ARVIDA JMB PARTNERS L P II, 10-K405, 1997-03-31

ARVIDA JMB PARTNERS L P II
10-K405, 1997-03-31
OPERATORS OF NONRESIDENTIAL BUILDINGS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended
December 31, 1996 Commission file number 0-19245

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

Delaware 58-1809884
(State of organization) (IRS Employer Identification No.)

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

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

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each Class which registered
- ------------------- ------------------------------

None None

Securities registered pursuant to Section 12(g) of the Act:

LIMITED PARTNERSHIP INTERESTS
AND ASSIGNEE INTERESTS THEREIN
(Title of Class)

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 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

State the aggregate market value of the voting stock held by non-affiliates
of the registrant. Not applicable.

Portions of the Prospectus of the registrant dated October 27, 1989 and
filed with the Commission pursuant to Rules 424(b) and 424(c) under the
Securities Act of 1933 are incorporated by reference in Parts II and III of
this Annual Report on Form 10-K.

TABLE OF CONTENTS

Page
----
PART I

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

Item 2. Properties . . . . . . . . . . . . . . . . . 5

Item 3. Legal Proceedings. . . . . . . . . . . . . . 7

Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . 7

PART II

Item 5. Market for the Partnership's Limited
Partnership Interests and
Related Security Holder Matters. . . . . . . 8

Item 6. Selected Financial Data. . . . . . . . . . . 9

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10

Item 8. Financial Statements and Supplementary Data. 19

Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . 46

PART III

Item 10. Director and Executive Officers
of the Registrant. . . . . . . . . . . . . . 46

Item 11. Executive Compensation . . . . . . . . . . . 49

Item 12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . 50

Item 13. Certain Relationships and
Related Transactions . . . . . . . . . . . . 50

PART IV

Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . 51

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 55

PART I

ITEM 1. BUSINESS

There is substantial doubt about the Partnership's ability to continue
as a concern. Reference is made to Item 7 -Management's Discussion and
Analysis of Financial Condition and Results of Operation. All references
to "Notes" are to Notes to Consolidated Financial Statements contained in
this report.

The registrant, Arvida/JMB Partners, L.P.-II (the "Partnership"), is a
limited partnership formed in June 1989 and currently governed under the
Revised Uniform Limited Partnership Act of the State of Delaware. The
Partnership was formed to acquire and develop through merger or purchase
the real estate and other assets of certain affiliated partnerships
("Affiliated Partnerships") and certain other assets. On October 27, 1989,
the Partnership commenced an offering to the public of $225,000,000 in
Limited Partnership Interests ("Interests") (subject to increase by an
additional 75,000 Interests) pursuant to a Registration Statement on Form
S-1 under the Securities Act of 1933 (No. 33-29608). A total of 234,428
Interests were issued and assigned to the public (at an offering price of
$1,000 per Interest before discounts) and such assignee holders ("Holders
of Interests" or "Holders") were admitted to the Partnership. The offering
of Interests terminated in February 1990 and no Holder of Interests has
made any additional capital contribution after such date. The Holders of
Interests of the Partnership generally share in their portion of the
benefits of ownership of the Partnership's real property investments and
other assets according to the number of Interests held. A description of
the maximum term of the Partnership is included in Item 5 to which
reference is hereby made for such description.

The Partnership's assets, other than Talega, consisted principally of
interests in land developed or planned for development into master-planned
residential communities (the "Communities"). Such Communities and other
development parcels and assets owned directly or indirectly by the
Partnership, are referred to herein as the "Properties". The Partnership
had principally been engaged in the development of comprehensively planned,
primary and secondary home Communities containing a diversified product mix
designed for the various markets in which the Partnership operates.

The Partnership's credit facilities matured without repayment on
December 30, 1994. Although to date the lender has not pursued all of its
remedies under the credit facility agreements, which could include, among
other things, realizing upon the security interests in the Partnership's
Properties, the lender has reserved the right to assert any or all of such
remedies in the future.

Reference is made to Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations for further discussion of the
current plan for the orderly disposition of its remaining assets.

The Partnership sold individual residential lots and undeveloped land.
The unaffiliated third-party builders and developers to whom the
Partnership sold parcels and lots were generally small to mid-size local
builders and developers who required project specific financing for their
developments and whose operations were susceptible to fluctuations in the
availability of financing. In addition, within certain Properties, the
Partnership constructed, or caused to be constructed, a variety of
products, including single-family homes and patio homes developed for sale.

The Partnership also owned and operated a golf club facility and a cable
television system within its Heathrow Community. The Partnership's
remaining Properties are located near Atlanta, Georgia and Orlando, Florida
and in Orange County, California.

Arvida Company ("Arvida"), an affiliate of the General Partner has
provided certain development, construction, management and other personnel
and services to the Partnership for all of its projects and operations,
subject, in each case, to the overall control of the General Partner on
behalf of the Partnership. The Partnership, directly or through certain
subsidiaries, provided development and management services to Community
home ownership associations within the Communities.

The business of the Partnership was cyclical in nature and certain
aspects of the development of the Properties were to some degree seasonal.
Such seasonality has not had a material impact on the Partnership's
business. A presentation of information about industry segments,
geographic regions or raw materials is not applicable and would not be
material to an understanding of the Partnership's business taken as a
whole.

The Partnership had previously been following the practice with
respect to Communities of (i) developing an overall master plan for the
Community, (ii) creating a unifying architectural theme that is consistent
with the Community's master plan, (iii) offering a variety of recreational
facilities, (iv) imposing architectural standards and other property
restrictions on residents and third-party developers in order to enhance
the long-term value of the Community, (v) establishing property owners'
associations to maintain compliance with architectural, landscaping and
other requirements and to provide for ownership and maintenance of certain
facilities, and/or (vi) operating and controlling access to golf, tennis
and other recreational facilities.

The Partnership's development approach, individually or by joint
venture, was intended to enhance the value of real estate in successive
phases. The first step in development had been to design a Community
master plan that addressed the appropriate land uses and product mix,
including residential, recreational and, where appropriate, commercial and
industrial uses (which generally have not been developed by the Partner-
ship). The Partnership then sought to obtain the necessary regulatory and
environmental approvals for the development of the Community in accordance
with the master plan. This approval process was a major factor in
determining the viability and prospects for profitability of the
Partnership's development projects.

The first phase in the regulatory approval process usually consisted
of obtaining the proper zoning approvals for the intended development. The
Partnership also had to comply with state and local laws governing large
planned developments which may vary from state to state and community to
community. In Florida, for example, land development is subject to the
Florida Local Government Comprehensive Planning and Land Development
Regulation Act, as administered by the State and implemented by regional,
county and municipal authorities. In addition, prior to or
contemporaneously with zoning approval, the Partnership, if subject to the
applicable filing requirements, was required to obtain "Development of
Regional Impact" ("DRI") approval from the applicable local governmental
agency after review and recommendations from the appropriate regional
planning agency, with oversight by the Florida State Department of
Community Affairs. In addition, state laws generally provide further that
a parcel of land cannot be subdivided into distinct segments without having
a plat filed and finalized with the local or municipal authority, which, in
general, required the approval of various local agencies, such as
environmental and public works departments. In addition to the foregoing,
the Partnership was required to secure the actual permits for development
from applicable Federal (e.g., the Army Corps of Engineers and the
Environmental Protection Agency with respect to coastal and wetlands
developments, including dredging of waterways) and state or local agencies,
including construction, dredging, grading, tree removal and water
management and drainage district permits. The foregoing discussion and the
discussion which follows are also generally applicable to the Partnership's
commercial and industrial developments.

In addition to obtaining receipt of all approvals and permits required
to be obtained by the Partnership for a specific Community other than
actual approvals or permits for final platting and/or construction
activities, the Partnership had also applied for the permits and other
approvals necessary to undertake the construction of infrastructure,
including roads, water and sewer lines and amenities such as lakes,
clubhouses, golf courses, tennis courts and swimming pools. These
expenditures for infrastructure and amenities are generally significant and
are usually required early in the development of a Community, although the
Partnership has attempted, to the extent feasible, to develop Communities
in a phased manner. See Note 8 for further discussion regarding Tax-Exempt
Bond Financing with regard to infrastructure improvements at the
Partnership's Talega Property.

Certain of the Florida Communities described below have applied for
and have been designated as Planned Unit Developments ("PUD") by the local
zoning authority (usually the governing body of the municipality or the
county in which the Community is or will be located). Designation as a PUD
generally establishes permitted densities (i.e., the number of residential
units which may be constructed) with respect to the land covered thereby
and, upon receipt, enables the developer to proceed in an orderly, planned
fashion. Generally, such PUD approvals permit flexibility between single-
unit and multi-unit products since the developer can plan Communities in
either fashion as long as permitted densities are not exceeded. As a
consequence, developments with PUD status are able to meet changing demand
patterns in housing through such flexibility. It should be noted that some
of the Communities, while not having received PUD approval, have obtained
the necessary zoning approvals to create a planned community development
with many of the benefits of PUD approval such as density shifting.

In developing the infrastructure and amenities of its Communities and
building its own housing products, the Partnership has functioned as a
general contractor although it has also from time to time hired firms for
general contracting work. The Partnership followed the practice of hiring
subcontractors, architects, engineers and other professionals on a project-
by-project basis rather than maintaining in-house capabilities, principally
to be able to select the subcontractors and consultants it believed were
most suitable for a particular development project and to control fixed
overhead costs. The Partnership has never been faced with any significant
material or labor shortages; however, the construction industry in general
has from time to time experienced serious difficulties in obtaining certain
construction materials and in having available a sufficiently large and
adequately trained work force.

In addition, certain of the Partnership's Communities contained
acreage zoned for commercial use, on which shopping centers, office
buildings and other commercial buildings could be built.

In the opinion of the General Partner of the Partnership, all of the
Properties held at December 31, 1996 are adequately insured.

The Partnership currently owns no patents, trademarks, licenses or
franchises other than those trademarks and tradenames in respect of the
names of its Communities. The Arvida name and the service marks with
respect to the Arvida name are owned by Arvida, subject to the Partner-
ship's non-exclusive right to use the name and the service marks under its
supervisory and management agreement with Arvida and subject to the non-
exclusive right of certain third parties to the limited use of the name.

The principal assets in which interests had been acquired by the
Partnership are described in more detail under Item 2 below to which
reference is hereby made for a description of such assets. The Partnership
will not acquire and/or develop any real properties in addition to its
existing Properties.

The Partnership's real properties have been subject to competition
from similar types of properties in the vicinities in which they are
located, including properties owned, advised or managed by affiliates of
the General Partner. The Partnership has no real estate assets located
outside of the United States.

The Partnership has no employees. Reference is made to Note 10 for a
discussion of certain arrangements with Arvida Company and Arvida/JMB
Partners, L.P., both of which provide personnel to perform services on
behalf of the Partnership.

The terms of transactions between the Partnership and the General
Partner and its affiliates are set forth in Items 10, 11 and 12 below to
which reference is hereby made for a description of such terms and
transactions.

ITEM 2. PROPERTIES

The principal assets in which interests have been acquired by the
Partnership are described below. Unless otherwise indicated, the acreage
amounts set forth herein are approximations of the gross acreage of the
Communities or other properties referred to or described and are not
necessarily indicative of the net developable acreage currently owned by
the Partnership or its joint ventures. Except where noted, the Partnership
was the developer of the Properties. All of the Partnership's remaining
Properties are subject to mortgages to secure repayment of the
Partnership's indebtedness as described in Note 8, to which reference is
made for a description of such indebtedness.

(a) Orange County, California

The Partnership acquired through a merger with an Affiliated
Partnership, ownership of 2,290 undeveloped acres located in southern
Orange County, California originally planned for a master-planned
Community, known as Talega. It was originally intended that the Community
would offer a complete range of residential product types ranging from low-
density single-family to higher density multi-family, almost all of which
would be targeted to the primary-home buyer. The residential areas were
planned for a variety of products at varying price points which would be
oriented around major amenities such as golf courses, parks, schools,
trails, neighborhood centers and transit centers. Approximately 900 acres
are approved in the specific plan for residential use, and approximately
170 acres for commercial use. To date, certain development work has been
completed. Given economic and market conditions as well as other factors,
the Partnership ceased further development of this Community in late 1991.
Reference is made to Notes 8 and 12 for discussions regarding the Talega
Community.

(b) Palm Beach County, Florida

The Partnership acquired, through merger with an Affiliated
Partnership, ownership of 115 remaining developable acres within the 2,250-
acre Palm Beach Polo and Country Club Community, which is located in Palm
Beach County, Florida. The Community was an existing development of an
unaffiliated third-party developer, Landmark Land Company of Florida, Inc.,
who filed for bankruptcy in late 1991. The Partnership's Property within
Palm Beach Polo and Country Club was encumbered by a mortgage. In July
1991, the Partnership ceased making debt service payments and was seeking a
modification of the non-recourse mortgage loan, as a result of slower than
anticipated sales absorptions which had been impacted by the financial
viability of the third-party developer, among other reasons. The
Partnership was unsuccessful in its efforts either to obtain a modification
of the loan or to resolve certain issues with the current mortgage note
holder, the Resolution Trust Corporation ("RTC"). Therefore, on June 25,
1993, the Partnership executed a deed in lieu of foreclosure agreement with
the RTC to transfer its interest in the Property.

The Partnership also acquired, through merger with an Affiliated
Partnership, ownership of 24 acres in Wycliffe, a 600-acre PUD, located in
Palm Beach County, Florida, which was being developed by an unaffiliated
third-party developer. The Partnership offered patio home products at this
Property targeted to the secondary and primary home market, all of which
were sold and closed as of December 31, 1993.

The Partnership acquired, through merger with an Affiliated
Partnership, ownership of a 230-acre Community located in Southwest Orange
County, Florida (approximately 10 miles west of Orlando, Florida), known as
Wesmere. Amenities include an open air pavilion, tennis courts, basketball
courts, a swimming pool and a park. The Partnership constructed and sold
housing products targeted towards the primary home buyer and sold homesites
to unaffiliated third-party builders. The Partnership sold the remaining
land within this Community during 1995.

(d) Seminole County, Florida

In January 1990, the Partnership acquired a controlling interest and
became the managing general partner of a limited partnership which was the
developer/owner of the remaining residential acreage (approximately 1,800
acres), existing Community amenities and certain commercial and other real
estate assets within a 2,700-acre Community development known as Heathrow.
Heathrow is located approximately 15 miles northeast of Orlando, in
Seminole County, Florida. The Partnership developed and sold a wide range
of housing products targeted primarily to the primary home buyer and sold
homesites to unaffiliated third-party builders. The Community amenities
include golf, tennis, swimming and other recreational facilities. During
June 1996, the Heathrow joint venture, in which the Partnership is the
managing general partner, closed on the sale of the remaining land, the
country club and certain related assets within the Partnership's Heathrow
Community. The Partnership's remaining asset in the Heathrow Community is
a 100,000 square foot community shopping center. The Partnership intends to
sell this remaining asset during 1997.

(e) Cherokee County, Georgia

Eagle Watch is a 1,000-acre residential and golf course community
development located within a larger PUD in Cherokee County, Georgia,
northwest of Atlanta. The Partnership purchased from an Affiliated
Partnership a 99.9% partnership interest in a partnership that owns the
parcels comprising Eagle Watch. The remaining 1/10 of 1% partnership
interest is held by the General Partner. The Community offers developed
homesites for sale to third party builders. Community amenities include an
18-hole public golf course, swimming, tennis and other recreational
facilities. The Partnership closed on the sale of the Eagle Watch Golf
Club in December 1993. As of December 31, 1996, the Partnership has three
remaining homesites for sale within this Community. The Partnership
intends to sell-out these remaining homesites during 1997.

(f) Clayton County, Georgia

The Partnership acquired through merger with an Affiliated Partnership
ownership of Rock Creek, a 190-acre single-family Community located in
Clayton County, Georgia, southeast of Atlanta. The Community offered
developed homesites for sale to third-party builders and features an eight-
acre recreational area including lakes, playgrounds, and a pavilion with
swimming and tennis courts. All homesites in this Community had closed as
of December 31, 1995.

(g) Cobb County, Georgia

The Partnership acquired through merger with an Affiliated Partnership
ownership of Burnt Hickory Lakes, a 180-acre single-family Community
located in western Cobb County, Georgia, west of Atlanta. Amenities
include lakes, tennis courts, a swimming pool and a recreational facility.
The Community offered developed homesites for sale to third-party builders,
all of which were closed as of December 31, 1995.

(h) Tarrant County, Texas

The Partnership acquired through merger with an Affiliated Partnership
ownership of SouthRidge Lakes, a 270-acre Community located in northeast
Tarrant County, Texas, near Dallas/Ft. Worth. Amenities include tennis,
swimming and other recreational areas. The Partnership sold homesites to
third-party builders for construction of homes catering to the primary home
market, all of which were closed as of December 31, 1994.

ITEM 3. LEGAL PROCEEDINGS

The Partnership has been named a defendant in a lawsuit filed in the
Circuit Court in and for the Eighteenth Judicial Circuit, Seminole County,
Florida entitled Land Investment I, Ltd., Heathrow Land & Development
Corporation, Heathrow Shopping Center Associates, and Paulucci Investments
v. Arvida/JMB Managers-II, Inc., Arvida/JMB Partners, L.P.-II, Arvida
Company and JMB Realty Corporation. The complaint, as amended, includes
counts for breach of the management agreement, breach of fiduciary duty,
fraud in the inducement and conspiracy to commit fraud in the inducement,
breach of the partnership agreement and rescission in connection with the
purchase and management of the Heathrow development. Plaintiffs seek,
among other things, unspecified compensatory damages, the right to add a
claim for punitive damages, rescission, attorneys fees, costs, and such
other relief as the Court deems appropriate. The Partnership believes that
the lawsuit is without merit and intends to vigorously defend itself in
this matter.

On or before October 31, 1996, a lawsuit entitled Seagate At San
Clemente, L.L.C. v. Arvida/JMB Partners, L.P.-II, and does 1 through 20 was
filed in the Superior Court of the State of California for the County of
Orange. In the verified complaint for specified performance of contract,
plaintiff claimed that on October 10, 1996 it entered into an oral
agreement with the Partnership for the purchase of the Talega Property.
The complaint purported to set forth the essential terms of the deal and
claimed that plaintiff reasonably relied on various representations of the
Partnership in obtaining financing to close the alleged deal on October 31,
1996. Plaintiff sought a judgment against the Partnership that it execute
and deliver a complete conveyance of the Talega Property in accordance with
the parties' alleged agreement, costs, and such other relief as the court
may deemed just and proper. The plaintiff filed a lis pendens on the
Property. On November 18, 1996, the plaintiff voluntarily dismissed the
lawsuit without prejudice and released the lis pendens on the Property.

The Partnership is not subject to any other material pending legal
proceedings, other than ordinary litigation incidental to the business of
the Partnership. However, reference is made to Note 11 for a discussion of
certain claims asserted by Merrill Lynch for indemnification by the
Partnership and the General Partner in connection with claims for
arbitration filed by certain investors in the Partnership.

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

There were no matters submitted to a vote of security holders during
1996 and 1995.

PART II

ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP
INTERESTS AND RELATED SECURITY HOLDER MATTERS

As of December 31, 1996, there were 15,763 record Holders of the
234,190 Interests outstanding of the Partnership. There is no public
market for Interests, and it is not anticipated that a public market for
Interests will develop. Upon request, the General Partner may provide
information relating to a prospective transfer of Interests to an investor
desiring to transfer his Interests. The price to be paid for the
Interests, as well as any other economic aspects of the transaction, will
be subject to negotiation by the investor. For provisions governing the
transferability of Interests, reference is made to "Transferability of
Partnership Interests" on pages A-31 to A-34 of the Partnership Agreement
and Sections 3 and 4 on page B-2 of the Assignment Agreement which are
hereby incorporated herein by reference to Exhibit 99.1 to this report.

Pursuant to Section 5.5J of the Partnership Agreement, which is hereby
incorporated herein by reference to pages A-25 through A-26 included in
Exhibit 99.1 to this report, the General Partner shall elect to pursue one
of the following courses of action: (i) to cause the Interests to be
listed on a national exchange or reported by the National Association of
Securities Dealers Automated Quotation System (a "Listing") at any time on
or prior to the date ten years from the termination date of the offering of
Interests; (ii) to purchase, or cause JMB or its affiliates to purchase,
all of the Interests on the date ten years from the termination of the
offering of Interests at their then appraised fair market value (which is
determined to be fair by an independent nationally recognized investment
banking firm or real estate advisory company); or (iii) to commence a
liquidation phase on the date ten years from the termination of the
offering of Interests, in which all Partnership assets will be sold prior
to the end of the fifteenth year from the termination of the offering. The
Partnership Agreement provides that the Partnership may continue in
existence (subject to earlier termination under certain circumstances,
including upon a liquidation of the Partnership as described in (iii)
above) until December 31, 2039. The Partnership Agreement also provides
that the General Partner shall not cause a Listing of the Interests (as
described in (i) above) unless it receives an opinion of tax counsel to the
Partnership to the effect that such Listing will not result in the
Partnership being classified for Federal income tax purposes as a
corporation, rather than as a partnership.

Reference is made to Note 9 for a discussion of the provisions of the
Partnership Agreement relating to cash distributions. Reference is made to
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 8 for a discussion of the Partnership's
inability to reinstate distributions.

<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
ARVIDA/JMB PARTNERS, L.P.-II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992

<CAPTION>
1996 1995 1994 1993 1992
------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues. . . . . . $ 25,753,220 25,775,598 52,940,395 60,904,431 56,723,906
============ ============ ============ ============ ============
Net operating
income (loss). . . . . . $ 4,602,058 1,904,695 (43,143,395) (18,502,496) (59,199,630)
============ ============ ============ ============ ============

Net income (loss) . . . . $ 12,366,476 (18,242,348) (61,324,519) (28,388,874) (73,543,759)
============ ============ ============ ============ ============
Net income (loss)
per Interest (a) . . . . $ 64.05 (52.00) (287.36) (95.33) (327.00)
============ ============ ============ ============ ============

Total assets (b). . . . . $ 4,849,917 24,239,158 43,945,587 93,530,462 142,934,421
============ ============ ============ ============ ============

Total liabilities
(b). . . . . . . . . . . $117,271,102 149,026,819 150,490,900 138,751,256 159,766,341
============ ============ ============ ============ ============
Cash distributions
per Interest . . . . . . $ -- -- -- -- --
============ ============ ============ ============ ============
<FN>

The above selected financial data should be read in conjunction with the consolidated financial statements
and the related notes appearing elsewhere in this report.

(a) The net income (loss) per Interest is based upon the average number of Interests outstanding during each
period.

(b) The Partnership does not present a classified balance sheet as a matter of industry practice and, as
such, does not distinguish between current and non-current assets and liabilities.

</TABLE>

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

LIQUIDITY AND CAPITAL RESOURCES

As discussed below, there is substantial doubt about the Partnership's
ability to continue as a going concern.

At December 31, 1996 and 1995, the Partnership had cash and cash
equivalents of approximately $182,000 and $1,387,000, respectively. The
decrease in cash and cash equivalents at December 31, 1996 as compared to
December 31, 1995 is due to the reduction of working capital to fund the
Partnership's operations. Bank overdrafts, which represent checks in
transit, of approximately $10,000 and $551,000 at December 31, 1996 and
1995, respectively, were repaid from cash on hand in January 1997 and 1996,
respectively. Remaining cash and cash equivalents were available for
working capital requirements. The Partnership is currently in default, as
discussed below, of the terms of its credit facilities. The source of the
Partnership's short- and long-term future liquidity is dependent upon its
lender continuing to forbear from exercising its remedies under the
Partnership's credit facility agreements and permitting the Partnership to
use certain sales proceeds to finance the Partnership's limited operations,
as discussed more fully below. The Partnership suspended cash
distributions to its partners in late 1990 due to, among other things,
deteriorating market conditions. The Partnership is unable to reinstate
distributions due to its financial condition, which is also discussed more
fully below.

The terms of the Partnership's credit facilities are discussed in
detail in Note 8. The Partnership's credit facilities matured on December
30, 1994. However, the Partnership did not have the funds to pay off the
balances outstanding under the credit facilities. At December 31, 1996,
approximately $11.4 million, $56.0 million and $11.5 million was
outstanding under the $52.5 million term loan, the $67.5 million term loan
and the revolving line of credit facility, respectively. The Partnership
has not made the required interest payments on its credit facilities since
September 1994. The amount of interest which remains payable at December
31, 1996 totals approximately $16.8 million.

During 1994, the Partnership had attempted to negotiate a
restructuring of its credit facilities with its lender to, among other
things, obtain additional borrowing capacity for the development of new
phases of land and housing inventories at certain of its Communities, but
was unable to obtain such restructuring.

The Partnership's $67.5 million term loan has a certain loan-to-value
covenant relative to the Partnership's Talega Property. Based upon
independent appraisals of Talega as of December 31, 1993 and 1994, which
were prepared on behalf of the Partnership's lender, the Partnership has
not been in compliance with this covenant. On March 4, 1994, pursuant to
the terms of this loan-to-value covenant, the Partnership received a notice
of default from its lender. The Partnership was required to make a term
loan payment, including accrued interest, of approximately $59 million in
order to cure this default. The Partnership did not have the funds to make
such payment.

prohibit it from selling to third-party builders, land parcels or homesites
that were either fully developed or in process, and did not prevent the
construction and sale of homes by such builders in the Heathrow and Wesmere
Communities. However, the uncertainty surrounding the future availability
of partially or fully developed homesites, as well as the uncertainty of
maintaining a sales and marketing program within these Communities,
affected the construction and sale of homes by such builders.

Proceeds from the sales of housing units, homesites, land parcels and
other collateral securing the credit facilities, net of brokerage
commissions and certain other customary selling expenses are delivered to
the lender to be applied against the outstanding principal balance on one
of the term loans. Through December 31, 1996, the Partnership has remitted
proceeds totaling approximately $40.2 million from sales made after
becoming subject to this requirement in September 1994.

Pursuant to a request by the Partnership's lender during 1994, the
Partnership prepared a plan for the orderly disposition of its remaining
assets (other than the Talega Property) for its lender's review and
approval. While the duration of such orderly disposition was expected to
be within a certain range of time, the plan assumed the Partnership would
complete the construction and development of housing and homesite projects
that had already commenced within the Heathrow and Wesmere Communities, and
sell those products within two years from the commencement of the plan. In
addition, the plan assumed the Partnership would complete the general
development necessary to prepare the remaining parcels in those Communities
for sale, as well as sell related assets in the Heathrow Community, to
unaffiliated third-party purchasers within the two-year period. The
accompanying Consolidated Financial Statements reflect writedowns to the
carrying values of real estate inventories and property and equipment which
were recorded during 1994 totaling approximately $31.2 million to reflect
the estimated difference between the net realizable value of the
Partnership's assets under the 1994 proposed plan, as compared to the net
realizable value of such assets assuming their build-out and sale in the
Partnership's ordinary course of business at such time.

In March 1995, the Partnership and its lender entered into Forbearance
Agreements pursuant to which, among other things, approximately $2.3
million was applied to the outstanding principal balance of one of the
Partnership's term loans and $3 million was deposited in a restricted
collateral account to pay direct operational costs and general and
administrative expenses of the Partnership's limited operations, subject to
the approval of the lender of such costs and expenses and its continued
forbearance from the exercise of its other remedies under the credit
facility agreements. An additional $0.2 million was paid to the lender to
fund certain legal fees, appraisal costs and construction services which
were expenses of the Partnership. Such amounts were funded out of sale
proceeds previously withheld by the Partnership.

In September 1995, the Partnership's lender informed the Partnership
that it would not accept the proposed plan for the orderly disposition of
its remaining assets (other than the Talega Property). The lender asked
the Partnership to prepare a new shorter term plan for the sale of the
assets which included, among other things, a reduction of proposed
development and general and administrative expenses. On October 31, 1995,
the Partnership and its lender reached an agreement to amend the March 1995
Forbearance Agreements agreeing to, among other things, a new plan whereby
the Partnership would attempt to sell its remaining assets (other than the
Talega Property) in accordance with set minimum sales prices for each of
the assets over the course of a six-month period with payment of certain
operational costs to be made out of available funds in the restricted
collateral account. The agreement is subject to the lender's continued
forbearance from the exercise of its remedies under the credit facilities
and its right to cease funding costs not yet then incurred. The expected
disposition of assets in accordance with the new six-month plan did not
result in any additional writedowns to the carrying values of real estate
inventories and property and equipment.

During November 1995, the Partnership closed on the sale of the
remaining land within its Wesmere Community to an unaffiliated third party
for a sales price of approximately $4.25 million. In addition, the buyer
reimbursed the Partnership at closing for certain prepaid impact fees which
had been paid by the Partnership. Such fees totaled approximately $1
million. The net proceeds from such sale were paid to the Partnership's
lender and applied against the outstanding principal balance on one of the
Partnership's term loans. The sale resulted in a gain for financial
reporting purposes and a loss for Federal income tax purposes in 1995.

During June 1996, the Heathrow Joint Venture, in which the Partnership
is the managing general partner, closed on the sale of the remaining land,
the country club and certain related assets within the Partnership's
Heathrow Community. This transaction is reflected in Land and property
operations on the accompanying consolidated statements of operations. This
sale is the primary cause for various significant changes on the
accompanying consolidated balance sheets at December 31, 1996 as compared
to December 31, 1995 and on the accompanying consolidated statements of
operations for the year ended December 31, 1996 as compared to 1995. The
net proceeds from this sale, after prorations and closing costs, of
approximately $18.4 million were paid to the Partnership's lender and
applied against the outstanding principal balances on both of the
Partnership's term loans. The sale resulted in a gain for financial
reporting purposes and a loss for Federal income tax purposes in 1996.

During September 1996, the Partnership and its lender agreed to
another amendment of the March 1995 Forbearance Agreement agreeing to,
among other things, a revised plan whereby the Partnership would sell its
remaining assets by no later than March 31, 1997. Upon the execution of
the amended agreement, the Partnership's lender agreed to forgive, waive
and cancel a portion of the unpaid interest on the Partnership's credit
facilities in the aggregate amount of $20 million, of which $2 million was
allocated to interest on the revolving line of credit and $18 million was
allocated to one of the term loans. The forgiveness of this interest is
reflected as an Extraordinary gain on the accompanying consolidated
statements of operations for the year ended December 31, 1996, and is the
primary cause for the decrease in Accrued expenses and other liabilities on
the accompanying consolidated balance sheets at December 31, 1996 as
compared to December 31, 1995. The amended agreement also includes the
forgiveness, by the Partnership's lender, of any remaining outstanding
principal balance and accrued interest on the Partnership's credit
facilities upon the satisfaction of certain specified conditions,
including, among other things, the sale of the Partnership's remaining real
estate assets at specified minimum prices, the payment of the net proceeds
from such sales to the Partnership's lender, and the assignment of any
other net assets of the Partnership to the lender. However, the lender's
obligations under such agreement terminate on March 31, 1997.

The Partnership and its lender are currently negotiating the terms of
another amendment to the March 1995 Forbearance Agreement which would
include, among other things, an extension of the existing plan whereby the
Partnership would sell its remaining assets by no later than June 30, 1997.

The Partnership currently anticipates that such amendment will also include
the forgiveness, by the Partnership's lender, of any remaining outstanding
principal balance and accrued interest on the Partnership's credit
facilities, upon the satisfaction of certain specified conditions,
including, among other things, the sale of the Partnership's remaining real
estate assets at specified minimum prices, the payment of the net proceeds
from such sales to the Partnership's lender, and the assignment of any
other net assets of the Partnership to the lender. Such forgiveness of
principal and interest would result in an extraordinary gain for financial
reporting purposes.

During April 1996, the Partnership entered into a non-binding letter
of intent with an unaffiliated third party for the sale of the retail
shopping plaza at its Heathrow Community. This letter of intent
subsequently expired by its terms without the sale of the shopping plaza
being consummated. The Partnership continues to actively market this
Property for sale.

During October 1996, the Partnership reached an agreement with an
unaffiliated third party for the sale of the Talega Property. The sale was
originally expected to close during 1996. However, at the prospective
purchaser's request, the Partnership, its lender and the prospective
purchaser subsequently agreed to extend the closing until April 1997. The
closing of the sale is subject to the satisfaction of various conditions.
The proceeds from such sale, if consummated, after payment of the unpaid
real estate taxes on the Talega Property and certain past-due amounts and
prorated items related to the bond financing and other assessments on the
Talega Property (Note 12), would be paid to the Partnership's lender and
applied against the outstanding principal balance on the Partnership's term
loans. The sale, if consummated, would result in a gain for financial
reporting purposes and a loss for Federal income tax purposes during 1997.

