NATIONAL REALTY L P, 10-K405, 1998-03-26

NATIONAL REALTY L P
10-K405, 1998-03-26
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, 1997

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:

<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
- --------------------------------- ------------------------
<S> <C>
Units of Limited Partner Interest American Stock Exchange
</TABLE>

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 6, 1998, the Registrant had 6,323,437 units of limited partner
interest outstanding. Of the total units outstanding, 2,584,493 were held by
other than those who may be deemed to be affiliates, for an aggregate value of
$52,336,000 based on the last trade as reported on the American Stock Exchange
on March 6, 1998. 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

1
<PAGE> 2

INDEX TO
ANNUAL REPORT ON FORM 10-K

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

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

Item 2. Properties......................................... 9

Item 3. Legal Proceedings.................................. 22

Item 4. Submission of Matters to a Vote of Security Holders 27

PART II

Item 5. Market for Registrant's Units of Limited Partner
Interest and Related Security Holder Matters.... 27

Item 6. Selected Financial Data............................ 29

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 30

Item 8. Financial Statements and Supplementary Data........ 40

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. 78

PART III

Item 10. General Partner of the Registrant and Executive
Officers of the Registrant's General Partner.... 78

Item 11. Executive Compensation............................. 84

Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................... 87

Item 13. Certain Relationships and Related Transactions..... 87

PART IV

Item 14. Exhibits, Consolidated Financial Statements,
Schedules and Reports on Form 8-K............... 90

Signature Page...................................................... 93
</TABLE>

2
<PAGE> 3

PART I

ITEM 1. BUSINESS

General

National Realty, L.P. ("National Realty" or the "Registrant") is a Delaware
limited partnership formed on January 29, 1987, the business of which is
primarily owning and operating through National Operating, L.P., also a Delaware
limited partnership (the "Operating Partnership" 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 6, 1998, 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. As of March 6, 1998, 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."

3
<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 51 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, real estate brokerage and has performed
property acquisition and 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 Gene E. Phillips. Mr. Phillips served as a director of BCM until
December 22, 1989 and as Chief Executive Officer of BCM until September 1, 1992.

4
<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 and financing real estate through mortgage
loans. 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 that were either funded by the Partnership or that arose from the sale of
Partnership properties which are secured by various apartment complexes,
commercial properties, land and partnership interests in income producing
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 and mortgage notes
receivable portfolios. The Partnership intends to increase its lending activity
to take advantage of favorable interest rate spreads or profit participation
opportunities. The Partnership cannot, however, fund loans out of its operating
cash flow without the approval of the Oversight Committee (defined in ITEM 3.
"LEGAL PROCEEDINGS - Moorman Settlement"). The Partnership's primary emphasis,
however, remains 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 Oversight Committee approved alternative uses for such operating cash
flow. In the fourth quarter of 1993, the Partnership resumed the payment of
regular quarterly distributions. In each quarter of 1997, the Partnership
declared a regular quarterly distribution of $.10 per

5
<PAGE> 6

ITEM 1. BUSINESS (Continued)

Business Plan (Continued)

unit. In the fourth quarter of 1997, in addition to the regular quarterly
distribution, the Partnership declared a special distribution of $1.50 per unit.
The Partnership declared total distributions of $1.90 per unit or a total of
$12.0 million in 1997.

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) First Equity Properties, Inc. ("First Equity"), which is 50% owned by BCM,
(ii) Gene E. Phillips and (iii) a trust for the benefit of the children of Mr.
Phillips. Carmel, Ltd. subcontracts the property-level management and leasing of
nine of the Partnership's commercial properties to Carmel Realty, Inc. ("Carmel
Realty"), which is a company owned by First Equity. 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.

6
<PAGE> 7

ITEM 1. BUSINESS (Continued)

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 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

7
<PAGE> 8

ITEM 1. BUSINESS (Continued)

Competition (Continued)

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.

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 well as
aggressive buyers attempting to penetrate or dominate a particular market.

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.

8
<PAGE> 9

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, 1997, are set forth in Schedules III and IV,
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 66 apartment
complexes, five office buildings and eight 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, 1997, no single asset of the Partnership accounted for 10% or
more of its total assets. At December 31, 1997, 75% of the Partnership's assets
consisted of real estate and 9% consisted of mortgage notes and interest
receivable. The remaining 16% of the Partnership's assets at December 31, 1997
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.]

9
<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 17 apartment complexes and 5 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 3 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, 1997, the Partnership owned 79 properties located in 22 states.
These properties consisted of 66 apartment complexes comprising 16,538 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 $320.5 million, five office buildings with an aggregate of
367,271 square feet with a total Revaluation Equity of $8.0 million and eight
shopping centers with an aggregate of 1.1 million square feet with a total
Revaluation Equity of $37.0 million.

All of the Partnership's properties are encumbered by mortgage debt. Generally,
the ability to make debt service payments under a mortgage loan will be
dependent upon the performance of the property, which is subject to the risks
associated with real estate investments, many of which are beyond the control of
the Partnership. In the event of default under one of these mortgages, with the
exception of GCLP

10
<PAGE> 11

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

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, 1997.

<TABLE>
<CAPTION>
Commercial
Region Apartments Properties
------ ---------- ----------
<S> <C> <C>
Southeast.................... 27.0% 35.4%
Southwest.................... 34.4 28.3
Midwest...................... 31.7 20.1
Mountain..................... 4.3 3.1
Pacific...................... 2.6 13.1
------ ------
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.]

11
<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, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy %
Units/ ------------------------ --------------------------
Property Location Square Footage 1997 1996 1995 1997 1996 1995
- ----------------- -------------- --------------- ----- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
- ----------
Alexandria.......... Decatur, GA 406 units/
562,700 sq. ft. $ .44 $ .44 $ .43 96 92 96
Arlington Place..... Pasadena, TX 230 units/
205,476 sq. ft. .63 .62 .60 95 91 95
Barcelona........... Tampa, FL 368 units/
346,144 sq. ft. .50 .49 .47 94 93 96
Bavarian............ Middletown, OH 259 units/
229,560 sq. ft. .63 .62 .60 92 96 92
Bent Tree........... Addison, TX 292 units/
244,480 sq. ft. .70 .66 .60 96 97 100
Blackhawk........... Ft. Wayne, IN 209 units
190,520 sq. ft. .54 .53 .53 96 95 94
Bridgestone......... Friendswood, TX 76 units/
65,519 sq. ft. .64 .64 .62 99 94 97
Brookview Gardens... Smyrna, GA 156 units/
155,600 sq. ft. .63 .59 .54 92 89 94
Candlelight Square.. Lenexa, KS 119 units/
114,630 sq. ft. .58 .55 .53 94 97 96
Chalet I............ Topeka, KS 162 units/
131,791 sq. ft. .62 .61 .61 96 96 94
Chalet II........... Topeka, KS 72 units/
49,164 sq. ft. .68 .67 .67 93 89 97
Chateau............. Bellevue, NE 115 units/
99,220 sq. ft. .69 .63 .60 95 99 97
Club Mar............ Sarasota, FL 248 units/
230,180 sq. ft. .61 .59 .57 99 91 95
Confederate Point... Jacksonville, FL 206 units/
277,860 sq. ft. .46 .45 .44 91 94 98
Country Place....... Round Rock, TX 152 units/
119,808 sq. ft. .71 .71 .68 88 93 95
Covered Bridge...... Gainesville, FL 176 units/
171,416 sq. ft. .64 .63 .60 98 94 100
Creekwood........... College Park, GA 300 units/
285,840 sq. ft. .54 .48 .50 89 91 94
Fair Oaks........... Euless, TX 208 units/
166,432 sq. ft. .61 .58 .55 96 96 98
Four Seasons........ Denver, CO 384 units
254,900 sq. ft. .80 .78 .77 98 94 93
Fox Club............ Indianapolis, IN 336 units/
317,600 sq. ft. .54 .54 .54 95 88 91
Foxwood............. Memphis, TN 220 units/
212,000 sq. ft. .54 .51 .49 94 93 95
Hidden Valley....... Grand Rapids, MI 176 units/
260,970 sq. ft. .52 .52 .51 96 93 97
Horizon East........ Dallas, TX 166 units/
141,081 sq. ft. .53 .52 .50 93 92 94
Kimberly Woods...... Tucson, AZ 279 units/
249,678 sq. ft. .57 .55 .54 92 93 94
La Mirada........... Jacksonville, FL 320 units/
341,400 sq. ft. .51 .50 .47 91 93 98
Lake Nora Arms...... Indianapolis, IN 588 units/
429,380 sq. ft. .65 .63 .61 95 91 95
Lakewood Park....... St. Petersburg, FL 240 units/
279,720 sq. ft. .41 .41 .40 96 94 91
Lantern Ridge....... Richmond, VA 120 units/
112,296 sq. ft. .53 .51 .50 93 95 93
Mallard Lake........ Greensboro, NC 336 units/
295,560 sq. ft. .63 .62 .59 93 95 97
Manchester Commons.. Manchester, MO 280 units/
331,820 sq. ft. .53 .50 .49 95 93 95
Mesa Court.......... Mesa, AZ 224 units/
180,291 sq. ft. .66 .66 .61 97 90 94
</TABLE>

12
<PAGE> 13

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy %
Units/ ------------------------- -------------------------
Property Location Square Footage 1997 1996 1995 1997 1996 1995
- ----------------- -------------- --------------- ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments - Continued
- ----------
Mesa Ridge.......... Mesa, AZ 256 units/
206,045 sq. ft. $ .65 $ .65 $ .61 98 88 92
Nora Pines.......... Indianapolis, IN 254 units/
254,676 sq. ft. .59 .57 .55 92 94 97
Oak Hollow.......... Austin, TX 409 units/
290,072 sq. ft. .87 .87 .81 94 91 97
Oak Tree............ Grandview, MO 189 units/
160,591 sq. ft. .57 .54 .52 95 94 96
Oakmont............. Monroe, LA 212 units/
185,500 sq. ft. .48 .48 .48 99 94 92
Olde Towne.......... Middletown, OH 199 units/
179,395 sq. ft. .57 .57 .57 94 92 91
Pheasant Ridge...... Bellevue, NE 264 units/
243,960 sq. ft. .61 .56 .51 93 94 97
Pines............... Little Rock, AR 257 units/
221,981 sq. ft. .41 .41 .39 90 93 90
Place One........... Tulsa, OK 407 units/
302,263 sq. ft. .57 .51 .49 92 96 96
Quail Point......... Huntsville, AL 184 units/
202,602 sq. ft. .42 .42 .41 91 96 86
Regency............. Lincoln, NE 106 units/
111,700 sq. ft. .63 .60 .56 98 95 88
Regency Falls....... San Antonio, TX 546 units/
348,692 sq. ft. .63 .63 .63 92 93 93
River Glen.......... Tulsa, OK 343 units/
327,190 sq. ft. .40 .38 .36 94 91 92
Rockborough......... Denver, CO 345 units/
249,723 sq. ft. .73 .70 .70 94 92 92
Royal Oaks.......... Stone Mountain, GA 300 units/
385,000 sq. ft. .45 .45 .43 94 94 95
Santa Fe............ Kansas City, MO 225 units/
180,416 sq. ft. .56 .53 .52 93 91 92
Shadowood........... Addison, TX 184 units/
134,616 sq. ft. .74 .69 .66 96 97 97
Sherwood Glen....... Urbandale, IA 180 units/
143,745 sq. ft. .77 .75 .74 94 96 93
Skipper's Pond...... Tampa, FL 260 units/
233,760 sq. ft. .48 .47 .46 93 94 93
Stonebridge......... Florissant, MO 100 units/
140,576 sq. ft. .45 .43 .42 100 98 92
Summerwind.......... Reseda, CA 172 units/
114,711 sq. ft. .90 .90 .97 96 92 91
Sun Hollow.......... El Paso, TX 216 units/
156,000 sq. ft. .65 .64 .63 97 90 96
Tanglewood.......... Arlington Heights, IL 838 units/
612,816 sq. ft. 1.03 .99 .96 93 92 95
Timber Creek........ Omaha, NE 180 units/
162,252 sq. ft. .66 .64 .60 95 98 94
Towne Oaks.......... Monroe, LA 152 units/
153,488 sq. ft. .49 .49 .49 96 94 95
Villa Del Mar....... Wichita, KS 162 units/
128,004 sq. ft. .58 .58 .58 97 94 90
Villas.............. Plano, TX 208 units/
156,632 sq. ft. .77 .73 .70 98 95 95
Whispering Pines.... Canoga Park, CA 102 units/
61,671 sq. ft. 1.01 1.00 .98 94 92 93
Whispering Pines.... Topeka, KS 320 units/
299,264 sq. ft. .49 .49 .49 95 89 90
Windridge........... Austin, TX 408 units/
281,778 sq. ft. .88 .88 .85 95 93 95
Windtree I & II..... Reseda, CA 159 units/
109,062 sq. ft. .90 .90 .90 96 94 91
Wisperwood.......... Tampa, FL 212 units/
199,920 sq. ft. .47 .47 .46 62 95 91
Woodlake............ Carrollton, TX 256 units/
210,208 sq. ft. .73 .68 .66 98 99 98
Woodsong II......... Smyrna, GA 190 units/
207,460 sq. ft. .54 .54 .51 96 85 99
Woodstock........... Dallas, TX 320 units/
222,112 sq. ft. .60 .56 .54 92 95 96
</TABLE>

