Partner of
Syntek Asset Management, L.P.

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
--------- ----- ----
SYNTEK ASSET MANAGEMENT, INC. Managing General Partner of
Syntek Asset Management, L.P.

By: /s/ Randall M. Paulson March 25, 1997
-----------------------------
Randall M. Paulson
Director and President

/s/ Gene E. Phillips General Partner of March 25, 1997
- -------------------------------
Gene E. Phillips Syntek Asset Management, L.P.

86
<PAGE> 87
NATIONAL REALTY, L.P.

EXHIBITS TO
ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 1996

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------------
<S> <C>
11.0 Computation of Earnings Per Unit.

21.0 Subsidiaries of the Registrant.

27.0 Financial Data Schedule
</TABLE>

<PAGE> 1
Exhibit 11.0

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

<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1996 1995 1994
(dollars in thousands, except per unit)

<S> <C> <C> <C>
Income (loss) before extraordinary
gain $ (375) $ 3,797 $ 5,017

Less - General Partners' 1.99%
interest (7) 76 100
----------- ----------- -----------

Income (loss) allocable to Limited
Partners $ (368) $ 3,721 $ 4,917
=========== =========== ===========

Earnings per unit

Net income (loss) $ (.06) $ .58 $ .77
=========== =========== ===========

Weighted average units of limited
partner interest used in computing
earnings per unit 6,387,270 6,418,104 6,418,572
=========== =========== ===========
</TABLE>

<PAGE> 1
EXHIBIT 21.0

SUBSIDIARIES OF THE REGISTRANT

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

2. Covered Bridge NLP, Inc.; Four Seasons NLP, Inc.; Mallard Subsidiary
Corporation; Marina Playa NLP, Inc.; Nora Pines NLP, Inc.; SM Subsidiary
Corp., Timbercreek NLP, Inc., all of which are Nevada corporations,
wholly-owned by National Operating, L.P.

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

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

5. Bavarian Woods National Associates, an Ohio general partnership;
Brookview National Associates, a Georgia general partnership; Chalet II
Associates, a Kansas general partnership; NLP Covered Bridge National
Associates, a Texas limited partnership; Four Seasons National
Associates, a Texas limited partnership; Granada National Associates, a
Nebraska general partnership; King Village National Associates, an
Alabama general partnership; Mallard Diversified, L.P., a Illinois
limited partnership; NLP Harbor Plaza National Associates, L.P., a Texas
limited partnership; NLP Marina Playa National Associates, L.P., a Texas
limited partnership; Nora Pines National Associates, an Indiana general
partnership; Regency National Associates, a Nebraska general
partnership; Sherwood Glen National Associates, an Iowa general
partnership; NLP Timber Creek National Associates, a Nebraska general
partnership; The Vineyards National Associates, an Ohio general
partnership; Country Associates, L.P., a Texas general partnership;
Southern Palms Associates, an Arizona general partnership; Shoreview
Towers Associates II, a Florida limited partnership; Cross County
National Associates, L.P., an Illinois limited partnership; Pines
Whisper Limited Partnership, a California limited partnership.

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

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,872
<SECURITIES> 1,272
<RECEIVABLES> 15,189
<ALLOWANCES> 1,910
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 447,968
<DEPRECIATION> 223,204
<TOTAL-ASSETS> 281,333
<CURRENT-LIABILITIES> 0
<BONDS> 339,399
0
0
<COMMON> 0
<OTHER-SE> (112,940)
<TOTAL-LIABILITY-AND-EQUITY> 281,333
<SALES> 0
<TOTAL-REVENUES> 109,384
<CGS> 0
<TOTAL-COSTS> 63,136
<OTHER-EXPENSES> 10,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,759
<INCOME-PRETAX> (375)
<INCOME-TAX> 0
<INCOME-CONTINUING> (375)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (375)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)

</TABLE>