Although there can be no assurance, the Partnership is currently
working to dispose of all of its remaining assets during 1997. The
Partnership's ability to dispose of all of its assets during 1997 is
dependent upon, among other things, the Partnership closing on the sale of
its Talega Property, as well as the Heathrow venture contracting for the
sale, and closing the sale, of the shopping plaza at the Heathrow
Community. It is expected that any proceeds from the sale or other
disposition of such assets, in excess of the costs of sale and general and
administrative expenses attributable thereto, will be paid to the lender or
other creditors of the Partnership. In addition, the Partnership is
currently involved in certain litigation, as discussed in Item 3. Legal
Proceedings in this report, to which reference is hereby made. Upon
completion of the sale of the Partnership's remaining assets, the
Partnership expects to terminate. However, termination of the Partnership
could be delayed until resolution (or other acceptable treatment) of the
pending litigation. Holders of Interests should not expect to receive any
future distributions from the Partnership.

The possibility still remains that the lender may pursue its remedies
under the credit facilities, including realizing upon substantially all of
the Partnership's remaining assets, which are collateral security for the
credit facilities. These issues raise substantial doubt about the
Partnership's ability to continue as a going concern. If the Partnership
is unable to continue as a going concern, it may be forced to dispose of
its Properties in a manner that would realize less than would be realized
under the current plan for an orderly disposition. If this were to occur,
any proceeds received could be less than the current carrying values of the
Properties, resulting in the recognition of additional losses by the
Partnership. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.

The Partnership has not generated the cash flow necessary and, as
described above, does not have the available borrowing capacity to pay for
all of the carrying costs relative to its Talega Property. As a result, at
December 31, 1996, approximately $1.4 million of real estate taxes assessed
on the Property remain unpaid and are included in Accrued expenses and
other liabilities on the accompanying consolidated balance sheets at
December 31, 1996. All unpaid real estate taxes owed by the Partnership
will be paid by the Partnership with proceeds from the sale of the Talega
Property, if consummated. Talega's carrying costs include assessments
attributable to the debt service and other obligations related to the
District and its tax-exempt bond financing, which the Partnership has
utilized to construct certain on-site and off-site water and sewer
infrastructure improvements. The details of this bond financing are
discussed in detail in Note 12. The total of such carrying costs paid,
excluding interest under the Partnership's credit facility, associated with

this Property for the years ended December 31, 1996 and 1995 were
approximately $351,000 and $6,336,000, respectively. These amounts do not
include penalties and interest incurred on unpaid District assessments.
The reduction in the carrying costs paid in 1996 as compared to 1995 is due
to the Partnership not having the funds to make the required debt service
payments and other obligations related to the District and its tax exempt-
exempt bond financing for 1996. As a result, Accrued expenses and other
liabilities on the accompanying consolidated balance sheets include an
approximate $7.1 million accrual reflecting the Partnership's obligation to
the District, including penalties and interest incurred on unpaid District
assessments. Certain of the Partnership's unpaid obligations to the
District will be paid by the Partnership with the proceeds from the sale of
Talega.

The Partnership was obligated to pay the District approximately $6.7
million in June 1994 for assessments attributable to its share of the
operating deficits of the District, payments related to the filtration
plant and reservoir capacity, and principal and interest on the bonds for
the District's fiscal year ended June 30, 1994. As mentioned above, given
the Partnership's current financial condition, the Partnership did not have
sufficient cash resources or available borrowing capacity to pay the June
1994 assessments to the District. As a result, on July 5, 1994, the
District drew the entire amount of an $11.4 million letter of credit, which
increased the total funded indebtedness of the Partnership under its credit
facilities by $11.4 million. Of this amount, approximately $5.7 million
represented additional collateral securing payments of assessments
attributable to principal and interest due on the bonds in June 1995. As
discussed in greater detail below, the Partnership contends that the draw
on the letter of credit in July 1995 satisfied its requirement to pay
assessments related to the June 1994 and June 1995 bond debt service
obligations to the District.

Although the District had expended all original bond proceeds on
infrastructure improvements, bond reserves and other related offering
costs, certain funds generated from the sale of District assets, which were
improved using proceeds from the Partnership's bond financing, were held by
the District in reserve accounts for the benefit of the Talega Property.
The District has notified the Partnership that certain of their reserve
accounts were invested through the Orange County Treasurer's Office. In
light of the developments with Orange County, some of those investment
funds may have been lost.

The District has asserted a default by the Partnership, under a
certain agreement between the Partnership and the District, for the
Partnership's alleged failure to pay the June 1994 assessments of
approximately $6.7 million. The District filed a lien on the Talega
Property to secure the unpaid assessments and penalties and interest
thereon in August 1994 and subsequently filed a notice of foreclosure for
the Property. Under California Water District Code Law, the Partnership
had a six-month period in which to cure any such default by the payment of
these amounts. After the expiration of the six-month period without cure
of an outstanding default, the unpaid assessments are delinquent and the
District may seek to enforce its remedy with respect to the Talega
Property, which would generally involve a sale of the Property by the local
taxing authority to the District for the amount of unpaid assessments plus
penalties and interest. The Partnership, as the owner of the Property,
would have a right to redeem the Property during a three-year period
following the sale of the Property to the District by paying all delinquent
assessments plus penalties, interest and costs. During this period
additional assessments would continue to be levied against the Property in
the same manner as before and additional penalties and interest would
accrue. After the end of the three-year period, the Partnership's right of
redemption could be terminated upon execution and delivery to the District
of a tax collector's deed to the Property. The Partnership contends that
the draw on the letter of credit in July 1994 satisfied its requirement to
pay assessments for the June 1994 and 1995 bond debt service obligations
totaling approximately $11.4 million and, therefore, the Partnership is not
in default as to these amounts. Considering the high level of bond
indebtedness on the Talega Property, the reduced value of the Property and
the funds currently on deposit in various reserve accounts for the bonds,
the Partnership approached the District to discuss a plan of restructuring
or partial defeasance of the bonds utilizing some of the reserve account
funds to pay down the bonds and thereby reduce the level of indebtedness of
the Property. However, the Partnership has not received a formal response
from the District regarding this proposal. As discussed in Note 8, the
Partnership has reached an agreement with an unaffiliated third party for
the sale of its Talega Property. One condition of such sale is the
satisfactory release of the Partnership's obligation under such bonds as
well as under various agreements with the District, subject to the payment
by the Partnership of certain past-due amounts and prorated items related
to such bonds and other assessments. The payment of these items would be
made from the proceeds of the sale of the Property.

As stipulated in a management agreement with the Partnership, Arvida
Company ("Arvida") provides development, construction, management and other
personnel and services to the Partnership for all of its projects and
operations. In accordance with this agreement, the Partnership reimburses
Arvida for all of its out-of-pocket expenditures (including salary and
salary-related costs). Pursuant to a requirement under the Partnership's
credit facilities, a portion of the reimbursements paid to Arvida and to
Arvida/JMB Partners, L.P., as well as portions of the Partnership's
insurance and loan refinancing costs, incurred in 1992 and 1993 had been
funded on the Partnership's behalf by advances from the General Partner.
As of April 30, 1993, the General Partner had advanced the total amount
required under the terms of the credit facilities. Such advances, which do
not bear interest, total approximately $4,609,400. The repayment of such
advances is subordinated to the receipt by the Holders of Interests of
certain levels of return, and therefore, is not expected to be made.

In addition, prior to the sale of the remaining land, the country club
and certain related assets within the Heathrow Community during June 1996,
Arvida was entitled to receive a management fee in connection with
providing development management services to the Heathrow venture.
Cumulative management fees of approximately $3,005,000 and $2,793,000 have
been earned through December 31, 1996 and 1995, respectively, the payment
of which has been deferred. The ultimate payment of these management fees
is not expected to be made as it is subordinated to certain levels of
return to the Holders of Interests.

Reference is made to Note 11 for further discussion of certain claims
by Merrill Lynch for indemnification by the Partnership and its General
Partner against losses and expenses suffered by Merrill Lynch relating to
claims for arbitration against it by certain investors of the Partnership.

RESULTS OF OPERATIONS

The results of operations, before writedowns of the carrying values of
real estate inventories and property and equipment, for the years ending
December 31, 1996, 1995 and 1994 are primarily attributable to the
development and sale or operation of the Partnership's assets. See Note 1
for a discussion of the recognition of profit from sales of real estate.

For the year ended December 31, 1996, the Partnership (including its
consolidated ventures) closed on the sale of one housing unit, 20 homesites
and the remaining land, the country club and certain related assets within
the Partnership's Heathrow Community. This compares to closings for the
year ended December 31, 1995 of 37 housing units, 146 homesites and the
remaining land within the Partnership's Wesmere Community. Closings in
1994 were for 155 housing units, 268 homesites and approximately 56 acres
of undeveloped and developed land. Outstanding contracts ("backlog") at
December 31, 1996 consisted of the remaining land within the Partnership's
Talega Community. This compares to a backlog at December 31, 1995 of one
housing unit, nine homesites and the retail shopping plaza at the
Partnership's Heathrow Community, the contract for which was subsequently
terminated by the prospective purchaser. Backlog at December 31, 1994
consisted of 18 housing units and 10 homesites.

Revenues from housing and homesite activities are recognized upon the
closing of homes and developed lots, respectively, within the Partnership's
Communities. Land and property revenues are generated from the closing of
developed and undeveloped residential and/or commercial land tracts. Cost
of revenues pertaining to the Partnership's housing sales reflect the cost
of the acquired assets as well as development and construction
expenditures, certain capitalized overhead costs, capitalized interest,
real estate taxes and marketing and disposition costs. The costs related
to the Partnership's homesite sales reflect the cost of the acquired
assets, related development expenditures, certain capitalized overheads,
capitalized interest and real estate taxes, and disposition costs. Land
and property cost of revenues reflect the cost of the acquired assets,
certain development costs and the related disposition costs.

Housing revenues have been negatively impacted since 1994 due to the
prohibition placed on the Partnership by its lender regarding the
construction of new homes within the Partnership's Heathrow and Wesmere
Communities, as discussed in Liquidity and Capital Resources above. During
the year ended December 31, 1996, the Partnership closed on the remaining
unit in its Heathrow Community. Due to the sale of the Partnership's
Heathrow and Wesmere Communities in 1996 and 1995, respectively, as
discussed above, no housing units remain in inventory as of December 31,
1996. Revenues for 1995 decreased as compared to 1994 due to the overall
decrease in the number of units closed in the Heathrow and Wesmere
Communities during 1995.

Homesite revenues include amounts earned from the sale of developed
lots within the Partnership's Communities. The decrease in homesite
revenues for the year ended December 31, 1996 as compared to 1995 is due to
a decrease in the availability of lots for sale at the Partnership's
Heathrow and Atlanta Communities. The Partnership generated homesite
revenues for the year ended December 31, 1996 from 20 lot closings within
these Communities. Homesite revenues decreased for the year ended December
31, 1995 as compared to 1994 due in part to the absence of lot closings
during 1995 in the Partnership's SouthRidge Lakes Community in Texas, which
closed-out during 1994. Also contributing to the unfavorable variance was
a reduction in lot closings in Heathrow. The development and sale of lots
in Heathrow had been negatively impacted by the restrictions placed on the
Partnership by its lender, as discussed in Liquidity and Capital Resources
above. At December 31, 1996, three lots at the Partnership's Eagle Watch
Community remain in inventory.

The decline in the gross operating profit margin for the year ended
December 31, 1996 as compared to 1995 is due primarily to the reduction in
the number of closings of higher margin product at the Partnership's
Heathrow Community. The decline in the gross operating profit margin for
the year ended December 31, 1995 as compared to 1994 is due primarily to
lower average sales prices generated for lots closed within the
Partnership's Heathrow Community and its Rock Creek and Eagle Watch
Communities in Atlanta in 1995.

Land and property revenues are generated from the sale of developed
and undeveloped residential and commercial land tracts. Land and property
revenues for the year ended December 31, 1996 were generated primarily from
the sale of the remaining land, the country club and certain related assets
within the Partnership's Heathrow Community, as discussed above. Land and
property revenues for the year ended December 31, 1995 represent the
revenues generated from the sale of the remaining land in the Wesmere
Community, which closed in November 1995. Land and property revenues for
1994 were generated from the sale of an approximate 39 acre commercial
tract in the Partnership's Heathrow Community as well as an approximate 17
acre commercial tract in its SouthRidge Lakes Community.

Operating properties represents the activity from the club operation,
retail shopping plaza and cable operations at the Partnership's Heathrow
Community. Revenues from operating properties decreased during 1996 as
compared to 1995 due primarily to the June 1996 sale of the country club
and cable operations within the Partnership's Heathrow Community, as
discussed above.

Brokerage and other operations represents activity from the sale of
builders' homes within the Partnership's Communities, the resale of real
estate inside and outside of the Partnership's Communities, and proceeds
from the Partnership's property management activities. The continued
decrease in brokerage revenues and cost of revenues since 1994 is due to a
reduction in the number of closings of homes built by unaffiliated third-
party builders within the Partnership's Communities due to lower levels of
inventories offered for sale by third-party builders.

Selling, general and administrative expenses include all marketing
costs, with the exception of those costs capitalized in conjunction with
the construction of housing units, and project and general administrative
costs. These expenses are net of the marketing fee reimbursements received
from third-party builders. Such costs continue to decrease as a direct
result of the restrictions placed on development and construction by the
Partnership's lender, and the Partnership's current financial condition.

Writedowns of the carrying values of real estate inventories and
property and equipment for the year ended December 31, 1994 include
writedowns of approximately $20.6 million and $7.9 million to the carrying
values of the Partnership's Heathrow and Wesmere Communities, respectively,
as well as an approximate $2.7 million writedown to the carrying value of
its retail shopping plaza at Heathrow. As discussed in detail above in
Liquidity and Capital Resources, the Partnership, pursuant to a request by
its lender during 1994, prepared a plan for the orderly disposition of its
remaining assets. As a result, the Partnership recorded the above-
mentioned writedowns of its carrying values of real estate inventories and
property and equipment to reflect the estimated difference between the net
realizable value of the Partnership's assets assuming the lender's
acceptance of the proposed plan, as compared to the value of such assets
assuming their build-out and sale in the Partnership's ordinary course of
business.

Due to the Partnership's inability to secure additional financing to
continue the development of the Talega Property, this Property is recorded
at its estimated fair value at December 31, 1996 and 1995. Fair value
accounting assumes a bulk sale of the property in its current state of
development under present market conditions. The 1994 writedown of the
carrying values of real estate inventories and other assets includes a
writedown of approximately $14.3 million to reduce the carrying value of
the Partnership's Talega Property. This writedown was taken as a result of
the continued deteriorating economic and market conditions and other
factors which resulted in the decision not to proceed with Talega's future
development, as well as the restrictions on the funding of development
costs for Talega under the terms of the credit facilities and property
specific factors. The fair value estimate at December 31, 1994 was at the
lower end of a range of possible values. The low end of the range was
recorded due to the continued uncertainties regarding the Talega Property,
including issues related to its tax-exempt bond financing and defaults or
alleged defaults with respect to payment of assessments to the District, as
more fully described in Liquidity and Capital Resources above and in Notes
8 and 12. As a result of this writedown of the carrying value, the
Partnership no longer has any recorded investment in the Talega Property.

The decrease in interest and real estate taxes for the year ended
December 31, 1996 as compared to 1995 is due primarily to an approximate
$5.5 million adjustment recorded during 1996 to reduce real estate taxes
related to the Talega Property. During the fourth quarter of 1996, the
Partnership received correspondence from the District which indicated that
the Partnership's obligation to the District had been reduced by proceeds
from the sale of property previously improved by the District. Such
improvements had been funded by the bond financing described in Note 12.
The decrease in interest and real estate taxes for 1996 as compared to 1995
is also due to a decrease in the average amount of borrowings outstanding
during the period. Interest and real estate taxes increased for the year
ended December 31, 1995 as compared to 1994 due primarily to an increase in
the interest rate charged on the Partnership's credit facility as discussed
in Note 8, as well as a decrease in the amount of inventories which met the
requirements for interest capitalization. Due to the development and
construction restrictions placed on the Partnership by its lenders, only
minimal amounts of inventories met such capitalization requirements during
1995. This unfavorable variance was partially offset by a reduction in the
amount of real estate taxes incurred in 1995 as compared to 1994, as the
Partnership continues to dispose of its inventories.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

INDEX

Report of Independent Certified Public Accountants

Consolidated Balance Sheets, December 31, 1996 and 1995

Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994

Consolidated Statements of Changes in Partners'
Capital Accounts (Deficits) for the years ended
December 31, 1996, 1995 and 1994

Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994

Notes to Consolidated Financial Statements

SCHEDULES NOT FILED:

All schedules have been omitted as the required information is
inapplicable, or the information is presented in the consolidated financial
statements or related notes.

REPORT OF ERNST & YOUNG LLP,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Partners
Arvida/JMB Partners, L.P.-II:

We have audited the accompanying consolidated balance sheets of Arvida/JMB
Partners, L.P.-II and Consolidated Ventures as of December 31, 1996 and
1995, and the related consolidated statements of operations, changes in
partners' capital accounts (deficits), and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements
are the responsibility of the Partnership's management. Our responsibility
is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Arvida/JMB Partners, L.P.-II and Consolidated Ventures at
December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared
assuming that Arvida/JMB Partners,L.P.-II and Consolidated Ventures will
continue as a going concern. The Partnership has incurred recurring
operating losses and has a partners' deficit of $112.6 million at December
31, 1996. As more fully described in Notes 6, 8, and 12, the Partnership
has ceased further development of its Talega Property, has failed to pay
the outstanding balance due on December 30, 1994, which at December 31,
1996 is approximately $79 million, under its credit facilities and has not
obtained waivers for events of default under its credit facilities. These
conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note 8. The consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability of assets or the amounts and timing of payments of
liabilities that may result from the outcome of this uncertainty.

ERNST & YOUNG LLP

Miami, Florida
February 21, 1997

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

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1996 AND 1995

ASSETS
------
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>

Cash and cash equivalents (note 4). . . . . . . . . . . . . . . . . . $ 181,623 1,387,313
Restricted cash (note 4). . . . . . . . . . . . . . . . . . . . . . . 955,077 2,552,834
Trade and other accounts receivable (net of allowance
for doubtful accounts of $76,289 and $18,431 at
December 31, 1996 and 1995, respectively) (note 5). . . . . . . . . 103,650 1,218,015
Real estate inventories (notes 2, 6, 8 and 12). . . . . . . . . . . . 57,598 10,766,333
Property and equipment, net (note 7). . . . . . . . . . . . . . . . . 2,701,441 6,404,217
Prepaid expenses and other assets (including security
deposits totaling $636,211 and $618,066 at December 31,
1996 and 1995, respectively). . . . . . . . . . . . . . . . . . . . 850,528 1,910,446
------------ ------------

Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 4,849,917 24,239,158
============ ============

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

CONSOLIDATED BALANCE SHEETS - CONTINUED

LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------

1996 1995
------------ ------------
Liabilities:
Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,222 550,666
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 129,281 450,129
Deposits (note 4) . . . . . . . . . . . . . . . . . . . . . . . . . 33,700 1,121,423
Accrued expenses and other liabilities (notes 8 and 12) . . . . . . 30,605,394 39,137,504
Amounts due to affiliates (notes 3 and 10). . . . . . . . . . . . . 7,621,046 7,591,889
Notes and mortgages payable (in default) (note 8) . . . . . . . . . 78,871,459 100,175,208
------------ ------------

Commitments and contingencies (notes 3, 8, 10, 11 and 12)

Total liabilities . . . . . . . . . . . . . . . . . . . . . 117,271,102 149,026,819
------------ ------------

Partners' capital accounts (deficits) (note 9)
General Partner and Associate Limited Partner:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . 2,000 2,000
Cumulative net income (loss) . . . . . . . . . . . . . . . . . . (8,448,354) (5,809,930)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . (246,771) (246,771)
------------ ------------
(8,693,125) (6,054,701)
------------ ------------
Holders of Interests (note 1):
Capital contributions, net of offering costs . . . . . . . . . . 209,753,671 209,753,671
Cumulative net loss. . . . . . . . . . . . . . . . . . . . . . . (304,260,557) (319,265,457)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . (9,221,174) (9,221,174)
------------ ------------
(103,728,060) (118,732,960)
------------ ------------
Total partners' deficits. . . . . . . . . . . . . . . . . . (112,421,185) (124,787,661)
------------ ------------

Total liabilities and partners' deficits. . . . . . . . . . $ 4,849,917 24,239,158
============ ============

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

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

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Housing . . . . . . . . . . . . . . . . . . . . . $ 140,810 6,203,400 25,345,666
Homesites . . . . . . . . . . . . . . . . . . . . 1,243,074 7,436,745 15,430,776
Land and property . . . . . . . . . . . . . . . . 20,286,616 4,250,000 3,087,690
Operating properties. . . . . . . . . . . . . . . 3,315,655 5,289,574 5,172,836
Brokerage and other operations. . . . . . . . . . 767,065 2,595,879 3,903,427
------------ ------------ ------------
Total revenues . . . . . . . . . . . . . 25,753,220 25,775,598 52,940,395
------------ ------------ ------------

Cost of revenues:
Housing . . . . . . . . . . . . . . . . . . . . . 336,186 5,440,703 22,540,279
Homesites . . . . . . . . . . . . . . . . . . . . 1,075,568 5,785,737 11,057,430
Land and property . . . . . . . . . . . . . . . . 14,115,847 442,363 1,855,343
Operating properties. . . . . . . . . . . . . . . 3,023,179 5,399,440 5,071,582
Brokerage and other operations. . . . . . . . . . 600,742 2,393,648 3,154,728
------------ ------------ ------------

Total cost of revenues. . . . . . . . . . 19,151,522 19,461,891 43,679,362
------------ ------------ ------------

Gross operating profit. . . . . . . . . . . . . . . 6,601,698 6,313,707 9,261,033

Selling, general and administrative expenses
(notes 3, 8 and 10) . . . . . . . . . . . . . . . 1,999,640 4,409,012 6,875,013
Writedowns of the carrying values of real estate
inventories and property and equipment
(notes 1, 7 and 8). . . . . . . . . . . . . . . . -- -- 45,529,415
------------ ------------ ------------

Net operating income (loss) . . . . . . . 4,602,058 1,904,695 (43,143,395)

Interest income . . . . . . . . . . . . . . . . . . 28,484 200,267 157,352
Interest and real estate taxes,
net (notes 1, 8 and 12) . . . . . . . . . . . . . (12,264,066) (20,347,310) (18,338,476)
------------ ------------ ------------

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

CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED

1996 1995 1994
------------ ------------ ------------

Loss before extraordinary item. . . . . . (7,633,524) (18,242,348) (61,324,519)

Extraordinary item:
Gain on early extinguishment
of debt (note 8). . . . . . . . . . . 20,000,000 -- --
------------ ------------ ------------

Net income (loss) . . . . . . . . . . $ 12,366,476 (18,242,348) (61,324,519)
============ ============ ============

Income (loss) before extraordinary
item per Interest . . . . . . . . . . . $ 64.05 (52.00) (287.36)
============ ============ ============

Net income (loss) per Interest
(note 1). . . . . . . . . . . . . . . . $ 64.05 (52.00) (287.36)
============ ============ ============

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

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

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL ACCOUNTS (DEFICITS)

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

GENERAL PARTNER HOLDERS
AND ASSOCIATE OF
LIMITED PARTNER INTERESTS TOTAL
--------------- ------------ ------------
<S> <C> <C> <C>

Capital accounts
(deficits) at
December 31, 1993 . . . . . $(6,040,710) (39,180,084) (45,220,794)

Net income (loss) . . . . . . 6,040,710 (67,365,229) (61,324,519)
----------- ------------ ------------

Capital accounts
(deficits) at
December 31, 1994 . . . . . -- (106,545,313) (106,545,313)

Net loss. . . . . . . . . . . (6,054,701) (12,187,647) (18,242,348)
----------- ------------ ------------
Capital accounts
(deficits) at
December 31, 1995 . . . . . (6,054,701) (118,732,960) (124,787,661)

Net income (loss) . . . . . . (2,638,424) 15,004,900 12,366,476
----------- ------------ ------------
Capital accounts
(deficits) at
December 31, 1996 . . . . . $(8,693,125) (103,728,060) (112,421,185)
=========== ============ ============

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

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . $ 12,366,476 (18,242,348) (61,324,519)

Charges (credits) to net income (loss) not
requiring (providing) cash:
Amortization . . . . . . . . . . . . . . . . . . 73,032 538,616 2,342,485
Provision for doubtful accounts. . . . . . . . . 98,975 (14,522) 28,576
(Gain) loss on sale of property and equipment. . 1,866,865 (2,702) (6,000)
Writedowns of the carrying values of
real estate inventories and property
and equipment (notes 1, 7 and 8). . . . . . . . -- -- 45,529,415
Extraordinary gain on early extinguishment
of debt . . . . . . . . . . . . . . . . . . . . (20,000,000) -- --
Changes in:
Restricted cash. . . . . . . . . . . . . . . . . 1,597,757 (2,348,639) 334,300
Trade and other accounts receivable. . . . . . . 1,015,390 193,373 544,578
Real estate inventories:
Additions to real estate inventories . . . . . (4,818,866) (1,003,367) (26,408,127)
Cost of revenues . . . . . . . . . . . . . . . 15,527,601 11,668,803 35,453,052
Capitalized real estate taxes. . . . . . . . . -- (51,688) (159,395)
Capitalized interest . . . . . . . . . . . . . -- (279,639) (1,591,932)
Prepaid expenses and other assets. . . . . . . . 986,886 3,045,175 (2,785,827)
Accounts payable, accrued expenses
and other liabilities . . . . . . . . . . . . . 11,147,042 15,529,990 4,803,311
Deposits . . . . . . . . . . . . . . . . . . . . (1,087,723) (66,580) (614,397)
Amounts due to affiliates. . . . . . . . . . . . 29,157 593,847 630,034
------------ ------------ ------------

Net cash provided by (used in)
operating activities. . . . . . . . . . 18,802,592 9,560,319 (3,224,446)
------------ ------------ ------------

Investing activities:
Acquisitions of property and equipment. . . . . . -- (180,641) (198,522)
Proceeds from disposals of property and equipment 1,835,911 2,702 6,000
------------ ------------ ------------
Net cash provided by (used in)
investing activities. . . . . . . . . . 1,835,911 (177,939) (192,522)
------------ ------------ ------------

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

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

1996 1995 1994
------------ ------------ ------------
Financing activities:
Proceeds from notes and mortgages payable . . . . -- -- 12,134,466
Payments of notes and mortgages payable . . . . . (21,303,749) (16,803,614) (5,148,279)
Repayments of bank overdrafts, net. . . . . . . . (540,444) (717,724) (65,491)
------------ ------------ ------------
Net cash provided by (used in)
financing activities. . . . . . . . . . (21,844,193) (17,521,338) 6,920,696
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . . . (1,205,690) (8,138,958) 3,503,728
Cash and cash equivalents,
beginning of year . . . . . . . . . . . . . . . . 1,387,313 9,526,271 6,022,543
------------ ------------ ------------
Cash and cash equivalents,
end of year . . . . . . . . . . . . . . . . . . . $ 181,623 1,387,313 9,526,271
============ ============ ============
Supplemental disclosure for cash flow information:
Cash paid for mortgage and other interest,
net of amounts capitalized. . . . . . . . . . . $ -- -- 2,366,749
============ ============ ============
Non-cash investing and financing activities . . . $ -- -- --
============ ============ ============

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) OPERATIONS AND BASIS OF ACCOUNTING

Operations

The Partnership's Properties consist principally of interests in land
developed or planned for development into master-planned residential
communities. The Partnership had principally been engaged in the
development of comprehensively planned, primary and secondary home
Communities containing a diversified product mix designed for the various
markets in which the Partnership operates. Reference is made to note 8 for
further discussion of the current plan for disposition of the Partnership's
remaining assets.

Principles of Consolidation

The consolidated financial statements include the accounts of the
Partnership and its consolidated ventures. All material intercompany
balances and transactions have been eliminated in consolidation.

Recognition of Profit from Sales of Real Estate

For sales of real estate, profit is recognized in full when the
collectibility of the sales price is reasonably assured and the earnings
process is virtually complete. When the sale does not meet the require-
ments for recognition of income, profit is deferred until such requirements
are met.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the amounts reported or disclosed in
the financial statements and accompanying notes. Actual results could
differ from those estimates.

Real Estate Inventories and Cost of Real Estate Revenues

The majority of the Partnership's real estate inventories, with the
exception of the Talega Community, are carried at the lower of carrying
amount or fair value less costs to sell as determined through an evaluation
of individual projects. Prior to the adoption of Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which was issued by the Financial Accounting
Standards Board ("FASB") in March 1995 and effective January 1, 1995,
adjustments to book value, as they became necessary, were reported in the
period in which they became known. Reference is made to notes 6 and 7 for
a detailed discussion of writedowns of the carrying values of real estate
inventories and property and equipment recorded for the year ended December
31, 1994. No additional writedowns were recorded during 1996 and 1995. In
addition, due to the Partnership's inability to secure additional financing
to continue the development of its Talega Community, this Property is
recorded at its fair value at December 31, 1996 and 1995. Fair value
accounting assumes a bulk sale of the property in its current state of
development under present market conditions. The fair value estimate at
December 31, 1996 and 1995 is at the lower end of a range of possible
values. The low end of the range was recorded due to the continued
uncertainties regarding the Talega Property, including issues related to
its tax-exempt bond financing and defaults or alleged defaults with respect
to payment of assessments to the Santa Margarita Water District (the
"District"), as more fully described in notes 8 and 12. As a result of the

writedowns of the carrying value, the Partnership no longer has any
recorded investment in the Talega Property. The total cost of land, land
development and common costs were apportioned among the projects on the
relative sales value method. Costs pertaining to the Partnership's
housing, homesites and land and property revenues reflect the cost of the
acquired assets, as well as development, construction, capitalized interest
and real estate taxes and capitalized overheads. Certain marketing costs
relating to housing projects, including exhibits and displays, were
capitalized and charged to housing cost of revenues as sales of related
units were closed. A warranty reserve was provided as sales of housing
units were closed. This reserve is reduced by the cost of subsequent work
performed.

Capitalized Interest and Real Estate Taxes

Interest and real estate taxes are capitalized as incurred to
qualifying assets, principally real estate inventories. Such capitalized
interest and real estate taxes are charged to cost of revenues as revenue
from real estate inventories is recognized. Interest, including the
amortization of loan fees, of $10,294,290, $13,416,110 and $11,903,211 was
incurred for the years ended December 31, 1996, 1995 and 1994,
respectively, of which $0, $279,639 and $1,591,932 was capitalized.
Interest payments, including amounts capitalized, totaling $0, $0 and
$3,958,681 were made for the years ended December 31, 1996, 1995 and 1994,
respectively. The Partnership has not made the required monthly interest
payments on its credit facility since September 1994.

Real estate taxes of $1,969,776, $7,262,527 and $8,186,592 were
incurred for the years ended December 31, 1996, 1995 and 1994,
respectively, of which $0, $51,688 and $159,395 were capitalized. Real
estate tax payments of $524,024, $484,409 and $12,135,892 were made for the
years ended December 31, 1996, 1995 and 1994, respectively. During 1996
and 1995, the Partnership received $68,443 and $625,142, respectively of
real estate tax refunds (not included in the real estate tax payments
reported above) in connection with previously contested property taxes
related to the Partnership's Talega Property. The decrease in real estate
taxes for the year ended December 31, 1996 as compared to 1995 is due
primarily to an approximate $5.5 million adjustment recorded during 1996 to
reduce real estate taxes related to the Talega Property. During the fourth
quarter of 1996, the Partnership received correspondence from the District
which indicated that the Partnership's obligation to the District had been
reduced by proceeds from the sale of property previously improved by the
District. Such improvements had been funded by the bond financing
described in note 12. The decrease in real estate taxes incurred for the
year ended December 31, 1995 as compared to 1994 is due to the decrease in
the District tax assessments at the Partnership's Talega Community. The
decrease in real estate taxes paid for the year ended December 31, 1995 as
compared to 1994 is due to the pre-payment of the June 1995 assessments in
July 1994 as a result of a draw down by the District of the Partnership's
letter of credit collateralizing payment of such assessments. Reference is
made to notes 8 and 12 for further discussion regarding these assessments.
The preceding analysis of real estate taxes does not include real estate
taxes incurred or paid with respect to the Partnership's club facilities
and operating properties as these taxes are included in cost of revenues
for operating properties.