13
<PAGE> 14

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy %
Square Footage/ ------------------------- ----------------------
Property Location Acres 1997 1996 1995 1997 1996 1995
- ----------------- -------------- --------------- ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office Buildings
- ----------------
56 Expressway........ Oklahoma City, OK 54,649 sq. ft. $ 8.64 $ 8.21 $ 7.94 94 88 93
Executive Court...... Memphis, TN 41,840 sq. ft. 9.79 10.11 9.87 96 95 92
Marina Playa......... Santa Clara, CA 124,322 sq. ft. 20.54 19.54 18.11 100 99 97
Melrose Business Park Oklahoma City, OK 124,200 sq. ft. 2.88 2.76 2.65 93 90 97
University Square.... Anchorage, AK 22,260 sq. ft. 14.07 15.07 13.16 100 84 90

Shopping Centers
- ----------------
Countryside Plaza.... Clearwater, FL 184,878 sq. ft. 3.22 5.00 3.37 12 16 24
Cross County Mall.... Mattoon, IL 304,575 sq. ft. 4.88 4.90 4.86 89 90 95
Cullman.............. Cullman, AL 92,466 sq. ft. 3.87 3.86 3.83 97 98 100
Harbor Plaza......... Aurora, CO 45,863 sq. ft. 9.44 8.73 8.42 94 97 78
Katella Plaza........ Orange, CA 52,169 sq. ft. 9.20 7.73 9.97 71 71 71
Regency Point........ Jacksonville, FL 67,410 sq. ft. 12.07 11.39 11.26 83 84 81
Southern Palms....... Tempe, AZ 250,068 sq. ft. 7.96 7.83 7.73 88 87 93
Westwood............. Tallahassee, FL 149,855 sq. ft. 6.44 6.42 5.31 93 74 59

Land
- ----
Indian Meadows....... Granby, CO 338 Acres
</TABLE>

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, 1997, 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.]

14
<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........ 17 4,242 Units/ 93% $ 74,836
4.5 Million Sq.Ft.
Office Building... 1 41,840 Sq.Ft. 97% --
Shopping Centers.. 4 394,609 Sq.Ft. 66% 21,719

Southwest
Apartments........ 22 5,801 Units/
4.5 Million Sq.Ft. 95% 121,665
Office Buildings.. 2 178,249 Sq.Ft. 91% --
Shopping Center... 1 250,068 Sq.Ft. 89% 7,127

Mountain
Apartments........ 2 729 Units/
504,623 Sq.Ft. 94% 14,153
Shopping Center... 1 45,863 Sq.Ft. 97% 1,514

Pacific
Apartments........ 3 433 Units/
285,955 Sq.Ft. 95% 5,894
Office Buildings.. 2 146,582 Sq.Ft. 96% 8,015
Shopping Center... 1 52,169 Sq.Ft. 71% 1,267

Midwest
Apartments........ 22 5,333 Units/
5.2 Million Sq.Ft. 95% 103,991
Shopping Center... 1 304,575 Sq.Ft. 89% 5,409
-----------
$ 365,590
</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 1997.

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. In
December 1997, the Partnership entered into an agreement with the 25% general
partner,

15
<PAGE> 16

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

which provides such partner with an option to purchase the Partnership's 75%
interest in Southern Palms Associates. In the event that the 25% general partner
does not elect to purchase the Partnership's interest, the Partnership will
acquire the 25% partner's interest. The 25% general partner must exercise his
option no later than March 25, 1998.

In April 1997, the Partnership sold Tollhill East, a 81,115 square foot office
building in Dallas, Texas, for $7.0 million in cash. The Partnership received
net cash of $4.2 million after the payoff of $2.4 million in existing mortgage
debt and the payment of various closing costs associated with the sale. The
Partnership paid Carmel Realty a real estate brokerage commission of $209,000
based on the $7.0 million sales price of the property. The Partnership
recognized a gain of $3.6 million on the sale.

Also in April 1997, the Partnership modified and extended the mortgage secured
by the Cross County Mall in Mattoon, Illinois. In conjunction with the
modification, the Partnership made a principal reduction payment of $137,500.
The modified and extended mortgage bears interest at a variable rate, currently
9.6% per annum, requires monthly payments of principal and interest of $71,262
and has an extended maturity of April 2002.

In June 1997, the Partnership refinanced the mortgage debt secured by the
Pheasant Ridge Apartments in Bellevue, Nebraska in the amount of $5.7 million.
The Partnership received net cash of $804,000 after the payoff of $4.6 million
in existing mortgage debt, the funding of escrows, and the payment of various
closing costs associated with the refinancing. The new mortgage bears interest
at 7.89% per annum, requires monthly payments of principal and interest of
$41,742 and matures in July 2007. The Partnership paid BCM a mortgage brokerage
and equity refinancing fee of $57,000 based on the new $5.7 million mortgage.

Also in June 1997, the Partnership refinanced the mortgage debt secured by the
Regency Apartments in Lincoln, Nebraska in the amount of $3.4 million. The
Partnership received net cash of $374,000 after the payoff of $2.5 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs associated with the refinancing. The new mortgage bears interest
at 7.89% per annum, requires monthly payments of principal and interest of
$24,577 and matures in July 2007. The Partnership paid BCM a mortgage brokerage
and equity refinancing fee of $34,000 based on the new $3.4 million mortgage.

16
<PAGE> 17

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

of principal and interest, currently $43,791, and mature each 30 days. The
effect of these transactions is to lower the effective interest rate on the
refinancings to 5.72% for Regency and 5.99% for Pheasant Ridge. The Partnership
is subject to the demand by FNMA for additional collateral or credit loss in the
event the interest rate associated with the securities increases in a manner
that is unfavorable to the Partnership's interest in the security. However, the
Partnership intends to either payoff the mortgage or modify the mortgage to
increase the interest rate prior to any significant credit loss.

Further in June 1997, the Partnership sold the Fondren Building, a 47,808 square
foot office building in Houston, Texas, for $661,000 in cash. The Partnership
received net cash of $610,000 after the payment of various closing costs
associated with the sale. The Partnership recognized no gain or loss on the
sale.

In September 1997, the Partnership obtained mortgage financing in the amount of
$15.0 million secured by four previously unencumbered office buildings: 56
Expressway in Oklahoma City, Oklahoma; Executive Court in Memphis, Tennessee;
Melrose Business Park in Oklahoma City, Oklahoma; and University Square in
Anchorage, Alaska; and by a security interest in NOLP's 99.3% limited
partnership interest in GCLP. The Partnership received net cash of $14.7 million
after the payment of various closing costs associated with the financing. The
mortgage bears interest at a variable rate, currently 9.0% per annum, requires
monthly payments of interest only and matures in June 1998. The Partnership paid
BCM a mortgage brokerage and equity refinancing fee of $150,000 based on the
$15.0 million mortgage. The net financing proceeds were used to pay the Pension
Notes at their maturity.

In October 1997, the Partnership refinanced the mortgage debt secured by the
Brookview Apartments in Smyrna, Georgia in the amount of $4.0 million. The
Partnership received net cash of $837,000 after the payoff of $2.9 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs associated with the refinancing. The new mortgage bears interest
at 7.50% per annum, requires monthly payments of principal and interest of
$27,969 and matures in November 2007. The Partnership paid BCM a mortgage
brokerage and equity refinancing fee of $40,000 based on the new $4.0 million
mortgage.

In November 1997, the Partnership modified the mortgage debt secured by the Club
Mar Apartments in Sarasota, Florida under the Housing and Urban Development
("HUD") Partial Payment of Claim ("PPC") program. Under the PPC program,
$736,000 of the original principal balance and $871,000 of accrued but unpaid
interest was rolled into a new second lien mortgage. The first mortgage was
reduced to $5.2 million, the interest rate was reduced to 8.18% per annum, the
monthly payments were reduced to $40,800 and the maturity date of July 2023
remains unchanged. The new second lien mortgage of $1.6 million bears interest
at 6.91% per annum, requires monthly payments of 50% of the property's net cash
flow as defined and matures in July 2023. In conjunction with the modification,

17
<PAGE> 18

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

the Partnership funded improvement escrows of $381,000 and paid $345,000 as a
principal payment on the second lien mortgage from accumulated cash flow that
had been held by the servicer.

Also in November 1997, the Partnership sold Crestview Center, a 80,679 square
foot shopping center in Crestview, Florida, for $1.6 million in cash. The
Partnership received net cash of $667,000 after the payoff of $630,000 in
existing mortgage debt and the payment of various closing costs associated with
the sale. The Partnership paid Carmel Realty a real estate brokerage commission
of $24,000 based on the $1.6 million sales price of the property. The
Partnership recognized a gain of $563,000 on the sale.

In December 1997, GCLP sold Village Square, a 310 unit apartment complex in
Stone Mountain, Georgia, for $6.1 million in cash. GCLP received net cash of
$3.3 million after the payoff of $2.0 million in existing mortgage debt and the
payment of various closing costs associated with the sale. The Partnership paid
Carmel Realty a real estate brokerage commission of $181,500 based on the $6.1
million sales price of the property. The Partnership recognized a gain of $2.1
million on the sale.

Mortgage Loans

In addition to real estate, a portion of the Partnership's assets are invested
in mortgage notes receivable, principally secured by income-producing real
estate. The Partnership expects that the percentage of its assets invested in
mortgage loans will increase as it increases its lending activity in 1998 to
take advantage of interest rate spreads or profit participation opportunities.
The Partnership cannot, however, fund loans out of its operating cash flow
without the approval of the Oversight Committee. The Partnership intends to
service and hold for investment the mortgage notes currently in its portfolio.
The Partnership's mortgage notes receivable consist of first, wraparound and
junior mortgage loans secured by real estate as well as other secured loans.

Types of Mortgage Activity. The Partnership may originate its own
mortgage loans. The Partnership is not, however, considering acquiring
existing mortgage notes. BCM, in its capacity as a mortgage servicer,
services the Partnership's mortgage notes. The Partnership's investment
policy is described in ITEM 1. "BUSINESS - Business Plan and Investment
Policy".

Types of Properties Subject to Mortgages. The properties securing the
Partnership's mortgage notes receivable portfolio at December 31, 1997,
consisted of an office building, an apartment complex, a single-family
residence, land and partnership interests.

18
<PAGE> 19

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

At December 31, 1997, the Partnership's mortgage notes had an aggregate face
amount of $40.5 million and an aggregate net carrying value of $24.9 million,
net of deferred gains ($13.7 million), discounts ($109,000) 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, 1997), 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, 1997
excluding the $14.7 million in mortgage notes secured by land and other security
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>
Southwest............. --% 10.9% 10.9%
Pacific............... 67.8 -- 67.8
Midwest............... -- 21.3 21.3
---- ---- -----
67.8% 32.2% 100.0%
</TABLE>

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 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.

The following discussion briefly describes first mortgage loans funded by the
Partnership in 1997, as well as, events that affected previously funded first
mortgage loans.

In April 1997, the Partnership funded a $1.5 million loan to Highway 544
Partners, L.P. ("Highway Partners"). The loan is secured by a mortgage on
approximately 49 acres of undeveloped land in Plano, Texas, a pledge of 100% of
the partnership interest and the personal guarantee of the owner of Highway
Partner's general partner. The note receivable bears interest at 18% per annum,
requires quarterly interest only payments at 12% per annum, with the deferred
interest payable annually in April 1998 and 1999, and matures in April 1999.

In June 1997, the Partnership funded a loan to JNC Enterprises, Ltd. ("JNC") in
the amount of $2.5 million. In July 1997, an additional $1.0 million was funded
and the loan was modified, increasing the principal balance to $3.5 million. The
loan is secured by 81.99 acres of

19
<PAGE> 20

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

undeveloped land in Frisco, Texas. The note bears interest at 16.0% per annum,
requires monthly payments of interest only and matures in June 1998.

In July 1997, the Partnership funded a $1.4 million loan to Avex Fund III, Inc.
The loan was secured by a mortgage on 14.5 acres of undeveloped land in Las
Colinas, Texas. The loan bore interest at 12.0% per annum, required monthly
payments of interest only and was scheduled to mature in July 1999. The loan was
paid in full in August 1997.

In August 1997, the Partnership funded an $800,000 loan to Frisco Eldorado
Partners, L.L.C. The loan is secured by a mortgage on 45 acres of undeveloped
land in Frisco, Texas. The loan bears interest at 15.0% per annum, requires
monthly payments of interest only and matures in August 1998. $250,000 of the
loan balance is guaranteed by the Frisco Economic Development Corporation, a
government agency.

Also in August 1997, the Partnership funded a $2.8 million loan to Dallas
Parkway Properties, Inc. The loan is secured by a mortgage on an office building
in Addison, Texas. The loan bears interest at 14.0% per annum, requires monthly
payments of interest only and matures in August 1999. In conjunction with the
loan origination, the Partnership obtained financing secured by the note
receivable in the amount of $2.0 million. The loan bears interest at 9.4% per
annum, requires monthly payments of interest only and matures in August 1999.