Property and Equipment and Other Assets

Property and equipment and other assets, subject to impairment
considerations (note 13), are carried at cost less accumulated depreciation
and amortization. Prior to the adoption of Statement No. 121 in 1996,
property and equipment were depreciated on the straight-line method over
the estimated useful lives of the assets, which range from three to 25
years. In accordance with Statement No. 121, the Partnership has
discontinued recording depreciation on assets held for disposal. Other
assets are amortized on the straight-line method over the useful lives of
the assets, which range from one to five years. Expenditures for
maintenance and repairs are charged to expense as incurred. Costs of major

renewals and improvements which extend useful lives are capitalized.
Provisions for value impairment are recorded with respect to such assets
whenever the estimated future undiscounted cash flows from operations and
projected sales proceeds are less than the net carrying value. Reference
is made to notes 6 and 7 for a discussion of writedowns of the carrying
values of real estate inventories and property and equipment recorded for
the years ended December 31, 1995 and 1994. Amortization of other assets,
excluding loan fees, of approximately $73,000, $119,000 and $142,000 was
recorded for the years ended December 31, 1996, 1995 and 1994,
respectively. Amortization of loan fees, which is included in interest
expense, of approximately $0, $0 and $1,648,000 was recorded for the years
ended December 31, 1996, 1995 and 1994, respectively.

Partnership Records

The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments where applicable to reflect
the Partnership's accounts in accordance with GAAP and to consolidate the
accounts of the ventures as described above. Such GAAP and consolidation
adjustments are not reflected on the records of the Partnership. The net
effect of these items is summarized as follows:

<TABLE>

1996 1995
------------------------------ ------------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>

Total assets. . . . . . . . . . . . $ 4,849,917 263,097,617 24,239,158 281,631,438
Partners' capital accounts
(deficits):
General and Associate
Limited Partner. . . . . . . . . (8,693,125) -- (6,054,701) --
Holders of Interests. . . . . . . (103,728,060) 103,022,213 (118,732,960) 111,638,592
Net income (loss):
General and Associate
Limited Partner, net . . . . . . (2,638,424) -- (6,054,701) --
Holders of Interests. . . . . . . 15,004,900 (8,616,379) (12,187,647) (22,908,647)
Net income (loss) per
Interest. . . . . . . . . . . . . 64.05 (36.79) (52.00) (97.76)
=========== ============ ============= =============
</TABLE>

Reference is made to note 9 for further discussion of the allocation
of profits and losses to the General Partner, Associated Limited Partner
and Holders of Interests.

The net income (loss) per Interest is based upon the average number of
Interests outstanding during the period.

Reclassifications

Certain reclassifications have been made to the 1995 and 1994
consolidated financial statements to conform with the 1996 presentation.

Income Taxes

No provision for state or Federal income taxes has been made as the
liability for such taxes is that of the partners rather than the
Partnership.

(2) INVESTMENT PROPERTIES

At December 31, 1996, the Partnership's assets include completed
inventories, commercial properties, and brokerage and other ancillary
operations. The development of the Talega Property has ceased due to the
Partnership's inability to secure financing for its further development and
the weak economic and market conditions in Orange County, California.

Reference is made to notes 6 and 7 for a detailed discussion of
writedowns of the carrying values of real estate inventories and property
and equipment recorded for the year ended December 31, 1994.

(3) VENTURE AGREEMENT - HEATHROW

The Partnership is the managing general partner in the limited
partnership which was the developer/owner of the Heathrow Community, prior
to the sale during June 1996 of the remaining land, the country club and
certain related assets within the Heathrow Community. The Heathrow venture
agreement provides that the Partnership would receive distributions of cash
flow from the Heathrow project equal to a cumulative, compounded preferred
return on its capital contribution, plus the return of its capital
contribution, with all remaining cash flow expected to be distributable 75%
to the Partnership and 25% to the venture partner, who is the prior
developer/owner of Heathrow.

Arvida Company ("Arvida") had previously entered into a development
management agreement with the prior owner of Heathrow to provide
development management services with respect to the Heathrow Property for
an annual fee equal to the greater of (i) approximately $470,000 or (ii)
10% of the excess, if any, of cash receipts (which include sale and
financing proceeds) for such period over cash expenditures (excluding the
manager's fee). Arvida continued to provide such development management
services to the Heathrow Partnership pursuant to the agreement through June
1996; however, as the managing partner of the Heathrow Partnership, the
Partnership retained control over major decisions affecting the Property.
For the year ended December 31, 1996, management fees of approximately
$212,200 had been earned, the payment of which has been deferred. For each
of the years ended December 31, 1995 and 1994, management fees of
approximately $468,800 had been earned, the payment of which has also been
deferred. The cumulative amount of such deferred fees as of December 31,
1996 is approximately $3,005,200. Such deferred fees do not bear interest
and remain payable. The ultimate payment of these management fees is not
expected to be made as it is subordinated to certain levels of return to
the Holders of Interests.

(4) CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents may consist of U.S. Government obligations
with original maturities of three months or less, money market demand
accounts and repurchase agreements, the cost of which approximate market
value. The decrease in Cash and cash equivalents at December 31, 1996 as
compared to December 31, 1995 is due primarily to principal paydowns which
were applied to the outstanding balance on one of the Partnership's term
loans. Included in Restricted cash at December 31, 1996 is approximately
$955,100 remaining from the original $3 million which was deposited into a
restricted collateral account in March 1995 pursuant to an agreement
between the Partnership and its lender, as well as the balance of amounts
restricted under various escrow agreements. Reference is made to note 8
for a further discussion of the agreement entered into between the
Partnership and its lender. There are no treasury bills or other short-
term investments with original maturity dates of three months or less
included in Cash and cash equivalents as of December 31, 1996 and 1995.
Credit risk associated with cash, cash equivalents and restricted cash is
considered low due to the high quality of the financial institutions in
which these assets are held.

(5) TRADE AND OTHER ACCOUNTS RECEIVABLE

At December 31, 1996 and 1995, Trade and other accounts receivable
consisted primarily of operating receivables which resulted from the normal
course of operations. The decrease in Trade and other accounts receivable
at December 31, 1996 as compared to 1995 is due to the sale of the
Partnership's club operation within the Heathrow Community in June 1996.

(6) REAL ESTATE INVENTORIES

Real estate inventories at December 31, 1996 and 1995 consist of
completed inventory.

Due to the restrictions placed on future development and construction
by the Partnership's lender, as discussed in detail in note 8, and the
Partnership's intention to sell its remaining inventory in its current
stage of development, remaining real estate inventories have been
classified as completed inventory at December 31, 1996 and 1995.

Writedowns of the carrying values of real estate inventories and
property and equipment for the year ended December 31, 1994 includes
writedowns of approximately $20.6 million and $7.9 million to the carrying
values of the Partnership's Heathrow and Wesmere Communities, respectively.

As discussed in detail in note 8, the Partnership, pursuant to a request by
its lender, prepared a plan for the orderly disposition of its remaining
assets (other than the Talega Property). As a result, the Partnership
recorded the above-mentioned writedowns of its carrying values of real
estate inventories to reflect the estimated difference between the net
realizable value of the Partnership's assets assuming the lender's
acceptance of the proposed plan, as compared to the net realizable value of
such assets assuming their build-out and sale in the Partnership's ordinary
course of business at such time.

Real estate inventories at December 31, 1994 were reduced by
writedowns of the carrying value of the Partnership's Talega Property of
approximately $14.3 million. This writedown was taken as a result of the
deteriorating economic and market conditions and other factors, as well as
the restrictions on the funding of its development costs under the terms of
the credit facilities as more fully discussed in note 8. Due to the
uncertainty surrounding the Partnership's ability to secure additional
financing to develop Talega, this Property is recorded at its estimated
fair value at December 31, 1996 and 1995. Fair value accounting assumes a
bulk sale of the property in its current stage of development under present

market conditions. The fair value estimate at December 31, 1996 and 1995
is at the lower end of a range of possible values. The low end of the
range was recorded due to the continued uncertainties regarding the Talega
Property, including issues related to its tax-exempt bond financing and
defaults or alleged defaults with respect to payment of assessments to the
District, as more fully described in notes 8 and 12. As a result of the
writedowns of the carrying value, the Partnership no longer has any
recorded investment in the Talega Property.

Reference is made to note 13 for a discussion regarding the impairment
of long-lived assets.

(7) PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1996 and 1995 are summarized as
follows:
1996 1995
------------ ----------

Land . . . . . . . . . . . . . . . $ 289,279 693,577
Land improvements. . . . . . . . . -- 1,124,947
Buildings. . . . . . . . . . . . . 4,106,232 6,488,077
Equipment and furniture. . . . . . 28,091 1,274,379
Construction in progress . . . . . -- 291,920
----------- -----------
Total . . . . . . . . . . . . 4,423,602 9,872,900
Accumulated depreciation. . . (1,722,161) (3,468,683)
----------- -----------
Property and equipment, net . $ 2,701,441 6,404,217
=========== ===========

Writedowns of the carrying values of real estate inventories and
property and equipment for the year ended December 31, 1994 include a
writedown of approximately $2.7 million to the carrying value of the
Partnership's retail shopping plaza at Heathrow. As discussed in detail in
note 8, the Partnership, pursuant to a request by its lender during 1994,
prepared a plan for the orderly disposition of its remaining assets (other
than the Talega Property). As a result, the Partnership recorded the
above-mentioned writedown to reflect the estimated difference between the
net realizable value of the shopping plaza assuming the lender's acceptance
of the proposed plan, as compared to the net realizable value of such asset
assuming its sale in the Partnership's ordinary course of business.

Depreciation expense of approximately $419,400 and $552,600 was
recorded for the years ended December 31, 1995 and 1994, respectively. In
conjunction with the provisions of FASB Statement No. 121, (note 13), no
depreciation expense was recorded in 1996.

Reference is made to note 13 for a discussion regarding the impairment
of long-lived assets.

(8) NOTES AND MORTGAGES PAYABLE (IN DEFAULT)

Notes and mortgages payable (in default) at December 31, 1996 and 1995
are summarized as follows:

1996 1995
------------ ----------
Term loan credit facility of
$52,500,000, bearing interest
at approximately 9.75% and 10.0%
at December 31, 1996 and 1995,
respectively . . . . . . . . . . . . . $11,420,548 21,745,868

Term loan credit facility of
$67,500,000, bearing interest
at approximately 10.25% and 10.50%
at December 31, 1996 and 1995,
respectively . . . . . . . . . . . . . 55,967,084 66,921,709

1996 1995
------------ ----------
Revolving line of credit of
$14,301,839, bearing interest
at approximately 9.75% and 10.0%
at December 31, 1996 and 1995,
respectively . . . . . . . . . . . . . 11,483,827 11,483,827
Other notes and mortgages payable . . . -- 23,804
----------- -----------

Total Notes and Mortgages
Payable (In Default). . . . . . $78,871,459 100,175,208
=========== ===========

The Partnership's credit facilities consist of a $52.5 million term
loan, a $67.5 million term loan, a revolving line of credit of
approximately $14.3 million and approximately $4.3 million of outstanding
letters of credit securing performance obligations of the Partnership.
There is also a $5 million letter of credit facility which secures
performance obligations of the Partnership. Availability under such
facility is reduced to the extent there are performance letters of credit
outstanding under the Partnership's credit facility. The term loans, the
revolving line of credit and the letter of credit facilities matured on
December 30, 1994. However, the Partnership did not have the funds to pay
off the balances outstanding under the credit facilities.

Prior to the maturity of the credit facilities on December 30, 1994,
the loans carried varying rates of interest based, at the Partnership's
option, on the Inter-Bank Offering Rate ("IBOR") plus 3.25% to 3.75% per
annum or on the lender's reference rate plus 1.5% to 2.0% per annum. Due
to its inability to pay off the balances outstanding under the credit
facilities at the maturity date, the Partnership began accruing interest on
all of the loans at the post maturity rate of prime plus 3.25% per annum,
effective December 31, 1994, as specified in the credit facility agreement.

For the year ended December 31, 1996, the effective interest rate for the
combined term loans and the revolving line of credit facility was
approximately 11.5% per annum. Interest on the facilities was payable
monthly, with the exception of interest on a portion of the $67.5 million
term loan, which accrued and was payable on the maturity date. The
Partnership has not made the required interest payments on its credit
facilities since September 1994. The amount of interest which remains
payable at December 31, 1996 totals approximately $16.8 million.

The Partnership was required to pay the lenders certain commitment and
administration fees, as well as all closing costs relating to these
facilities. Loan fees incurred in connection with the Partnership's credit
facilities were capitalized and had been completely amortized to interest
expense as of December 31, 1994.

The credit facilities contain significant restrictions with respect to
payment of distributions to partners and the use of excess net cash flow,
require the maintenance of various established loan-to-value ratios,
prohibit the incurrence of additional indebtedness without the lenders'
consent, require the General Partner and its affiliates to defer certain
reimbursements of costs and fees (see note 10), and prohibit the use of the
facilities to fund future development of the Partnership's Talega Property
beyond certain identified carrying costs during the term of the facilities,
in addition to other restrictions and provisions.

The Partnership's $67.5 million term loan has a certain loan-to-value
covenant relative to the Partnership's Talega Property. Based upon an
independent appraisal of Talega dated December 31, 1993, which was prepared
on behalf of the Partnership's lender, the Partnership has not been in
compliance with this covenant. On March 4, 1994, pursuant to the terms of
this loan-to-value covenant, the Partnership received a notice of default
from its lender. The Partnership was required to make a term loan
payment, including accrued interest, of approximately $59 million in order
to cure this default. The Partnership did not have the funds to make such
payment.

In September 1994, the lender informed the Partnership that it would
not advance any funds for the construction of additional homes by the
Partnership which were not under construction or under contract for sale by
October 1994 and would not advance funds for the development of land
parcels or homesites not fully developed or in process by October 1994,
unless and until the lender and the Partnership agreed to a plan for the
disposition of the Partnership's remaining assets. The two Communities in
which the Partnership had been building homes were Heathrow and Wesmere.
The restriction on the construction of new homes by the Partnership did not
prohibit it from selling to third-party builders, land parcels or homesites
that were either fully developed or in process, and did not prevent the
construction and sale of homes by such builders in the Heathrow and Wesmere
Communities. However, the uncertainty surrounding the future availability
of partially or fully developed homesites, as well as the uncertainty of
maintaining a sales and marketing program within these Communities,
affected the construction and sale of homes by such builders.

Proceeds from the sales of housing units, homesites, land parcels and
other collateral securing the credit facilities, net of brokerage
commissions and certain other customary selling expenses are to be
delivered to the lender to be applied against the outstanding principal
balance on one of the term loans. Through December 31, 1996, the
Partnership has remitted proceeds totaling approximately $40.2 million from
sales made after becoming subject to this requirement in September 1994.

Pursuant to a request by the Partnership's lender during 1994, the
Partnership prepared a plan for the orderly disposition of its remaining
assets (other than the Talega Property) for its lender's review and
approval. While the duration of such orderly disposition was expected to
be within a certain range of time, the plan assumed the Partnership would
complete the construction and development of housing and homesite projects
that had already commenced within the Heathrow and Wesmere Communities, and
sell those products within two years from the commencement of the plan. In
addition, the plan assumed the Partnership would complete the general
development necessary to prepare the remaining parcels in those Communities
for sale, as well as sell related assets in the Heathrow Community, to
unaffiliated third-party purchasers within the two-year period. The
accompanying consolidated financial statements reflect writedowns of the
carrying values of real estate inventories and property and equipment which
were recorded during 1994 totaling approximately $31.2 million to reflect
the estimated difference between the net realizable value of the
Partnership's assets under the 1994 proposed plan, as compared to the net
realizable value of such assets assuming their build-out and sale in the
Partnership's ordinary course of business at such time.

In September 1995, the Partnership's lender informed the Partnership
that it would not accept the proposed plan for the orderly disposition of
its remaining assets (other than the Talega Property). The lender asked
the Partnership to prepare a new shorter term plan for the sale of the
assets which included, among other things, a reduction of proposed
development and general and administrative expenses. On October 31, 1995,
the Partnership and its lender reached an agreement to amend the March 1995
Forbearance Agreements agreeing to, among other things, a new plan whereby
the Partnership would attempt to sell its remaining assets (other than the
Talega Property) in accordance with set minimum sales prices for each of
the assets over the course of a six-month period with payment of certain
operational, development and marketing costs to be made out of available
funds in the restricted collateral account. The agreement is subject to
the lender's continued forbearance from the exercise of its remedies under
the credit facilities and its right to cease funding costs not yet then
incurred. The expected disposition of assets in accordance with the new
six-month plan did not result in any additional writedowns of the carrying
values of real estate inventories and property and equipment.

During November 1995, the Partnership closed on the sale of the
remaining land within its Wesmere Community to an unaffiliated third party
for a sales price of approximately $4.25 million. In addition, the seller
reimbursed the Partnership at closing for certain prepaid impact fees which
had been paid by the Partnership. Such fees totaled approximately $1
million. The net proceeds from such sale were paid to the Partnership's
lender and applied against the outstanding principal balance on one of the
Partnership's term loans. The sale resulted in a gain for financial
reporting purposes and a loss for Federal income tax purposes.

During June 1996, the Heathrow joint venture, in which the Partnership
is the managing general partner, closed on the sale of the remaining land,
the country club and certain related assets within the Partnership's
Heathrow Community. This transaction is reflected in Land and property
operations on the accompanying consolidated statements of operations. This
sale is the primary cause for various significant changes on the
accompanying consolidated balance sheets at December 31, 1996 as compared
to December 31, 1995 and on the accompanying consolidated statements of
Operations for the year ended December 31, 1996 as compared to 1995. The
net proceeds from this sale, after prorations and closing costs, of
approximately $18.4 million were paid to the Partnership's lender and
applied against the outstanding principal balances on both of the
Partnership's term loans. The sale resulted in a gain for financial
reporting purposes and a loss for Federal income tax purposes in 1996.

allocated to interest on the revolving line of credit and $18 million was
allocated to one of the term loans. The forgiveness of this interest is
reflected as an Extraordinary gain on the accompanying consolidated
statements of operations for the year ended December 31, 1996, and is the
primary cause for the decrease in Accrued expenses and other liabilities on
the accompanying consolidated balance sheets at December 31, 1996 as
compared to December 31, 1995. The amended agreement also includes the
forgiveness, by the Partnership's lender, of any remaining outstanding
principal balance and accrued interest on the Partnership's credit
facilities upon the satisfaction of certain specified conditions,
including, among other things, the sale of the Partnership's remaining real
estate assets at specified minimum prices, the payment of the net proceeds
from such sales to the Partnership's lender, and the assignment of any
other net assets of the Partnership to the lender. However, the lender's
obligations under such agreement terminated March 31, 1997.

During October 1996, the Partnership reached an agreement with an
unaffiliated third party for the sale of the Talega Property. The sale was
originally expected to close during 1996. However, at the prospective
purchaser's request, the Partnership, its lender and the prospective
purchaser subsequently agreed to extend the closing until April 1997. The
closing of the sale is subject to the satisfaction of various conditions.
The proceeds from such sale, if consummated, after payment of the unpaid
real estate taxes on the Talega Property and certain past-due amounts and
prorated items related to the bond financing and other assessments on the
Talega Property, would be paid to the Partnership's lender and applied
against the outstanding principal balance on the Partnership's term loans.
The sale, if consummated, would result in a gain for financial reporting
purposes and a loss for Federal income tax purposes during 1997.

Although there can be no assurance, the Partnership is currently
working to dispose of all of its remaining assets during 1997. The
Partnership's ability to dispose of all of its assets during 1997 is
dependent upon, among other things, the Partnership closing on the sale of
its Talega Property, as well as the Heathrow venture contracting for the
sale, and closing the sale, of the shopping plaza at the Heathrow
Community. It is expected that any proceeds from the sale or other
disposition of such assets, in excess of the costs of sale and general and
administrative expenses attributable thereto, will be paid to the lender or
other creditors of the Partnership. In addition, the Partnership is
currently involved in certain litigation, as discussed in Item 3. Legal
Proceedings in this report, to which reference is hereby made. Upon
disposition of its remaining assets, or if the Partnership determines the
plan is no longer viable or lacks sufficient funds for maintaining the
affairs of the Partnership, the Partnership would then proceed to terminate

its affairs. However, termination of the Partnership could be delayed
until resolution (or other acceptable treatment) of the pending litigation.
Holders of Interests should not expect to receive any future distributions
from the Partnership.

(9) PARTNERSHIP AGREEMENT

Pursuant to Section 4.2A of the Partnership Agreement, subject to
Sections 4.2C and 4.2F (described below), profits or losses of the
Partnership generally will be allocated as follows: (i) profits will be
allocated such that the General Partner and the Associate Limited Partner
will be allocated profits equal to the amount of cash flow distributed to
them for such fiscal period, except that the General Partner shall be
allocated at least 1% of profits, and the Holders of Interests shall be
allocated the remaining profits and (ii) losses will be allocated 1% to the
General Partner, 1% to the Associate Limited Partner and 98% to the Holders
of Interests.

For tax and financial reporting purposes, subject to Sections 4.2C and

4.2F (described below), all profits of the Partnership will be allocated
such that the General Partner and the Associate Limited Partner will be
allocated profits equal to the amount of cash flow distributed to them,
except that the General Partner will be allocated at least 1% of profits,
and the Holders of Interests will be allocated the remaining profits.
Losses will be allocated 98% to the Holders of Interests, 1% to the
Associate Limited Partner and 1% to the General Partner.

Section 4.2C of the Partnership Agreement limits the allocation of
losses to the Holders of Interests to the extent that such allocation would
create a deficit balance in such Holder's capital account which exceeds the
Minimum Gain (as defined) which would be allocable to them if applicable
assets were disposed in a hypothetical sale at their carrying value and the
non-recourse debt secured by those assets was repaid or discharged. For
financial reporting purposes, the amount of loss allocated to the General
Partners and Associate Limited Partner, collectively, as a result of the
limitation under Section 4.2C was approximately $2,640,000 and $6,055,000
for 1996 and 1995, respectively. For tax purposes for 1996 and 1995, the
limitations under Section 4.2C did not apply and losses were allocated in
accordance with Section 4.2F as discussed below.

Section 4.2F of the Partnership Agreement requires the allocation of
Profits (as defined) to the General Partner and Associate Limited Partner
in order to take account of a current or anticipated reduction in the
Partnership's indebtedness and certain other circumstances. In accordance
with Section 4.2F of the Partnership Agreement, the General Partner and
Associate Limited Partner received allocations of Profits for tax purposes
for 1996 and 1995 in addition to their respective allocations, pursuant to
Section 4.2A of the Partnership Agreement, of the Partnership's 1996 and
1995 losses for tax purposes, as adjusted for such allocation of Profits.

The General Partner and Associate Limited Partner have made capital
contributions to the Partnership of $1,000 each. Except under certain
limited circumstances, upon dissolution and termination of the Partnership
or a liquidation (as defined) of their Partnership Interests, the General
Partner and the Associate Limited Partner are not required to make any
additional capital contributions to the Partnership.

In general, and subject to certain limitations, distributions of Cash
Flow (as defined) are to be allocated 90% to the Holders of Interests and
10% to the General Partner and the Associate Limited Partner (collectively)
until the Holders of Interests have received cumulative distributions of
Cash Flow equal to a 10% per annum return (non-compounded) on their
Adjusted Capital Investments (as defined) plus the return of their Capital
Investments; provided, however, that one-half of the 10% amount otherwise
distributable to the General Partner and Associate Limited Partner
(collectively) will be deferred, and such amount will be paid to the
Holders of Interests, until the Holders of Interests receive Cash Flow
distributions equal to certain cumulative, non-compounded preferred per
annum returns (as defined, the "Preferred Amount"). Any such deferred
amount owed to the General Partner and Associate Limited Partner
(collectively) will be distributable to them out of Cash Flow otherwise
distributable to the Holders of Interests at such time as such Holders have
received cumulative Cash Flow distributions equal to the Preferred Amount
or in any event, to the extent of one-half of Cash Flow otherwise
distributable to the Holders of Interests at such time as they have
received total distributions of Cash Flow equal to their Capital
Investments (as defined). The Partnership's credit facilities discussed in
note 8 contain significant restrictions with respect to the payment of
distributions. Given the financial condition of the Partnership, it is
unlikely that the Holders of Interests will receive any future
distributions from the Partnership.

(10) TRANSACTIONS WITH AFFILIATES

Fees, commissions and other expenditures, associated with
administering the Partnership, required to be paid to affiliates of the
General Partner, other than Arvida Company ("Arvida"), as of and for the
years ended December 31, 1996, 1995 and 1994 are as follows:

UNPAID AT
DECEMBER 31,
1996 1995 1994 1996
------- ------- ------- ------------

Insurance commissions . . $ 1,921 38,255 45,797 --
Reimbursement (at cost)
for accounting
services . . . . . . . . 7,806 50,424 54,150 32
Reimbursement (at cost)
for portfolio manage-
ment . . . . . . . . . . 11,645 16,646 -- 2,401
Reimbursement (at cost)
for legal services . . . 28,465 26,643 36,358 10,066
Reimbursement (at cost)
for other adminis-
trative and out-of-
pocket expenses. . . . . 2,372 50,588 6,707 --
------- -------- -------- ------

$52,209 182,556 143,012 12,499
======= ======== ======== ======

The Partnership also receives reimbursements from affiliates of the
General Partner for certain general and administrative costs including, and
without limitation, salary and salary-related costs relating to work
performed by employees of the Partnership and certain out-of-pocket
expenditures incurred on behalf of such affiliates. The Partnership was
entitled to receive approximately $0, $9,900 and $35,600 for the years
ended December 31, 1996, 1995 and 1994, respectively, for such costs. At
December 31, 1996, no amounts were owed to the Partnership.

Arvida pursuant to an agreement with the Partnership, provides
development, construction, management and other personnel and services to
the Partnership for its projects and operations. In accordance with such
agreement, the Partnership reimburses Arvida for all of its out-of-pocket
expenditures (including salary and salary-related costs). The total of such
costs for the years ended December 31, 1996, 1995 and 1994 was
approximately $192,300, $819,600 and $1,115,800, respectively. At December
31, 1996, approximately $22,500 was unpaid, all of which was paid as of
February 21, 1997.

The Partnership and Arvida/JMB Partners, L.P. (a publicly-held limited
partnership affiliated with the General Partner, "Arvida/JMB-I") each
employ project-related and administrative personnel who perform services on
behalf of both partnerships. In addition, certain out-of-pocket
expenditures related to such services and certain general and
administrative expenditures are incurred and charged to each partnership as
appropriate. The Partnership reimburses or receives reimbursements from
Arvida/JMB-I for such costs (including salary and salary-related costs).
For the year ended December 31, 1996, the Partnership was obligated to
reimburse Arvida/JMB-I approximately $1,255,500. At December 31, 1996,
approximately $7,100 was unpaid, all of which was paid as of February 21,
1997. In addition, for the year ended December 31, 1996, the Partnership
was entitled to receive approximately $113,700 from Arvida/JMB-I. At
December 31, 1996, approximately $21,100 was outstanding, all of which was
received as of February 21, 1997. For the years ended December 31, 1995
and 1994, the Partnership was obligated to reimburse Arvida/JMB-I
approximately $1,021,800 and $1,338,900, respectively, and the Partnership
was entitled to receive approximately $245,100 and $537,700, respectively,
from Arvida/JMB-I.

Pursuant to a requirement under the Partnership's credit facilities, a
portion of the reimbursements paid to Arvida and Arvida/JMB-I as discussed
above, as well as portions of the Partnership's insurance and loan
refinancing costs incurred in 1992 and 1993 had been funded on the
Partnership's behalf by advances from the General Partner. Such advances
totaled approximately $4,609,400 at December 31, 1996 and 1995, and do not
bear interest. The repayment of such advances is subordinated to the
receipt by the Holders of Interests of certain levels of return, and
therefore is not expected to be made. In addition, the Partnership was
entitled to receive approximately $12,900 from an affiliate of the General
Partner for salary and salary-related costs incurred by the Partnership on
behalf of such affiliate of the General Partner, all of which was
outstanding as of December 31, 1996 and December 31, 1995, none of which
was received as of February 21, 1997.

Reference is made to note 3 for a discussion of a management agreement
between Arvida and the prior owner of Heathrow.

The Partnership incurs certain general and administrative costs which
are paid by the Partnership on behalf of its affiliated homeowners
associations. The Partnership receives reimbursements from the affiliates
for such costs. For the year ended December 31, 1996, the Partnership was
entitled to receive approximately $3,300 from such affiliates. At December
31, 1996, approximately $1,800 was owed to the Partnership, none of which
was received as of February 21, 1997. For the years ended December 31,
1995 and 1994, the Partnership was entitled to receive approximately
$38,600 and $57,400, respectively, from such affiliates.

In accordance with the Partnership Agreement, the General Partner and
Associate Limited Partner have deferred a portion of their distributions of
net cash flow from the Partnership totaling approximately $247,000 at
December 31, 1996 and 1995. This amount, which does not bear interest, is
not expected to be paid.

Effective October 1, 1995, the General Partner of the Partnership
engaged independent third-parties to perform certain administrative
services for the Partnership which were previously performed by, and
partially reimbursed to, affiliates of the General Partners. Use of such
third-parties is not expected to have a material effect on the operations
of the Partnership.

(11) COMMITMENTS AND CONTINGENCIES

As security for performance of certain development obligations,
including the Partnership's obligations with respect to the District (notes
8 and 12), the Partnership is contingently liable in the amounts of
approximately $2,590,500 and $428,000 under standby letters of credit and
bonds, respectively, at December 31, 1996. Reference is made to note 12
for a discussion regarding the letters of credit which collateralized
certain of the Partnership's obligations to the District.

The Partnership has been advised by Merrill Lynch that various
investors of the Partnership have sought to compel Merrill Lynch to
arbitrate claims brought by certain investors of the Partnership and has
been named as a respondent in various arbitrations representing
approximately 11% of the total Interests outstanding. These claimants have
sought and are seeking to arbitrate claims involving unspecified damages
based on Merrill Lynch's alleged violations of applicable state and/or
federal securities laws and alleged violations of the rules of the National
Association of Securities Dealers, Inc., together with pendent state law
claims. The Partnership believes that Merrill Lynch has resolved some of
these claims through litigation, and otherwise, and that Merrill Lynch is
defending other claims. Merrill Lynch has asked the Partnership and its
General Partner to confirm an obligation of the Partnership and its General
Partner to indemnify Merrill Lynch in these claims against all loss,
liability, claim, damage and expense, including without limitation
attorney's fees and expenses, under the terms of a certain Agency Agreement
dated October 23, 1989 ("Agency Agreement") with the Partnership relating
to the sale of Interests through Merrill Lynch on behalf of the
Partnership. The Agency Agreement generally provides that the Partnership
and its General Partner shall indemnify Merrill Lynch against losses
occasioned by an actual or alleged misstatement or omission of material
fact in the Partnership's offering material used in connection with the
sale of Interests and suffered by Merrill Lynch in performing its duties
under the Agency Agreement, under certain specified conditions. The Agency
Agreement also generally provides, under certain conditions, that Merrill
Lynch shall indemnify the Partnership and its General Partner for losses
suffered by the Partnership and occasioned by certain specified conduct by

Merrill Lynch in the course of Merrill Lynch's solicitation of
subscriptions for, and sale of, Interests. The Partnership is unable to
determine at this time the ultimate investment of investors who have filed
arbitration claims as to which Merrill Lynch might seek indemnification in
the future. At this time, and based upon the information presently
available about the arbitration statements of claims filed by some of these
investors, the Partnership and its General Partner believe that they have
meritorious defenses to demands for indemnification made by Merrill Lynch
and intend to vigorously pursue such defenses. Although there can be no
assurance regarding the outcome of the claims for indemnification, at this
time, based on information presently available about such arbitration
statements of claims, the Partnership and its General Partner do not
believe that the demands for indemnification by Merrill Lynch will have a
material adverse effect on the financial condition of the Partnership.

Rental expense was $84,868, $99,350 and $195,252 for the years ended
December 31, 1996, 1995 and 1994, respectively.

In addition, the Partnership could potentially be liable for certain
amounts incidental to other matters, the amount of which could be
substantial.

(12) TAX-EXEMPT BOND FINANCING

In connection with the development of Talega (which was suspended
during 1990), the Partnership has utilized bond financing to construct
certain on-site and off-site water and sewer infrastructure improvements
which the Partnership would otherwise be obligated to finance and construct
as a condition to obtain certain approvals for the project. The use of
this type of bond financing is a common practice for major land developers
in Southern California. The bond offering was issued, and is administered
by, the District.

The principal amount of the bonds issued was $62 million, although
debt service on $2 million of such amount has been assumed by the Coastal
Municipal Water District. The bonds mature on July 1 of various years
commencing in 1993 through 2015 and bear interest, depending on their
maturity dates, at rates ranging from 6.4% to 7.5% per annum. At December
31, 1996, $56,970,000 of the bonds were outstanding. The Partnership also
is billed and makes certain payments to the District to reserve capacity at
a filtration plant and reservoir utilized by the District to serve the
Talega Property. Additionally, the Partnership, along with other
developers with similar bond financing, pays a portion of the operating
deficits incurred by the District. Principal and interest on the bonds,
amounts incurred to reserve capacity at the filtration plant and reservoir,
and amounts needed to fund the Partnership's share of the District's
operating deficits are payable from separate ad valorem and other
assessments levied by the District on the Talega Property, which
effectively collateralizes the obligation to pay these assessments. As
land is sold, however, liability for these assessments transfers to the
purchasers. The assessments are currently made on an annual basis,
although the District could increase the frequency to quarterly.

All of the proceeds from the original bond offering have been
utilized. Approximately $46.5 million of the original proceeds has been
expended by the District on infrastructure improvements through December
31, 1996. Approximately $8.6 million of the original proceeds was
specifically identified as an interest reserve and has been utilized in its
entirety to meet debt services obligations. Approximately $5.7 million of
the original proceeds was specifically identified and set aside as a bond
reserve. The remaining proceeds were utilized to pay miscellaneous costs
associated with the original bond offering.

The Partnership was obligated to pay the District approximately $6.7
million in June 1994 for assessments attributable to its share of the
operating deficits of the District, payments related to the filtration
plant and reservoir capacity, and principal and interest on the bonds for
the fiscal year ended June 30, 1994. Such payment included the initial
principal payment due on the outstanding bonds. The Partnership had
provided the District with an $11.4 million letter of credit as additional
collateral securing payment of the assessments attributable to principal
and interest due on the bonds. According to the terms of the letter of
credit agreement between the Partnership and the District, the Partnership
was obligated to maintain the letter of credit in the amount of $11.4
million until 1,000 homes had been constructed within the Community,
subject to earlier draw down by the District.

Given the Partnership's financial condition, the Partnership did not
have sufficient cash resources or available borrowing capacity to pay the
June 1994 assessments to the District. As a result, on July 5, 1994, the
District drew the entire amount of the $11.4 million letter of credit,
which increased the total funded indebtedness of the Partnership under its
credit facilities by $11.4 million. Of this amount, approximately $5.7
million represented additional collateral securing payments of assessments
attributable to principal and interest due on the bonds in June 1995. As
discussed in greater detail below, the Partnership contends that the draw
on the letter of credit in July 1995 satisfied its requirement to pay
assessments for the June 1994 and June 1995 bond debt service obligations
to the District.

The District has asserted a default by the Partnership, under a
certain agreement between the Partnership and the District, for alleged
failure to pay the June 1994 assessments of approximately $6.7 million.
The District filed a lien on the Talega Property to secure the unpaid
assessments and penalties and interest thereon in August 1994 and
subsequently filed a notice of foreclosure for the Property. Under
California Water District Code Law the Partnership had a six-month period
in which to cure such default by the payment of these amounts. After the
expiration of the six-month period without cure of an outstanding default,
the unpaid assessments are delinquent and the District may seek to enforce
its remedy with respect to the Talega Property, which would generally
involve a sale of the Property by the local taxing authority to the
District for the amount of unpaid assessments plus penalties and interest.
The Partnership, as the owner of the Property, would have a right to redeem
the Property during a three-year period following the sale to the District
by paying all delinquent assessments, plus penalties, interest and costs.
During this period additional assessments would continue to be levied
against the Property in the same manner as before and additional penalties
and interest would be accrued. After the end of the three-year period, the
Partnership's right of redemption could be terminated upon execution and
delivery to the District of a tax collector's deed to the Property. The
Partnership contends that the draw on the letter of credit in July 1994
satisfied its requirement to pay the assessments for the June 1994 and 1995
bond debt service obligations totaling approximately $11.4 million for
principal and interest on the bonds and, therefore, the Partnership is not
in default as to those amounts. Considering the high level of bond
indebtedness on the Talega Property, the reduced value of the Property and

the funds currently on deposit in various reserve accounts for the bonds,
the Partnership approached the District to discuss a plan of restructuring
or partial defeasance of the bonds utilizing some of the reserve account
funds to pay down the bonds and thereby reduce the level of indebtedness of
the Property. However, the Partnership has not received a formal response
from the District regarding this proposal. As discussed in note 8, the
Partnership has reached an agreement with an unaffiliated third party for
the sale of its Talega Property. One condition of such sale is the
satisfactory release of the Partnership's obligation under such bonds as
well as under various agreements with the District, subject to the payment
by the Partnership of certain past-due amounts and prorated items related
to such bonds and other assessments. The payment of these items would be
made from the proceeds of the sale of the Property.

In addition, the Partnership has not generated the cash flow necessary
and, as described above, does not have the available borrowing capacity to
pay for all of the carrying costs relative to its Talega Property. As a
result, at December 31, 1996, approximately $1.4 million of real estate
taxes assessed on the Property remain unpaid and are included in Accrued
expenses and other liabilities on the accompanying consolidated balance
sheets at December 31, 1996. All unpaid real estate taxes owed by the
Partnership will be paid by the Partnership from the proceeds from the sale
of the Talega Property. Talega's carrying costs include assessments
attributable to the debt service and other obligations related to the
District and its tax-exempt bond financing, which the Partnership has
utilized to construct certain on-site and off-site water and sewer
infrastructure improvements. The details of this bond financing are
discussed in detail in Note 12. The total of such carrying costs paid,
excluding interest under the Partnership's credit facility, associated with
this Property for the years ended December 31, 1996 and 1995 were
approximately $351,000 and $6,336,000, respectively. These amounts do not
include penalties and interest incurred on unpaid District assessments.
The reduction in the carrying costs paid in 1996 as compared to 1995 is due
to the Partnership not having the funds to make the required debt service
payments and other obligations related to the District and its tax exempt-
exempt bond financing for 1996. As a result, Accrued expenses and other
liabilities on the accompanying consolidated balance sheets include an
approximate $7.1 million accrual reflecting the Partnership's obligation to
the District, including penalties and interest incurred on unpaid District
assessments. The Partnership's unpaid obligations to the District will be
paid by the Partnership with the proceeds from the sale of Talega.

(13) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of", which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of, and
requires that assets to be disposed of be reported in the balance sheet at
the lower of their carrying amount or fair value less costs to sell. At
December 31, 1996, all of the Partnership's remaining assets are held for
sale. The Partnership requires no impairment losses or other adjustments
to be recorded as of December 31, 1996 as a result of the application of
the Statement.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes of or disagreements with auditors during 1995
and 1996.

PART III

ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT

The General Partner of the Partnership is Arvida/JMB Managers-II,
Inc., a Delaware corporation, of which all of the outstanding shares of
stock are owned by Northbrook Corporation, a Delaware corporation.
Substantially all of the outstanding shares of stock of Northbrook
Corporation are owned by JMB Realty Corporation, a Delaware corporation
("JMB"), and certain of its officers, directors, members of their families
and affiliates. Substantially all of the outstanding shares of stock of
JMB are owned by its officers, directors, members of their families and
affiliates. Arvida/JMB Managers-II, Inc. was substituted as general
partner of the Partnership as a result of a merger on March 30, 1990 of an
affiliated corporation that was the then general partner of the Partnership
into Arvida/JMB Managers-II, Inc., which, as the surviving corporation of
such merger, continues as the General Partner. All references herein to
"General Partner" include Arvida/JMB Managers-II, Inc. and/or its
predecessor, as appropriate. The General Partner has responsibility for
all aspects of the Partnership's operations. The Associate Limited Partner
of the Partnership is Arvida/JMB Associates Limited Partnership-II, an
Illinois limited partnership, whose general partner is Arvida/JMB Managers-
II, Inc. and whose limited partners consist of partnerships comprised of
certain officers, directors, and shareholders of JMB, Arvida and their
affiliates. Various relationships of the Partnership to the General
Partner and its affiliates are described under the caption "Conflicts of
Interest" at pages 21-24 of the Prospectus of the Partnership dated October
27, 1989 (the "Prospectus"), certain portions of which description are
hereby incorporated herein by reference to Exhibit 99.1 of this report.

The director, executive officers and certain other officers of the
General Partner of the Partnership are as follows:

SERVED IN
NAME OFFICE OFFICE SINCE
---- ------ ------------

Judd D. Malkin Chairman 12/17/87
Neil G. Bluhm President 12/17/87
H. Rigel Barber Vice President 12/17/87
Gailen J. Hull Vice President 12/18/90
Howard Kogen Vice President 08/09/88
and Treasurer 01/01/91
Gary Nickele Vice President, General Counsel12/17/87
and Director 12/18/90
James D. Motta Vice President 06/23/89
John Grab Vice President 04/01/93

There is no family relationship among any of the foregoing director or
officers. The foregoing director has been elected to serve a one-year term
until the annual meeting of the General Partner to be held on August 12,
1997. All of the foregoing officers have been elected to serve one-year
terms until the first meeting of the Board of Directors held after the
annual meeting of the General Partner to be held on August 12, 1997. There
are no arrangements or understandings between or among any of said director
or officers and any other person pursuant to which any director or officer
was selected as such.

The foregoing director and certain of the officers are also officers
and/or directors of various affiliated companies, including JMB, which is
the corporate general partner of Carlyle Real Estate Limited
Partnership-VII ("Carlyle-VII"), Carlyle Real Estate Limited Partnership-IX
("Carlyle-IX"), Carlyle Real Estate Limited Partnership-XI ("Carlyle-XI"),
Carlyle Real Estate Limited Partnership-XII ("Carlyle-XII"), Carlyle Real
Estate Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate
Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate Limited
Partnership-XV ("Carlyle-XV"), Carlyle Real Estate limited Partnership-XVI
("Carlyle-XVI"), Carlyle Real Estate Limited Partnership-XVII ("Carlyle-
XVII"), JMB Mortgage Partners, Ltd.-III ("Mortgage Partners-III"), JMB
Mortgage Partners, Ltd-IV ("Mortgage Partners-IV"), Carlyle Income Plus.
Ltd. ("Carlyle Income Plus") and Carlyle Income Plus, Ltd.-II ("Carlyle
Income Plus-II") and the managing general partner of JMB Income Properties,
Ltd.-IV ("JMB Income-IV"), JMB Income Properties, Ltd.-V ("JMB Income-V"),
JMB Income Properties, Ltd.-VI ("JMB Income-VI"), JMB Income Properties,
Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-X ("JMB
Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI"), JMB Income
Properties, Ltd.-XII ("JMB Income-XII") and JMB Income Properties, Ltd.-
XIII ("JMB-XIII). JMB is also the sole general partner of the associate
general partners of most of the foregoing partnerships. The foregoing
director and most of the foregoing officers are also officers and/or
directors of various affiliated companies of JMB including Arvida/JMB
Managers, Inc. (the general partner of Arvida/JMB Partners, L.P.
("Arvida/JMB-I")) and Income Growth Managers, Inc. (the corporate general
partner of IDS/JMB Balanced Income Growth, Ltd. ("IDS/BIG")). Such
director and most of such officers are also partners, directly or
indirectly, of certain partnerships (the "Associate Partnerships") which
are associate general partners in the following real estate limited
partnerships: Carlyle-VII, Carlyle-IX, Carlyle-XI, Carlyle-XII, Carlyle-
XIII, Carlyle-XIV, Carlyle-XV, Carlyle-XVI, Carlyle-XVII, JMB Income-VI,
JMB Income-VII, JMB Income-X, JMB Income-XI, JMB Income-XII, JMB Income-
XIII, Mortgage Partners-III, Mortgage Partners-IV, Carlyle Income Plus,
Carlyle Income Plus-II and IDS/BIG. Most of such director and officers are
also partners, indirectly through other partnerships, of the Associate
Limited Partner of the Partnership and the associate limited partners of
Arvida/JMB-I.

The business experience during the past five years of the director and
such officers of the General Partner of the Partnership in addition to that
described above includes the following:

Judd D. Malkin (age 59) is Chairman of the Board of JMB, an officer
and/or director or various JMB affiliates and a partner, directly or
indirectly, of the Associate Partnerships. He is also an individual
general partner of JMB Income Properties-IV and JMB Income Properties-VI.
Mr. Malkin has been associated with JMB since October, 1969. Mr Malkin is
a director of Urban Shopping Centers, Inc. ("USC, Inc."), an affiliate of
JMB that is a real estate investment trust in the business of owning,
managing and developing shopping centers. He is a Certified Public
Accountant.

Neil G. Bluhm (age 59) is President and a director of JMB, and an
officer and/or director of various JMB affiliates and a partner, directly
or indirectly, of the Associate Partnerships. He is also an individual
general partner of JMB Income Properties-IV and JMB Income Properties-VI.
Mr. Bluhm has been associated with JMB since August, 1970. Mr. Bluhm is a
director of USC, Inc. He is a member of the Bar of the State of Illinois
and a Certified Public Accountant.

H. Rigel Barber (age 47) is Chief Executive Officer and Executive Vice
President of JMB, an officer of various JMB affiliates and a partner,
directly or indirectly, of various Associate Partnerships. Mr. Barber has
been associated with JMB since March, 1982. He received a J.D. degree from
the Northwestern Law School and is a member of the Bar of the State of
Illinois.

Gailen J. Hull (age 48) is a Senior Vice President of JMB, an officer
of various JMB affiliates and a partner, directly or indirectly, of various
Associate Partnerships. Mr. Hull has been associated with JMB since March,
1982. He holds a Masters Degree in Business Administration from Northern
Illinois University and is a Certified Public Accountant.

Howard Kogen (age 61) is Senior Vice President and Treasurer of JMB,
an officer of various JMB affiliates and a partner of various Associate
Partnerships. Mr. Kogen has been associated with JMB since March, 1973.
He is a Certified Public Accountant.

Gary Nickele (age 44) is Executive Vice President and General Counsel
of JMB, an officer of various JMB affiliates and a partner, directly or
indirectly, of various Associate Partnerships. Mr. Nickele has been
associated with JMB since February, 1984. He holds a J.D. degree from the
University of Michigan Law School and a member of the Bar of the State of
Illinois.

James D. Motta (age 41) has been President and Chief Executive Officer
of Arvida since April 1, 1995. Prior thereto, he was Executive Vice
President and Chief Operating Officer of Arvida (May, 1994 to March, 1995).

Prior thereto, he was President-Community Development Division of Arvida
(August, 1993 to April, 1994), President-Southeast Division of Arvida
(July, 1992 to July, 1993) and President-South Florida Division of Arvida
(January, 1989 to July, 1992). Mr. Mota is also an officer or partner of
various affiliates of Arvida.

John R. Grab (age 41) is Vice President and General Manager -
Club/Hotel Operations of Arvida. Prior thereto, he was Vice President and
Project General Manager - Weston Hills of Arvida (October 1990 to October
1993) and Vice President and Project General Manager - Jacksonville Golf &
Country Club of Arvida (June 1988 to October 1990). He is a Certified
Public Accountant. Mr. Grab is also an officer or partner of various
affiliates of Arvida.

ITEM 11. EXECUTIVE COMPENSATION

The officers and the director of the General Partner receive no
current direct remuneration in such capacities from the Partnership. The
General Partner and the Associate Limited Partner are entitled to receive a
share of cash distributions, when and as cash distributions are made to the
Holders of Interests, and a share of profits or losses as described under
the caption "Cash Distributions and Allocations of Profit and Losses" at
pages 58 to 60 of the Prospectus and at pages A-10 to A-14 of the
Partnership Agreement, which descriptions are incorporated herein by
reference to Exhibit 99.1 of this report. Reference is also made to Notes
9 and 10 filed with this annual report for a description of such
distributions, allocations and transactions. The General Partner and the
Associate Limited Partner did not receive any cash distributions in 1996 or
1995.

Pursuant to the Partnership Agreement, the General Partner and
Associate Limited Partner were not allocated any profits for tax purposes
for 1996 or 1995. Reference is made to Note 9 for further discussion of
this allocation.

The Partnership is permitted to engage in various transactions
involving the General Partner and its affiliates, as described under the
captions "Management of the Partnership" at pages 48 to 55 of the
Prospectus, "Conflicts of Interest" at pages 21-24 of the Prospectus and
"Rights, Powers and Duties of the General Partner" at pages A-15 to A-28 of
the Partnership Agreement, which descriptions are hereby incorporated
herein by reference to Exhibit 99.1 of this report. The relationship of
the General Partner (and its director and executive officers and certain
other officers) and its affiliates to the Partnership is set forth above in
Item 10.

Arvida may be reimbursed fully for all of its out-of-pocket
expenditures (including salary and salary-related costs) incurred while
supervising the development and management of the Partnership's properties
and other operations. In 1996, such expenses were approximately $192,300,
approximately $22,500 of which was unpaid as of December 31, 1996.

The Partnership and Arvida/JMB Partners, L.P. (a publicly-held limited
partnership affiliated with the General Partner, "Arvida/JMB-I") each
employ project-related and administrative personnel who perform services on
behalf of both partnerships. In addition, certain out-of-pocket
expenditures related to such services and certain general and
administrative costs are paid and charged to each partnership as
appropriate. The Partnership reimburses or receives reimbursements from
Arvida/JMB-I for such costs (including salary and salary-related costs).
The Partnership owed approximately $1,255,500 to Arvida/JMB-I for such
costs and services incurred in 1996. Approximately $7,100 was unpaid as of
December 31, 1996. In addition, for the year ended December 31, 1996, the
Partnership was entitled to receive approximately $113,700 from Arvida/JMB-
I, of which approximately $21,100 was outstanding at December 31, 1996.

Pursuant to a requirement under the Partnership's restructured and new
credit facility agreements, a portion of the reimbursements paid to Arvida
and Arvida/JMB-I discussed above, as well as portions of the Partnership's
insurance and loan refinancing costs for 1992, have been funded on the
Partnership's behalf by advances from the General Partner. Such advances,
which do not bear interest, totaled approximately $4,609,400 as of December
31, 1996. The repayment of such advances is subordinated to the receipt by
the Holders of Interests of certain levels of return, and therefore is not
expected to be made. In addition, the Partnership was entitled to receive
approximately $12,900 from an affiliate of the General Partner for salary
and salary-related costs incurred by the Partnership on behalf of such
affiliate of the General Partner, all of which was outstanding as of
December 31, 1996.

JMB Insurance Agency, Inc., an affiliate of the General Partner,
earned insurance brokerage commissions in 1996 of approximately $2,000, all
of which was paid at December 31, 1996, in connection with providing
insurance coverage for certain of the properties of the Partnership. Such
commissions are at rates set by insurance companies for the classes of
coverage provided.

The General Partner of the Partnership or its affiliates may be
reimbursed for their direct costs or out-of-pocket costs relating to the
administration of the Partnership and the acquisition, development,
ownership, supervision, and operation of the Partnership assets. In 1996,
the General Partner of the Partnership or its affiliates were due
reimbursement for such direct or other administrative and out-of-pocket
expenditures in the amount of approximately $2,400, all of which was paid
as of December 31, 1996.

Additionally, the General Partner and its affiliates are entitled to
reimbursements for legal, accounting and portfolio management services.
Such costs for 1996 were approximately $47,900, of which approximately
$12,500 was paid as of December 31, 1996.

The Partnership also periodically reimburses or receives
reimbursements from affiliates of the General Partner for certain general
and administrative costs including, without limitation, salary and salary-
related costs relating to work performed by employees of the Partnership
and certain out-of-pocket expenditures incurred on behalf of such
affiliates. The Partnership was not entitled to receive any reimbursements
for the year ended December 31, 1996.

Arvida is entitled to receive a management fee in connection with
providing development management services to the Heathrow venture. The
amount of such fee for 1996 was approximately $212,200. Through December
31, 1996, management fees of approximately $3,005,200 had been earned, the
payment of which has been deferred. Reference is made to Note 3.

In accordance with the Partnership Agreement, the General Partner and
Associate Limited Partner have deferred a portion of their distributions of
net cash flow from the Partnership totaling approximately $247,000 at
December 31, 1996. This amount, which does not bear interest, is not
expected to be paid.

Amounts payable by the Partnership to the General Partner, Associate
Limited Partner and their affiliates (including Arvida) do not bear
interest.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) No person or group is known by the Partnership to own beneficially
more than 5% of the outstanding Interests of the Partnership.

(b) The General Partner and its officers and director do not own
Interests of the Partnership.

No officer or director of the General Partner of the Partnership
possesses a right to acquire beneficial ownership of Interests of the
Partnership.

(c) There exists no arrangement, known to the Partnership, the
operation of which may at a subsequent date result in a change in control
of the Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There were no significant transactions or business relationships with
the General Partner, affiliates or their management other than those
described in Items 10, 11 and 12 above.

PART IV

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

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

I. Financial Statements. (See Index to Financial
Statements filed with this annual report on Form 10-K).

II. Exhibits.

3. Amended and Restated Agreement of Limited
Partnership incorporated herein by reference.***

4.1. Assignment Agreement by and among the
Partnership, the General Partner, the Initial Limited Partner and the
Holders of Interests incorporated herein by reference.***

4.2. Amended and Restated Credit Agreement dated
June 23, 1992 between Arvida/JMB Partners, L.P.-II and Continental Bank
N.A. and Bank of America National Trust and Savings Association is
incorporated herein by reference.**

4.3. Various mortgages and other security interests
dated April 30, 1992 related to Arvida/JMB Partners, L.P.-II's Heathrow,
Talega, Wesmere, Wycliffe, Eagle Watch, Burnt Hickory Lakes, Rock Creek and
SouthRidge Lakes properties which secure loans under the Amended and
Restated Credit Agreement referred to in Exhibit 4.3 are incorporated
herein by reference.**

4.4. Revolving Loan and Letter of Credit Facility
Credit Agreement dated June 23, 1992 between
Arvida/JMB Partners, L.P.-II and Continental Bank N.A. and Bank of America
National Trust and Savings Association is incorporated herein by
reference.**

4.5. Various mortgages and other security interests
dated June 23, 1992 related to Arvida/JMB Partners, L.P.-II's Heathrow,
Talega, Wesmere, Wycliffe, Eagle Watch, Burnt Hickory Lakes, Rock Creek and
SouthRidge Lakes properties which secure loans under the Revolving Loan and
Letter of Credit Facility Credit Agreement referred to in Exhibit 4.5 are
incorporated herein by reference.**

4.6. Interim Bank Letter Agreement dated March 25,
1992 between Arvida/JMB Partners, L.P.-II and Continental Bank N.A., Bank
of America National Trust and Savings Association, and Unibank is
incorporated herein by reference.**

4.7. Promissory Note effective July 1, 1992 between
Arvida/JMB Partners, L.P.-II and Arvida/JMB Managers-II, Inc. is
incorporated herein by reference to Exhibit 4.8 to the Partnership's Form
10-K (File No. 0-19245) filed on April 14, 1995.

4.8. Forbearance and Modification Agreement (Credit
Agreement) dated March 21, 1995 by and among Arvida/JMB Partners, L.P.-II,
Heathrow Development Associates, Ltd., Eagle Watch Partners, Bank of
America Illinois and Bank of America National Trust and Savings Association
is incorporated herein by reference. ****

4.9 Forbearance and Modification Agreement
(Amended and Restated Credit Agreement) dated March 21, 1995 by and among
Arvida/JMB Partners, L.P.-II, Heathrow Development Associates, Ltd., Eagle
Watch Partners, Bank of America Illinois and Bank of America National Trust
and Savings Association is incorporated herein by reference. ****

4.10. Letter dated September 20, 1994 from the
Partnership to Bank of America regarding the Partnership's acknowledgement
that all proceeds from the sale of Collateral shall be delivered
immediately to Co-Lenders is herein incorporated by reference to Exhibit
4.9 to the Partnership's Report on Form 10-Q (File No. 0-19245) filed on
November 11, 1994.

4.11. Letter Agreement dated October 31, 1995
supplementing Forbearance Agreements with Lenders is herein incorporated by
reference to Exhibit 4.12 to the Partnership's Form 10-Q Report (File No.
0-19245) filed on November 9, 1995.

4.12. Amendment of Forbearance and Modification
Agreement dated September 24, 1996 is herein incorporated by reference to
Exhibit 4.13 to the Partnership's Report on Form 10-Q (File No. 0-19245)
dated November 8, 1996.

10.1. Management, Advisory and Supervisory Agreement
between the Partnership and Arvida Company is incorporated herein by
reference.**

10.2. First Amended and Restated Limited Partnership
Agreement of Heathrow Development Associates, Ltd. and Assignment of
Partnership Interests dated January 17, 1990 are incorporated herein by
reference.**

10.3. Amended and Restated Heathrow Management
Agreement dated January 17, 1990 is incorporated herein by reference.**

10.4. Eagle Watch Partners General Partnership
Agreement dated December 27, 1989 is incorporated herein by reference.**

10.5. Letter of Credit Agreement dated July 27, 1990
between Arvida/JMB Partners, L.P.-II and Santa Margarita Water District
regarding collateral for Tax-Exempt Bond Financing is incorporated herein
by reference.**

10.6. Agreement for the Payment of the Diemer
Intertie Sublease Payments, Principal and Interest of Bonds of Improvement
District No. 7 and Annual Budget Deficits Between Arvida/JMB Partners,
L.P.-II and Santa Margarita Water District dated January 15, 1990 is
incorporated herein by reference.***

10.7. Agreement for Purchase and Sale dated August
14, 1995 by and between Arvida/JMB Partners, L.P.-II and Heritage
Development South, Inc. for the sale of certain real property within the
Wesmere Community is incorporated herein by reference. *****

10.8. Agreement for Sale and Purchase of Real
Property dated October 25, 1996 by and between Arvida/JMB Partners, L.P. -
II and Starwood/ Talega Associates, L.L.C. for the sale of certain real
property within the Talega Property is incorporated by reference to Exhibit
10.16 to the Partnership's report for September 30, 1996 on Form 10-Q (File
No. 0-19245) filed with the Securities and Exchange Commission dated
November 8, 1996.

10.9. Agreement for Sale and Purchase of Real
Property dated March 22, 1996 among Heathrow Development Associates, Ltd.,
Heathrow Golf and Country Club Limited Partnership, Heathrow Cable Limited
Partnership and 4/46A Corporation is incorporated herein by reference to
Exhibit 10.15 to the Partnership's report for March 31, 1996 on Form 10-Q
(File No. 0-19245) filed with the Securities and Exchange Commission dated
May 10, 1996.

21. Subsidiaries of the Registrant.

27. Financial Data Schedule

99.1 A copy of the following pages of the
Partnership's Prospectus dated October 27, 1989, including certain pages of
the Partnership's Amended and Restated Agreement of Limited Partnership,
which is Exhibit A to the Prospectus, and the Assignment Agreement, which
is Exhibit B to the Prospectus, are filed herewith: pages 21-24; 48-55; 58-
60; A-10 --A-14; A-15 -- A-28; A-31 -- A-34; and B-2.

** Previously filed with the Securities and Exchange
Commission as Exhibits 4.3, 4.4, 4.5, 4.6, 4.7, 10.1, 10.7, 10.8, 10.9 and
10.10, respectively, to the Partnership's Form 10-K Report (File No. 0-
19245) filed on April 13, 1992 and are herein incorporated by reference.

*** Previously filed with the Securities and Exchange
Commission as Exhibits 3, 4.1 and 10.11, respectively, to the Partnership's
Form 10-K Report (File No. 0-19245) under the Securities Act of 1934 filed
on April 12, 1993 and herein incorporated by reference.

**** Previously filed with the Securities and Exchange
Commission as Exhibits 4.9 and 4.10, respectively, to the Partnership's
Form 10-K Report (File No. 0-19245) under the Securities Act of 1934 filed
on April 14, 1995 and herein incorporated by reference.

***** Previously filed with the Securities and Exchange
Commission as Exhibits and 10.14 to the Partnership's Form 10-Q
Report (File No. 0-19245) under the Securities Act of 1934 filed on
November 9, 1995 and herein incorporated by reference.

The Registrant agrees to furnish to the Securities and
Exchange Commission upon its request a copy of each instrument with respect
to the Registrant and its consolidated subsidiaries the authorized
principal amount of which does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.

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

No annual report or proxy material for the fiscal year 1996 has been
sent to the Partners of the Partnership. An annual report will be sent to
the Partners subsequent to this filing.

SIGNATURES

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

ARVIDA/JMB PARTNERS, L.P.-II

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

GAILEN J. HULL
By: Gailen J. Hull
Vice President
Date: March 21, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

By: Arvida/JMB Managers-II, Inc.
(The General Partner)

NEIL G. BLUHM
By: Neil G. Bluhm, President
(Principal Executive Officer)
Date: March 21, 1997

JUDD D. MALKIN
By: Judd D. Malkin, Chairman
(Principal Financial Officer)
Date: March 21, 1997

GARY NICKELE
By: Gary Nickele, Vice President,
General Counseland Director
Date: March 21, 1997

GAILEN J. HULL
By: Gailen J. Hull, Vice President
(Principal Accounting Officer)
Date: March 21, 1997

ARVIDA/JMB PARTNERS, L.P.-II

EXHIBIT INDEX

DOCUMENT
EXHIBIT INCORPORATED SEQUENTIALLY
NO. EXHIBIT BY REFERENCE NUMBERED PAGE
- ------- ------- ------------ -------------

3. Amended and Restated Agreement
of Limited Partnership. Yes

4.1. Assignment Agreement between
and among the Partnership,
the General Partner, the Initial
Limited Partner and the Holders of
Interests. Yes

4.2. Amended and Restated Credit
Agreement dated June 23, 1992
between Arvida/JMB Partners, L.P.-II
and Continental Bank N.A. and Bank
of America National Trust and
Savings Association. Yes

4.3. Various mortgages and other security
interests dated April 30, 1992
related to Arvida/JMB Partners,
L.P.-II's Heathrow, Talega, Wesmere,
Wycliffe, Eagle Watch, Burnt Hickory
Lakes, Rock Creek and SouthRidge Lakes
properties which secure loans under
the Amended and Restated Credit
Agreement referred to in Exhibit 4.3 Yes

4.4. Revolving Loan and Letter of Credit
Facility Credit Agreement dated
June 23, 1992 between Arvida/JMB
Partners, L.P.-II and Continental
Bank N.A. and Bank of America National
Trust and Savings Association. Yes

4.5. Various mortgages and other security
interests dated June 23, 1992 related
to Arvida/JMB Partners, L.P.-II's
Heathrow, Talega, Wesmere, Wycliffe,
Eagle Watch, Burnt Hickory Lakes,
Rock Creek and SouthRidge Lakes
properties which secure loans under
the Revolving Loan and Letter of
Credit Facility Credit Agreement
referred to in Exhibit 4.5. Yes

4.6. Interim Bank Letter Agreement
dated March 25, 1992 between
Arvida/JMB Partners, L.P.-II
and Continental Bank N.A.,
Bank of America National Trust
and Savings Association, and
Unibank. Yes

4.7. Promissory Note effective July 1,
1992 between Arvida/JMB Partners,
L.P.-II and Arvida/JMB Managers-II,
Inc. Yes

DOCUMENT
EXHIBIT INCORPORATED SEQUENTIALLY
NO. EXHIBIT BY REFERENCE NUMBERED PAGE
- ------- ------- ------------ -------------

4.8. Forbearance and Modification Agree-
ment (Credit Agreement) dated
March 21, 1995 by and among Arvida/
JMB Partners, L.P.-II, Heathrow
Development Associates, Ltd.,
Eagle Watch Partners, Bank of
America Illinois and Bank of
America National Trust and Savings
Association. Yes

4.9. Forbearance and Modification
Agreement (Amended and Restated
Credit Agreement) dated March 21,
1995 by and among Arvida/JMB Partners,
L.P.-II, Heathrow Development
Associates, Ltd., Eagle Watch
Partners, Bank of America Illinois
and Bank of America National Trust
and Savings Association. Yes

4.11. Letter Agreement dated October 31,
1995 supplementing Forbearance
Agreements with Lenders. Yes

4.12. Amendment of Forbearance and
Modification Agreement dated
September 24, 1996 Yes

10.1. Management, Advisory and Super-
visory Agreement between the
Partnership and Arvida Company. Yes

10.2. First Amended and Restated
Limited Partnership Agreement
of Heathrow Development Associates,
Ltd. and Assignment of Partnership
Interests dated January 17, 1990. Yes

10.3. Amended and Restated Heathrow
Management Agreement dated
January 17, 1990. Yes

10.4. Eagle Watch Partners General
Partnership Agreement dated
December 27, 1989. Yes

10.5. Letter of Credit Agreement
dated July 27, 1990 between
Arvida/JMB Partners, L.P.-II
and Santa Margarita Water District
regarding collateral for Tax-Exempt
Bond Financing. Yes

DOCUMENT
EXHIBIT INCORPORATED SEQUENTIALLY
NO. EXHIBIT BY REFERENCE NUMBERED PAGE
- ------- ------- ------------ -------------

10.6. Agreement for the Payment of
Diemer Intertie Sublease Payments,
Principal and Interest on Bonds
of Improvement District No. 7 and
Annual Budget Deficits between
Arvida/JMB Partners, L.P.-II and
Santa Margarita Water District
dated January 15, 1990. Yes

10.7. Agreement for Purchase and
Sale dated August 14, 1995
by and between Arvida/JMB
Partners, L.P.-II and
Heritage Development South,
Inc. for the sale of certain
real property within the
Wesmere Community Yes

10.9. Agreement for Sale and Purchase
of Real Property between
Heathrow Development Associates,
Ltd., Heathrow Golf and Country
Club Limited Partnership, Heathrow
Cable Limited Partnership and 4/46A
Corporation. Yes

21. Subsidiaries of the Registrant. No

27. Financial Data Schedule No

99.1 A copy of the following pages
of the Partnership's Prospectus
dated October 27, 1989, including
certain pages of the Partnership's
Amended and Restated Agreement
of Limited Partnership, which is
Exhibit A to the Prospectus,
and the Assignment Agreement, which
is Exhibit B to the Prospectus,
are filed herewith: pages 21-24;
48-55; 58-60; A-10-A-14; A-15-A-28;
A-31-A-34; and B-2. No

EXHIBIT 21

LIST OF SUBSIDIARIES

The Partnership is a limited partner in Arvida Contractors-II Limited
Partnership, a Delaware limited partnership. The Partnership is a general
partner in Eagle Watch Partners, a Georgia general partnership. The
Partnership is the owner of Planned Communities Corporation, a Delaware
Corporation. The Partnership is a general partner in Heathrow Development
Associates, Ltd., a Florida Limited Partnership.