In October 1997, the Partnership funded a $400,000 loan to Stratford & Graham
Developers, L.L.C. ("Stratford"). The loan was secured by an assignment of a
contract to purchase 1,485 acres of undeveloped land in Riverside County,
California and the guarantee of the parent of the borrower. The loan bore
interest at 15.0% per annum and matured in November 1997. The loan was modified
and extended at maturity, increasing the loan balance to $530,000 and extending
the maturity date to December 1997. In December 1997, the Partnership funded a
new $3.5 million loan to Stratford, a portion of the proceeds being used to
payoff the first loan. The new loan is secured by a mortgage on the 1,485 acres
of undeveloped land in Riverside County, California. The loan bears interest at
15.0% per annum, and matures in July 1999. All principal and interest are due at
maturity.

Also in October 1997, the Partnership funded a $240,000 loan to an individual.
The loan is secured by a mortgage on a single-family residence in Addison,
Texas. The loan bears interest at 10.0% per annum, requires monthly payments of
interest only and matures in September 1998.

In January and February 1998, the Partnership funded a total of $3.3 million of
a $3.9 million loan to Centura Tower, Ltd. The loan is secured by a mortgage on
2.244 acres of land in Dallas, Texas. The loan bears interest at 12.0% per
annum, requires monthly payments of interest only and matures in January 2003.

20
<PAGE> 21

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

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.

The following discusses briefly describes events that affected previously funded
wraparound mortgage loans.

In January 1997, the note receivable secured by the Nellis Bonanza Shopping
Center in Las Vegas, Nevada matured. In August 1997, the borrower paid the note
in full. The Partnership received net cash of $4.4 million after payoff of the
underlying note payable. As a result of the payoff, the Partnership recognized a
deferred gain of $2.1 million from the Partnership's 1986 sale of the property.

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.

Other. 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. In July, September and December 1997, an additional $118,000 was funded
and the loan was modified, increasing the principal balance to $1.3 million. In
the first quarter of 1998, an additional $59,000 was funded and the loan was
again modified , increasing the principal balance to $1.3 million. The
Partnership has committed to fund an additional $108,000, at which time the loan
will be modified to increase the principal balance to its maximum $1.5 million.
The Partnership received the required December 1997 deferred interest payment in
January 1998.

In February 1997, the Partnership funded a loan to JNC in the amount of $2.5
million. In March 1997, the Partnership funded an additional $1.5 million and
modified the loan by increasing the principal balance to $4.0 million. The loan
was 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 bore interest
at 12% per annum and required quarterly payments of interest only and matured in
October 1997. The unpaid principal balance and accrued but unpaid interest were
paid at maturity.

21
<PAGE> 22

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

During 1997, the Partnership also received a total of $3.0 million in principal
payments from JNC to pay in full two loans funded by the Partnership during
1996.

In July 1997, the Partnership funded a $700,000 loan to an individual. The loan
is secured by a security interest in an oil, gas and mineral lease in Anderson
County, Texas and by a second lien mortgage on a ranch in Henderson County,
Texas. The loan bears interest at 12.0% per annum, requires monthly payments of
interest only and matures in December 1998. In February 1998, the Partnership
funded an additional $40,000 and the loan was modified, increasing the principal
balance to $740,000.

In October 1997, the Partnership funded a $1.7 million loan to Preston/Lomo
Alto, L.L.C. The loan is secured by a pledge of the limited partnership
interests in two partnerships which in turn own two office buildings, one in
Dallas and the other in Plano, Texas and the personal guarantee of one of the
general partners. The loan bears interest at 12.0% per annum, requires monthly
payments of interest only and matures in November 1999.

In December 1997, the Partnership funded a $1.2 million loan to 14875 Landmark,
L.L.C. The loan is secured by a pledge of the 48% limited partnership interest
in a partnership, which owns an office building in Addison, Texas. The loan is
guaranteed by the limited partner. The loan bears interest at 12% per annum,
requires monthly payments of interest only, and matures in December 1999.

Also in December 1997, the Partnership funded $455,000 of a $475,000 loan to
Tara Summit Square, Inc. The loan is secured by a pledge of 100% of the capital
stock of the borrower and a second lien mortgage on a shopping center in Rhode
Island. The loan is guaranteed by the sole shareholder of Tara Summit Square,
Inc. The loan bears interest at 12.0% per annum, requires monthly payments of
interest only and matures in December 1999. The remaining $20,000 was funded in
January 1998.

Further in December 1997, the Partnership obtained financing in the amount of
$5.0 million secured by six notes receivable with an aggregate principal balance
of $9.3 million. The financing bears interest at 13.0% per annum, requires
monthly payments of interest only and matures in December 1998. The Partnership
paid a mortgage brokerage and equity refinancing fee of $50,000 to BCM based on
the $5.0 million financing.

Investment in Marketable Equity Securities of ART

At December 31, 1997, 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. Gene E. 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

22
<PAGE> 23

ITEM 2. PROPERTIES (Continued)

Investment in Marketable Equity Securities of ART (Continued)

executive officers of ART. See ITEM 12. "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT." At December 31, 1997, the market value of the
ART common stock owned by the Partnership was $2.8 million. ART owns a 96%
limited partner interest in SAMLP. In addition, as of March 6, 1998, 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,

23
<PAGE> 24

ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

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 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.

24
<PAGE> 25

ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

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

The withdrawal of the General Partner 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, 1997 to be $49.6 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, 1997) plus all accrued but
unpaid interest ($7.2 million at December 31, 1997) 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 provided 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
Agreement. On February 20, 1996, the parties to the Implementation Agreement
executed an Amended and Restated Implementation Agreement.

25
<PAGE> 26

ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

April 7, 1997, the Supervising Judge entered an order amending the September 23,
1996 order, approving the formal notice and setting a hearing on the
Implementation Agreement for June 27, 1997. A notice was sent to all class
members and unitholders in April 1997 and the hearing was held on June 27, 1997.
On September 8, 1997, the Supervising Judge rendered a Statement of Decision in
which he declined to approve the Implementation Agreement. As a result of the
Statement of Decision, the existing Moorman Settlement Agreement remains in full
force and effect and all of the provisions of the Amended and Restated
Implementation Agreement have been voided.

On December 15, 1997, National Realty, SAMLP, the Oversight Committee, Joseph B.
Moorman, Invenex and the Moorman Class Counsel executed an Agreement for
Establishment of Class Distribution Fund and Election of Successor General
Partner (the "Resolution Agreement") which provides for the nomination of an
entity affiliated with SAMLP to be the successor general partner of the
Partnership, for the establishment of a fund for the benefit of the Moorman
Class Members consisting of cash and properties owned by the Partnership and for
the resolution of all related matters under the Moorman Settlement Agreement.

The Resolution Agreement was submitted to the Supervising Judge and on February
11, 1998, the Supervising Judge entered an order granting preliminary approval
of the Resolution Agreement and scheduled a hearing to be held on April 24,
1998, for consideration of preliminary approval of a business plan for the
operation of the entity which will receive the cash and properties and to
consider a form of notice to be distributed to the Moorman Class Members
describing the Resolution Agreement and the business plan.

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.

Upon approval by the National Realty 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 1998.

SAMLP has agreed to waive its rights under the Moorman Settlement Agreement to
receive any payment from the Partnership of the fees it is entitled to receive
upon the election of a successor general partner. As of December 31, 1997, this
fee was calculated to be $49.6 million.

Upon final approval by the Supervising Judge, the Partnership will transfer $1.9
million in cash and five shopping center properties to the new entity which will
be owned by the Moorman Class Members and managed for their benefit by a court
approved board. This fund is being established in order to provide additional
benefits to the Moorman Class Members.

26
<PAGE> 27

ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

Upon the election and taking office of the successor general partner and the
transfer of the cash and properties to the Class Fund, the Moorman Settlement
Plan and the Oversight Committee shall be terminated.

On September 26, 1997, one of the original Moorman litigation defendants, Robert
A. McNeil, filed motions to (i) be installed as receiver for the Partnership and
(ii) disband the Oversight Committee. A hearing on the motions was set for
February 5, 1998. However, the Supervising Judge continued the hearing to April
24, 1998.

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

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>
March 31, 1998........................... $ 24 1/8 $ 20 1/8
(through March 6, 1998)

March 31, 1997........................... 19 1/8 12 7/8
June 30, 1997............................ 19 1/2 16 3/8
September 30, 1997....................... 24 19
December 31, 1997........................ 24 3/4 24 3/8

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
</TABLE>

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

As of March 6, 1998, the closing price of National Realty's units of limited
partner interest on the AMEX was $20.13 per unit.

27
<PAGE> 28

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

As of March 6, 1998, National Realty's units of limited partner interest were
held by 5,635 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 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 1997, the Partnership
declared regular quarterly distributions of $.10 per unit. In addition to the
regular quarterly distribution, the Partnership declared a special distribution
of $1.50 per unit in the fourth quarter of 1997. The Partnership declared total
distributions of $1.90 per unit or $12.0 million in 1997.

The distributions paid by the Partnership in 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
Date Declared Record Date Payable Date Amount
- ----------------- ------------------ ------------------- ---------
<S> <C> <C> <C>
February 26, 1997 March 14, 1997 March 31, 1997 $ .10
June 5, 1997 June 13, 1997 June 30, 1997 .10
September 3, 1997 September 15, 1997 September 30, 1997 .10
December 1, 1997 December 15, 1997 January 5, 1998 1.50*
December 1, 1997 December 15, 1997 January 5, 1998 .10
</TABLE>

<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
</TABLE>

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

* Special distribution.

28
<PAGE> 29

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

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, 1997, 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.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(dollars in thousands, except per unit)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenues .................. $ 117,365 $ 112,681 $ 110,892 $ 107,546 $ 103,044

Expenses
Interest ............... 34,189 33,759 34,956 34,145 34,699
Property operations..... 64,620 63,136 63,320 60,793 60,374
General and
administrative ...... 7,856 5,975 6,252 5,809 5,598
Depreciation ........... 10,338 10,247 10,268 10,034 10,168
----------- ----------- ----------- ----------- -----------
Total expenses ...... 117,003 113,117 114,796 110,781 110,839
----------- ----------- ----------- ----------- -----------

Income (loss) from
operations ............. 362 (436) (3,904) (3,235) (7,795)
Gain on sale of real
estate ................. 8,356 61 7,701 8,252 --
----------- ----------- ----------- ----------- -----------

Income (loss) before
extraordinary gain ..... 8,718 (375) 3,797 5,017 (7,795)
Extraordinary gain ........ -- -- -- -- 9,046
----------- ----------- ----------- ----------- -----------
Net income (loss) ......... $ 8,718 $ (375) $ 3,797 $ 5,017 $ 1,251
=========== =========== =========== =========== ===========

PER UNIT DATA
Income (loss) before
extraordinary gain ..... $ 1.35 $ (.06) $ .58 $ .77 $ (1.13)
Extraordinary gain ........ -- -- -- -- 1.31
----------- ----------- ----------- ----------- -----------
Net income (loss) ......... $ 1.35 $ (.06) $ .58 $ .77 $ .18
=========== =========== =========== =========== ===========

Distributions per unit .... $ 1.90 $ 1.10 $ 1.28 $ .44 $ .07

Weighted average units
of limited partner
interest used in
computing earnings
per unit ............... 6,327,418 6,387,270 6,418,104 6,418,572 6,747,990
</TABLE>

29
<PAGE> 30

ITEM 6. SELECTED FINANCIAL DATA (Continued)

<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- --------- ------- -------
BALANCE SHEET DATA (dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real estate, net ........ $ 211,424 $ 224,764 $ 229,482 $ 241,535 $ 251,534
Notes and interest
receivable, net ...... 24,943 13,279 10,246 11,532 11,469
Total assets ............ 279,580 281,333 292,930 290,140 296,045
Notes and interest
payable .............. 339,102 325,921 326,500 326,775 335,200
Redeemable General
Partner interest ..... 45,442 37,855 31,997 28,800 21,600
Partners' (deficit) ..... (122,275) (112,946) (99,267) (91,823) (86,902)
</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, 1997, 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 estimated current values, was 43.4% compared
to 44.6% at December 31, 1996.

Cash and cash equivalents aggregated $17.2 million at December 31, 1997 as
compared with $5.9 million at December 31, 1996.

30
<PAGE> 31

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

Liquidity and Capital Resources (Continued)

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 proceeds from the sale of the Partnership's properties and other
assets and proceeds from borrowings 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 1998, including, but not limited to, the
payment of distributions, debt service obligations coming due and property
maintenance and improvements, as more fully discussed in the paragraphs below.

Currently, all of the Partnership's properties are encumbered by mortgage debt.
In 1998, mortgage debt totaling $36.5 million comes due. 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.