<ARTICLE> 5

<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996

<CASH> 1,136,700
<SECURITIES> 0
<RECEIVABLES> 179,939
<ALLOWANCES> 76,289
<INVENTORY> 57,598
<CURRENT-ASSETS> 0
<PP&E> 4,423,602
<DEPRECIATION> 1,722,161
<TOTAL-ASSETS> 4,849,917
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (112,421,185)
<TOTAL-LIABILITY-AND-EQUITY> 4,849,917
<SALES> 25,753,220
<TOTAL-REVENUES> 25,753,220
<CGS> 19,151,522
<TOTAL-COSTS> 19,151,522
<OTHER-EXPENSES> 14,235,222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,633,524)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,633,524)
<DISCONTINUED> 0
<EXTRAORDINARY> 20,000,000
<CHANGES> 0
<NET-INCOME> 12,366,476
<EPS-PRIMARY> 64.05
<EPS-DILUTED> 64.05

</TABLE>

EXHIBIT 99.1
- ------------
(ARVIDA-II)

CONFLICTS OF INTEREST

The Partnership is and will be subject to various conflicts
of interest arising out of its relationships with the General
Partner and its affiliates (including Arvida) as well as the fact
that the General Partner and its affiliates are engaged in a wide
range of real estate activities. Where conflicts arise from
anticipated transactions with affiliates of the General Partner,
certain provisions and limitations described below have been
adopted to protect the interests of the Holders of Interests.
Where no such provisions and limitations are described, none has
been adopted and these conflicts may be resolved only through the
exercise of the General Partner's judgement consistent with its
fiduciary obligations to the Partnership and the Holders as set
forth in the Partnership Agreement. See "Fiduciary Responsibility
of the General Partner" below. The conflicts of interest to which
the Partnership is and will be subject include those described
below.

DETERMINATIONS BY THE GENERAL PARTNER

The General Partner and the Associate Limited Partners have
certain interests in the Cash Flow and Profits or Losses of the
Partnership (see "Cash Distributions and Allocations of Profits or
Losses"). Because the timing and amount of Cash Flow and Profits
or Losses of the Partnership received by, or allocated to, the
General Partner and the Associate Limited Partners may be affected
by various determinations by the General Partner under the
Partnership Agreement, including whether or not to refinance or
sell any property and the timing of any such sale or refinancing,
the establishment and maintenance of reasonable reserves, the
allocation of certain tax items under the Partnership Agreement,
the timing of expenditures, the level of amortization of
indebtedness and other matters, the General Partner may have a
conflict of interest with respect to such determinations.

The Partnership Agreement provides that the General Partner
shall elect, in its sole discretion, to cause a Listing of the
Interests, or, on the date ten years from the termination of this
offering, to purchase (or to cause JMB or its affiliates to
purchase) the interests at their appraised fair market value, or
commence liquidation of the Partnership on the date ten years from
the termination of this offering and sell all properties within
fifteen years from the termination of this offering. In the event
the General Partner elects to commence a liquidations phase, JMB
and its affiliates will be permitted to purchase at appraised fair
market value any of the joint interests held by the Partnership in
Communities and Future Communities in which JMB or any of its
affiliates (other than the Partnership) has an interest. In the
event the General Partner elects, in accordance with the
foregoing, to purchase, or to cause the purchase of, the
Interests, or to commence a liquidation phase of the Partnership
and to purchase any affiliate

In the event that the proceeds of this offering plus maximum
initial aggregate indebtedness are not sufficient to permit the
payment of the cost of acquiring the assets from the Seller, the
General Partner expects to cause the Partnership to enter into a
joint venture or joint participation with affiliates of the
General Partner under which the assets acquired from the Seller
would be owned and developed. Any joint investment made by the
Partnership in any Community with an affiliate of the General
Partner will be on a strictly pro rata basis with the investment
made by another JMB affiliate. In addition, each party will pay
only its allocable share of Arvida's expenses in developing and
managing the project. However, at any particular time, it is
possible that the Partnership, the other investing JMB affiliate
and Arvida may have differing interests with respect to certain
decisions affecting such joint investments, including the timing
of expenditures, sale of certain assets and other matters. Thus,
there exists the possibility of an impasse in the event the joint
venture partners disagree. See "Risks of Joint Ventures".
However, in the event of a disagreement regarding a proposed sale
or other disposition of the property, the party desiring not to
sell or otherwise dispose would have a right of first refusal to
purchase the affiliated joint venture partner's interest in the
property. Such right of first refusal would be exercisable at the
pro rata share of the proposed sale price or other disposition
price to any unaffiliated third party; however, there can be no
assurance that the Partnership would have the financial resources
to exercise its right of first refusal at any such time.

The Partnership may permit an affiliate of the General
Partner and JMB to invest jointly with the Partnership and its
joint venturer in a portion of an approximately 200-acre parcel of
land located near Sarasota which may be suitable for development
as a regional shopping mall. See "Business of the Partnership--
Description of Current Developments--Commercial and Industrial".
This affiliate has expertise in the development and operation of
regional shopping malls. Neither the Partnership nor Arvida
currently has expertise in these matters. In the event of such a
joint venture investment, the Partnership and the Partnership's
unaffiliated joint venturer would contribute the land at appraised
value and the JMB affiliate would contribute a pro rata share of
capital. It should be noted that appraisals are only estimates of
value and should not be relied upon as measures of realizable
value. The JMB affiliate would be entitled to earn certain
development fees from the joint venture for its services, subject
to certain limitations. See "Management of the Partnership--
Management Compensation".

PARTNERSHIP'S PARTICIPATION IN NET CASH FLOW OF FUTURE COMMUNITIES

While Arvida has no current intent to move its principal
business away from Community development, it is under no
obligation to maintain Community development as its principal
business. Arvida's only obligation in respect of future
developments to the Partnership is to permit the Partnership to
receive a 10% interest in net cash flow (in excess of certain base
amounts) from Future Communities, subject to the limitations set
forth under "Description of Business-Future Developments". The
Partnership will not participate in any other future developments.

Arvida is not restricted to development of Community properties
and may participate or assist in the development and management of
other types of real property investments developed by affiliates
of JMB and Arvida. Different parcels of the same tract of land
may be developed by various JMB affiliates, including Arvida. In
certain cases, the most significant portions of such properties,
principally office or other commercial buildings, may be developed
by JMB and affiliates other than Arvida, and the Partnership will
not participate in the net cash flow in respect of those
developments.

POSSIBLE COMPETITION BY THE PARTNERSHIP WITH AFFILIATES

A substantial number of real estate investment partnerships
and other entities are presently managed or advised by or through
affiliates of JMB (see "Management of the Partnership--JMB Realty
Corporation"). JMB and its affiliates also invest in real estate
for their own accounts. JMB is presently planning to form and to
manage or advise, directly or through affiliates, additional real
estate investment partnerships and other investment entities in
the future, and expects to continue to invest in real estate for
its own account. JMB and certain of these affiliates engage in
the development of retail, commercial and office projects,
although none (either individually or in the aggregate) presently
engage in the business of Community development to the extent that
the Partnership and Arvida do. See "Business of the Partnership"
and "Management of the Partnership--Affiliate Supervisory
Agreement". The Partnership Agreement expressly provides that
neither the General Partner nor any affiliate of the General
Partner (including JMB and Arvida) will be obligated to present to
the Partnership any particular investment or development
opportunity that comes to its attention; provided, however, that
the Partnership shall be entitled to receive a 10% interest in net
cash flow (in excess of certain base amounts) with respect to each
Future Community, subject to the limitations set forth under
"Business of the Partnership--Future Community Developments". See
"Fiduciary Responsibility of the General Partner".

JMB and existing or future real estate investment entities
advised or managed by JMB or its affiliates may be in competition
under some circumstances with Arvida, and thereby the Partnership,
for real property investments. Such conflicts could arise, for
example, if the purchase of a particular undeveloped property
should appear to be suitable for development for more than one
purpose including as an Arvida-sponsored Community development.
In addition, JMB or its affiliates may acquire and develop
properties located nearby or adjacent to Communities or proposes
Arvida Community developments, and the Partnership shall have no
right to receive an interest in such developments. As a result of
its relationship with its affiliates and the nature of such
affiliates' development business, Arvida may be unable to develop
certain properties in the manner, and to the extent, which it
otherwise would, and, as a result, the Partnership may not be able
to receive an interest in certain development projects. Arvida
and its staff may supply certain development and management
services to other JMB affiliates and may develop properties for
such affiliates independent of Future Communities.

Affiliates of the General Partner may also be in competition
with the Partnership in connection with the sale or operation of
properties under some circumstances. For example, the Partnership
may own certain interest in Community properties adjacent to
properties owned by JMB or other affiliated entities. As a
result, the Partnership and one or more affiliated entities may be
competing in particular geographical markets for residents or for
tenants in commercial or office projects. There may also be
similar sorts of competition in connection with the sales of
property in certain markets. Any adjacent commercial properties
owned by the Partnership and an affiliated entity will offer
economic terms for tenant leases in such adjacent properties which
are comparable considering all relevant factors including, but not
limited to, age and quality of construction.

RELATIONSHIP OF AFFILIATES TO PARTNERSHIP

JMB or its affiliates are not prohibited from providing
services to, and otherwise dealing or doing business with, persons
who deal with the Partnership. However, no rebates or "giveups"
may be received by the General Partner or any affiliate of the
General Partner, nor may the General Partner or any such affiliate
participate in any reciprocal business arrangements which would
have the effect of circumventing any of the provisions of the
Partnership Agreement. JMB and its affiliates may provide certain
services to the Partnership as described under "Management of the
Partnership". If any other transactions between the Partnership
and JMB or its affiliates occur, they must also be negotiated on a
basis not less favorable to the Partnership than that available
from third parties providing comparable services and shall be
terminable on 60 days' notice.

REMUNERATION OF JMB, ARVIDA AND AFFILIATES

JMB and its affiliates, including Arvida, will receive
substantial compensation and other amounts from the Partnership,
regardless of whether the Partnership achieves its investment
objectives. See "Management of the Partnership--Management
Compensation" and" --Affiliate Supervisory Agreement".

PARTICIPATION OF AN AFFILIATE AS A SELECTED DEALER

JMB Securities Corporation, a broker-dealer affiliated with
JMB, is expected to participate as a Selected Dealer in the
offering of Interests and will be entitled to the same selling
commission as other dealers. See "Plan of Distribution". JMB
Securities Corporation may be subject to a conflict of interest in
performing any "due diligence" obligations that may arise out of
its participation in the offering because of its affiliation with
the General Partner.

RELATIONSHIP OF MERRILL LYNCH TO AFFILIATE

An affiliate of Merrill Lynch, the Selling Agent for this
offering, is purchasing Interests to 1% of the total Interests
sold to the public pursuant to this offering at a cost of $1 per
Interest and is a limited partner in one of the Associate Limited
Partners. As a result, Merrill Lynch as selling agent may be
subject to a conflict of interest in performing any "due
diligence" obligations that may arise out of its participation in
the offering because of such relationship with its affiliate. In
addition, the issuance of such Interests at $1 per Interest to the
Merrill Affiliate effectively dilutes the Interests purchased by
other Holders of Interests.

LEGAL REPRESENTATION

As noted under "Legal Matters", counsel for the Partnership
in connection with the offering ia also counsel to JMB and various
affiliates, including the General Partner of the Partnership, on
various matters. No counsel has been independently retained to
represent the Holders of Interests. In the event any controversy
arises following the termination of the offering in which the
interests of the Partnership appear to be in conflict with those
of JMB or its affiliates, other counsel would be retained for one
or both of the parties.

FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER

The General Partner is accountable to the Partnership as a
fiduciary and consequently must exercise good faith and integrity
in handling Partnership affairs. This is an uncertain area of the
law, and Holders of Interests who have questions concerning the
fiduciary duties of the General Partner should consult with their
counsel.

The Partnership Agreement provides that neither the General
Partner nor any affiliate thereof engaged in the performance of
services on behalf of the Partnership (the "Indemnified Parties")
will be liable to the Partnership or the Holders of Interests for
any loss or liability resulting from any act or omission performed
or omitted by them if the General Partner or its affiliates have
determined, in good faith, that the act or omission which caused
the loss or liability, was in the best interests of the
Partnership and such loss or liability was not the result of
misconduct or negligence and that, subject to certain limitations,
the Indemnified Parties will be indemnified by the Partnership
against any loss or liability suffered by them if the General
Partner or its affiliates have determined, in good faith, that the
act or omission which caused the loss or liability was in the best
interests of the Partnership and such loss or liability was not
the result of misconduct or negligence. See "Summary of the
Partnership Agreement--Indemnification of the General Partner".
Thus, the Limited Partners or Holders of Interests, as the case
may be, may have a more limited right of action than would
otherwise be the case absent such provisions. In the opinion of
the Securities and Exchange Commission, indemnification for
liabilities arising under the Securities Act of 1933, as amended,
is contrary to public policy and therefore unenforceable.

The Partnership Agreement expressly provides that neither
the General Partner nor any affiliate of the General Partner will
be obligated to present to the Partnership any particular
investment opportunity that comes to its attention. See "Business
of the Partnership" and "Conflicts of Interest--Possible
Competition by Partnership with Affiliates".

OWNERSHIP OF GENERAL PARTNER

All of the outstanding shares of the General Partner are
owned by JMB Holdings Corporation, an Illinois corporation, 75% of
the outstanding shares of which are owned by JMB Realty
Corporation and the remaining 25% of which is owned by certain
officers and directors of JMB. The General Partner is not
prohibited from paying dividends to its stockholder. The
Partnership Agreement provides that the purchasers of Interests
will acquire no interest in the stock or assets of the General
Partner, or in any proceeds of any sales thereof by virtue of
acquiring or owning Interests and becoming Holders.

MANAGEMENT COMPENSATION

The following describes the types and estimated amounts of
fees, compensation, and other payments, and distributions that the
General Partner and its affiliates (including the Associate
Limited Partners) will or may receive in connection with the
business of the Partnership and/or the acquisition of its assets.
These amounts were not determined by arm's-length bargaining.

Acquisition and Financing Guaranty Fee. The Partnership is
obligated to pay JMB or its affiliates an Acquisition and
Financing Guaranty Fee equal to $20,000,000 (subject to reduction
as set forth below and in the Partnership Agreement) for services
of JMB and such affiliates in negotiating and arranging, and
guaranteeing repayment of the Acquisition Notes and certain other
obligations incurred in connection with, the acquisition of the
assets by the Partnership from the Seller. Such fee will be
payable upon the date of the admission of Holders of Interests to
the Partnership ("Admission Date"), or, in the event of multiple
Admission Dates, pro rata upon each Admission Date based upon the
percentage of the maximum offering sold (without giving effect to
the right to increase the size of the offering to 400,000
Interests); to the extent that less than all of the Interests are
sold, therefore, the Acquisition and Financing Guaranty Fee will
be proportionately less than $20,000,000.

Fees for Property Management and Other Services. The
Partnership may engage affiliates of the General Partner for
property management, insurance brokerage, or other services to be
performed, if necessary, in connection with the properties of the
Partnership. Property management fees may be charged at rates
prevailing for comparable services in the localities where
properties are located, in the event such services are provided,
but not to exceed 6% of the gross receipts from a commercial or
industrial property (if leasing and re-leasing services are
performed by such affiliate; otherwise the maximum fee is 3% of
the gross receipts) and 3% of the gross receipts (reduced to 1%
after the first five years) from a commercial or industrial
property leased for ten years or more on a net basis. Subject to
certain limitations in the Partnership Agreement, insurance
brokerage services may be performed and commissions may be
received at rates prevailing for comparable classes of coverage in
the localities where the properties are located. If affiliates of
the General Partner perform other services for the Partnership,
the fee for such services must be not less favorable to the
Partnership than that available from third parties providing
comparable services and the arrangement in respect of such
services shall be terminable, without penalty, on 60 days' notice.

As described under "Business of the Partnership--Description
of Current Developments", an affiliate of JMB which develops malls
and shopping centers nationally may participate as a joint venture
partner with a joint venture between the Partnership and an
unaffiliated third party in the development of a regional shopping
mall at Sarasota, Florida on property owned (including under an
option) by a joint venture in which the Partnership is a 50%
partner; in such event, the affiliate would be entitled to receive
development fees equal to the lesser of 5% of the cost of
development or the amount which would be charged by an independent
third party rendering comparable services, together with allocable
reimbursements of allocable expenses. In the event of a joint
venture between the Partnership and its joint venture partner and
an affiliate of JMB, the joint venture shall obtain a report of
the appraised value of the mall or shopping center upon completion
of the property. To the extent that the actual costs of
development, including the development fees paid to such
affiliate, exceed the appraised value of the project, the
development fees will be remitted by such affiliate to the extent
of the excess, if any, of such development costs over such
appraised value.

Distributive Share of Cash Flow. Following admission of
Limited Partners, the General Partner and the Associate Limited
Partners (collectively) will be entitled to receive (i) until the
Holders of Interests have received cumulative distributions of
Cash Flow equal to a cumulative 10% per annum return (on a non-
compounded basis) on their adjusted capital Investments (which
shall be deemed return (on a non-compound basis) on their Adjusted
Capital Investments), 5% of the distibutions of Cash Flow
remaining after Cash Flow distributions to the General Partner and
the Associate Limited Partners (collectively) equal to 1% per
annum of the Gross Asset Value of the Partnership (subject to
certain limitations set forth in the Partnership Agreement);
provided, however, that until such time as the Holders of
Interests have received total distributions of Cash Flow equal to
their Capital Investments, receipt by the General Partner and the
Associate Limited Partners (collectively) of their 5% share of
Cash Flow shall be deferred (the "Deferred Amount") until receipt
by the Holders of Interests of Cash Flow distributions equal to a
12% per annum cumulative, non-compounded return on their initial
Capital Investments; any Deferred Amount shall be distributable to
the General Partner and the Associate Limited Partners
(collectively), (x) out of any Cash Flow otherwise distributable
to the Holders of Interests at such time as the Holders of
Interests have received a 12% per annum cumulative, non-compounded
return on their Capital Investments, or (y) in any event, to the
extent of one-half of Cash Flow otherwise distributable to the
Holders of Interests at such time as the Holders of Interests have
received total distributions of Cash Flow equal to their Capital
Investments; and (ii) thereafter, 15% of all distributions of Cash
Flow shall be made to the General Partner and the Associate
Limited Partners (collectively) and 85% to the Holders of
Interests; provided, however, that the General Partner and the
Associate Limited Partners (collectively) shall be entitled to
receive an additional share of Cash Flow otherwise distributable
to the Holders of Interests under clause (ii) equal to the lesser
of (a) 13% of the aggregate distributions of Cash Flow under
clause (ii) to all parties or (b) an amount equal to 2% of the
gross selling prices of all interests in real property of the
Partnership (subject to certain limitations). See "Cash
Distributions and Allocations of Profits or Losses".

The General Partner and Arvida/JMB Associates (collectively)
will be entitled to receive a distribution of Cash Flow of the
Partnership in an amount equal to $20,000,000 on September 30,
1987. The definition of Cash Flow includes, and this distribution
may be paid from, the proceeds of sales or other dispositions of
assets in the ordinary course of business and the proceeds of
borrowings of the Partnership. See "Acquisition of Assets".

Reimbursable Expenses. The Partnership will reimburse the
General Partner and its affiliates (including Arvida) for their
direct expenses relating to this offering and relating to the
administration of the Partnership and the acquisition,
development, ownership, supervision and operation of the
Partnership assets (subject to certain limitations contained in
Section 5.1D of the Partnership agreement). In addition, certain
other expenses of JMB and its affiliates will be reimbursed as
described below. JMB and its affiliates will be reimbursed by the
Partnership and all expenses of the offering, sale and
distribution of Interests, and the cost of goods, materials and
services used for or by the Partnership and obtained from entities
which are not affiliated with the General Partner.

Except for organizational expenses incurred in the creation
of the Partnership and offering, selling and distribution expenses
incurred in selling and distribution expenses incurred in the sale
of Interests, JMB and the General Partner will not be reimbursed
by the Partnership for the salaries and related salary expenses of
any of the Director, the Chairman, President or any Executive Vice
President of JMB or the General Partner or any individual who
holds 5% or more of an equity interest in JMB or the General
Partner or has the power to direct or cause the direction of JMB
or the General Partner, whether through ownership of voting
securities, by contract or otherwise, or for any indirect, general
or administrative overhead expenses incurred in performing
services for the Partnership which are not directly attributable
to such services. The Partnership, however, will subject to
certain limitations in 5.1D of the Partnership Agreement,
reimburse JMB and its affiliates for salaries (and related salary
expenses) for services which could be performed directly for the
Partnership by independent parties, such as legal, accounting,
transfer agent, data processing, duplicating and other services.
The amounts charged to the Partnership for such services will not
exceed the lesser of the actual cost of such services, or 90% of
the amount which the Partnership would be required to pay to
independent parties for comparable services. It is estimated that
such reimbursements for such services will be approximately
$175,000 in 1987. In the Partnership's annual report to Holders
of Interests, there will be provided an itemized breakdown of
reimbursements made to JMB and its affiliates in the categories of
legal, accounting, transfer agent, data processing and duplicating
services. Such reimbursement of expenses will be made regardless
of whether any distributions are made to the Holders of Interests.

Pursuant to the Supervisory Agreement, the Partnership shall
reimburse Arvida fully for all of its out-of-pocket expenses
(including salary and salary-related expenses) incurred while
supervising the development and management of the Partnership's
properties and other operations; provided, however, such
reimbursements shall not exceed 5% of the gross revenues from the
business of the Partnership. Such reimbursements will be made
regardless of whether any distributions are made to the Holders of
Interests.

CAPITAL CONTRIBUTIONS OF THE GENERAL PARTNER AND THE ASSOCIATE
LIMITED PARTNERS

The General Partner and the Associate Limited Partners have
made capital contributions to the Partnership aggregating $1,000
and will make additional capital contributions so that total
capital contributions of the General Partner and the Associate
Limited Partners will aggregate at least $20,000. Except under
certain limited circumstances upon liquidation of the Partnership
or its Partnership interest (see "Summary of the Partnership
Agreement--Dissolution and Liquidation"), the General Partner, in
its capacity as such, will make no additional capital
contributions to the Partnership. JMB Investor Services
Corporation made a capital contribution to the Partnership of
$5,000 when it purchased five Interests as the Initial Limited
Partner of the Partnership.

AFFILIATE SUPERVISORY AGREEMENT

Arvida, an affiliate of JMB and the General Partner, will
provide development and management supervisory personnel for the
Partnership for all of its projects and operations in accordance
with the objectives and criteria set forth under "Business of the
Partnership". Pursuant to the Supervisory Agreement, Arvida will
provide such supervisory management personnel at cost for the
duration of the Partnership; provided, however, that the
Supervisory Agreement may be terminated without cause by the
Partnership without penalty upon sixty days' written notice.
Arvida may terminate the Supervisory Agreement if the General
Partner ceases to be an affiliate of JMB or if the Partnership is
in material breach of the Supervisory Agreement which breach
continues for a period of sixty days. See "Management of the
Partnership--Management Compensation--Reimbursable Expenses".
While these personnel will function primarily in an advisory and
supervisory role with respect the Partnership's own operating
employees, Arvida personnel will also assist Partnership personnel
in the Partnership's management, development and sale of
properties. These personnel will supervise the identification of
Partnership-owned land for development, the design of a Community
master plan, the obtaining of regulatory and governmental
approvals, and assist with the installation of infrastructure and
amenities, the sale of developed parcels and homesites to third-
party developers and the construction of residential units and
commercial and industrial properties. Arvida intends to follow
the Seller's practice of hiring subcontractors and consulting
firms on a project-by-project basis rather than maintaining in-
house capabilities, in order to be able to select suitable
professionals for a particular project. Arvida has granted the
Partnership a non-exclusive license to the "Arvida" name for its
use pursuant to, and for the term of, the Supervisory Agreement.

Arvida intends, but has no obligation, to continue to seek
to develop, among other real estate projects, additional Future
Communities. The Partnership will be entitled to receive a 10%
interest in net cash flow (above certain base amounts) from Future
Communities. See "Business of the Partnership--Future Community
Developments".

Arvida will be reimbursed directly by the Partnership for
all of its out-of-pocket expenses (including an allocable share of
its salary and salary-related expenses) incurred while supervising
the development and management of the Partnership's properties.
Arvida will not be entitled to receive any fees or other payments,
direct or indirect, from the Partnership. Arvida will reimburse
the Partnership for any goods, services or facilities of the
Partnership which it may use in connection with projects unrelated
to the Partnership's business.

Pursuant to the Supervisory Agreement, Arvida and each of
its directors, officers and employees shall be indemnified for any
liability arising out of their activities under the Supervisory
Agreement, except for fraud, bad faith or negligence by them.

Arvida may develop new commercial and industrial projects,
which will be wholly separate and distinct from any future
Communities developed under the name "Arvida"; the Partnership
will not be entitled to participate in the net cash flow of any
such projects. Arvida may participate in the development of
Community projects for others without use of the name "Arvida" in
which case the Partnership would have no right to participate.

_________________________________________________________________

DESCRIPTION OF ASSIGNEE INTERESTS

__________________________________________________________________

ASSIGNMENT OF INTERESTS

An investor in the Partnership will hold all of his interest
in the Partnership by virtue of an assignment to the investor of
Interests held by the Initial Limited Partner which have been
acquired with the subscription proceeds of such investor. The
Initial Limited Partner will be the Limited Partner of record for
the Interests purchased and held by the Assignee Holders, but all
of the economic benefits of the Interests (including cash
distributions or allocations of Profits or Losses) will be
distributed or allocated to the Assignee Holders. The discussion
in this Prospectus with respect to receipt of such Partnership
distributions and allocations refers to Holders of Interests,
rather than Limited Partners. Purchasers of such assigned
Interests will not themselves become Limited Partners, unless they
elect or are required to do so, as explained below.

Attached to this Prospectus as part of Exhibit C is a form
of Subscription Agreement Signature Page. Investors may subscribe
to the Partnership through Merrill Lynch or Selected Dealers
without executing the Subscription Agreement Signature Page
(except where required by state law). By the payment of his
subscription proceeds and acceptance by the General partner as an
Assignee Holder, each investor will be recognized by the
Partnership as an Assignee Holder of Interests and each investor
will be bound by all the terms of the Subscription Agreement, as
well as the Partnership Agreement and Assignment Agreement. Under
the Assignment Agreement, included as Exhibit B to this
Prospectus, among the Partnership, the Initial Limited Partner,
the General Partner and each investor becoming an Assignee Holder
pursuant to this offering, all of the ownership attributes of the
Interests are granted to such Assignee Holders, including voting
rights and rights to their proportionate percentage interest in
the Partnership's income, gains, losses, deductions, credits and
distributions, and Assignee Holders are bound by the terms of the
Partnership Agreement.

An Assignee Holder who wishes to become a Substituted
Limited Partner may do so upon complying with the provisions
pertaining to transfer of Interests under the Partnership
Agreement. See "Transferability of Interests" below. An Assignee
Holder who effects such a transfer and becomes a Substituted
Limited Partner will not be permitted subsequently to reassign its
Limited Partnership Interests to the Initial Limited Partner and
once more become an Assignee Holder. The Initial Limited Partner
holds five Interests for its own account and has all rights
attributable to such Interests under the Partnership Agreement.

An assignee Holder who wishes to become a Substituted
Limited Partner may do so upon complying with the provisions
pertaining to transfer of Interests under the Partnership
Agreement. See "Transferability of Interests" below. An Assignee
Holder who effects such a transfer and becomes a Substituted
Limited Partner will not be permitted subsequently to reassign its
Limited Partnership Interests to the Initial Limited Partner and
once more become an Assignee Holder. The Initial Limited Partner
holds five Interests for its own account and has all rights
attributable to such Interests under the Partnership Agreement.

No transfer (except for intra-family and certain other
transfers, including transfers by gift or inheritance) will be
recognized if following the transfer either the transferor or the
transferee would hold fewer than five Interests. Additional
restrictions on transfer of Interests are imposed in some states
by their respective securities laws.

No transfer may be made to any person that is a non-resident
alien individual or foreign corporation or other entity or that
may be subject to tax under Section 511 of the Code or to any
"tax-exempt entity" (within the meaning of Section 168(h) of the
Code for purposes of Section 168(h)(2) of the Code for purposes of
Section 168(h)(6)(A) of the Code), except in the sole discretion
of the General Partner.

In the case of any transfer of Interests, the General
Partner will impose upon the transferee the suitability
requirements of state blue sky laws. Any member of the National
Association of Securities Dealers ("NASD") assisting in such
transfer will impose upon the transferee the suitability
requirements imposed by the NASD.

The rights of any transferee of an Interest who does not
become a Substituted Limited Partner will be limited to his share
of Partnership Profits or Losses and cash distributions as
described above. The voting rights of a transferor (other than
the Initial Limited Partner) who transfers an Interest will
terminate with respect to such Interest upon such transfer,
whether or not the transferee thereof is admitted as a Substituted
Limited Partner with respect thereto.

MERRILL LYNCH INVESTOR SERVICE

It is not anticipated that a public market for the Interests
will develop. However, Merrill Lynch may provide certain investor
services which may assist investors desiring to sell their
Interests. Merrill Lynch, acting as an agent of persons who
desire to buy or sell Interests, will use its best efforts to
match any buy order it receives with any sell order it receives,
at specified prices (or price ranges) only, but will not solicit
any sell orders for Interests. Any solicitation in respect of buy
orders will be done in accordance with Federal securities laws.
This service will be made available only after the Final Admission
Date and only to investors who are not Substituted Limited
Partners and who maintain or establish an account with Merrill
Lynch. Any transactions effected through this service are subject
to any restrictions on transfer imposed by applicable state
securities laws. This service will not be available to residents
of the State of California unless and until the Department of
Corporations of the State of California modifies or waives its
policy with respect to such service.

To facilitate such transactions, Merrill Lynch will make
available upon request, information as to the prices at which
Interests have recently been sold. However, Merrill Lynch will
not set the price at which Interests will be sold. Since this
arrangement will not constitute a market for the Interests, no
"market orders" or "stop orders" can be accepted by Merrill Lynch.

Accordingly, it is possible that no buy orders will be received by
Merrill Lynch at the prices specified in the sell orders which
Merrill Lynch receives, and in that case it will not be possible
for Merrill Lynch to arrange any sales. For its services in
acting as agent for the buyer and seller in such transactions,
Merrill Lynch will charge an appropriate fee or commission.
Further information about this service can be obtained from
Merrill Lynch. Merrill Lynch is under no obligation to provide
this service to Holders of Interests, and this service may be
discontinued or suspended at any time without notice.

_________________________________________________________________

CASH DISTRIBUTIONS AND ALLOCATIONS OF PROFITS OR LOSSES
_________________________________________________________________

In the event the minimum number of Interests is subscribed
for, a Holder of Interests will be entitled to receive from the
Partnership a distribution of Cash Flow (without regard to the
distribution to the General Partner and Arvida/JMB Associates of
Cash Flow (including the proceeds of any financings) on September
30, 1987, as described under "Management of the Partnership--
Management Compensation") in an amount equal to such Holder's
Capital Investment from the day after his subscription proceeds
are received in the Partnership escrow account through the end of
the fiscal quarter in which the Final Admission Date occurs
multiplied by an initial rate of 5% per annum. This rate,
however, may be increased prospectively (in the sole discretion of
the General Partner) at the end of any week or weeks, commencing
with the following week. Such Cash Flow will be distributed
within 60 days following the end of such fiscal quarter in which
the First Admission Date occurs and each fiscal quarter thereafter
through the fiscal quarter in which the Final Admission Date
occurs. See "Plan of Distribution--Allocations of Benefits During
the Offering Period".

Beginning with the first fiscal quarter following the
termination of the offering of Interests to the public, Cash Flow
shall be distributed on a quarterly basis, within 60 days
following the end of each fiscal quarter, as follows:

(i) until the Holders of Interests have received
cumulative distributions of Cash Flow equal to a 10% per annum
return (on a non-compounded basis) on their Adjusted Capital
Investments (as defined below) plus the return of their Capital
Investments (which shall be deemed returned to the Holders of
Interests only to the extent of cumulative distributions of Cash
Flow to Holders of Interests in excess of 10% per annum (on a non-
compounded basis) of their Adjusted Capital Investments), (a)95%
to the Holders of Interests and 5% to the General Partner and
Associate Limited Partners (collectively) remaining after (b) Cash
Flow distributions to the General Partner and the Associate
Limited Partners (collectively) equal to 1% per annum of the Gross
Asset Value (as defined below) of the Partnership (subject to
certain limitations set forth in the Partnership Agreement);
provided, however, that until such time as the Holders of
Interests have received total distributions of Cash Flow equal to
their Capital Investments, receipt by the General Partner and the
Associate Limited Partners (collectively) of their 5% share of
Cash Flow under clause (a) above shall be deferred (the "Deferred
Amount") to receipt by the Holders of Interests of Cash Flow
distributions equal to a 12% per annum cumulative, non-compounded
return on their Capital Investments; and Deferred Amount shall be
distributable to the General Partner and the Associate Limited
Partner (collectively), (x) out of any Cash Flow otherwise
distributable to the Holders of Interests under clause (a) above
at such time as the Holders of Interests have received a 12% per
annum cumulative, non-compounded return on their Capital
Investments, or (y) in any event, to the extent of one-half of
Cash Flow otherwise distributable to the Holders of Interests
under clause (a) above at such time as the Holders of Interests
have received total distributions of Cash Flow equal to their
Capital Investments; and

(ii) thereafter, all distribution of Cash Flow shall
be made 85% to the Holders of Interests and 15% to the General
Partner and the Associate Limited Partners (Collectively);
provided, however, that the General Partner and the Associate
Limited Partners (collectively) shall be entitled to receive an
additional share of Cash Flow otherwise distributable to the
Holders of Interests under this clause (ii) equal to the lesser of
(x) an amount equal to 2% of the gross selling prices of any
interests in real property of the Partnership (subject to certain
limitations) or (y) 13% of the aggregate distributions of Cash
Flow under this clause (ii) to all parties.

"Gross Asset Value" shall mean the dollar amount reflected
on the books and records maintained by the Partnership, at the
Final Admission Date, of the gross assets (including all of the
Partnership's interests in joint venture assets) acquired by the
Partnership, directly or indirectly, or, if sold or otherwise
disposed, of the proceeds of such assets, increased by the dollar
amount reflected on the books and records maintained by the
Partnership, at the time of their respective acquisition, of any
gross assets (including all of the Partnership's interests in
joint venture assets) which the Partnership subsequently acquires,
directly or indirectly, from the Seller or as otherwise
contemplated by the Acquisition Agreement or this Prospectus.
Distributions will be made on or before the last day of May,
August, November and February of each year in respect of
operations for the preceding fiscal quarter.

"Adjusted Capital Investments", with respect to any fiscal
quarter, shall mean the Capital Investments of the Holders of
Interests reduced, as of the first day of any fiscal quarter
following the fiscal quarter with respect to which a distribution
is made, by cumulative, non-compounded distributions of Cash Flow
to the Holders in excess of 10% per annum of their Adjusted
Capital Investments for all prior fiscal quarters.

The amount equal to 2% of the aggregate selling price of
Partnership properties, which shall determine the amount of Cash
Flow distributable to the General Partner under clause (ii) above,
is subject to limitations as set forth in section 4.1 of the
Partnership Agreement. These limitations include, but are not
limited to, the following: such amount with respect to any
Partnership property shall not exceed 50% of the compensation
customarily changes in connection with sales of similar properties
in arm's length transactions by non-affiliates of JMB rendering
similar services as an ongoing public activity in the same
geographical location and for comparable property, and the amount
of such distribution plus the real estate commission paid to
anyone (other than the Partnership) in connection with the sale of
a Partnership property will not exceed the lesser of (i) 6% of the
gross purchase price for the property or (ii) the amount
customarily charged in connection with sales of properties in
arm's-length transactions by non-affiliates of JMB rendering
similar services as an ongoing public activity in the same
geographical location and for comparable properly.

If in any fiscal quarter the General Partner should
determine that reserves of the Partnership exceed the amount
deemed sufficient in connection with the Partnership's operations,
such reserves might be reduced and, if so, the amount of such
reduction for a particular quarter would be included in and
distributed as a portion of Cash Flow.

As described under "Plan of Distribution", the Merrill
Affiliate, in consideration of consulting services rendered to the
Partnership and the payment of $1 per Interest, will acquire
Interests (which are subject to certain limitations) equal to 1%
of the total Interests sold to the public hereby. In the event
the General Partner causes a Listing of the Interests and the
Merrill Affiliate's Interests are so listed, the Partnership
Agreement provides for an allocation of Profits (in the form of
gross income) in order to cause the capital account for each of
the Merrill Affiliate's Interests to equal the capital accounts of
other Holders for their Interests. As a result of such
allocation, in the event of a liquidation of the Partnership after
such allocation and such a listing, the Merrill Affiliate might be
entitled, in some circumstances, to a larger share of the
liquidation proceeds which share corresponds to such capital
account increase.

Except as set forth under "Plan of Distribution--Allocation
of Benefits During the Offering Period", the portion of Cash Flow
distributed to the Holders of Interests will be made pro rata to
the persons recognized on the books of record of the Partnership
as the Holders of Interests. See "Description of Assignee
Interests--Transferability of Interests".

As more fully described under "Business of the Partnership",
the Partnership intends to invest amounts in additional
development of its Communities, which amounts would otherwise be
available for distribution as Cash Flow, subject to the limitation
described in the following sentence. Under the Partnership
Agreement, the General Partner must use its best efforts to
distribute Cash Flow in amounts at least equal to Federal taxable
income (or components thereof) allocable to the Holders,
multiplied by the maximum individual Federal income tax rate for
the year in which such taxable income (or component thereof) is
realized.

All Profits or Losses of the Partnership for each fiscal
year (or portion thereof) beginning on or after the first date
designated by the General Partner on which Assignee Holders are
recognized as such generally will be allocated as follows: (i)
Profits will be allocated such that the General Partner and the
Associate Limited Partners will be allocated Profits equal to the
amount of Cash Flow distributed to them and the Holders will be
allocated the remaining Profits, and (ii) Losses will be allocated
2% to the General Partner and the Associate Limited Partners
(collectively) and 98% to the Holders. Except as set forth under
"Description of Assignee Interests--Transferability of Interests",
all such allocations of Profits or Losses to the Holders of
Interests generally will be made in proportion to the number of
Interests owned by each Holder at the end of the fiscal year in
which such Profits or Losses are incurred.

_________________________________________________________________

SUMMARY OF THE PARTNERSHIP AGREEMENT
_________________________________________________________________

The Partnership Agreement to be executed by the General
Partner and each Limited Partner is included as Exhibit A to this
Prospectus and each prospective purchaser should read it in full.
Certain provisions of the Partnership Agreement have been
described elsewhere in this Prospectus. With regard to fees,
payments and distributions to be made to the General Partner and
affiliates, the distribution of cash from the Partnership and the
allocation of Partnership Profits or Losses, see "Management of
the Partnership" and "Cash Distributions and Allocations of
Profits or Losses"; with regard to various transactions and
relationships of the Partnership with the General Partner and
affiliates, see "Conflicts of Interest"; with regard to the
Partnership's business objectives and policies, see "Business of
the Partnership"; with regard to the management of the
Partnership, see "Management of the Partnership"; with regard to
the voting rights and certain other rights of Assignee Holders and
as to the possibility of investors being admitted as Limited
Partners of the Partnership, see "Description of Assignee
Interests--Assignment of Interests"; and with regard to the
transfer of interests, see "Description of Assignee Interests--
Transferability of Interests".

The following briefly summarizes certain provisions of the
Partnership Agreement which are not described elsewhere in this
Prospectus. All statements made below and elsewhere in this
Prospectus relating to the Partnership Agreement are hereby
qualified in their entirety by reference to the Partnership
Agreement attached hereto as Exhibit A.

ALL ASSIGNEE HOLDERS WILL BE BOUND BY THE PROVISIONS OF THE
PARTNERSHIP AGREEMENT, THE ASSIGNMENT AGREEMENT AND THE
SUBSCRIPTION AGREEMENT ATTACHED TO THIS PROSPECTUS AS EXHIBIT C
UPON PAYMENT OF THE SUBSCRIPTION AMOUNT AND ACCEPTANCE BY THE
PARTNERSHIP.

LIABILITY OF PARTNERS TO THIRD PARTIES

The General Partner will be liable for all general
obligations of the Partnership to the extent not paid by the
Partnership. JMB Realty Corporation and JMB Holdings Corporation,
affiliates of the General Partner, will not be liable for any such
obligations (except to the extent of any note issued by JMB
Holdings Corporation to the General Partner).

The Partnership Agreement provides that Limited Partners
will not be personally liable for the debts of the Partnership
beyond the amount committed by them to the capital of the
Partnership.

Assuming that a Holder of Interests does not take part in
the control of the business of the Partnership and otherwise acts
in conformity with the provisions of the Partnership Agreement,
the liability of such Holder will, under the Delaware Revised
Uniform Limited Partnership Act (the "Delaware Act"), be limited,
subject to certain possible exceptions, generally to the amount
contributed by such Holder or such Holder's predecessor in
interest to the capital of the Partnership. Under the Delaware
Act, (i) a Holder would be liable, for a period of one year after
the date of the return to the Holder of any part of such Holder's
capital contribution returned without violation of the Partnership
Agreement or the Delaware Act, for the amount of the returned
contribution to the extent necessary to discharge liabilities of
the Partnership to creditors who extended credit while the
returned contribution was held by the Partnership, and (ii) a
Holder would be liable, for a period of six years after the date
of the return to the Holder of any part of the Holder's capital
contribution returned in violation of the Partnership Agreement or
the Delaware Act, for the amount of the returned contribution.
Under the Delaware Act, a Holder may not receive a distribution
from the Partnership if, at the time of the distribution and after
giving effect thereto, the

all things which it deems to be necessary, convenient, appropriate
or advisable in connection therewith, including, but not limited
to, the preparation and filing on behalf of the Partnership of a
registration statement with the Securities and Exchange Commission
and the securities commissions (or similar agencies or offices) of
such jurisdictions as the General Partner shall determine and the
execution or performance of agreements with underwriters and
others concerning the marketing of Additional Limited Partnership
Interests on such basis and upon such terms as the General Partner
shall determine.

G. Notwithstanding any other provision of this Section 3.3
(i) within ten days after the commencement of the public offering
contemplated by Section 3.3A, ML Real Estate Associates II may
acquire an interest in the Partnership as provided herein upon its
payment of $100.00 and (ii) to evidence such interest in the
Partnership, as of the First Admission Date and any Later
Admission Dates, the General Partner may issue Additional Limited
Partnership Interests to the Initial Limited Partner for
assignment to ML Real Estate Associates II (which shall be an
Assignee Holder thereof for purposes of this Agreement) in an
amount equal to 1% of the Additional Limited Partnership Limited
Partnership Interest. It is hereby understood that such
Additional Limited Partnership Interests shall be registered with
the Securities and Exchange Commission contemporaneously with
those described in Section 3.3A.

SECTION 3.4 Partnership Capital

A. No Partner shall be paid interest on any Capital
Investment.

B. No Partner shall have the right to withdraw, or receive
any return of, his Capital Investment, except as may be
specifically provided herein.

C. Under circumstances requiring a return of any Capital
Investment, no Partner shall have the right to receive property
other than cash, except as may be specifically provided herein.

SECTION 3.5 Liability of Partners

No Limited Partner shall be liable for the debts,
liabilities, contracts or any other obligations of the
Partnership. Except as specifically provided herein with respect
to the Associate Limited Partners, a Limited Partner shall be
liable only to make the Capital Investment with respect to the
Limited Partnership Interests which he holds and shall not be
required to lend any funds to the Partnership or, after the
Capital Investments with respect to such Interests shall have been
paid, to make any further capital contribution to the Partnership.

Subject to the provisions of Section 5.8, no General Partner shall
have any personal liability for the repayment of the Capital
Investments with respect to Limited Partnership Interests. No
Limited Partner shall be entitled to the withdrawal or return of
his capital contributions, except to the extent, if any, that
distributions made pursuant to this Agreement or upon termination
of the Partnership may be considered as such by law and then only
to the extent provided for therein.

ARTICLE FOUR

CASH DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES

SECTION 4.1 Distributions of Cash Flow

Beginning with the first fiscal quarter following the fiscal
quarter in which the offering of Additional Limited Partnership
Interests to the public terminates as contemplated by Section 3.3,
all Cash Flow of the Partnership shall be distributed quarterly
within sixty (60) days after the close of each fiscal quarter as
follows:

(i) 90% to the Holders of Interests and 10% to the General
Partner and Associate Limited Partners (collectively) until the
Holders of Interests have received a cumulative, non-compounded,
10% per annum return on their Adjusted Capital Investments plus
the return of their Capital Investments; and

(ii) thereafter, all Cash Flow shall be distributed 85% to
the Holders of Interests and 15% to the General Partner and the
Associate Limited Partners (collectively); provided, however, that
the General Partner and the Associate Limited Partners
(collectively) shall be entitled to receive distributions of
amounts otherwise distributable to the Holders of Interests under
this clause (ii) to the extent such additional amounts do not
exceed the lesser of (A) 2% of the total cumulative selling price
of all interests in real property of the Partnership which have
been sold or otherwise disposed of subsequent to the First
Admission Date and (B) 13% of the cumulative amount distributed
under this clause (ii) to all Persons.

Notwithstanding the foregoing clause (i), the 10% of Cash Flow
distributable to the General Partner and Associate Limited
Partners (collectively) under such clause (i) shall be limited as
follows:

(A) to the extent, if any, that one percent (1%) of the
Gross Asset Value (as defined below) is less than 5.2631% of Cash
Flow, the amount, distributed to the General Partner and Associate
Limited Partners (collectively) shall be reduced by the amount of
any such deficiency and the Holders of Interests shall receive
additional Cash Flow in the amount of such reduction;

(B) the receipt by the General Partner and the Associate
Limited Partners (collectively) of 4.7369% of total Cash Flow
under said clause (i) (the "Remainder") shall be deferred (and
such deferred amount shall be distributed to the Holders of
Interests) unless the Holders of Interests have received Cash Flow
distributions equal to a 12% per annum cumulative, non-compounded
return on their Capital Investments; provided, however, that such
deferral shall terminate at such time as the Holders of Interest
have received total distributions of Cash Flow equal to their
Capital Investments; any deferred amount of the Remainder shall be
distributable to the General Partner and the Associate Limited
Partners (collectively), (x) out of any Cash Flow otherwise
distributable to the Holders of Interests under the foregoing
clause (i) at such time as the Holders of Interests have received
a 12% per annum cumulative, non-compounded return on their Capital
Investments, or (y) in any event, to the extent of one-half of
Cash Flow otherwise distributable to the Holders of Interests at
such time as the Holders of Interests have received total
distributions of Cash Flow equal to their Capital Investments.

"Gross Asset Value" shall mean the dollar amount reflected on the
books and records maintained by the Partnership, at the Final
Admission Date, of the gross assets (including all of the
Partnership's interests in joint venture assets) acquired by the
Partnership, directly or indirectly, or, if sold or otherwise
disposed of, the proceeds of such assets, increased by the dollar
amount reflected on the books and records maintained by the
Partnership, at the time of their respective acquisition, of any
gross assets (including all of the Partnership's interests in
joint venture assets) which the Partnership subsequently acquires,
directly or indirectly, from the Seller or otherwise as
contemplated by the Acquisition Agreement or the Prospectus.

No amounts computed as 2% of the selling price of any real
property in connection with sale of a Property under (ii) above
shall exceed 50% of the amount customarily charged in connection
with sales of real properties in arm's-length transactions by non-
affiliates of JMB rendering services as an ongoing public activity
in the same geographical location and for comparable real
property; provided, however, that the amount computed as 2% of the
selling price of any Property plus the real estate commission paid
to anyone (other than commissions which inure to the benefit of
the (Partnership) in connection with the sale of a Property shall
in no event exceed the lesser of (i) 6% of the gross purchase
price of the Property or (ii) the amount customarily charged in
connection with sales or real properties in arm's-length
transactions by non-affiliates of JMB rendering real estate
brokerage services as an on-going public activity in the same
geographical location and for comparable real property.

The General Partner shall use its best efforts to operate
the Partnership so that such operation will provide sufficient
Cash Flow (including distributions under Section 3.3B) in order
that the aggregate Cash Flow distributions for each year
distributable to the Holders (other than ML Real Estate Associates
II) are at least equal to Federal taxable income (or components
thereof) allocable to the Holders (other than ML Real Estate
Associates II), multiplied by the maximum individual Federal
income tax rate for the year in which such taxable income (or
component thereof) is realized. Except as otherwise provided in
this Agreement, this Section 4.1 shall apply in determining Cash
Flow distributions upon dissolution.

If, upon the completion of the liquidation and termination
of the Partnership and final distribution of all Partnership
funds, the aggregate capital contributions with respect to Limited
Partnership Interests issued under Section 3.3A exceed the sum of
the distributions of Cash Flow with respect to such number of such
Limited Partnership Interests under clause (i) of Section 4.1,
distributions with respect to such number of such Limited
Partnership Interests under Section 8.3C of Liquidation proceeds
and distributions, if any, with respect to such number of such
Limited Partnership Interests made with the proceeds of any
capital contributions made by the General Partner and Arvida/JMB
Associates (said excess is hereinafter referred to as the "Excess
Amount"), then the General Partner, the Associate Limited Partners
and ML Real Estate Associates II (excluding its successors and
assigns and except as provided in the succeeding paragraph) shall
make aggregate payments to the Holders (other than ML Real Estate
Associates II but including any unaffiliated successor or assign
thereof) in an amount equal to the lesser of the Excess Amount or
the amounts of Cash Flow received by the General Partner, the
Associate Limited Partners and ML Real Estate Associates II
pursuant to Section 4.1(i), such payments to be made by the
General Partner, the Associated Limited Partners and ML Real
Estate Associates II based upon the relative cumulative
distributions of Cash Flow received by each of them pursuant to
Section 4.1(i) up to the time of such payments.

In the event that the General Partner shall elect under
Section 5.5(i)(a) to cause Interests to be listed and quoted on a
United States national exchange or to be reported by the National
Association of Securities Dealers Automated Quotation System and
the Interests issued to ML Real Estate Associates II under Section
3.3G are to be so listed and quoted or reported, the obligation of
ML Real Estate Associates II to make payments pursuant to the
preceding paragraph shall terminate on the date on which such
Interests are first listed and quoted or reported pursuant to such
election; provided that ML Real Estate Associates II, by prompt
notification to the General Partner, may elect to cause all (but
not less than all) of the Interests issue to ML Real Estate
Associates II under Section 3.3G not to be so listed and quoted or
reported. In the event of such an election by ML Real Estate
Associates II, ML Real Estate Associates II may subsequently
notify the general Partner that such Interests issued to ML Real
Estate Associates II under Section 3.3G shall be so listed and
quoted or reported and the General Partner shall cause such
Interests to be so listed and quoted or reported, provided that ML
Real Estate Associates II shall have agreed to pay all costs and
expenses of such listing and quotation or reporting. Any such
subsequent listing and quotation or reporting of such Interests of
ML Real Estate Associates II shall be treated for purposes of this
Section 4.1 and Section 4.3G as made pursuant to the election of
the General Partner under Section 5.5(i)(a). Except as aforesaid,
the obligation of ML Real Estate Associates II to make payments
under the preceding paragraph shall constitute the personal
obligation of ML Real Estate Associates II, and such obligation
shall continue to exist whether or not ML Real Estate Associates
II owns or holds any additional Limited Partnership Interests at
the time payments are required to be made pursuant to the
preceding paragraph.

Notwithstanding anything to the contrary in the foregoing
provisions of this Section 4.1, on September 30, 1987, subject to
the making by the General Partner of the determination provided
below, a distribution of Cash Flow of the Partnership in an amount
equal to $20,000,000 shall be made to the General Partner and
Arvida/JMB Associates. Such distribution shall be made whether or
not the Partnership receives any Capital Investments with respect
to Additional Limited Partnership Interests in connection with the
public offering contemplated by Section 3.3A. Prior to making
such distribution, the General Partner shall determine that there
is sufficient working capital available or sufficient funds
available from debt financing to permit such distribution to be
made.

SECTION 4.2 Allocation of Profits or Losses

A. The Profits or Losses for each fiscal year of the
Partnership (or portion thereof) during the term of this Agreement
for any period beginning on or after the First Admission Date
shall, except as provided in Sections 4.2F and 4.3G, be allocated
as follows: (i) Profits shall be allocated, with respect to any
such fiscal period, such that the General Partner, each of the
Associate Limited Partners and ML Real Estate Associates II shall
be allocated Profits equal to the amount of Cash Flow actually
distributed to each of them, respectively, for such fiscal period
(without taking into account any distribution made pursuant to
the last paragraph of Section 4.1), except that in all events the
General Partner shall be allocated at least 1% of Profits, and the
Holders (other than ML Real Estate Associates II) shall be
allocated the remaining Profits and (ii) Losses shall be
allocated, with respect to any such fiscal period, 1% to the
General Partners 1% to the Associate Limited Partners
(collectively) and 98% to the Holders, except that, if ML
fungibility is achieved as provided in Section 4.3G, then with
respect to any fiscal period which commences on or after the date
on which Interests are first listed and quoted or reported
pursuant to an election made by the General Partner under Section
5.5J(i)(a), for the purpose of allocating Profits under clause (i)
above. ML Real Estate Associates II shall not be allocated
Profits equal to the amount of Cash Flow actually distributed to
it but instead shall be treated for such purpose as a Holder
(other than ML Real Estate Associates II).

The Profits of the Partnership for each fiscal year of the
Partnership (or portion thereof) during the term of this Agreement
for any period ending prior to the First Admission Date shall,
except as provided in Section 4.2F, be allocated 1% to the General
Partner, 98% to the Associate Limited Partners (collectively), and
1% to the Initial Limited Partner and (commencing on its
acquisition of a Partnership interest under Section 3.3G) ML Real
Estate Associates II, and the Losses of the Partnership for each
such fiscal year (or portion thereof) shall be allocated 70% to
the General Partner, 29% to the Associate Limited Partners
(collectively), and 1% to the Initial Limited Partner and
(commencing on its acquisition of a Partnership interest under
Section 3.3G) ML Real Estate Associates II. Such Profits or
Losses shall be determined on the basis of an interim closing of
the Partnership's books on the First Admission Date.

B. Syndication commissions for any fiscal year of the
Partnership shall be allocated to the Holders of Interests in an
amount equal to the syndication commission actually paid by the
Partnership in connection with the acquisition of the Interest of
such Holder. Such allocation shall take into account the
existence of any discount applicable to the syndication commission
of a particular Holder.

C. No allocation of Losses (which include items thereof)
under Section 4.2A shall be made to any Holder to the extent that
such allocation (a) would create a deficit balance in such
Holder's Capital Account which in absolute amount exceeds the
Minimum Gain allocable to such Holder as of the end of the fiscal
year for which such allocation would be made or (b) in the good
faith judgment of the General Partner and upon advice by the
Partnership's independent certified public accountants or legal
counsel, would otherwise likely not be respected under Section
704(b) of the Code. In any such event, the allocation of such
Losses thereof to such Holder shall be reduced to that extent.

D. Any credits of the Partnership as determined for Federal
income tax purposes for a fiscal year shall be allocated as
Profits of the Partnership in accordance with Section 4.2A. In
the event the adjusted tax basis of any "Section 38 property"
(within the meaning of Section 48 of the Code) of the Partnership
is increased pursuant to Section 48(q)(2) of the Code, such
increase shall be allocated among the Partners (as if such item
were in the nature of income or gain) in the same proportions as
the investment tax credit that is recaptured with respect to such
property is shared among the Partners. Any reduction in the
adjusted tax basis or cost of (or the qualified investment in)
such Section 38 property made pursuant to Section 48(q)(1) of the
Code shall be allocated among the Partners (as if such item were
in the nature of an expense or loss) in the same proportions as
the credit for such Section 38 property is allocated under this
Section 4.2D.

E. Notwithstanding anything to the contrary that may be
expressed or implied in this Agreement, the interest of the
General Partner, in each material item of Partnership income,
gain, loss, deduction or credit will be equal to at least 1% of
each such item at all times during the existence of the
Partnership. In determining the General Partner's interest in
such items, Limited Partnership interests owned by the General
Partner shall not be taken into account.

F. Beginning on and after September 30, 1987, any gain
which is realized by the Partnership (or any partnership or joint
venture through which the Partnership holds Property) on the sale
or other disposition of Property which constitutes Distributed
Gain (as defined below) allocable to such Property shall be
allocated to the General Partner and Arvida/JMB Associates.
"Distributed Gain" with respect to all Properties shall be equal
to an amount equal to (i) the product of the Built-In Gain (as
defined below) multiplied by a fraction, the numerator of which is
the amount of Cash Flow distributed to the General Partner and
Arvida/JMB Associates under the last paragraph of Section 4.1 and
the denominator of which is the Built-In Gain, minus (ii) the
amount of any Profit allocated to the General Partner and
Arvida/JMB Associates pursuant to the third succeeding sentence of
this Section 4.2F. "Built-In Gain" shall be equal to the amount
of net gain which would be realized in the aggregate by the
Partnership for Federal income tax purposes if, on September 30,
1987, all Properties were sold for their fair market value as
determined by the General Partner. The General Partner shall
determine the portion of Built-In Gain attributable to each
Property and shall allocate at such time or times as may be
required under this Agreement Distributed Gain among Properties to
which Built-In Gain is attributable on a proportionate basis based
upon the ratio that the portion of Built-In Gain attributable to
each Property bears to the aggregate Built-In Gain.
Notwithstanding any allocation contained in this Agreement (but
subject to Section 4.2E and the succeeding sentences of this
Section 4.2F), if at any time Profit is realized by the
Partnership, any current or anticipated reduction of the share of
the Partnership's indebtedness (including the Partnership's share
of partnership or joint venture indebtedness) of any, some or all
of the General Partner, Arvida/JMB Associates, Arvida/JMB
Partners or ML Real Estate Associates II or any anticipated cash
distribution to the General Partner, Arvida/JMB Associates,
Arvida/JMB Partners or ML Real Estate Associates II would cause
the deficit balances in absolute amount in the Capital Accounts of
any, some or all of the General Partner, Arvida/JMB Associates,
Arvida/JMB Partners or ML Real Estate Associates II to be greater
than its or their share of the Partnership's indebtedness
(including the Partnership's share of partnership or joint venture
indebtedness) after such reduction or distribution, then the
allocation of Profit under this Article Four to the General
Partner, Arvida/JMB Associates/ Arvida/JMB Partners and ML Real
Estate Associates II shall be increased (to be shared by them in
proportion to the deficit balances in their respective Capital
Accounts) to the extent necessary to cause the deficit balance in
the Capital Account of each of the General Partner, Arvida/JMB
Associates, Arvida/JMB Partners and ML Real Estate Associates II
to be no less than their respective shares of the Partnership's
indebtedness (including the Partnership's share of partnership or
joint venture indebtedness) after such reduction or distribution;
provided, however, that the allocation of Profit contained in this
sentence shall not apply to ML Real Estate Associates II if at the
times as of which such allocation is made ML Fungibility has been
achieved as provided in Section 4.3G, and further provided that to
the extent the amount of Profit allocated under this sentence is
insufficient to cause the deficit balance in the Capital Account
of each of the General Partner, Arvida/JMB Associates, Arvida/JMB
Partners and ML Real Estate Associates II to be no less than their
respective shares of the Partnership's indebtedness (including the
Partnership's share of partnership or joint venture indebtedness)
after such reduction or distribution, such Profit shall be
allocated, until Profit in an aggregate amount equal to
$20,000,000 has been allocated under this Section 4.2F to the
General Partner and Arvida/JMB Associates for the current and
prior Partnership years, first to the General Partner and
Arvida/JMB Associates (in proportion to the respective deficit
balances in their Capital Accounts), in preference and priority to
Arvida/JMB Partners and ML Real Estate Associates II, to the
extent necessary to cause the deficit balance in the Capital
Account of each of the General Partner and Arvida/JMB Associates
to be no less than their respective shares of the Partnership's
indebtedness (including the Partnership's share of partnership or
joint venture indebtedness) after such reduction or distribution.
Not withstanding anything to the contrary in this Agreement (but
after giving effect to Section 8.2 and subject to the last
sentence of this Section 4.2F), if the General Partner or
Arvida/JMB Associates has a deficit balance in its Capital Account
following the Liquidation of its interest in the Partnership, as
determined after taking into account all Capital Account
adjustments for the Partnership taxable year during which such
Liquidation occurs (other than any adjustment for a capital
contribution made pursuant to this sentence) and after adjusting
Capital Accounts for actual or anticipated Profits or Losses
allocable among the Partners in accordance with, or as if there
had been (in accordance with adjustments under the first sentence
of Section 11.4), an actual disposition of the Partnership
properties at their fair market value, the General Partner and
Arvida/JMB Associates will make capital contributions in an
aggregate amount (to be shared by them in proportion to the
deficit balances in their respective Capital Accounts) which is
equal to the smaller of (i) such deficit balances or (ii)
$20,000,000; provided, however, that neither the $20,000,000
amount specified in (ii) nor the General Partner's share of such
amount shall limit any contribution which the General Partner is
required to make under Section 8.2. Such capital contributions
shall be made on or before the end of the Partnership taxable year
during which such Liquidation occurs (or, if later, within 90 days
after the date of such Liquidation). Notwithstanding the
foregoing, if the distributions to the General Partner and
Arvida/JMB Associates under the last paragraph of Section 4.1 were
determined not to cause (without taking into account any Profit or
Loss which might arise from such distribution), in the fiscal year
in which such distribution occurs, an aggregate reduction in their
capital accounts (as determined under Section 704(b) of the Code)
equal to the amount of such distribution, then the first four
sentences of this Section 4.2F shall not apply for any period.

SECTION 4.3 Determination of Allocations and Distributions Among
Partners

A. Any Assignee Holder of an Additional Limited Partnership
Interest who is recognized as such pursuant to Section 7.2 shall
be allocated all Profits or Losses of the Partnership allocable,
and shall be entitled to all Cash Flow distributable, with respect
to such Additional Limited Partnership Interest as herein
provided; provided, however, that without limitation the share of
Profits allocable with respect to Additional Limited Partnership
Interests held by ML Real Estate Associates II shall be as
provided in Sections 4.2A, 4.2F and 4.3G. Except as otherwise
provided in Sections 4.2C, 4.3D, 4.3E, 4.3F and 4.3G and subject
to the proviso in the preceding sentence, all Profits or Losses
allocable with respect to Limited Partnership Interests and,
except as provided in Section 3.3B, all Cash Flow distributable
with respect to Limited Partnership Interests, shall be allocated
or distributed, as the case may be, to each of the Holders of
Interests entitled to such allocation or distribution in the ratio
which the Capital Investments with respect to such Limited
Partnership Interests bear to the aggregate Capital Investments
with respect to all Limited Partnership Interests entitled to such
allocation or distribution.

B. Except as provided in Sections 4.3C, 4.3E and 4.3G, all
Profits or Losses allocable with respect to Limited Partnership
Interests shall be allocated, and all Cash Flow distributable with
respect to Limited Partnership Interests shall be distributed, as
the case may be, to the Holders of Interests recognized as such as
of the last day of the fiscal period for which such allocation or
distribution is to be made.

C. Except in the case of Limited Partnership Interests held
by ML Real Estate Associates II during any fiscal quarter before
or which is the fiscal quarter in which ML Fungibility is achieved
as provided in Section 4.3G, to the extent permitted by law, all
Profits or Losses of the Partnership for a fiscal year allocable
with respect to any Limited Partnership Interest which may have
been transferred during such year shall be allocated between the
transferor and the transferee based upon the number of quarterly
periods that each was the recognized Holder of Interests, without
regard to the results of Partnership operations during particular
quarterly periods of such fiscal year and without regard to
whether cash distributions were made to the transferor or
transferee.