The Partnership's cash flow from property operations (rents collected less
payments for property operating expenses) increased from $43.7 million in 1996
to $49.4 million in 1997. Of this increase, $2.6 million is due to the
Partnership's continued success in increasing rental and occupancy rates during
1997 as compared to 1996. Rental rates at the Partnership's apartment complexes,
which account for over 80% of the Partnership's properties, increased an average
of 3% in 1997 as compared to 1996 rental rates and occupancy rates increased an
average of 1% as compared to 1996. At the Partnership's commercial properties,
rental rates increased an average of 1% as compared to 1996 rental rates and
occupancy rates increased an average of 3% as compared to 1996. These increases
are partially offset by a decrease of $750,000 due to properties sold in 1997.
The Partnership's management believes that this trend will continue,
particularly in the Partnership's apartments, if the economy remains stable or
improves.

Interest collected on mortgage notes receivable increased from $3.1 million in
1996 to $3.9 million in 1997. This increase is primarily due to loans funded in
1997 and 1996. Interest is expected to continue to increase as a source of cash
to the Partnership as it originates additional mortgage loans.

Interest paid on the Partnership's notes payable increased from $29.2 million in
1996 to $29.9 million in 1997. The increase is due in part to an increase of
$655,000 from properties financed or refinanced in 1996 and 1997 and an increase
of $266,000 due to an increase in the GCLP line of credit interest rate. These
increases are partially offset by a decrease of $95,000 due to the modification
of the mortgage secured by the Club Mar Apartments and a decrease of $117,000
due to the sale of two commercial properties encumbered by debt in 1997.

The Partnership was involved in significant investing activities during
1997. The Partnership originated thirteen mortgage or other loans

31
<PAGE> 32

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

Liquidity and Capital Resources (Continued)

totaling $22.9 million and collected $13.5 million on its mortgage notes
receivable, from the payoff of six notes receivable. In connection with one of
the payoffs, the Partnership paid off an underlying note payable in the amount
of $1.0 million. Also in 1997, the Partnership made improvements to its
properties totaling $5.0 million and sold one apartment complex and three
commercial properties during 1997 for $15.4 million in cash, receiving net cash
of $8.8 million after the payoff of existing mortgage debt and the payment of
various closing costs associated with the sales.

In 1997, the Partnership received net financing proceeds of $19.7 million from
mortgage financing secured by four commercial properties and the Partnership's
99.3% limited partnership interest in GCLP and by six notes receivable, of which
$14.6 million was used to payoff the Pension Notes. In addition, the Partnership
refinanced the mortgages secured by three apartment complexes. The Partnership
received net cash totaling $3.1 million after the payoff of $10.0 million in
existing mortgage debt and the payment of various closing costs associated with
the financings. Also in 1997, the Partnership made scheduled principal payments
on mortgages totaling $6.6 million.

In November 1997, the Partnership modified the mortgage debt secured by the Club
Mar Apartments in Sarasota, Florida under the Housing and Urban Development
("HUD") Partial Payment of Claim ("PPC") program. Under the PPC program,
$736,000 of the original principal balance and $871,000 of accrued but unpaid
interest was rolled into a second lien mortgage. The first mortgage was reduced
to $5.2 million, the interest rate and the monthly payments were also reduced,
and the maturity date of July 2023 remains unchanged. In conjunction with the
modification, the Partnership funded improvement escrows of $381,000 and paid
$345,000 as a principal payment on the second lien mortgage from accumulated
cash flow that had been held by the servicer.

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 1997, the Partnership received distributions from GCLP
totaling $9.9 million, excluding the credit enhancement escrow as discussed
below, compared to $2.5 million in 1996. GCLP's 1998 excess cash flow of
approximately $7.4 million is expected to be remitted to the Partnership.

In January 1997, GCLP replaced the credit enhancement escrow with an $18.5
million letter of credit. 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

32
<PAGE> 33

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

Liquidity and Capital Resources (Continued)

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. The Partnership declared total distributions of $1.90 per unit
or $12.0 million in 1997.

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, 1997 to be $49.6 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,

33
<PAGE> 34

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

Liquidity and Capital Resources (Continued)

1997) plus all accrued and unpaid interest ($7.2 million at December 31, 1997)
on the note receivable from the General Partner representing its 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 provided 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 Agreement. 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. On April 7, 1997, the
Supervising Judge entered an order amending the September 23, 1996 order,
approving the formal notice and setting a hearing on the Implementation
Agreement for June 27, 1997. A notice was sent to all class members and
unitholders in April 1997 and the hearing was held on June 27, 1997. On
September 8, 1997, the Supervising Judge rendered a Statement of Decision in
which he declined to approve the Implementation Agreement. As a result of the
Statement of Decision, the existing Moorman Settlement Agreement remains in full
force and effect and all of the provisions of the Amended and Restated
Implementation Agreement have been voided.

34
<PAGE> 35

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

Liquidity and Capital Resources (Continued)

of a business plan for the operation of the entity which will receive the cash
and properties and to consider a form of notice to be distributed to the Moorman
Class Members describing the Resolution Agreement and the business plan.

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.

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, 1997, 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.

35
<PAGE> 36

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

Results of Operations

1997 COMPARED TO 1996. The Partnership reported net income of $8.7 million for
1997 as compared to net loss of $375,000 for 1996. Contributing to the
Partnership's 1997 net income were gains on sale of real estate of $8.4 million.
The primary factors affecting the Partnership's operating results are discussed
in the following paragraphs.

Rents increased from $109.4 million in 1996 to $112.9 million in 1997. This
increase is primarily attributable to a 3.0% increase in average rental rates
combined with a 1.0% increase in average occupancy rates at the Partnership's
apartment complexes and an average 1.0% increase in commercial rental rates
combined with a 3.0% increase in occupancy rates as compared to 1996. These
increases are partially offset by a decrease of $750,000 due to the sale of the
Tollhill East Office Building in April 1997, the Fondren Office Building in June
1997, Crestview Shopping Center in November 1997 and Village Square Apartments
in December 1997. Rents are expected to continue to increase.

Interest income increased from $3.3 million in 1996 to $4.5 million in 1997.
This increase is due to thirteen mortgage and other loans being funded in 1997.
Interest is expected to continue to increase as the Partnership originates
additional loans.

Interest expense increased from $33.8 million in 1996 to $34.2 million in 1997.
Of this increase, $802,000 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 $657,000 is due to mortgage debt which was refinanced in
1996 and 1997. These increases are partially offset by a decrease of $741,000
due to loans paid in full, including the pension notes, and a decrease of
$117,000 due to the sale of the Tollhill East Office Building in April 1997, the
Crestview Shopping Center in November 1997, and the Village Square Apartments in
December 1997. Interest expense is expected to continue to increase.

Depreciation, property taxes and insurance, utilities, property-level payroll
costs, repairs and maintenance, other property operation expenses and property
management fees for 1997 approximated those of 1996.

General and administrative expenses increased from $6.0 million in 1996 to $7.9
million in 1997. This increase is primarily attributable to an increase in legal
and consulting fees related to the Southern Palms Associates litigation of
$892,000, an increase of $151,000 related to insurance deductibles and an
increase of $1.0 million in the Partnership's overhead reimbursements to Basic
Capital Management, Inc. ("BCM"). These increases are partially offset by a
decrease of $180,000 due to a decrease in legal fees relating to the Moorman
litigation and a decrease of $237,000 related to a decrease in appraisals and
other professional fees.

36
<PAGE> 37

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

Results of Operations (Continued)

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 the
sale of real estate totaling $8.4 million in 1997; $3.6 million on the sale of
the Tollhill East Office Building, a $2.1 million deferred gain recognized on
the payoff of the Nellis Bonanza note receivable, a gain of $563,000 on the sale
of Crestview Shopping Center and a gain of $2.1 million on the sale of Village
Square Apartments. See NOTE 3. "REAL ESTATE AND DEPRECIATION" and NOTE 4. "NOTES
RECEIVABLE."

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.

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 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.

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 BCM. This decrease is partially offset by an increase in legal
fees related to the Moorman litigation. See NOTE 13. "COMMITMENTS AND
CONTINGENCIES - Moorman Settlement."

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

37
<PAGE> 38

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

Results of Operations (Continued)

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."

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 was $410.0 million at such date. Revaluation Equity is
defined as the

38
<PAGE> 39

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

Current Value Reporting (Continued)

difference between the estimated current 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, 1996, was $691.5 million, and Revaluation Equity was
$345.9 million at such date.

In 1997, the Partnership determined the estimated current value of the
Partnership's properties as of December 31, 1997, in a manner consistent with
the methodology used to determine Current Appraised Value as of December 31,
1996 and March 31, 1987. The estimated current value of the Partnership's
properties at December 31, 1997 was $713.1 million and Revaluation Equity was
$365.6 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. 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.

Year 2000

BCM has advised the Partnership that its current computer software has been
certified by the Information Technology Association of America ("ITAA") as year
2000 compliant. BCM has also advised the Partnership that it has recently
received and plans to install in 1998 the ITAA certified year 2000 compliant
operating system for its computer hardware.

39
<PAGE> 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants............. 41

Consolidated Balance Sheets -
December 31, 1997 and 1996................................. 42

Consolidated Statements of Operations -
Years Ended December 31, 1997, 1996 and 1995.............. 43

Consolidated Statements of in Partners' Equity (Deficit) -
Years Ended December 31, 1997, 1996 and 1995.............. 44

Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995.............. 45

Notes to Consolidated Financial Statements..................... 47

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

Schedule IV - Mortgage Loans on Real Estate................... 75
</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.

40
<PAGE> 41

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, 1997 and 1996, 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, 1997. 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 and schedules 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 resolution of this matter,
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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, 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 23, 1998

41
<PAGE> 42

NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
--------- ---------
Assets (dollars in thousands)
<S> <C> <C>
Real estate held for investment
Land .......................................... $ 48,738 $ 51,342
Buildings and improvements .................... 386,477 396,626
--------- ---------
435,215 447,968

Less - Accumulated depreciation ............... (223,791) (223,204)
--------- ---------
211,424 224,764
Notes and interest receivable, net of
deferred gains ($13,720 in 1997 and
$15,787 in 1996) .............................. 26,853 15,189

Less - allowance for estimated losses ............ (1,910) (1,910)
--------- ---------
24,943 13,279

Cash and cash equivalents ........................ 17,180 5,872
Accounts receivable .............................. 3,327 2,040
Prepaid expenses ................................. 1,069 1,663
Escrow deposits and other assets
(including $267 in 1997 from affiliate) ....... 6,597 18,496
Marketable equity securities of affiliate
(at market) ................................... 2,814 1,272
Deferred financing costs ......................... 12,226 13,947
--------- ---------
$ 279,580 $ 281,333
========= =========

Liabilities and Partners' Equity (Deficit)
Liabilities
Notes and interest payable .................... $ 339,102 $ 325,921
Pension notes and related interest
payable, net ............................... -- 13,478
Accrued property taxes ........................ 6,906 6,928
Tenant security deposits ...................... 3,163 3,040
Accounts payable and other liabilities
(including $85 in 1996 to affiliates) ...... 7,242 7,057
--------- ---------
356,413 356,424

Commitments and contingencies

Redeemable General Partner Interest .............. 45,442 37,855
Partners' equity (deficit)
General Partner ............................... 2,822 2,649
Limited Partners (6,323,438 units in
1997 and 6,328,303 units in 1996) .......... (78,024) (74,568)
Unrealized gain on marketable equity
securities of affiliate .................... 2,544 1,003
--------- ---------
(72,658) (70,916)
Redeemable General Partner Interest .............. (49,617) (42,030)
--------- ---------
(122,275) (112,946)
--------- ---------
$ 279,580 $ 281,333
========= =========
</TABLE>

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

42
<PAGE> 43

NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------
1997 1996 1995
----------- ----------- -----------
(dollars in thousands, except per unit)
<S> <C> <C> <C>
Revenues
Rents ......................................... $ 112,875 $ 109,384 $ 108,017
Interest ...................................... 4,490 3,297 2,875
----------- ----------- -----------
117,365 112,681 110,892

Expenses
Interest ...................................... 34,189 33,759 34,956
Depreciation .................................. 10,338 10,247 10,268
Property taxes & insurance .................... 12,279 12,511 12,196
Utilities ..................................... 12,059 11,712 11,498
Repairs and maintenance ....................... 24,735 23,726 23,875
Property-level payroll costs .................. 6,412 6,338 6,545
Other property operation expenses ............. 4,344 4,160 4,563
Property management fees (including
$826 in 1997, $811 in 1996 and
$674 in 1995 to affiliates) ................ 4,791 4,689 4,643
General and administrative (including
$4,448 in 1997, $3,329 in 1996 and
$3,907 in 1995 to affiliates) .............. 7,856 5,975 6,252
----------- ----------- -----------

117,003 113,117 114,796
----------- ----------- -----------

Income (loss) from operations .................... 362 (436) (3,904)
Gain on sale of real estate ...................... 8,356 61 7,701
----------- ----------- -----------

Net income (loss) ................................ $ 8,718 $ (375) $ 3,797
=========== =========== ===========

Earnings per unit
Net income (loss) ................................ $ 1.35 $ (.06) $ .58
=========== =========== ===========

Weighted average units of limited
partner interest used in computing
earnings per unit ............................. 6,327,418 6,387,270 6,418,104
=========== =========== ===========
</TABLE>

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

43
<PAGE> 44

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>
Balance at January 1, 1995 ............. $ 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)

Adjustment to Redeemable General
Partner Interest .................... -- -- -- (7,587) (7,587)
Units issued on exercise of
warrants ............................ -- 20 -- -- 20
Distributions ($1.90 per unit) ......... -- (12,021) -- -- (12,021)
Unrealized gain on marketable
equity securities of affiliate ...... -- -- 1,541 -- 1,541
Net income ............................. 173 8,545 -- -- 8,718
--------- --------- --------- --------- ---------
Balance, December 31, 1997 ............. $ 2,822 $ (78,024) $ 2,544 $ (49,617) $(122,275)
========= ========= ========= ========= =========
</TABLE>

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

44
<PAGE> 45

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

<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Rents collected ............................... $ 111,890 $ 109,230 $ 107,935
Interest collected ............................ 3,927 3,098 2,754
Interest paid ................................. (29,888) (29,238) (30,737)
Payments for property operations
(including $826 in 1997, $811 in
1996 and $674 in 1995 to affiliates) ...... (62,443) (65,505) (64,803)
General and administrative expenses
paid (including $4,448 in 1997,
$3,329 in 1996 and $3,907 in 1995 to
affiliates) ................................ (8,827) (5,892) (6,556)
--------- --------- ---------
Net cash provided by operating
activities .............................. 14,659 11,693 8,593

Cash Flows From Investing Activities
Proceeds from sales of real estate ............ 14,294 61 6,947
Real estate improvements ...................... (5,004) (5,529) (4,105)
Acquisition of real estate .................... -- -- (1,663)
Acquisition and settlement of notes
receivable ................................. -- -- (1,207)
Collections on notes receivable ............... 13,522 500 3,700
Funding of notes receivable ................... (22,898) (3,500) --
--------- --------- ---------
Net cash provided by (used in)
investing activities .................... (86) (8,468) 3,672

Cash Flows From Financing Activities
Proceeds from notes payable ................... 36,351 8,116 40,808
Payments of notes payable ..................... (23,047) (10,159) (37,242)
Payment of pension notes ...................... (14,645) -- --
Payments from (to) affiliates, net ............ -- (191) 3,558
Receipt from escrow ........................... 12,423 -- --
Deferred financing costs (including
$332 in 1997 and $89 in 1996 to
affiliate) ................................. (2,346) (1,459) (627)
Repurchase of units of limited
partner interest ........................... -- (954) --
Exercise of warrants .......................... 20 -- --
Distributions to unitholders .................. (12,021) (13,405) (1,811)
--------- --------- ---------
Net cash provided by (used in)
financing activities .................... (3,265) (18,052) 4,686
--------- --------- ---------

Net increase (decrease) in cash and cash
equivalents ................................... 11,308 (14,827) 16,951
Cash and cash equivalents at beginning of
year .......................................... 5,872 20,699 3,748
--------- --------- ---------

Cash and cash equivalents at end of year ......... $ 17,180 $ 5,872 $ 20,699
========= ========= =========
</TABLE>

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

45
<PAGE> 46

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

<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1997 1996 1995
--------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided by operating activities
Net income (loss) .................................. $ 8,718 $ (375) $ 3,797
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities
Depreciation ................................. 10,338 10,465 10,254
Gain on sale of real estate .................. (8,356) (61) (7,701)
Amortization of deferred financing
costs ..................................... 2,950 2,222 2,425
Increase in interest payable ................. 716 1,854 1,763
Increase in other liabilities ................ 1,799 1,146 876
(Increase) decrease in interest
receivable ................................ (220) 13 76
(Increase) in other assets ................... (1,286) (3,571) (2,897)
-------- -------- --------
Net cash provided by operating
activities ............................. $ 14,659 $ 11,693 $ 8,593
======== ======== ========

Schedule of noncash investing activities
Notes payable assumed by buyer upon
sale of properties .............................. $ -- $ -- $ 8,165
Unrealized gain on marketable equity
securities of affiliate ......................... 1,541 550 86
</TABLE>

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

46
<PAGE> 47

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.

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 limited partnership. The Operating
Partnership is the sole limited

47
<PAGE> 48

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

NOTE 1. ORGANIZATION (Continued)

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 Partnership. The 1% General Partner interest in each of
National Realty and

48
<PAGE> 49

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

NOTE 1. ORGANIZATION (Continued)

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 51 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,
1997 and 1996.

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

49
<PAGE> 50

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 ("SFAS 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 5 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 depreciated.

50
<PAGE> 51

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 the fair value of the collateral securing
such note.

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 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,
1997 and 1996, approximated carrying value.

51
<PAGE> 52

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Earnings per unit. Income (loss) per unit of limited partner interest is
computed based upon the weighted average number of units outstanding during each
year. Accordingly, net income (loss) per unit is derived by dividing 98.01% of
the Partnership's net income by 6,327,418, 6,387,270 and 6,418,104 units for
1997, 1996 and 1995, respectively.

NOTE 3. REAL ESTATE AND DEPRECIATION

In June 1997, the Partnership sold the Fondren Building, a 47,808 square foot
office building in Houston, Texas, for $661,000 in cash. The Partnership
received net cash of $610,000 after the payment of various closing costs
associated with the sale. The Partnership recognized no gain or loss on the
sale.

In November 1997, the Partnership sold the Crestview Center, a 80,679 square
foot shopping center in Crestview, Florida, for $1.6 million in cash. The
Partnership received net cash of $667,000 after the payoff of $630,000 in
existing mortgage debt and the payment of various closing costs associated with
the sale. The Partnership recognized a gain of $563,000 on the sale.

52
<PAGE> 53

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

NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)

1997, the Partnership entered into an agreement with the 25% general partner,
which provides such partner with an option to purchase the Partnership's 75%
interest in Southern Palms Associates. In the event that the 25% general partner
does not elect to purchase the Partnership's interest, the Partnership will
acquire the 25% partner's interest. The 25% general partner must exercise his
option no later than March 25, 1998.

In December 1995, the Partnership sold the Harbour Pointe Apartments in Miami,
Florida and the Vineyards Apartments in Broadview Heights, Ohio for a total of
$15.9 million. The Partnership received net cash totaling $4.5 million after the
payoff of $11.2 million in existing mortgage debt and the payment of various
closing costs associated with the sales. The Partnership recognized gains
totaling $7.7 million on the sales.

NOTE 4. NOTES RECEIVABLE

Notes and interest receivable consisted of the following:

<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
---------- ------- ---------- ---------
<S> <C> <C> <C> <C>
Notes receivable
Performing .................. $ 36,168 $ 34,927 $ 26,189 $ 25,950
Nonperforming ............... 5,500 5,500 5,108 5,100
-------- -------- -------- --------
$ 41,668 40,427 $ 31,297 31,050
======== ========

Interest receivable ............ 255 68
Unamortized (discounts) ........ (109) (142)
Deferred gains ................. (13,720) (15,787)
-------- --------
$ 26,853 $ 15,189
======== ========
</TABLE>

The Partnership does not recognize interest income on nonperforming notes
receivable. For the year 1997, unrecognized interest income on nonperforming
notes receivable totaled $127,000.

Notes receivable mature from 1998 through 2002 with interest rates ranging from
9.0% to 18.0% with a weighted average interest rate of 13.93%. 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."

53
<PAGE> 54

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

NOTE 4. NOTES RECEIVABLE (Continued)

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 fair value of the collateral securing such
note. Unrecognized interest income was $598,000, $541,000 and $524,000 in 1997,
1996 and 1995, respectively.

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. In July, September and December 1997, an
additional $118,000 was funded and the loan was modified, increasing the
principal balance to $1.3 million. In the first quarter of 1998, an additional
$59,000 was funded and the loan was again modified, increasing the principal
balance to $1.3 million. The Partnership has committed to fund an additional
$108,000, at which time the loan will be modified to increase the principal
balance to its maximum of $1.5 million. The Partnership received the required
December 1997 deferred interest payment in January 1998.

In February 1997, the Partnership funded a loan to JNC Enterprises, Ltd. ("JNC")
in the amount of $2.5 million. In March 1997, the Partnership funded an
additional $1.5 million and the loan was modified, increasing the principal
balance to $4.0 million. The loan was 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 bore interest at 12% per annum, required quarterly
payments of interest only and matured in October 1997. The unpaid principal
balance and accrued but unpaid interest were paid at maturity.

54
<PAGE> 55

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

NOTE 4. NOTES RECEIVABLE (Continued)

In June 1997, the Partnership funded another loan to JNC in the amount of $2.5
million. In July 1997, an additional $1.0 million was funded and the loan was
modified, increasing the principal balance to $3.5 million. The loan is secured
by 81.99 acres of undeveloped land in Frisco, Texas. The note bears interest at
16.0% per annum, requires monthly payments of interest only and matures in June
1998.

Also in July 1997, the Partnership funded a $1.4 million loan to Avex Fund III,
Inc. The loan was secured by a mortgage on 14.5 acres of undeveloped land in Las
Colinas, Texas. The loan bore interest at 12.0% per annum, required monthly
payments of interest only and matured in July 1999. The loan was paid in full in
August 1997.

Also in October 1997, the Partnership funded a $400,000 loan to Stratford &
Graham Developers, L.L.C. ("Stratford"). The loan was secured by an assignment
of a contract to purchase 1,485 acres of undeveloped land in Riverside County,
California and the guarantee of the parent of the borrower. The loan bore
interest at 15.0% per annum

55
<PAGE> 56

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

NOTE 4. NOTES RECEIVABLE (Continued)

and matured in November 1997. The loan was modified and extended at maturity,
increasing the loan balance to $530,000 and extending the maturity date to
December 1997. In December 1997, the Partnership funded a new $3.5 million loan
to Stratford, a portion of the proceeds being used to payoff the first loan. The
new loan is secured by a mortgage on the 1,485 acres of undeveloped land in
Riverside County, California. The loan bears interest at 15.0% per annum and
matures in July 1999. All principal and interest are due at maturity.

Further in October 1997, the Partnership funded a $240,000 loan to an
individual. The loan is secured by a mortgage on a single-family residence in
Addison, Texas. The loan bears interest at 10.0% per annum, requires monthly
payments of interest only and matures in September 1998.

In June 1996, the Partnership funded a $1.5 million loan to 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
bore interest at 16.0% per annum and matured in June 1997. All principal and
accrued but unpaid interest was paid in full at maturity.

In November 1996, the Partnership committed to fund another 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 was secured by
a 73.7% limited partner interest in a partnership which owns 272 acres of
undeveloped land in The Colony, Texas. The note bore interest at 16% per annum,
required monthly payments of interest only and matured in November 1997. This
loan was cross-collateralized with the loan made to JNC in June 1996 and was
paid in full in October 1997.

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

56
<PAGE> 57

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

NOTE 4. NOTES RECEIVABLE (Continued)

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.

NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES

The allowance for estimated losses was as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<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 ART common stock, which the Partnership
acquired in open market purchases in 1990 at an adjusted cost of $269,000. ART
is a publicly held real estate investment company. 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 $2.8 million at December 31, 1997 and $1.3 million at December 31,
1996. See NOTE 1. "ORGANIZATION."

NOTE 7. NOTES PAYABLE

Notes payable at December 31, 1997 and 1996 are collateralized by land,
buildings and improvements and are generally nonrecourse to the partnership. The
GCLP mortgage debt, as discussed below, is cross- collateralized and
cross-defaulted among the apartment complexes and wraparound note receivable
that serve as collateral for such debt. The notes payable outstanding at
December 31, 1997 bear interest at stated rates ranging from 7.5% to 13.0% with
a weighted average rate of 10.6% and such notes have maturities or call dates
ranging from one to 26 years.

In April 1997, the Partnership modified and extended the mortgage secured by the
Cross County Mall in Mattoon, Illinois. In conjunction with the modification,
the Partnership made a principal reduction payment of $137,500. The modified and
extended mortgage bears interest at a variable rate, currently 9.6% per annum,
requires monthly payments of principal and interest of $71,262 and has an
extended maturity of April 2002.

57
<PAGE> 58

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

NOTE 7. NOTES PAYABLE (Continued)

escrows, and the payment of various closing costs associated with the
refinancing. The new mortgage bears interest at 7.89% per annum, requires
monthly payments of principal and interest of $41,742 and matures in July 2007.

In conjunction with the refinancing of the Pheasant Ridge and Regency
Apartments, the Partnership purchased the Federal National Mortgage Association
("FNMA") insured mortgage backed securities issued by the lender to finance the
loans. These securities bear interest at 6.84% per annum and mature in July
2007. The Partnership borrowed 97% of the face amount of the securities from
FNMA. These financings bear interest at a variable rate, currently 5.68% per
annum, require monthly payments of principal and interest, currently $43,791,
and mature each 30 days. The effect of these transactions is to lower the
effective interest rate on the refinancings to 5.72% for Regency and 5.99% for
Pheasant Ridge. The Partnership is subject to the demand by FNMA exposure for
additional collateral or credit loss in the event the interest rate associated
with the securities increases in a manner that is unfavorable to the
Partnership's interest in the security. However, the Partnership intends to
either payoff the mortgage or modify the mortgage to increase the interest rate
prior to any significant credit loss.