D. Except as provided in the last paragraph of Section 4.1
and subject to the second paragraph of Section 4.1, the General
Partner's and Associate Limited Partners' distributive share of
Cash Flow shall be distributed 10.1% to Arvida/JMB Partners, to
the General Partner in an amount equal to 1% of the total Cash
Flow being distributed at such time under Section 4.1 (i) on 4.1
(ii), as the case may be, and the remainder to Arvida/JMB
Associates. Profits or Losses allocable to the Associate Limited
Partners (collectively) under the second paragraph of Section 4.2A
and Losses allocable to the Associate Limited Partners under the
first

paragraph of Section 4.2A shall be allocated 89.0% to Arvida/JMB
Associates and 11.0% to Arvida/JMB Partners. Except as otherwise
provided in Section 4.2F, distributive shares of Cash Flow and
Distributed Gain allocable to the General Partner and Arvida/JMB
Associates under the last paragraph of Section 4.1 and under
Section 4.2F shall be distributed or allocated, respectively, 1%
to the General Partner and 99% to Arvida/JMB Associates. Profits
or Losses allocable to the Initial Limited Partner and ML Real
Estate Associates II under the second paragraph of Section 4.2A
shall be allocated between them in the ratio of the respective
amounts paid by them for their Partnership Interests at that time.

Notwithstanding anything to the contrary in Section 4.2A and this
Section 4.3D, any Partnership deduction directly resulting from
the receipt of a Partnership Interest by any Partner or Holder
(other than a Holder which is not ML Real Estate Associates II)
shall be allocated entirely to such Partner or Holder.

E. In the event that there are Later Admission Dates, all
Profits or Losses allocable to the Holders of Interests for the
period from the First Admission Date or any such Later Admission
Date through the next succeeding Later Admission Date will be
allocated in accordance with Section 4.3A solely to the Holders of
Interests as of or prior to such preceding First Admission Date or
Later Admission Date. For purposes of this Section 4.3E, Holders
of Interests will be deemed to have acquired their Limited
Partnership Interests on the first day or such other day as the
General Partner may determine of the month in which such
Additional Limited Partnership Interests have been assigned to
such Persons. Profits or Losses incurred for the period from any
such First Admission Date or Later Admission Date through the next
succeeding Later Admission date will be allocated on the basis of
an interim closing of the Partnership's books on such Later
Admission Date. The General Partner may, in its sole and absolute
discretion and at any time, adopt any other convention or
conventions (including without limitation a daily, semi-monthly or
full-month convention) regarding the distribution of Cash Flow or
the allocation of Profits or Losses with respect to any Limited
Partnership Interest that may be or may have been transferred
during any year.

F. Subject to Section 4.2C, if at the time of an allocation
pursuant to Section 42.A of Profits or Losses for a fiscal year of
the Partnership (or portion thereof) during the term of this
Agreement for a period beginning on or after the Final Admission
Date the Capital Accounts with respect to each Limited Partnership
Interest (other than any Limited Partnership Interest held by ML
Real Estate Associates II) are not then equal:

(i) Profits allocated to the Holders (other than ML Real
Estate Associates II) pursuant to Section 4.2A shall be allocated
to the Holder (other than ML Real Estate Associates II) of a
Limited Partnership Interest with a Capital Account which is
smaller in amount (or greater in deficit) than the Capital Account
for any other such Interest (other than any Limited Partnership
Interest held by ML Real Estate Associates II) until the balance
in such Capital Account equals the balance of the Capital Account
of such Limited Partnership Interest (other than any Limited
Partnership Interest held by ML Real Estate Associates II) which
was next smallest in amount (or next greatest in deficit) before
such allocation, and thereafter such Profits shall continue to be
allocated to each successive Holder or groups of Holders of
Interests (other than ML Real Estate Associates II) with Capital
Accounts which are smallest in amount (or greatest in deficit),
until either the balances of all Capital Accounts with respect to
Limited Partnership Interests (other than any Limited Partnership
Interest held by ML Real Estate Associates II) are equal or all
such Profits have been allocated; and

(ii) Losses allocated to the Holders pursuant to Section
4.2A shall be allocated to the Holder (other than ML Real Estate
Associates II) of a Limited Partnership Interest with a Capital
Account which is greater in amount (or smaller in deficit) than
the Capital Account for any other such Interest (other than any
Limited Partnership Interest held by ML Real Estate Associates II)
until the balance in such Capital Account equals the balance of
the Capital Account of such Limited Partnership Interest (other
than any Limited Partnership Interest held by ML Real Estate
Associates II) which was next greatest in amount (or next smallest
in deficit) before such allocation, and thereafter such Losses
shall continue to be allocated to each successive Holder or groups
of Holders of Interests (other than ML Real Estate Associates II)
with Capital Accounts which are greatest in amount (or smallest in
deficit), until either the balances of all Capital Accounts with
respect to Limited Partnership Interests (other than any Limited
Partnership Interest held by ML Real Estate Associates II) are
equal or all such Losses have been allocated.

The foregoing subparagraphs (i) and (ii) shall not apply to,
or with reference to, any Limited Partnership Interest held by ML
Real Estate Associates II.

G. In the event that the General Partner shall elect under
Section 5.5(i)(a) to cause Interests to be listed and quoted on a
United States national exchange or to be reported by the National
Association of Securities Dealers Automated Quotation System and
Interests of ML Real Estate Associates II are so listed and quoted
or reported, to the extent permitted by law and subject to Section
4.2F, for the fiscal year of the Partnership during the term of
this Agreement in which such Interests are first listed and quoted
or reported pursuant to such election, Profits (in the form of
gross income) realized by the Partnership during the portion of
such fiscal year ending on the day immediately preceding the date
on which such Interests are first so listed and quoted or reported
shall be allocated to ML Real Estate Associates II in such amount
as is necessary to cause the Capital Account for each Limited
Partnership Interest held by ML Real Estate Associates II and
issued to it under Section 3.3G to equal the largest balance in
the Capital Account for any Limited Partnership Interest held by a
Holder (other than ML Real Estate Associates II (the completion of
such equalization pursuant to this Section 4.3G or another
provision of this Agreement and such listing and quotation or
reporting is herein referred to as "ML Fungibility"). Such
allocation of Profits (in the form of gross income) to ML Real
Estate Associates II shall be made as of the end of the day
immediately preceding the date on which such Interests are first
listed and quoted or reported pursuant to the aforementioned
election.

ARTICLE FIVE

RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER

SECTION 5.1 Management and Control of the Partnership

A. Subject to the Consent of the Limited Partners where
required by this Agreement, the General Partner, within the
authority granted to it under this Agreement, shall have the
exclusive right to manage the business of the Partnership and is
hereby authorized to take any action of any kind and to do
anything and everything it deems necessary in accordance with the
provisions of this Agreement.

B. No Limited Partner (except one who may also be a General
Partner, and then only in its capacity as General Partner within
the scope of its authority hereunder) shall participate in or have
any control over the Partnership business or shall have any
authority or right to act for or bind the Partnership. The
Limited Partners hereby Consent to the exercise by the General
Partner of the powers conferred on it by this Agreement.

C. The General Partner shall initially, upon completion of
the offering contemplated by the Prospectus, establish Reserves
for working capital and to pay taxes, insurance, Debt Service,
repairs, replacements or renewals, or other costs and expenses
incident to the ownership or operation of the Properties and for
such other purposes, as the General Partner may determine, in an
amount equal to not less than 2% of the Gross Proceeds of the
Offering and thereafter shall maintain such Reserves in such
amounts as the General Partner deems appropriate under the
circumstances from time to time.

D. All of the Partnership's expenses shall be billed
directly to and paid by the Partnership. Reimbursements to the
General Partner or any Affiliates shall not be allowed (other than
for Organization and Offering Expenses, which shall be allowed),
except for (i) the actual cost to the General Partner or such
Affiliates of goods, materials and services used for or by the
Partnership and obtained from entities which are not affiliated
with the General Partner; (ii) salaries and related salary
expenses for administrative services which could be performed
directly for the Partnership by independent parties, such as
legal, accounting, transfer agent, data processing, duplicating
and other such services; (iii) Partnership reports and
communications to investors; (iv) other administrative services,
provided that such services are necessary to the prudent operation
of the Partnership; and (v) reimbursements to Arvida in connection
with its carrying out the duties described in the Management and
Supervisory Agreement authorized in Section 5.2 a (ix) hereof. No
reimbursement under clause (ii) through (v) above shall be
permitted for services for which the General Partner or its
Affiliates receive a separate fee. No reimbursement under clause
(ii) through (iv) above shall be permitted for (a) the salaries of
and related salary expenses incurred by any Controlling Person (as
defined hereinafter) and (b) any indirect general or
administrative overhead expenses, such as rent, travel expenses
and other items generally falling under the category of overhead,
incurred in performing services for the Partnership which are not
directly attributable to such services. "Controlling Person" for
purposes of this Section 5.1D shall mean any Person, regardless of
title, who performs executive or senior management functions for
the Sponsor or the General Partner similar to those of directors,
executive management and senior management, or any Person who
either holds a 5% or more equity interest in the Sponsor or the
General Partner or has the power to direct or cause the direction
of the Sponsor or the General Partner, whether through the
ownership of voting securities, by contract, or otherwise, or, in
the absence of a specific role or title, any Person having the
power to direct or cause the direction of the management level
employees and policies of the Sponsor or the General Partner. It
is not intended that every Person who carries a title such as vice
president, senior vice president, secretary or treasurer be
included in the definition of Controlling Person. In no event
shall any amount charged to the actual cost of such services or
(b) in the case of reimbursements under clause (ii) through (iv)
above 90% of the amount which the Partnership would be required to
pay to independent parties for comparable services. In the
Partnership's annual report to Limited Partners, there shall be
provided an itemized breakdown of reimbursements made pursuant to
this Section 5.1D. The reimbursement for expenses provided for in
this Section 5.1D shall be made regardless of whether any
distributions are made to the Limited Partners under the
provisions of Section 4.1. The provision of any goods, material
or services for which reimbursements are authorized under Section
5.1D(i) shall be set forth in a written contract which precisely
describes the goods, materials or services to be provided and all
compensation therefor. Such contract shall provide that it may be
modified only with the consent of Limited Partners holding a
majority of the then outstanding Limited Partnership Interests
(except as to immaterial or conforming modifications, which shall
require only the consent of the General Partner) and that it shall
be terminable by either party, without penalty, upon sixty (60)
days' prior written notice.

E. In the event the General Partner deems the approximately
200-acre site near Sarasota which is owned by an existing joint
venture in which the Partnership owns an interest to be suitable
for development as a regional shopping mall or other shopping
center, development of such Property may be done jointly with
Affiliates of JMB. In the event of such a development through a
joint venture with Affiliates of JMB, the existing joint venture's
interest in the land would be valued at its appraised fair market
value, and the Affiliate would make a pro rata cash contribution.
All other contributions would be strictly pro rata. Such joint
venture development shall not be entered into by the Partnership
unless (x) there are no duplicate property management or other
fees, and (y) the Partnership and such Affiliate each enjoy a
right of first refusal as regards the sale of the equity interest
of the other.

SECTION 5.2 Authority of the General Partner

A. Except to the extent otherwise provided herein, the
General Partner, for, and in the name and on behalf of, the
Partnership is hereby authorized:

(i) to acquire, either directly or indirectly through
any joint venture, joint participation, partnership (other than
any public or privately offered limited partnership) or otherwise,
by purchase, lease, exchange or otherwise any real or personal
property (including the Properties) which may be necessary,
convenient or incidental to the accomplishment of the purposes of
the Partnership; provided, however, that real properties shall not
be acquired at an aggregate purchase price in excess of their
aggregate appraised value as determined by appraisals prepared by
competent independent appraisers, and further provided that
investments by the Partnership in other partnerships or ventures
shall be limited to partnerships or ventures which own and operate
(directly or through an interest in another partnership or joint
venture) a particular Property in which the Partnership (either
alone or with an Affiliate of the General Partner) acquires a
controlling interest and which do not involve duplicate property
management or other fees;

(ii) to operate, maintain, finance, improve, own,
grant options with respect to, sell, convey, assign, mortgage,
exchange or lease and to cause to have constructed any real estate
and any personal property necessary, convenient or incidental to
the accomplishment of the purposes of the Partnership and to
perform construction work or hire contractors to perform
construction work in connection with any of the foregoing:

(iii) to execute any and all agreements, contracts,
documents, certifications and instruments necessary or convenient
in connection with the development, management, maintenance and
operation of the Properties;

(iv) to borrow money and issue evidences of
indebtedness necessary, convenient or incidental to the
accomplishment of the purposes of the Partnership, and to secure
the same by mortgage, pledge or other lien on any Properties or
other assets of the Partnership; provided, however, that in
connection with the borrowing of money, recourse for the repayment
of which is limited solely to property of the Partnership, no
lender shall be granted or acquire, at any time as a result of
making such a loan, any direct or indirect interest in the
profits, capital or property of the Partnership other than as a
secured creditor;

(v) to execute, in furtherance of any or all of the
purposes of the Partnership, any deed, lease, mortgage, mortgage
note, bill of sale, contract or other instrument purporting to
convey, exchange or encumber the real or personal property of the
Partnership;

(vi) to prepay in whole or in part, refinance, recast,
increase, modify or extend any mortgages affecting the Properties
and in connection therewith to execute any extensions or renewals
of mortgages on any of the Properties;

(vii) to execute an agency agreement with Merrill
Lynch, Pierce, Fenner & Smith Incorporated pursuant to which said
firm would assist the Partnership in the sale of Interests and
pursuant to which the Partnership would agree, subject to the
final four sentences of Section 5.8, to indemnify and hold
harmless said firm or any selected dealer from any liability
incurred by it in so acting as agent for the Partnership;

(viii) to deal with, or otherwise engage in business
with, or provide service to and receive compensation therefor
from, any Person who has provided or may in the future provide any
services to, lend money to, sell property to, or purchase property
from, any Affiliate of the General Partner; provided, however,
that no such dealing, engaging in business or providing services
may involve any direct or indirect payment by the Partnership of
any rebate or any reciprocal arrangement which would have the
effect of circumventing any restriction set forth herein upon
dealings with Affiliates of the General Partner;

(ix) to execute the Management and Supervisory
Agreement with Arvida;

(x) to, in its sole discretion, make or revoke (and in
the case of any partnership or joint venture through which the
Partnership holds an interest in property, cause to be made or
revoked) the election referred to in Section 754 of the Code;

(xi) to request such information from any Holder as
may be reasonably required (as determined by the General Partner)
to comply with any Federal, state or local tax laws;

(xii) to, in its sole discretion, designate itself or
any other General Partner as the Tax Matters Partner within the
meaning of Section 6231(a)(7) of the Code;

(xiii) to engage in any kind of activity and to
perform and carry out contracts of any kind necessary to, or in
connection with, or incidental to the accomplishment of the
purposes of the Partnership, as may be lawfully carried on or
performed by a partnership under the laws of each state in which
the Partnership is then formed or qualified; and

(xiv) to obtain consulting services from ML Real
Estate Associates II or its Affiliates.

In the case of the making or revocation of any election under (x)
above or any designation under (xii) above, each of the Partners
will, upon request, supply such information and execute such
documents as are necessary to effectuate such election or
revocation, or such designation. In the case of any request for
information under (xi), any Holder to which any such request is
sent shall comply with such request.

B. Any Person dealing with the Partnership or the General
Partner may rely upon a certificate signed by the General Partner,
thereunto duly authorized, as to:

(i) the identity of any General Partner or Limited
Partner hereof;

(ii) the existence or non-existence of any fact or
facts which constitute a condition precedent to acts by a General
Partner or which are in any other manner germane to the affairs of
the Partnership;

(iii) the Persons who are authorized to execute and
deliver any instrument or document of the Partnership; or

(iv) any act or failure to act by the Partnership or
as to any other matter whatsoever involving the Partnership or any
Partner.

C. The General Partner shall maintain in its records for
at least five years any appraisal required to be obtained under
the provisions of clause (i) of section 5.2A.

SECTION 5.3 Authority of Partners to Deal with Partnership

A. Without limitation upon the other powers set forth
herein, the General Partner is expressly authorized (and where
indicated, directed), in the name of and on behalf of the
Partnership, to do the following:

(i) The General Partner shall commit a percentage of
Gross Proceeds of the Offering to Investment in Properties which,
at a minimum, is equal to the greater of: (i) 80% of the Gross
Proceeds of the Offering reduced by .1625% for each 1% of the
aggregate indebtedness of the Partnership; or (ii) 67% of Gross
Proceeds of the Offering. For purposes of this calculation,
"aggregate indebtedness" is the percentage resulting when such
aggregate indebtedness is divided by the aggregate purchase price
of all Properties, excluding Front-End Fees. If the Front-End
Fees must be reduced for the Partnership to commit the minimum
percentage of Gross Proceeds of the Offering to Investment in
Properties as set forth above, the General Partner shall cause JMB
or its Affiliates to reimburse the Partnership for the amount of
any such excess Acquisition Fees and Acquisition and Financing
Guaranty Fee received by them.

(ii) The General Partner may enter into an agency
agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated
providing for the payment of commissions to JMB Securities
Corporation for participating as a selected dealer in the offering
of Additional Limited Partnership Interests to the public pursuant
to Section 3.3; provided, however, that there shall be no selling
commissions paid or received by any Person in connection with the
sale of Additional Limited Partnership Interests to (and for the
account of) any Assignee Holder who is the General Partner, an
Affiliated Person of the General Partner or an officer, director,
shareholder, employee or partner thereof.

(iii) The General Partner may, subject to the
conditions of this Agreement, enter into agreements with and pay
fees to JMB or other Affiliated Persons of the General Partner in
consideration of property management and leasing services
respecting commercial and industrial Properties which are
necessary to the prudent operation of the Partnership (it being
understood and agreed that the provision of such property
management and leasing services does not constitute a part of the
duties or obligations of the General Partner as a general partner
of the Partnership); provided, however, that the General Partner
shall not enter into any agreement for property management with an
Affiliate on terms less favorable to the Partnership than those
customarily charged for similar services in the relevant
geographical area and in no event shall fees to an Affiliate of
the General Partner for property management and leasing services
exceed the following schedule:

(a) in the case of industrial or commercial
Property other than that described in the following subparagraph
(b), the maximum fee from such Property shall be 6% of the gross
receipts from the Property being managed where the Affiliate of
the General Partner performs leasing, re-leasing and leasing-
related services, and the maximum fee shall be 3% of gross
receipts from the Property being managed if the Affiliate of the
General Partner does not perform leasing, re-leasing and leasing-
related services with respect to the Property; and

(b) in the case of industrial or commercial
Properties which are leased for ten or more years on a net (or a
similar) basis, the maximum fee shall be 1% of the gross receipts
from the Property being managed, except for a one-time initial
leasing fee of 3% of the gross receipts on each lease payable over
the first five full years of the original term of the lease.

Where a property management agreement with an
Affiliate has been entered into with respect to a Property, no
fees in addition to those payable to such Affiliate under such
agreement shall be paid by the Partnership to any Persons in
consideration of their performance of property management,
bookkeeping services or other property management services with
respect to the same Property. Any property management agreements
with Affiliates shall be terminable by either party, without
penalty, upon sixty (60) days' prior written notice and may be
modified only with the consent of the Holders of the majority of
the Interests (except as to immaterial or conforming amendments
which shall require only the consent of the General Partner).

(iv) The General Partner may pay or cause to be paid
brokerage commissions to JMB Insurance Agency, Inc. or other
Affiliated Persons of the General Partner in connection with
insurance covering the Properties subject to the conditions that:
(a) before any such brokerage services are provided, there will
have been received quotations from two independent insurance
brokers or carriers or underwriters relating to the proposed
coverage, which quotations shall be upon coverage and terms
comparable to those proposed to be provided by JMB Insurance
Agency, Inc., and such agency shall not provide such insurance
brokerage services unless it can obtain such insurance at a cost
which is no greater than the lower of the two unaffiliated
entities; (b) if at any time JMB Insurance Agency, Inc. ceases to
derive at least 75% of its income from its business with entities
which are not sponsored by JMB and its Affiliates, JMB Insurance
Agency, Inc. shall not earn income from any additional insurance
placements on behalf of the Partnership or any Property then owned
by it; and (c) any agreement with Affiliates to provide insurance
brokerage services to the Partnership shall be terminable by
either party, without penalty, upon sixty (60) days' prior written
notice.
(v) The General Partner may, in the event that Gross
Proceeds of the Offering are less than $325,000,000, in its
discretion, (a) obtain additional financing to pay the costs of
owning the Properties; (b) if the additional financing under the
immediately preceding clause (a) is insufficient, to enter into a
joint venture or joint participation with an Affiliate or
Affiliates of the General Partner which would provide for the
ownership of such Properties on a pro rata basis; provided,
however, that with respect to such investment with an Affiliate,
(s) the Partnership and such Affiliate, considered together, have
or acquire a controlling interest in any ventures or partnerships
which own the Properties, (t) there are no duplicate property
management or other fees, (u) the Partnership's investment is on
substantially the same terms and conditions as the investment of
such Affiliate, (v) the purchase price of the Partnership's
investment has been confirmed by independent appraisal as not
greater than the appraised value of such investment, (w) such
investment shall not result in the breach, abrogation or
circumvention of any of the terms, conditions or provisions of
this Agreement, (x) the investments are not in publicly or
privately offered limited partnerships or other publicly offered
real estate investment entities, (y) the compensation to the
General Partner, JMB and their Affiliates received attributable to
such investment is substantially identical to the compensation
received by the general partners and sponsors of such Affiliate
and by the Affiliates of such general partners and sponsors
attributable to such investment, and (z) the Partnership and such
Affiliate must each enjoy a right of first refusal as regards the
sale of the equity interest of the other.

(vi) The General Partner may, notwithstanding any
other provision of this Agreement, pay or cause to be paid to an
Affiliate allocable reimbursements of overhead expenses with
respect to any Partnership Property being developed pursuant to
Section 5.1E as a mall or shopping center through a joint venture
with one or more Affiliates of JMB, together with development fees
in connection therewith in an amount equal to the lesser of 5% of
the cost of development or the amount which would be charged by an
independent third party rendering comparable services; provided,
however, that such joint venture shall obtain a report from an
independent appraiser of the appraised value of the mall or
shopping center upon completion of the Property; provided,
further, that to the extent that the actual costs of development,
including the development fees paid to such Affiliate, exceed such
appraised value of the project, the development fees will be
remitted by such Affiliate to the Partnership to the extent of the
excess, if any, of such development costs over such appraised
value. Development services provided by such Affiliate shall be
embodied in a written contract which describes the terms thereof
and the compensation to be paid therefor. Such contract shall be
terminable by either party, without penalty, upon sixty (60) days'
written notice, and may be modified only with the consent of the
Holders of the majority of the Interests (except as to immaterial
or conforming amendments which shall only require the consent of
the General Partner). Such contract shall be disclosed to all
Partners in the reports provided pursuant to Sections 9.4A and
9.4C (stating the compensation paid to such Affiliate). Such
Affiliate must be independently engaged in performing development
services rendered for the development of shopping malls or
shopping centers.

(vii) The validity of any transaction, agreement or
payment involving the Partnership and the General Partner or any
Affiliate thereof not otherwise prohibited by the terms of this
Agreement shall not be affected by reason of the relationship
between the Partnership and the General Partner or such Affiliate.

All transactions, agreements or payments involving the Partnership
and the General Partner or any Affiliate thereof shall be on terms
no less favorable to the Partnership than those available to the
Partnership in similar dealings with unaffiliated third parties.

B. The General Partner shall be subject to the following
prohibitions: (i) except to the extent that related commissions
inure to the benefit of the Partnership neither the General
Partner nor any Affiliate of the General Partner shall be given
the exclusive right to sell or exclusive employment to sell any
Community Property of the Partnership and no amounts shall be
computed under Section 4.1 as 2% of the selling price of a
Community Property under Section 4.1(ii) unless the General
Partner or Affiliates of the General Partner perform substantial
services in connection with the sale of a Community Property; (ii)
neither any General Partner nor any Affiliated Person of the
General Partner shall receive directly or indirectly a commission
or fee in connection with the reinvestment of the proceeds of the
sale, exchange or refinancing of any Property; (iii) neither any
General Partner nor any Affiliated Person of the General Partner
shall loan money to the Partnership unless (a) the principal
amount of such financing shall be scheduled to be paid over a
period of less than 48 months, and more than 50% of the principal
amount of such financing shall be scheduled to be paid during the
first 24 months and (b) the interest rates and other finance
charges and fees shall not be in excess of the lessor of (x) if
the loan was made in connection with a particular Property, the
amounts that are charged by unrelated banks on comparable loans
for the same purpose in the locality of the Property in connection
with which the loan was made or (y) the rate per annum equal to 2%
plus the reference rate of Continental Illinois National Bank and
Trust Company of Chicago, or provide permanent financing to the
Partnership on a Property owned by the Partnership or make loans
with a prepayment charge or penalty which are evidenced or secured
by either a first or junior or all-inclusive note or mortgage
except to the extent that such prepayment charge or penalty is
attributable to an underlying encumbrance. In the event the
Partnership utilizes any all-inclusive note, said note shall
provide that (a) the Partnership shall receive credit on its
obligation under said note for payments made by the Partnership
directly on the underlying encumbrance; (b) that a bank, escrow
company or other paying agent shall collect payments (other than
amounts not to be applied to the underlying encumbrance) on the
all inclusive note and make disbursements therefrom to the holder
of the underlying encumbrance prior to making any disbursement to
the holder of the all-inclusive note or, in the alternative, all
payments on the all-inclusive note and underlying notes shall be
made directly by the Partnership; and (c) the rate of any interest
charged by the General Partner or an Affiliated Person on such
all-inclusive note will not exceed the rate of interest payable to
the holder on the underlying encumbrance.

C. Any agreements, contracts and arrangements with the
General Partner or Affiliated Person of the General Partner
permitted by Section 5.3(iii) and Section 5.3A(vii) (with respect
to both such sections to the extent not otherwise specifically
authorized in this Agreement) shall be subject to the following
conditions:

(i) any such agreements, contracts or arrangements
shall be embodied in a written contract which describes the
subject matter thereof and all compensation to be paid therefor;

(ii) no rebates or "give-ups" may be received by the
General Partner or any such Affiliated Person, nor may the General
Partner or any such Affiliated Person participate in any
reciprocal business arrangements which would have the effect of
circumventing any of the provisions of this Agreement;

(iii) neither the General Partner (in any capacity
other than a General Partner) nor any such Affiliated Person may
act as paying or purchasing agent for the Partnership and no funds
of the Partnership may be paid to the General Partner or any such
Affiliated Person by way of reimbursement for Partnership expenses
other than Organization and Offering Expenses or expenses as
permitted by Section 5.1D and the amount of compensation paid to
the General Partner or any such Affiliated Person may not exceed
90% of the amount which the Partnership would be required to pay
to independent parties;

(iv) any such agreements, contracts or arrangements
shall be fully and promptly disclosed to all Partners in the
reports provided in Sections 9.4A and 9.4C (stating the
compensation to be paid by the Partnership);

(v) any such agreements, contracts or arrangements
shall be terminable by either party, without penalty, upon sixty
(60 days' prior written notice and may be modified only with the
Consent of the Holders of a majority of the Interests (except as
to immaterial or conforming amendments which shall only require
the consent of the General Partner); and

(vi) the General Partner or the Affiliated Person
performing the services for the Partnership previously shall have
been independently engaged in performing services of the type to
be performed for the Partnership for a period of at least two
years.

SECTION 5.4 Restrictions on Authority of General Partner

A. Without the Consent of all the Limited Partners, the
General Partner shall not have the authority to:

(i) do any act in contravention of this Agreement;

(ii) do any act which would make it impossible to
carry on the ordinary business of the Partnership;

(iii) confess a judgment against the Partnership;

(iv) possess Partnership Property, or assign its
rights in specific Partnership Property, for other than a
Partnership purpose;

(v) admit a Person as a General Partner, except as
provided in this Agreement;

(vi) admit a Person as a Limited Partner, except as
provided in this agreement;

(vii) knowingly perform any act that would subject any
Limited Partner to liability as a general partner in any
jurisdiction; or

(viii) invest in junior trust deeds or similar
obligations, except that the Partnership may advance a portion of
the purchase price of a Property to the seller in the form of a
loan, the except that junior trust deeds or similar obligations
may be taken back from purchasers of Properties in connection with
the sale thereof by the Partnership.

B. Except as provided in Section 5.5J and subject to
Section 10.3, without the Consent of a majority in interest of the
Limited Partners, the General Partner shall not have the authority
to:

(i) sell or otherwise dispose of all or substantially
all of the Partnership's real property developments and
investments in real property (except for the sale or other
disposition of real property developments or investments in real
property (or portions thereof) in the ordinary course of business
as contemplated by the Prospectus, including the sale or other
disposition of the final real property development or investment
in real property remaining as a result of such sales or
dispositions); or

(ii) elect to dissolve the Partnership.

C. The General Partner on behalf of the Partnership shall
not purchase, lease or acquire any Property from any General
Partner or any Affiliated Person of any General Partner or from
any Person in which any General Partner or any Affiliated Person
of any General Partner has a material interest. Notwithstanding
the foregoing, the General Partner or an Affiliate may purchase
Property in its own name, and assume loans in connection therewith
and temporarily hold title thereto for the purpose of facilitating
the acquisition of such Property or the borrowing of money or
obtaining of financing for the Partnership, or completion of
construction of the Property, provided that such Property is
purchased by the Partnership for an investment no greater than the
cost of such Property to the General Partner (or such Affiliate),
that there is no amendment to the stated interest rate of any note
secured by such Property between the time it is acquired by the
General Partner (or such Affiliate) and the time it is acquired by
the Partnership and that no other benefit directly or indirectly
arising out of such transaction (other than those incidental to
the ownership of the property during the time it was held by the
General Partner or such Affiliate) is received by any General
Partner or Affiliated Person thereof apart from compensation
otherwise permitted by this Agreement. Except as otherwise
provided herein, the Partnership shall not sell Property to any
General Partner or any Affiliated Person of a General Partner.
The General Partner or its Affiliates may lease office space in
Properties; provided, however, that any such lease (a) shall be
for rentals and on terms not less favorable to the Partnership
than those available to the Partnership from unaffiliated tenants,
(b) shall be terminable on 60 days' prior written notice by the
Partnership without penalty and (c) shall provide that any rentals
from subleases relating thereto which are in excess of the rentals
from such lease shall be paid to the Partnership and, provided
further, that no more than 3% of the office space of the
Properties shall be leased to JMB or its Affiliates (other than
the Partnership and Arvida). The Partnership shall not make any
loans to any General Partner or any Affiliate of the General
Partner nor to any other Person except as provided in Section
5.4A(viii). The foregoing provision shall not, however, prohibit
(i) transfers incident to the formation of joint ventures with
Affiliates of the General Partner permitted by Sections 5.1E and
5.3A(v), (ii) the making of loans or advances by the Partnership
to a joint venture partnership which owns a particular property as
provided for in Section 5.2A(i) or (iii) advancing a portion of
the purchase price of a Property to a seller which is not an
Affiliated Person of the General Partner in the form of a loan.

D. The General Partner shall not on behalf of the
Partnership acquire any Property (other than cash) in exchange for
Interests in the Partnership.

E. The General Partner, in its capacity as such, or in its
capacity as a general partner in any partnership or joint venture
which may hold title to any Property under Section 5.3A(v), shall
not do or cause the Partnership to do, any act which would not be
permitted under this Agreement to be done by it as the General
Partner if title to such Property were held directly by the
Partnership, and shall, in general, act, and cause the Partnership
to act, in such capacity in the same manner as if title to such
Property were held directly by the Partnership.

SECTION 5.5 Duties and Obligations of the General Partner

A. The General Partner shall take action which may be
necessary or appropriate (i) for the continuation of the
Partnership's valid existence as a limited partnership under the
laws of the State of Delaware (and of each other jurisdiction in
which such existence is necessary to the limited liability of the
Limited partners or to enable the Partnership to conduct the
business in which it is engaged) and (ii) for the acquisition,
development, maintenance, preservation and operation of the
Properties as contemplated by the Prospectus in accordance with
the provisions of this Agreement and applicable laws and
regulations (it being understood and agreed, however, that the
performance of day-to-day development and property management
services for specific Properties is not the obligation of the
General Partner of the Partnership).

B. The General Partner shall devote to the Partnership such
time as may be necessary for the proper performance of its duties
hereunder, but neither the officers nor the directors of the
General Partner shall be expected to devote their full time to the
performance of such duties.

C. The General Partner shall at all times use its best
efforts to maintain its net worth at a sufficient level to meet
all requirements of the Code, under currently applicable rulings,
regulations and policies of the Internal Revenue Service and as
hereafter interpreted by the Internal Revenue Service, any agency
of the Federal government or the courts, to assure that the
Partnership will be classified for Federal income tax purposes as
a partnership and not as an association taxable as a corporation,
and shall, irrespective of such requirements, maintain its net
worth at an amount at least equal to the lessor of 10% of the
aggregate capital contributions to the Partnership or $25,000,000.

The General Partner shall use its best efforts to cause JMB
Holdings Corporation to comply in all respects with the terms of
its obligation which shall be comparable to the General Partner's
obligation and which shall be set forth in a written commitment of
JMB Holdings Corporation to be received by the Partnership prior
to the issuance of Additional Limited Partnership Interests under
Section 3.3A.

D. The General Partner shall take such action as may be
necessary or appropriate in order to form or qualify the
Partnership under the laws of any jurisdiction in which the
Partnership is doing business or in which such formation or
qualification is necessary in order to protect the limited
liability of the Limited Partners or in order to continue in
effect such formation or qualification. The General Partner shall
file or cause to be filed for recordation in the office of the
appropriate authorities of the State of Delaware, and in the
proper office or offices in each other jurisdiction in which the
Partnership is formed or qualified, such certificates (including
limited partnership and assumed name certificates) and other
documents as are required by the applicable statutes, rules or
regulations of any such jurisdiction or are required to reflect
the identity of the Partners and the amounts of the Capital
Investments with respect to the Interests.

E. The General Partner shall prepare or cause to be
prepared and shall file on or before the due date (or any
extension thereof) any Federal state or local information or tax
returns required to be filed by the Partnership. The General
Partner shall cause the Partnership to pay any taxes payable by
the Partnership unless the General Partner determines in its sole
discretion to contest the payment of such taxes.

F. The General Partner shall obtain and keep in force
during the term hereof fire and extended coverage, workmen's
compensation and public liability insurance in favor of the
Partnership with such insurers and in such amounts as the General
Partner shall deem advisable, but in amounts not less ( and with
deductible amounts not greater) than those customarily maintained
with respect to properties comparable to the Properties.

G. The General Partner shall be under a fiduciary duty to
conduct the affairs of the Partnership in the best interests of
the Partnership and of the Limited Partners, including the
safekeeping and use of all Partnership funds and assets for the
exclusive benefit of the Partnership, whether or not in its
immediate possession or control.

H. In the case of any vote, Consent or other action by the
Limited Partners pursuant to the terms of this Agreement which
shall become binding upon the General Partner, the General
Partner, in acting on behalf of the Partnership in the
Partnership's capacity as a partner in any partnership or joint
venture which may hold title to any Property, shall, to the extent
permitted by the partnership agreement relating to such
partnership or joint venture, take corresponding or identical
action or cause an Affiliate of the General Partner in its
capacity as a general partner of such partnership or joint venture
to take such action pursuant to the terms of the partnership
agreement relating to such partnership or joint venture and, in
general, shall not act on behalf of the Partnership in such
capacity in a manner inconsistent with any such vote, Consent or
other action pursuant to this Agreement.

I. The General Partner shall use its best efforts to
assure that the Partnership shall not be deemed an investment
company as such term is defined in the Investment Company Act of
1940.

J. (i) The General Partner shall elect to pursue one of the
following courses of action: (a) to cause the Interests of the
Holders to be listed and quoted on a United States national
exchange or to be reported by the National Association of
Securities Dealers Automated Quotation System (which may be done
at any time on or prior to the date ten years from the Offering
Termination Date); (b) to purchase, or to cause JMB or its
Affiliates to purchase, on the date ten years from the offering
Termination date all of the Interests of the Holders at their ten
appraised fair market value in accordance with the procedure set
forth in subparagraph (ii) below; or (c) to commence a liquidation
phase on the date ten years from the Offering Termination date
which liquidation shall be completed within fifteen years after
the Offering Termination Date; provided, however, that if the
General Partner elects to pursue the course of action set forth in
clause (a) above, the General Partner shall have the authority to
cause the Interests of the Holders to be delisted or otherwise not
so listed and quoted if the General Partner determines that such
listing or quoting may result in adverse tax consequences to the
Partnership or any Holder.

(ii) In the event that the General Partner elects to
purchase, or to cause JMB or its Affiliates to purchase, all of
the Interests of the Holders on the date ten years from the
Offering Termination Date, an independent appraiser shall be
selected by ML Real Estate Associates II and proposed by the
General Partner for approval by the Limited Partners. Such
appraiser shall be deemed approved by the Limited Partners unless
objected to in writing by the Holders of a majority of the then
outstanding Limited Partnership Interests within 45 days after
Notification thereof is sent by the General Partner. The
appraisal shall be requested by the General Partner sufficiently
in advance to be received by the date ten years from the Offering
Termination Date. The appraisal shall value the Interests as
limited partnership interests in the Partnership with all of the
rights and obligations pertinent thereto. The cost of obtaining
the appraisal shall be borne equally by the Partnership and the
purchaser of the Interests. The General Partner shall then submit
the appraisal of the value of the Interests to an independent
nationally-recognized investment banking firm or real estate
advisory company, which shall be retained by the General Partner
specifically with respect to the determination of such value. The
purchase of the Interests shall not be consummated unless the
General Partner has obtained from such investment banking firm or
real estate advisory company a letter of opinion, addressed to the
Partnership, concluding that the appraised fair market value and
the terms of the purchase are fair to the Holders of Interests.
The General Partner shall have 120 days from receipt of a
favorable letter of opinion to purchase, or to cause JMB or its
Affiliates to purchase, the Interests from the Holders at their
appraised fair market value.

(iii) In the event the General Partner elects to commence a
liquidation phase of the Partnership on the date ten years from
the Offering Termination Date as provided in subparagraph (i)
above, JMB and its Affiliates will be permitted to purchase at
appraised fair market value any of the interests held by the
Partnership in Properties in which JMB or any of its Affiliates
(other than the Partnership) has an interest. The purchase price
for the interest of the Partnership shall be determined by
independent appraisal in the same manner as set forth in
subparagraph (ii) above; provided, however, that the General
Partner may not permit the sale of such interest of Partnership to
JMB or any Affiliate unless and until the Partnership has received
a letter of opinion from an independent nationally recognized
investment banking firm or real estate advisory company, addressed
to the Partnership, to the effect that the appraised sales price
and the other terms of the purchase are fair to the Partnership.

K. In the event Arvida uses any goods, services or
facilities of the Partnership in connection with any developments
or activities in which the Partnership does not own an interest,
then the General Partner shall require Arvida to reimburse the
Partnership for its allocable cost of such services or assets to
the extent the Partnership does not own an interest in such
development or activity.

SECTION 5.6 Compensation of General Partner

The General Partner shall not in its capacity as General
Partner receive any salary, fees, profits or distributions except
profits, distributions, fees and allocations to which it may be
entitled under Articles Four, Five, Eight and Eleven, it being
understood, however that the Partnership is obligated to pay JMB
or its Affiliates an Acquisition and Financing Guaranty Fee equal
to $20,000,000 (subject to reduction as provided below) for
services of JMB and such Affiliates in negotiating and arranging,
and guaranteeing repayment of certain indebtedness and certain
other obligations incurred in connection with, the acquisition of
the assets by the Partnership under the Acquisition Agreement.
The obligation to pay such fee in the event at least the minimum
offering amount under Section 3.3A is obtained will be required to
be satisfied as follows: on or about each Admission Date, the
Partnership shall pay to JMB or its Affiliates a portion of the
maximum amount of such Acquisition and Financing Guaranty Fee
based upon the ration that the number of Additional Limited
Partnership Interests being issued under Section 3.3A on such
Admission Date bears to 325,000; to the extent that less than an
aggregate of 325,000 Additional Limited Partnership Interests are
issued under Section 3.3A for all Admission dates, the
corresponding proportion of the Acquisition and Financing
Guaranty Fee will not be paid by the Partnership. In no event
shall the total of the Acquisition and Financing Guaranty Fee paid
to JMB or its Affiliates plus any Acquisition Fees paid to all
parties exceed the lesser of (a) the compensation customarily
charged in arm's-length transactions by others rendering similar
services as an ongoing public activity in the same geographical
location and for comparable property or (b) an amount equal to 18%
of the Capital Investments in the Partnership.

SECTION 5.7 Other Business of Partners

Any Partner may engage independently or with others in
business venturers of every nature and description, including,
without limitation, the rendering of advice or services of any
kind to other investors and the making or management of other
investments. Nothing in this Agreement shall be deemed to
prohibit the General Partner or any Affiliate of the General
Partner or any officer, director, employee, shareholder or partner
of the General Partner or any such Affiliate from dealing, or
otherwise engaging in business with, Persons transacting business
with the Partnership or from providing service relating to the
purchase, sale, management, development or operation of real
property and receiving compensation therefor, not involving any
rebate or reciprocal arrangement which would have the effect of
circumventing any restriction set forth herein upon dealing with
Affiliates of the General Partner. Neither the Partnership nor
any Partner shall have any right by virtue of this Agreement or
the partnership relationship created hereby in or to such other
ventures or activities or to the income or proceeds derived
therefrom, and the pursuit of such ventures shall not be deemed
wrongful or improper. Except as provided in the Management and
Supervisory Agreement referred to in Section 5.2 a (ix), neither
the General Partner nor any Affiliate of any General Partner shall
be obligated to present any particular investment opportunity to
the Partnership. The General Partner and Limited Partners agree
that the Partners have no right to expect that the Partnership's
Properties will consist of anything other than the assets acquired
in connection with the Acquisition Agreement and the interest of
the Partnership in future communities as described in and subject
to the terms and limitations set forth in the Management and
Supervisory Agreement.

SECTION 5.8 Limitation on Liability of General Partner;
Indemnification

Neither the General Partner nor any affiliate (for purposes
of this Section 5.8 hereof "affiliate" shall mean any person
performing services on behalf of the Partnership who (1) directly
controls, is controlled by, or is under common control with, the
General Partner or the Associate Limited Partners; or (2) owns or
controls 10% or more of the outstanding voting securities of the
General Partner or the Associate Limited Partners; or (3) is an
officer, director, partner or trustee of the General Partner or
the Associate Limited Partners; or (4) if the General Partner is
an officer, director, partner or trustee, any company for which
the General Partner acts in any such capacity) thereof engaged in
the performance of services on behalf of the Partnership (the
"Indemnified Parties") shall be liable, responsible or accountable
in damages or otherwise to any Holder for any act or omission
performed or omitted by such Indemnified Party pursuant to the
authority granted to such Indemnified Party by this Agreement or
by law if the General Partner or its affiliates have determined,
in good faith, that the act or omission which caused the loss or
liability was in the best interests of the Partnership and such
liability was not the result of misconduct or negligence. The
Partnership shall indemnify and hold harmless each Indemnified
Party from and against any loss or liability suffered or sustained
by him by reason of any acts, omissions or alleged acts or
omissions arising out of his activities on behalf of the
Partnership or in furtherance of the interests of the Partnership,
including, but not limited to, any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any pending or threatened action,
proceeding or claim and including any payments made by the General
Partner to any of its officers or directors who are affiliates
pursuant to an indemnification agreement no broader than this
Section 5.8; provided that the General Partner or its affiliates
have determined, in good faith, that the act or omission which
caused the loss or liability was in the best interests of the
Partnership and such loss or liability was not the result of
misconduct or negligence by such Indemnified Party. The
satisfaction of any indemnification and any saving harmless shall
be from thereof. Notwithstanding the foregoing, the Indemnified
Parties and any person acting as a broker-dealer shall not be
indemnified for any loss or damage incurred by them in connection
with any claim involving allegations that Federal or state
securities laws were violated, unless: (1) there has been a
successful adjudication on the merits of each count involving
alleged securities law violations and a court approves
indemnification of litigation costs; (2) such claim has been
dismissed, with prejudice on the merits, by a court of competent
jurisdiction and a court approves indemnification of litigation
costs; or (3) such claim has been settled, and a court of
competent jurisdiction approves indemnification of litigation
costs (specifically, the settlement of any claim against the
Indemnified Parties and finds that indemnification of the
settlement and related costs should be made). Additionally, such
a court shall have been advised by the party seeking
indemnification as to the current position of the Securities and
Exchange Commission, the California Commissioner of Corporations,
the Securities Division of the Office of the Secretary of the
Commonwealth of Massachusetts, the Tennessee Securities Division,
the Texas State Securities Board and the securities commissioners
of the states which subscribe to the provisions of the North
American Securities Administrators, Association, Inc. Statement of
Policy Regarding Real Estate Programs effective on January 1, 1987
regarding indemnification for violations of securities laws.
Notwithstanding the foregoing, the Indemnified Parties shall not
be indemnified for any liability, loss, expense or damage incurred
by them in connection with any judgment entered arising from or
out of a violation of Federal or state securities laws which were
violated by any Indemnified Party in connection with the offer or
sale of the Interests. In addition, the Partnership may not incur
the cost of that portion of liability insurance which insures the
Indemnified Parties for any liability as to which the Indemnified
Parties are prohibited from being indemnified as described above.

ARTICLE SIX

ADMISSION OF SUCCESSOR AND ADDITIONAL GENERAL PARTNERS

SECTION 6.1 Admission of Successor and Additional General
Partners

A. With the Consent of the General Partner and of such
number of the Limited Partners as are then required under the
Revised Uniform Limited Partnership Act of the State of Delaware,
and under the applicable laws of such other jurisdictions in which
the Partnership is formed or qualified, to Consent to or ratify
the admission of a General Partner, but in no event with the
Consent of less than a majority of all the outstanding Limited
Partnership Interests, the General Partner may at any time
designate one or more Persons to be successors to such General
Partner or to be additional General Partners, in each case with
such participation in such General Partner's Interest as such
General Partner and such successor or additional General Partners
may agree upon, provided that the Interests of the Limited
Partners shall not be adversely affected thereby. Each such
designee shall become a successor or additional General Partner
upon satisfying the conditions of Section 11.2.

B. Except in connection with a transfer to a successor or
additional General Partner pursuant to Section 6.1A, the General
Partner shall not have any right to retire or withdraw voluntarily
from the Partnership or to sell, transfer or assign its Interest,
except that (i) it may substitute in its stead as General Partner
any entity which has, by merger, consolidation or otherwise,
acquired substantially all of its assets or stock and continued
its business or (ii) it may cause to be admitted to the
Partnership an additional General Partner or Partners to enable
the aggregate net worth of the General Partners to comply with the
provisions of Section 5.5C. Each such successor or additional
General Partner shall be admitted as such to the Partnership upon
satisfying the conditions of Section 11.2. Each Limited Partner
hereby Consents to the admission of any additional or successor
General Partner pursuant to this Section 6.1B, and no further
Consent or approval shall be required.

C. Any voluntary withdrawal by the General Partner from the
Partnership or any sale, transfer or assignment by such General
Partner of its Interest shall be effective only upon the admission
in accordance with Section 6.1A or Section 6.1B, whichever is
applicable, of a successor or additional General Partner, as the
case may be,and full discharge for all amounts owing to the General Partner
and the Associate Limited Partners on account of their respective
Interests in the Partnership. For purposes of this Section 6.6
the independent appraiser selected by the Limited Partners shall
be selected by ML Real Estate Associates II (excluding for this
purpose its assigns) and proposed by the General Partner for
selection by the Limited Partners. Such appraiser shall be deemed
selected by the Limited Partners unless objected to in writing by
the Holders of a majority of the then outstanding Limited
Partnership Interests within 45 days after Notification thereof is
sent by the General Partner.

B. In the event that a replacement General Partner is
elected by the Limited Partners under Section 10.2 such
replacement or successor General Partner (the "Acquiring Partner")
shall purchase from the Partnership, within 60 days of the date on
which it becomes a General Partner, the Interests in the
Partnership which the Partnership purchased from the Person
ceasing to be a General Partner as provided in Section 6.6A above
and from the Associate Limited Partners. For such Interests, the
Acquiring Partner shall pay the amounts determined pursuant to
Section 6.6A to be the fair market values of such Interests.
Payment for the Interests shall be made by promissory notes
bearing simple interest at a rate per annum equal to the lesser of
the reference rate from time to time announced by Continental
Illinois National Bank and Trust Company of Chicago plus 2% per
annum or 10% interest per annum on the unpaid principal amount of
such promissory notes and shall be secured, on a pro rata basis
according to the face amount of each promissory note, by
assignment by the Acquiring Partner to the Partnership of all its
future distributions of Cash Flow from the Partnership to the
Acquiring Partner.

ARTICLE SEVEN

TRANSFERABILITY OF PARTNERS' INTERESTS

SECTION 7.1 Restrictions on Transfers of Interests

A. No transfer or assignment with respect to any Limited
Partnership Interest or any Additional Limited Partnership
Interest, or any fraction thereof, shall be effective if such
transfer or assignment would, in the opinion of counsel for the
Partnership, result in the termination of the Partnership or the
treatment of the Partnership as an association taxable as a
corporation, for purposes of the then applicable provisions of the
Code.

B. No transfer or assignment with respect to any Limited
Partnership Interest, or any fraction thereof, shall be effective
if counsel for the Partnership shall be of the opinion that such
transfer or assignment would be in violation of any state
securities or "Blue Sky" laws (including any investment
suitability standards) applicable to the Partnership.

C. No purported transfer or assignment with respect to a
Limited Partnership Interest, or any fraction thereof, after which
the transferor or the transferee would hold an Interest
representing a Capital Investment of less than $5,000 will be
permitted or recognized or be valid for any purpose (except for
transfers by gift, inheritance or family dissolution, transfers to
Affiliates or intra-family transfers). Prior to the first date on
which an Additional Limited Partnership Interest is issued to an
Assignee Holder (other than ML Real Estate Associates II), no
purported transfer or assignment with respect to any Interest, or
any fraction thereof, shall be permitted or recognized or be valid
for any purpose.

D. No transfer or assignment with respect to any Limited
Partnership Interest or any Additional Limited Partnership
Interest, or any fraction thereof, shall be effective if as a
result of such transfer or assignment such limited partnership
Interest or Additional Limited Partnership Interest (or fraction
thereof) would be held by any person that is a non-resident alien
individual or foreign corporation or other entity or that may be
subject to tax under Section 511 of the Code, or by any "tax-
exempt entity" (within the meaning of Section 168(h)(2) of the
Code for purposes of Section 168(h)(6)(A) of the Code), except
that the foregoing restriction shall not apply to any transfer or
assignment permitted in the sole discretion of the General
Partner.

SECTION 7.2 Assignees and Substituted Limited Partners

A. If a Limited Partner dies, his executor, administrator
or trustee or, if he is adjudicated incompetent (including by
reason of insanity), his committee, guardian or conservator, or,
if he becomes bankrupt, the receiver or trustee of his estate,
shall have all the rights of a Limited Partner for the purpose of
settling or managing his estate and such power as the decedent or
incompetent or bankrupt Person possessed to assign all or any part
of his Interest and to join with the assignee thereof in
satisfying conditions precedent to such assignee becoming a
Substituted Limited Partner. The death, dissolution, adjudication
of incompetence or bankruptcy of a Limited Partner shall not
dissolve the Partnership.

B. The Partnership shall recognize as the Assignee Holder
of Additional Limited Partnership Interests each Person to whom
the Initial Limited Partner assigns Additional Limited Partnership
Interest which are purchased in the public offering pursuant to
section 3.3 (including pursuant to Section 3.3G) as of such dates
from time to time during the offering period as the General
Partner shall determine (which in no event shall be later than the
date on which the funds of such Assignee Holder are released from
the escrow deposit account) provided that (a) the Partnership has
received the capital set forth on Schedule A with respect to the
Additional Limited Partnership Interests of such Assignee Holder
and (b) the Initial Limited Partner has executed an instrument of
assignment, in form and substance satisfactory to the General
Partner, setting forth the name and address of such Assignee
Holder to whom such Additional Limited Partnership Interests are
being assigned.

C. Except as provided in Section 7.2B above, the
Partnership shall not recognize for any purpose any assignment
with respect to all or any fraction of a Limited Partnership
Interest unless there shall have been filed with the Partnership a
duly executed and acknowledged counterpart of the instrument
making such assignment and such instrument evidences the written
acceptance by the assignee of all of the terms and provisions of
this Agreement and represents that such assignment was made in
accordance with all applicable laws and regulations (including
investment suitability requirements). Such instrument shall be
accompanied by a transfer fee not in excess of $100 that shall be
paid to the Partnership or an Affiliate of the General Partner to
cover all actual, necessary and reasonable expenses, fees and
filing costs in connection with such transfer. Any assignee of a
Limited Partnership Interest shall, for the purposes of Section
4.3C, be recognized as a Holder of Interests as of the first day
of the fiscal quarter next succeeding the fiscal quarter in which
the General Partner actually receives the instrument of assignment
that complies with the requirements of this Section 7.2C;
provided, however, that except as provided in Section 7.2B above,
no assignee of a Limited Partnership Interest shall be recognized
as a Holder of Interests prior to the first fiscal quarter
following the fiscal quarter during which the final issuance of
Additional Limited Partnership Interests pursuant to Section 3.3
occurs.

D. Any Person who is an Assignee Holder of all or any
fraction of a Limited Partnership Interest may become a
Substituted Limited Partner only when such Person shall have
satisfied the conditions of Section 7.2C and Section 11.2. The
General Partner agrees to inform such Assignee Holder, within 60
days of receipt by the Partnership of the items set forth in
Sections 7.2C and 11.2A herein, if he has been rejected a s
Substituted Limited Partner. Assignee Holders (and any assignees
with respect to any Limited Partnership Interests of such Assignee
Holders) who effect such a transfer and become Substituted Limited
Partners will not be permitted subsequently to reassign their
Limited Partnership Interests to the Initial Limited Partner and
once more become Assignee Holders. The right of an assignee to
become a Substituted Limited Partner shall be subject to the
written Consent of the General Partner, which Consent may be
granted or denied in the sole and absolute discretion of the
General Partner and prior to the giving of such Consent, such
substitution shall not be effective. The written Consent or a
notice of denial of Consent shall be given to the assignee not
later than the last day of the calendar month following the month
the General Partner actually receives the executed Signature Page
and Power of Attorney and such other document or documents as may
reasonably be requested by the General Partner and payment of an
amount (not in excess of $100) required to cover all actual,
necessary and reasonable expenses, fees and filing costs in
connection with such substitution. The voting rights of a
Substituted Limited Partner who transfers his entire economic
interest in any Additional Limited Partnership Interests will
terminate with respect to such Additional Limited Partnership
Interests upon such transfer.

SECTION 7.3 Indemnification and Terms of Admission

A. Each Holder of Interests shall indemnify and hold
harmless the Partnership, the General Partner and every Holder who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by
reason of or arising from any actual misrepresentation or
misstatement of facts or omission to state facts made (or omitted
to be made) by such Holder in connection with any facts or
omission to state facts made (or omitted to be made) by such
Holder in connection with any assignment, transfer, other
disposition or encumbrance of all or any part of any Interest in
the Partnership, or the admission of an Assignee Holder as a
Substituted Limited Partner to the Partnership, against expenses
for which the Partnership or such other Person has not otherwise
been reimbursed (including attorneys' fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by it
or him in connection with such action, suit or proceeding.

B. Any Person who acquires an Interest as an Assignee
Holder (whether or not such Person becomes a Substituted Limited
Partner) or who is admitted to the Partnership as a Substituted
Limited Partner or as a successor or additional General Partner
shall be subject to and bound by all the provisions of this
Agreement as if originally a party to this Agreement.

ARTICLE EIGHT

DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP

SECTION 8.1 Events Causing Dissolution

The Partnership shall terminate upon the happening of any of
the following events:

(i) the bankruptcy, death, dissolution, adjudication
of incompetence or withdrawal of a sole General Partner;

(ii) the reduction to cash or cash equivalents of all
the assets of the Partnership;

(iii) the election by the General Partner pursuant to
Section 5.5), Section 5.4B, or the vote by the Limited Partners
pursuant to Section 10.2(ii), to dissolve the Partnership; or

(iv) the happening of any other event causing the
dissolution of the Partnership under the laws of the State of
Delaware.

Dissolution of the Partnership shall be effective on the day on
which the event occurs giving rise to the dissolution, but the
Partnership shall not terminate until the Partnership's
certificate of limited partnership shall have been canceled and
the assets of the Partnership shall have been distributed as
provided in Section 8.3. Notwithstanding the dissolution of the
partnership, prior to the termination of the Partnership, as
aforesaid, the business of the Partnership and the affairs of the
Partners, as such, shall continue to be governed by this
Agreement.

In the event of the bankruptcy, dissolution or withdrawal of
a General Partner which is not then the sole General Partner at
any time during the life of the Partnership, the remaining General
Partner or General Partners shall promptly give the Limited
Partners notice of the occurrence of any event constituting such
bankruptcy, dissolution or withdrawal. The General Partner shall
give the Limited Partners sixty (60) days' notice of its intent to
withdraw voluntarily as a General Partner of the Partnership
unless, prior to such withdrawal, written notice has been given to
the Limited Partners as provided in the preceding sentence, and
the Limited Partners have (or have not) elected to exercise their
right pursuant to Section 10.2 (and subject to the conditions set
forth in Section 10.3 to elect a new General Partner.
Notwithstanding anything to the contrary in this Agreement, if any
event specified in clauses (i) through (iii) of Section 8.1 occurs
prior to the first date on which an Additional Limited Partnership
Interest is issued to an Assignee Holder (other than ML Real
Estate Associates II), no Partner or Partners shall have any right
to cause the Partnership to be continued, and if any event
specified in clause (iv) of Section 8.1 occurs prior to such date,
no Partner or Partners shall have any right to cause the
Partnership to be continued unless all Partners (including ML Real
Estate Associates II and Arvida/JMB Partners, which shall consent
for this purpose only with the affirmative approval of ML Real
Estate Associates II as a partner therein) Consent to continue the
Partnership.

SECTION 8.2 Capital Contribution upon Dissolution

Subject to Section 5.8 each Limited Partner shall look
solely to the assets of the Partnership for all distributions with
respect to the Partnership and his capital contribution thereto
and share of Profits or Losses thereof, and, except as provided in
Section 4.1 shall have no recourse therefor however, that upon
dissolution and termination of the Partnership, the General
Partner shall contribute to the Partnership an amount equal to the
amount which is determined to be the smaller of (i) the deficit
balance in its Capital Account or (ii) the excess of 1.01% of the
Capital Investments with respect to Limited Partnership Interests
held by Holders over the aggregate capital contributions made by
the General Partner as provided in Schedule A and otherwise under
this Agreement. If Arvida/JMB Associates shall in writing assume
or otherwise agree to be personally liable on Partnership
indebtedness owed to a third party, during the period that such
assumption or other personal liability exists, Arvida/JMB
Associates shall be obligated to contribute to the Partnership an
amount equal to the amount of such indebtedness which it has
assumed or on which it has otherwise agreed to be personally
liable if needed to satisfy such Partnership indebtedness.

No Limited Partner shall have any right to demand or receive
property, other than cash, upon dissolution and termination of the
Partnership.

SECTION 8.3 Liquidation

A. Upon dissolution of the Partnership, the General Partner
shall dispose of the assets of the Partnership, apply and
distribute the proceeds thereof as contemplated by this Agreement
and cause the cancellation of the Partnership's certificate of
limited partnership.

B. Notwithstanding the foregoing, in the event the General
Partner shall determine that an immediate sale of part or all of
the Partnership assets would cause undue loss to the Partners, the

General Partner, in order to avoid such loss, may (after having
given Notification to all the Limited Partners), subject to
Section 8.3C and to the extent not then prohibited by the Limited
Partnership Act of any jurisdiction in which the Partnership is
then formed or qualified and applicable in the circumstances,
defer disposition of and withhold from distribution for a
reasonable time any assets of the Partnership except those
necessary to satisfy the Partnership's debts and obligations.

C. Notwithstanding anything to the contrary in Articles
Four and Six, upon Liquidation of the Partnership the proceeds of
such Liquidation shall be distributed in the ratios of the
positive Capital Account balances of the Partners, and upon
Liquidation of any Partner's Interest in the Partnership the
proceeds of such Liquidation shall be distributed in accordance
with the positive Capital Account balance of such Partner, in each
case as determined after taking into account all Capital Account
adjustments for the Partnership taxable year during which such
Liquidation occurs (other than those adjustments made pursuant to
this sentence), by the end of such taxable year (or, if later,
within 90 days after the date of such Liquidation), except that in
the case of a Liquidation of the Partnership the proceeds of such
Liquidation shall not be required to be distributed by the end of
such taxable year (or, if later, within 90 days after the date of
such Liquidation) to the extent such proceeds constitute (i)
reserves reasonably required to provide for liabilities
(contingent or otherwise) of the Partnership or (ii) installment
obligations owed to the Partnership, so long as such withheld
amounts are distributed as soon as practicable and in the ratios
of the Partner's positive Capital Account balances.

2. Instrument of Assignment. Effective upon the transfer
to the Partnership of the required capital contributions in
respect of Additional Limited Partnership Interests from time to
time during the Public Offering, and upon the amendment of the
Certificate of Limited Partnership of the Partnership to reflect
the issuance of Additional Limited Partnership Interests to the
Initial Limited Partner, the Initial Limited Partner shall execute
an Instrument of Assignment transferring and assigning all of its
rights and interests in and to such Additional Limited Partnership
Interests to the Assignee Holders. The names and addresses of the
Assignee Holders who have purchased the Additional Limited
Partnership Interests shall be set forth on such Instrument and,
upon its receipt and acknowledgement by the General Partner, such
instrument of Assignment shall be binding in all respects upon the
Partnership, the General Partner, the Initial Limited Partner and
the Assignee Holders name therein; provided that any such
Instrument of Assignment may be amended by written instrument
executed by the Initial Limited Partner and the General Partner
for the purpose of correcting any error or omission contained
therein. Notification of the name and address of an Assignee
Holder set forth on any such Instrument of Assignment shall be
mailed, postage prepaid, to such Assignee Holder named therein;
and thereafter any address contained therein shall be subject to
change only upon the receipt by the Initial Limited Partner of
written notification of a change of an Assignee Holder's address
signed by such Assignee Holder.

3. Subsequent Assignments. Any subsequent transfer or
assignment or reassignment of Additional Limited Partnership
Interests by any Assignee Holder to any other Person must conform
in all respects with the requirements of Section 7.2 of the
Partnership Agreement and shall be subject to all restrictions on
transfer provided in Section 7.1 of the Partnership Agreement.

4. Voting. The Initial Limited Partner hereby agrees that,
with respect to any matter on which a vote of Limited Partners is
taken in accordance with the Partnership Agreement or as to which
any Consent is requested, it will vote the Additional Limited
Partnership Interests transferred to Assignee Holders pursuant to
this Agreement or grant or withhold such Consent solely for the
benefit of, and in accordance with the written instructions of,
the respective Assignee Holders with respect to their respective
Interests; provided, however, that the voting rights of an
Assignee Holder who transfers Additional Limited Partnership
Interests will terminate with respect to such Interests upon such
transfer, whether or not the transferee thereof is admitted as a
Substituted Limited partner with respect thereto. Additional
Limited Partnership Interests assigned to Assignee Holders who do
not provide such written instructions to the Initial Limited
Partner will not be voted nor any Consent granted on any such
matter. The Initial Limited partner will provide notice to the
Assignee Holders containing information regarding any matters to
be voted upon or as to which any Consent is requested sufficiently
in advance of the date of the vote for which such Consent is
requested to permit sufficiently in advance of the date of the
vote for which such Consent is requested to permit such Assignee
Holders to provide such written instructions and shall otherwise
establish reasonable procedures for any such voting or the
granting of such Consent. The Partnership and the General Partner
hereby agree to permit Assignee Holders to attend any meetings of
Limited Partners and the Initial Limited Partner shall, upon
written request of Assignee Holders owning Additional Limited
Partnership Interests which represent in the aggregate 10% or more
of all of the outstanding Limited Partnership Interest, request
the General Partner to call a meeting of Limited Partners or to
submit a matter to the Limited Partners without a meeting pursuant
to the Partnership Agreement.

5. Reports. The Initial Limited Partner will mail to any
Assignee Holder (at the address provided under paragraph 2 above)
any report, financial statement or other communication received
from the Partnership or the General Partner with respect to the
Additional Limited Partnership Interests transferred to such
Assignee Holder. In lieu of the mailing of any such document by
the Initial Limited Partner, the Initial Limited Partner may, at
its option, request the Partnership to mail any such
communications directly to the Assignee Holders, and the Initial
Limited Partner shall be deemed to have satisfied its obligations
under this paragraph 5.