In September 1997, the Partnership obtained mortgage financing in the amount of
$15.0 million secured by four previously unencumbered office buildings: 56
Expressway in Oklahoma City, Oklahoma; Executive Court in Memphis, Tennessee;
Melrose Business Park in Oklahoma City, Oklahoma; and University Square in
Anchorage, Alaska; and by a security interest in NOLP's 99.3% limited
partnership interest in GCLP, in the amount of $15.0 million. The Partnership
received net cash of $14.7 million after the payment of various closing costs
associated with the financing. The mortgage bears interest at a variable rate,
currently 9.0% per annum, requires monthly payments of interest only and matures
in June 1998.

58
<PAGE> 59

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

NOTE 7. NOTES PAYABLE (Continued)

In December 1997, the Partnership obtained financing in the amount of $5.0
million secured by six notes receivable with an aggregate principal balance of
$9.3 million. The financing bears interest at 13.0% per annum, requires monthly
payments of interest only and matures in December 1998.

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 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.

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.

59
<PAGE> 60

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

NOTE 7. NOTES PAYABLE (Continued)

The Partnership holds a wraparound mortgage note receivable secured by a
shopping center in La Crosse, Wisconsin. The underlying note payable has
matured.

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
replaced the credit enhancement escrow with a $18.5 million letter of credit
from a financial institution. The letter of credit was for a term of not less
than two years from January 1997. 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.

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

Scheduled notes payable principal payments are due as follows:

<TABLE>
<S> <C>
1998.......................... $ 36,546
1999.......................... 20,501
2000.......................... 6,449
2001.......................... 9,175
2002.......................... 13,002
Thereafter.................... 251,157
---------
$ 336,830
=========
</TABLE>

60
<PAGE> 61

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

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
were issued under an Indenture between the Partnership and Bank of America Texas
as successor Trustee. The Pension Notes were unsecured, subordinated obligations
of the Partnership and bore interest at the rate of 8% compounded annually.
Principal and accrued interest were paid at maturity on September 18, 1997. The
8% stated interest rate on the Pension Notes was different than the assumed
market rate at the time of issuance. Such discount was being amortized over the
term of the Pension Notes using the interest method. Interest expense of
$1,167,000, $1,444,000 and $1,289,000 was recognized on the Pension Notes in
1997, 1996 and 1995, 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. Each warrant entitled the holder thereof to
purchase three quarters of one unit at the exercise price equal to $16.00 per
unit. 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) First Equity Properties, Inc. ("First Equity"),
which is 50% owned by BCM, (ii) Mr. Phillips and (iii) a trust for the

61
<PAGE> 62

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

NOTE 10. GENERAL PARTNER FEES AND COMPENSATION (Continued)

benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts the
property-level management and leasing of nine of the Partnership's
commercial properties to Carmel Realty, Inc. ("Carmel Realty") which is
a company owned by First Equity. 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, depreciation, 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.

62
<PAGE> 63

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

NOTE 10. GENERAL PARTNER FEES AND COMPENSATION (Continued)

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.

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

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Property and construction
management fees* .................... $ 826 $ 744 $ 700
Loan placement fees .................... 332 89 423
Real estate commissions ................ 414 -- 576
Leasing commissions .................... 96 67 73
Reimbursement of administrative
expenses ............................ 3,659 2,610 3,232
------ ------ ------
$5,327 $3,510 $5,004
====== ====== ======
</TABLE>

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

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

Cost reimbursements to GCMI, the general partner of GCLP:

<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reimbursement of administrative
expenses ............................ $789 $719 $675
==== ==== ====
</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

63
<PAGE> 64

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

NOTE 11. RENTS UNDER OPERATING LEASES (Continued)

expire at various dates through 2013. The following is a schedule of minimum
future rents on non-cancelable operating leases as of December 31, 1997:

<TABLE>
<S> <C>
1998 ................... $ 9,003
1999 ................... 6,239
2000 ................... 4,704
2001 ................... 3,374
2002 ................... 2,721
Thereafter ............. 11,662
-------
$37,703
=======
</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 that partnership losses
for certain publicly traded partnerships be 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.

64
<PAGE> 65

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

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

"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 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.

65
<PAGE> 66

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

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

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

66
<PAGE> 67

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

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

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 December 15, 1997, National Realty, SAMLP, the oversight committee, Joseph B.
Moorman, Invenex and the Moorman Class Counsel executed an Agreement for
Establishment of Class Distribution Fund and Election of Successor General
Partner (the "Resolution Agreement") which provides for the nomination of an
entity affiliated with SAMLP to be the successor general partner of the
Partnership, for the establishment of a fund for the benefit of the Moorman
Class Members consisting of cash and properties owned by the Partnership and for
the resolution of all related matters under the Moorman Settlement Agreement.

The Resolution Agreement was submitted to the Supervising Judge and on February
11, 1998, the Supervising Judge entered an order granting

67
<PAGE> 68

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

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

preliminary approval of the Resolution Agreement and scheduled a hearing to be
held on April 24, 1998, for consideration of preliminary approval of a business
plan for the operation of the entity which will receive the cash and properties
and to consider a form of notice to be distributed to the Moorman Class Members
describing the Resolution Agreement and the business plan.

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.

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.

68
<PAGE> 69

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

NOTE 14. QUARTERLY DATA

The following is a tabulation of the Partnership's quarterly results of
operations for the years 1997 and 1996 (unaudited).

<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
1997 March 31 June 30 September 30 December 31
- ---- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues .................................... $ 28,559 $ 28,814 $ 29,797 $ 30,195
Expenses .................................... 28,786 29,080 29,645 29,492
-------- -------- -------- --------

Income (loss) from operations ............... (227) (266) 152 703
Gain on sale of real estate ................. -- 3,587 2,067 2,702
-------- -------- -------- --------

Net income (loss) ........................... $ (227) $ 3,321 $ 2,219 $ 3,405
======== ======== ======== ========

Earnings per unit
Net income (loss) ........................... $ (.04) $ .51 $ .34 $ .54
======== ======== ======== ========
</TABLE>

In second quarter of 1997, the Partnership sold an office building for a gain of
$3.6 million. See "NOTE 3. REAL ESTATE AND DEPRECIATION." In the third quarter
of 1997, the Partnership recognized a deferred gain of $2.1 million on the
payoff of a note receivable. See NOTE 4. "NOTES RECEIVABLE." In the fourth
quarter of 1997, the Partnership sold an apartment complex and a shopping center
for gains totaling $2.7 million.
See NOTE 3. "REAL ESTATE AND DEPRECIATION."

<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------
1996 March 31 June 30 September 30 December 31
- ---- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C>
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>

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.

NOTE 15. SUBSEQUENT EVENTS

69
<PAGE> 70
SCHEDULE III

NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997

<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 .............. $ 6,371 $ 612 $ 6,778 $ 1,350 $ -- $ 612 $ 8,128 $ 8,740
Decatur, GA
Arlington Place ......... 2,671 330 3,275 715 -- 330 3,990 4,320
Pasadena, TX
Barcelona ............... 3,975 1,400 5,600 303 -- 1,400 5,903 7,303
Tampa, FL
Bavarian ................ 6,758 547 5,528 257 -- 547 5,785 6,332
Middletown, OH
Bent Tree ............... 4,694 1,047 7,036 646 -- 1,047 7,682 8,729
Addison, TX
Blackhawk ............... 3,408 253 4,081 292 -- 253 4,373 4,626
Ft. Wayne, IN
Bridgestone ............. 1,332 169 1,780 192 -- 169 1,972 2,141
Friendswood, TX
Brookview Gardens ....... 3,997 385 2,085 338 -- 385 2,423 2,808
Smyrna, GA
Candlelight Square ...... 1,891 148 1,928 189 -- 145 2,120 2,265
Lenexa, KS
Chalet I ................ 2,889 260 2,994 65 -- 260 3,059 3,319
Topeka, KS
Chalet II ............... 1,137 440 1,322 -- -- 440 1,322 1,762
Topeka, KS
Chateau ................. 1,878 130 1,723 126 -- 130 1,849 1,979
Bellevue, NE
Club Mar ................ 6,498 1,248 4,993 235 -- 1,248 5,228 6,476
Sarasota, FL
Confederate Point ....... 4,035 246 3,736 663 -- 246 4,399 4,645
Jacksonville, FL,
Country Place ........... 1,954 246 3,268 70 -- 246 3,338 3,584
Round Rock, TX
Covered Bridge .......... 4,586 219 3,425 129 -- 219 3,554 3,773
Gainesville, FL
Creekwood ............... 4,610 489 1,955 786 -- 489 2,741 3,230
College Park, GA
Fair Oaks ............... 2,938 470 2,661 174 -- 470 2,835 3,305
Euless, TX
Four Seasons ............ 9,617 1,264 8,447 780 -- 1,264 9,227 10,491
Denver, CO
Fox Club ................ 6,412 902 7,294 970 -- 902 8,264 9,166
Indianapolis, IN
Foxwood ................. 3,366 218 3,188 489 -- 218 3,677 3,895
Memphis, TN
Hidden Valley ........... 4,113 274 3,636 361 -- 261 4,010 4,271
Grand Rapids, MI
Horizon East ............ 1,450 592 2,628 482 -- 592 3,110 3,702
Dallas, TX

<CAPTION>
Life on
Which
Date Depreciation
of in Latest
Con- Statement
Accumulated struct- Date of Operation
Description Depreciation tion Acquired is Computed
- ------------------------- ------------ ----- -------- -----------
<S> <C> <C> <C> <C>
APARTMENTS
- ----------
Alexandria .............. $ 5,338 1973 09/77 7 - 40 years
Decatur, GA
Arlington Place ......... 2,808 1973 11/76 7 - 40 years
Pasadena, TX
Barcelona ............... 1,144 1971 09/90 7 - 40 years
Tampa, FL
Bavarian ................ 2,832 1972 01/84 5 - 40 years
Middletown, OH
Bent Tree ............... 4,316 1980 06/80 7 - 40 years
Addison, TX
Blackhawk ............... 2,875 1972 12/78 7 - 40 years
Ft. Wayne, IN
Bridgestone ............. 1,079 1979 06/82 7 - 40 years
Friendswood, TX
Brookview Gardens ....... 1,667 1964 12/77 5 - 40 years
Smyrna, GA
Candlelight Square ...... 1,366 1971 11/77 7 - 40 years
Lenexa, KS
Chalet I ................ 1,691 1964/ 04/82 7 - 40 years
Topeka, KS ........... 74/78
Chalet II ............... 91 1986 03/95 7 - 40 years
Topeka, KS
Chateau ................. 1,034 1968 02/81 7 - 40 years
Bellevue, NE
Club Mar ................ 604 1973 07/93 7 - 40 years
Sarasota, FL
Confederate Point ....... 2,859 1969 05/79 7 - 40 years
Jacksonville, FL,
Country Place ........... 1,780 1980 07/82 7 - 40 years
Round Rock, TX
Covered Bridge .......... 2,841 1972 10/79 7 - 40 years
Gainesville, FL
Creekwood ............... 911 1973 04/90 7 - 40 years
College Park, GA
Fair Oaks ............... 677 1978 07/89 7 - 40 years
Euless, TX
Four Seasons ............ 4,035 1970 07/84 7 - 40 years
Denver, CO
Fox Club ................ 4,009 1972 11/83 7 - 40 years
Indianapolis, IN
Foxwood ................. 2,386 1974 08/79 7 - 40 years
Memphis, TN
Hidden Valley ........... 2,226 1973 07/81 7 - 40 years
Grand Rapids, MI
Horizon East ............ 2,142 1972 05/78 7 - 40 years
Dallas, TX
</TABLE>

70
<PAGE> 71

SCHEDULE III
NATIONAL REALTY, L.P. (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997

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)
APARTMENTS - Continued
- ----------
Kimberly Woods .......... $ 3,134 $ 571 $ 3,802 $ 1,053 $ -- $ 571 $ 4,855 $ 5,426
Tucson, AZ
La Mirada ............... 5,374 392 5,454 1,419 -- 392 6,873 7,265
Jacksonville, FL
Lake Nora Arms .......... 9,721 737 10,774 769 -- 737 11,543 12,280
Indianapolis, IN
Lakewood Park ........... 2,976 800 3,200 148 -- 800 3,348 4,148
St. Petersburg, FL
Lantern Ridge ........... 1,454 130 1,721 66 -- 177 1,740 1,917
Richmond, VA
Mallard Lake ............ 7,945 534 7,099 768 -- 534 7,867 8,401
Greensboro, NC
Manchester Commons ...... 4,824 635 4,654 1,095 -- 635 5,749 6,384
Manchester, MO
Mesa Court .............. 1,713 492 1,968 194 -- 492 2,162 2,654
Mesa, AZ
Mesa Ridge .............. 2,289 955 3,820 357 -- 955 4,177 5,132
Mesa, AZ
Nora Pines .............. 5,974 221 3,872 420 -- 221 4,292 4,513
Indianapolis, IN
Oak Hollow .............. 7,333 745 6,118 765 -- 745 6,883 7,628
Austin, TX
Oakmont ................. 2,817 251 1,423 87 (100) 251 1,410 1,661
Monroe, LA
Oak Tree ................ 2,152 304 3,543 246 -- 304 3,789 4,093
Grandview, MO
Olde Towne .............. 3,538 209 3,272 389 -- 209 3,661 3,870
Middletown, OH
Pheasant Ridge .......... 5,729 231 4,682 998 -- 231 5,680 5,911
Bellevue, NE
Pines ................... 2,584 278 3,490 276 -- 278 3,766 4,044
Little Rock, AR
Place One ............... 4,980 784 5,186 927 -- 784 6,113 6,897
Tulsa, OK
Quail Point ............. 2,136 184 2,716 249 -- 184 2,965 3,149
Huntsville, AL
Regency ................. 3,373 304 1,865 412 -- 304 2,277 2,581
Lincoln, NE
Regency Falls ........... 2,570 888 7,261 1,471 (100)(3) 888 8,632 9,520
San Antonio, TX
River Glen .............. 3,073 683 4,871 848 -- 683 5,719 6,402
Tulsa, OK
Rockborough ............. 5,711 702 4,495 905 -- 702 5,400 6,102
Denver, CO
Royal Oaks .............. 2,670 738 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
Description Depreciation tion Acquired is Computed
- ------------------------- ------------ ---- -------- -----------
<S> <C> <C> <C> <C>
APARTMENTS - Continued
- ----------
Kimberly Woods .......... $ 3,384 1973 12/77 7 - 40 years
Tucson, AZ
La Mirada ............... 4,427 1971 01/79 7 - 40 years
Jacksonville, FL
Lake Nora Arms .......... 7,644 1973 06/78 7 - 40 years
Indianapolis, IN
Lakewood Park ........... 583 1976 12/90 7 - 40 years
St. Petersburg, FL
Lantern Ridge ........... 1,414 1974 03/79 7 - 40 years
Richmond, VA
Mallard Lake ............ 4,900 1974 05/79 7 - 40 years
Greensboro, NC
Manchester Commons ...... 3,745 1972 06/78 7 - 40 years
Manchester, MO
Mesa Court .............. 444 1972 05/90 7 - 40 years
Mesa, AZ
Mesa Ridge .............. 857 1972 05/90 7 - 40 years
Mesa, AZ
Nora Pines .............. 2,826 1970 05/78 5 - 40 years
Indianapolis, IN
Oak Hollow .............. 4,535 1974 05/78 7 - 40 years
Austin, TX
Oakmont ................. 323 1974 06/89 7 - 40 years
Monroe, LA
Oak Tree ................ 1,839 1968 03/82 7 - 40 years
Grandview, MO
Olde Towne .............. 2,103 1968 03/81 7 - 40 years
Middletown, OH
Pheasant Ridge .......... 3,357 1974 10/78 5 - 40 years
Bellevue, NE
Pines ................... 2,414 1977 11/77 7 - 40 years
Little Rock, AR
Place One ............... 4,390 1970 04/77 7 - 40 years
Tulsa, OK
Quail Point ............. 2,124 1960 08/75 7 - 40 years
Huntsville, AL
Regency ................. 1,069 1973 05/82 7 - 40 years
Lincoln, NE
Regency Falls ........... 5,933 1974 11/78 7 - 40 years
San Antonio, TX
River Glen .............. 3,710 1974 11/77 7 - 40 years
Tulsa, OK
Rockborough ............. 3,480 1973 01/78 7 - 40 years
Denver, CO
Royal Oaks .............. 4,345 1973 12/77 7 - 40 years
Stone Mountain, GA
</TABLE>

71
<PAGE> 72

SCHEDULE III
NATIONAL REALTY, L.P. (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997

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)
APARTMENTS - Continued
- ----------
Santa Fe ................... $ 2,764 $ 529 $ 5,351 $ 214 $ -- $ 529 $ 5,565 $ 6,094
Kansas City, MO
Shadowood .................. 3,623 477 3,208 207 -- 477 3,415 3,892
Addison, TX
Sherwood Glen .............. 3,884 352 2,550 518 -- 352 3,068 3,420
Urbandale, IA
Skipper's Pond ............. 2,613 360 3,123 128 -- 339 3,272 3,611
Tampa, FL
Stonebridge ................ 1,704 193 2,076 247 -- 193 2,323 2,516
Florissant, MO
Summerwind ................. 5,052 493 2,990 138 -- 493 3,128 3,621
Reseda, CA
Sun Hollow ................. 3,818 385 4,159 75 -- 385 4,234 4,619
El Paso, TX
Tanglewood ................. 16,894 5,682 18,340 3,723 -- 5,682 22,063 27,745
Arlington Heights, IL
Timber Creek ............... 4,865 154 2,327 673 -- 154 3,000 3,154
Omaha, NE
Towne Oaks ................. 2,638 188 3,576 202 -- 188 3,778 3,966
Monroe, LA
Villa Del Mar .............. 2,495 387 3,134 116 -- 387 3,250 3,637
Wichita, KS
Villas ..................... 3,275 516 3,948 607 -- 516 4,555 5,071
Plano, TX
Whispering Pines ........... 2,324 311 1,255 163 -- 311 1,418 1,729
Canoga Park, CA
Whispering Pines ........... 4,859 228 4,330 1,003 -- 228 5,333 5,561
Topeka, KS
Windridge .................. 7,218 711 5,812 1,665 -- 711 7,477 8,188
Austin, TX
Windtree I & II ............ 5,065 460 2,739 181 -- 460 2,920 3,380
Reseda, CA
Wisperwood ................. 2,128 237 1,964 431 -- 258 2,374 2,632
Tampa, FL
Woodlake ................... 4,315 585 5,848 1,029 -- 585 6,877 7,462
Carrollton, TX
Woodsong II ................ 1,385 322 3,705 340 -- 322 4,045 4,367
Smyrna, GA
Woodstock .................. 3,065 888 5,193 417 -- 888 5,610 6,498
Dallas, TX

OFFICE BUILDINGS
- ----------------
56 Expressway .............. --(4) 406 3,976 570 (2,386)(3) 406 2,160 2,566
Oklahoma City, OK
Executive Court ............ --(4) 271 2,099 673 -- 271 2,772 3,043
Memphis, TN
Marina Playa ............... 8,092 1,237 4,339 5,108 -- 1,237 9,447 10,684
Santa Clara, CA
Melrose Business Park ...... --(4) 367 2,674 167 (1,000)(3) 367 1,841 2,208
Oklahoma City, OK
University Square .......... --(4) 562 3,276 186 (1,875)(3) 562 1,587 2,149
Anchorage, AK

<CAPTION>
Life on
Which
Date Depreciation
of in Latest
Con- Statement
Accumulated struct- Date of Operation
Description Depreciation tion Acquired is Computed
- ---------------------------- ------------ ---- -------- -----------
<S> <C> <C> <C> <C>
APARTMENTS - Continued
- ----------
Santa Fe ................... $ 2,869 1964/ 04/83 7 - 40 years
Kansas City, MO 67
Shadowood .................. 2,096 1976 02/79 7 - 40 years
Addison, TX
Sherwood Glen .............. 2,217 1970 12/77 7 - 40 years
Urbandale, IA
Skipper's Pond ............. 2,350 1971 07/76 7 - 40 years
Tampa, FL
Stonebridge ................ 1,499 1975 10/77 7 - 40 years
Florissant, MO
Summerwind ................. 2,359 1976 02/77 7 - 40 years
Reseda, CA
Sun Hollow ................. 2,507 1977 09/79 7 - 40 years
El Paso, TX
Tanglewood ................. 14,546 1974 03/78 7 - 40 years
Arlington Heights, IL
Timber Creek ............... 2,065 1974 10/78 5 - 40 years
Omaha, NE
Towne Oaks ................. 2,023 1974 07/82 7 - 40 years
Monroe, LA
Villa Del Mar .............. 1,808 1971 10/81 7 - 40 years
Wichita, KS
Villas ..................... 2,734 1977 04/79 7 - 40 years
Plano, TX
Whispering Pines ........... 170 1977 12/93 7 - 40 years
Canoga Park, CA
Whispering Pines ........... 3,297 1972 02/78 7 - 40 years
Topeka, KS
Windridge .................. 5,140 1974 09/78 7 - 40 years
Austin, TX
Windtree I & II ............ 2,122 1976 11/76 7 - 40 years
Reseda, CA
Wisperwood ................. 1,701 1975 07/76 7 - 40 years
Tampa, FL
Woodlake ................... 3,916 1979 08/78 7 - 40 years
Carrollton, TX
Woodsong II ................ 3,144 1975 08/80 7 - 40 years
Smyrna, GA
Woodstock .................. 3,409 1977 12/78 7 - 40 years
Dallas, TX

OFFICE BUILDINGS
- ----------------
56 Expressway .............. 1,916 1981 03/82 7 - 40 years
Oklahoma City, OK
Executive Court ............ 1,553 1980 09/82 5 - 40 years
Memphis, TN
Marina Playa ............... 5,921 1972 12/76 5 - 40 years
Santa Clara, CA
Melrose Business Park ...... 1,323 1980 03/82 5 - 40 years
Oklahoma City, OK
University Square .......... 1,386 1981 12/81 5 - 40 years
Anchorage, AK
</TABLE>

72
<PAGE> 73

SCHEDULE III
(Continued)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997

Initial Cost to Partnership Gross Amount Carried at close of Period (1)
-------------------------------------- ----------------------------------------------------------

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

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

(2) Does not include discounts and mortgages payable totaling $13,781 on real
estate which has been sold but for which the Partnership remains liable on
the underlying mortgage note.

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

(4) Cross-collateralized securing a $15.0 million loan. Additional security of
the Partnership's interest in GCLP.

73
<PAGE> 74
SCHEDULE III
(Continued)

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

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of Real Estate

Balance at January 1 ........................ $ 447,968 $ 442,439 $ 451,572

Acquisitions and improvements ........... 5,004 5,529 5,705
Sales ................................... (17,757) -- (14,838)
--------- --------- ---------

Balance at December 31, ..................... $ 435,215 $ 447,968 $ 442,439
========= ========= =========

Reconciliation of Accumulated
Depreciation

Balance at January 1, ....................... $ 223,204 $ 212,957 $ 210,037

Depreciation ............................ 10,338 10,247 10,268
Sales ................................... (9,751) -- (7,348)
--------- --------- ---------

Balance at December 31, ..................... $ 223,791 $ 223,204 $ 212,957
========= ========= =========
</TABLE>

74
<PAGE> 75
SCHEDULE IV
NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE
December 31, 1997
<TABLE>
<CAPTION>

Final
Interest Maturity
Description Rate Date Periodic Payment Terms
- ------------------- -------- -------- ---------------------------------------------
<S> <C> <C> <C>
FIRST MORTGAGE LOAN

Dallas Parkway Properties, Inc......... 14.00% 08/99 Monthly interest only.
Secured by an office building
in Addison, TX.

Frisco Eldorado Partners, L.L.C........ 15.00% 07/98 Monthly interest only.
Secured by 92.637 acres of
undeveloped land in Frisco, TX.

Highway 544 Partners, L.P.............. 18.00% 04/99 Quarterly interest only at 12% per annum, with
Secured by 49 acres of undeveloped deferred interest paid annually in April.
land in Plano, TX, a pledge of 100%
of the partnership interest and the
personal guarantee of the owner
of Highway Partner's general partner.

Hunt................................... 10.00% 09/98 Monthly interest only.
Secured by residential property
in Addison, TX.

JNC Enterprises, Ltd................... 16.00% 06/98 Monthly interest only.
Secured by 81.99 acres of unimproved
land in Frisco, TX.

Stratford & Graham Developers, L.L.C... 15.00% 07/99 All principal and interest due at maturity
Secured by 1,485 acres of undeveloped or upon sale.
land in Riverside County, CA.

WRAPAROUND MORTGAGE LOANS

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

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

OTHER

14875 Landmark......................... 12.00% 12/99 Monthly interest only.
Secured by a pledge of partnership
interest in Landmark which owns
commercial real estate in Addison, TX.

</TABLE>

Principal Amount of
Carrying Amounts Loans Subject to
Prior Face Amount of Mortgage Net Delinquent Principal
Description Liens of Mortgage of Discount(1) or Interest
- ------------------- -------- ----------- ---------------- --------------------
(dollars in thousands)
<S> <C> <C> <C> <C>

FIRST MORTGAGE LOAN

Dallas Parkway Properties, Inc......... $ 1,965 $ 2,800 $ 2,800 $ --
Secured by an office building
in Addison, TX.

Frisco Eldorado Partners, L.L.C........ --(2) 800 800 --
Secured by 92.637 acres of
undeveloped land in Frisco, TX.

Highway 544 Partners, L.P.............. --(2) 1,500 1,450 --
Secured by 49 acres of undeveloped
land in Plano, TX, a pledge of 100%
of the partnership interest and the
personal guarantee of the owner
of Highway Partner's general partner.

Hunt................................... -- 240 240 --
Secured by residential property
in Addison, TX.

JNC Enterprises, Ltd................... --(2) 3,500 3,500 --
Secured by 81.99 acres of unimproved
land in Frisco, TX.

Stratford & Graham Developers, L.L.C... -- 3,450 3,450 --
Secured by 1,485 acres of undeveloped
land in Riverside County, CA.

WRAPAROUND MORTGAGE LOANS

Warner Creek........................... 11,309 17,503 17,450 --
Secured by apartments in
Woodland Hills, CA.

Bridgeview............................. 2,472 5,500 5,391 --
Secured by shopping center in
La Crosse, WI.

OTHER

14875 Landmark......................... --(2) 1,152 1,152 --
Secured by a pledge of partnership
interest in Landmark which owns
commercial real estate in Addison, TX.

</TABLE>

75
<PAGE> 76
SCHEDULE IV
(Continued)

NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE
December 31, 1997

Final
Interest Maturity
Description Rate Date Periodic Payment Terms
- ------------------- -------- -------- ---------------------------------------------
<S> <C> <C> <C>
Other - Continued

Bordeaux Investments........................ 14.00% 01/99 Monthly interest only at 12%, with deferred
Secured by (i) a 100% limited partnership interest paid annually in December.
interest in Bordeaux, which owns a
shopping center in Oklahoma City, OK;
(ii) 100% of the stock of Bordeaux
Investments One, Inc., which owns
6.5 acres of undeveloped land in
Oklahoma City, OK; and (iii) the personal
guarantees of the Bordeaux partners.

Preston/Lomo Alto, L.L.C.................... 12.00% 11/99 Monthly interest only.
Secured by a pledge of partnership
interests in two partnerships which own
commercial property in Dallas and Plano, TX.

Tara Summit Square, Inc..................... 12.00% 08/98 Monthly interest only.
Secured by a pledge of stock and a second
lien on a shopping center in Rhode Island.

Ward........................................ 12.00% 12/98 Monthly interest only.
Secured by a first lien on an oil, gas and
mineral lease in Anderson County, TX
and by a second lien on a ranch in
Henderson County, TX.

Interest receivable

Deferred gains

Allowance for estimated losses

</TABLE>

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

(1) The aggregate cost for financial statement purposes approximates that for
federal tax purposes.
(2) Cross-collateralized securing a $5.0 million note payable.

<TABLE>
<CAPTION>
Principal Amount of
Carrying Amounts Loans Subject to
Prior Face Amount of Mortgage Net Delinquent Principal
Description Liens of Mortgage of Discount(1) or Interest
- ------------------- ------- ----------- ---------------- --------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Other - Continued

Bordeaux Investments........................ $ -- $ 1,274 $ 1,274 $ --
Secured by (i) a 100% limited partnership
interest in Bordeaux, which owns a
shopping center in Oklahoma City, OK;
(ii) 100% of the stock of Bordeaux
Investments One, Inc., which owns
6.5 acres of undeveloped land in
Oklahoma City, OK; and (iii) the personal
guarantees of the Bordeaux partners.

Preston/Lomo Alto, L.L.C.................... --(2) 1,656 1,656 --
Secured by a pledge of partnership
interests in two partnerships which own
commercial property in Dallas and Plano, TX.

Tara Summit Square, Inc..................... -- 475 455 --
Secured by a pledge of stock and a second
lien on a shopping center in Rhode Island.

Ward........................................ --(2) 700 700 --
Secured by a first lien on an oil, gas and
mineral lease in Anderson County, TX
and by a second lien on a ranch in
Henderson County, TX. ------- ------- -------- --------
$15,746 $40,500 40,318 $
======= ======= ======== ========
Interest receivable 255

Deferred gains <13,720>

Allowance for estimated losses <1,910>
--------
$ 24,943
========
</TABLE>

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

(1) The aggregate cost for financial statement purposes approximates that for
federal tax purposes.
(2) Cross-collateralized securing a $5.0 million note payable.

<PAGE> 77

SCHEDULE IV
(Continued)

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

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Balance at January 1, ....................... $ 30,908 $ 27,863 $ 29,525

Additions
Amortization of discount ................ 34 45 45
Acquisition and settlement
of notes receivable ................. -- -- 2,268
Funding of notes receivable ............. 22,898 3,500 --

Deductions

Collection of principal ................. (13,522) (500) (3,975)
-------- -------- --------

Balance at December 31, ..................... $ 40,318 $ 30,908 $ 27,863
======== ======== ========
</TABLE>

77
<PAGE> 78

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.]

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

GENE E. PHILLIPS: Age 60, 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; 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 51, 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.

[THIS SPACE INTENTIONALLY LEFT BLANK.]

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

KARL L. BLAHA: Age 50, Executive Vice President - Commercial Asset Management
(since July 1997) of SAMI.

Executive Vice President- Commercial Asset Management (since July
1997), Executive Vice President and Director of Commercial Management
(April 1992 to August 1995) of BCM, CMET, IORI and TCI; Director
(since June 1996), President (since October 1993) and Executive Vice
President and Director of Commercial Management (April 1992 to October
1993) of ART; Executive Vice President (October 1992 to July 1997) of
Carmel Realty, Inc. ("Carmel Realty"), a company owned by First Equity
Properties, Inc. ("First Equity"), a company 50% owned by BCM;
Director and President (since 1996) of First Equity; Executive Vice
President and Director of Commercial Management (April 1992 to
February 1994) of NIRT and VPT; Partner - Director of National Real
Estate Operations of First Winthrop Corporation (August 1988 to March
1992); Corporate Vice President of Southmark Corporation ("Southmark")
(April 1984 to August 1988); and President of Southmark Commercial
Management (March 1986 to August 1988).

BRUCE A. ENDENDYK: Age 49, Executive Vice President (since January 1995) of
SAMI.

President (since January 1995) of 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; 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.

THOMAS A. HOLLAND: Age 55, 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).

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

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

Under the securities laws of the United States, the directors and executive
officers of the Partnership's Managing General Partner, and any persons holding
more than 10% of the Partnership's units of limited partner interest are
required to report their ownership of the Partnership's units and any changes
in that ownership to the Securities and Exchange Commission (the "Commission").
Specific due dates for these reports have been established and the Partnership
is required to report any failure to file by these dates during 1997. 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."

The directors and principal officers of BCM are set forth below.
<TABLE>
<CAPTION>

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

RYAN T. PHILLIPS: Director

RANDALL M. PAULSON: President

KARL L. BLAHA: Executive Vice President - Commercial
Asset Management

BRUCE A. ENDENDYK: Executive Vice President

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

A. CAL ROSSI, JR.: Executive Vice President

COOPER B. STUART: Executive Vice President

CLIFFORD C. TOWNS, JR.: Executive Vice President - Finance
</TABLE>

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

<S> <C>
DAN S. ALLRED: Senior Vice President - Land Development

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 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

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

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 51, 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.

RONALD T. BAKER: Age 50, 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. The case was
dismissed in 1997.

JOSEPH S. RADOVSKY: Age 54, member (since July 1992) of the Oversight
Committee.

Partner with Greene Radovsky Maloney and Share LLP, 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

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

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. Raymond V. J. Schrag and Willie K. Davis resigned
from the Fairness Committee in February 1995 and August 1995, respectively.

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 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, 1997. 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.

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

Mr. Reidler received $4,000 in 1997 for serving on the Partnership's Audit
Committee. Messrs. Kelly, Baker and Radovsky each received $50,000 in 1997 for
serving on the Oversight Committee. See ITEM 10. "GENERAL PARTNER OF THE
REGISTRANT AND EXECUTIVE OFFICERS OF THE REGISTRANT'S GENERAL PARTNER."

Pursuant to the Resolution Agreement, Invenex, of which Mr. Baker is a
principal, will receive $15,000 per month from December 1997 until the earlier
of the date the properties are transferred to the class entity or the
Resolution Agreement is terminated. The Partnership shall also reimburse
Invenex for its reasonable costs and expenses incurred in negotiating and
completing the transaction contemplated under the Resolution Agreement,
conducting due diligence, inspecting properties and retaining experts.

[THIS SPACE INTENTIONALLY LEFT BLANK.]

85
<PAGE> 86
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,
1992 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>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
THE PARTNERSHIP 100.00 126.47 161.10 200.33 253.43 477.92

DJ EQUITY MARKET
INDEX 100.00 109.95 110.76 152.49 187.63 251.34

DJ REAL ESTATE
INDEX 100.00 117.07 111.35 137.60 184.73 220.96
</TABLE>

86
<PAGE> 87
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
6, 1998.

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

(1) Percentage is based upon 6,323,437 units of limited partner interest
outstanding at March 6, 1998.

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 6, 1998.

Percent of
Name of Beneficial Owner Number of Units Units (1)
- ----------------------------- --------------- ----------
SAMLP, the general 3,731,444 (2) 59.0%
partners of SAMLP, and
the executive officers
and directors of SAMI
as a group (4 individuals)

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

(1) Percentage is based upon 6,323,437 units of limited partner interest
outstanding as of March 6, 1998.

(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 in, each of National
Realty and the Operating Partnership. Southmark

87
<PAGE> 88
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Certain Business Relationships (Continued)

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, Mr. Phillips with a combined 1.95%
general and limited partner interest and SAMI with .10% general partner
interest. 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. Karl L. Blaha, Executive Vice President - Commercial Asset Management of
SAMI, was Corporate Vice President of Southmark from April 1984 to August 1988
and President of Southmark Commercial Management from March 1986 to August
1988. 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) First Equity, which is 50% owned
by BCM, (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, Blaha, 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, Blaha, 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.

88
<PAGE> 89
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 nine of
the Partnership's commercial properties to Carmel Realty, which is a company
owned by First Equity. 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."

89
<PAGE> 90
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, 1997, no payments had been received on such note. At December 31,
1997, accrued and unpaid interest on the note totaled $7.2 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, 1997 and 1996

Consolidated Statements of Operations -
Years Ended December 31, 1997, 1996 and 1995

Consolidated Statements of Changes in Partners' Equity (Deficit) -
Years Ended December 31, 1997, 1996 and 1995

Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995

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.

90
<PAGE> 91
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>

91
<PAGE> 92
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 Agreement for Establishment of Class Distribution Fund and Election of Successor General Partner dated
December 15, 1997, among National Realty, L.P., Syntek Asset Management, L.P., National Realty, L.P.
Oversight Committee, Joseph B. Moorman, Invenex and Moorman Class Counsel (incorporated by reference to
Exhibit 2 to the Registrant's Current Report on Form 8-K, dated December 15, 1997).
</TABLE>

(b) Reports on Form 8-K

A Current Report on Form 8-K, dated December 15, 1997, was filed
with respect to Item 5. "Other Events" and Item 7. "Financial
Statements and Exhibits" which reports the Agreement for
Establishment of Class Distribution Fund and Election of Successor
General Partner.

92
<PAGE> 93
\ 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
- ---------- ----- ----
<S> <C> <C>
SYNTEK ASSET MANAGEMENT, INC. Managing General Partner of
Syntek Asset Management, L.P.

By: /s/ Randall M. Paulson March 26, 1998
------------------------------
Randall M. Paulson
Director and President

/s/ Gene E. Phillips General Partner of March 26, 1998
- --------------------------------- Syntek Asset Management, L.P.
Gene E. Phillips
</TABLE>

93
<PAGE> 94
NATIONAL REALTY, L.P.

EXHIBITS TO
ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 1997

<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------------- ------
<S> <C> <C>
11.0 Computation of Earnings Per Unit. 95

21.0 Subsidiaries of the Registrant. 96

27.0 Financial Data Schedule 97
</TABLE>

<PAGE> 1
Exhibit 11.0

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

<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------
1997 1996 1995
----------- ----------- -----------
(dollars in thousands, except per unit)
<S> <C> <C> <C>
Income (loss) before extraordinary
gain ....................................... $ 8,718 $ (375) $ 3,797

Less - General Partners' 1.99%)
interest ................................... 173 (7) 76
----------- ----------- -----------

Income (loss) allocable to Limited
Partners ................................... $ 8,545 $ (368) $ 3,721
=========== =========== ===========

Earnings per unit

Net income (loss) ............................. $ 1.35 $ (.06) $ .58
=========== =========== ===========

Weighted average units of limited
partner interest used in computing
earnings per unit .......................... 6,327,418 6,387,270 6,418,104
=========== =========== ===========
</TABLE>

<PAGE> 1

EXHIBIT 21.0

SUBSIDIARIES OF THE REGISTRANT

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

2. Brookview NLP, Inc.; Covered Bridge NLP, Inc.; Four Seasons NLP, Inc.;
Harbor Plaza NLP, Inc.; Mallard Subsidiary Corporation; Marina Playa NLP,
Inc.; NLP Equity Lending, Inc.; National Melrose, 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 Equity Lending I,
Ltd., a Texas 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,180
<SECURITIES> 2,814
<RECEIVABLES> 26,853
<ALLOWANCES> 1,910
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 435,215
<DEPRECIATION> 223,791
<TOTAL-ASSETS> 279,580
<CURRENT-LIABILITIES> 0
<BONDS> 339,102
0
0
<COMMON> 0
<OTHER-SE> (122,275)
<TOTAL-LIABILITY-AND-EQUITY> 279,580
<SALES> 0
<TOTAL-REVENUES> 112,875
<CGS> 0
<TOTAL-COSTS> 64,620
<OTHER-EXPENSES> 10,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,189
<INCOME-PRETAX> 8,718
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,718
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35

</TABLE>