ARVIDA JMB PARTNERS L P II, 10-K405, 1998-03-31

ARVIDA JMB PARTNERS L P II
10-K405, 1998-03-31
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, 1997 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.

<PAGE>

TABLE OF CONTENTS

Page
----
PART I

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

Item 2. Properties . . . . . . . . . . . . . . . . . 4

Item 3. Legal Proceedings. . . . . . . . . . . . . . 6

Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . 6

PART II

Item 5. Market for the Partnership's Limited
Partnership Interests and
Related Security Holder Matters. . . . . . . 7

Item 6. Selected Financial Data. . . . . . . . . . . 8

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

Item 7A. Quantitative and Qualitative
Disclosures About Market Risk. . . . . . . . 14

Item 8. Financial Statements and
Supplementary Data . . . . . . . . . . . . . 15

Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . 37

PART III

Item 10. Director and Executive Officers
of the Registrant. . . . . . . . . . . . . . 37

Item 11. Executive Compensation . . . . . . . . . . . 40

Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . 42

Item 13. Certain Relationships and
Related Transactions . . . . . . . . . . . . 42

PART IV

Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . 43

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 49

<PAGE>

PART I

ITEM 1. BUSINESS

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 organized in June 1989 and is 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. In the public
offering of its limited partnership interests and assignee interests
therein (the "Interests"), which was closed in February 1990, the
Partnership sold 234,428 Interests at $1,000 per Interest. Such offering
was made pursuant to a Registration Statement on Form S-1 under the
Securities Act of 1933 (No. 3329608). Interests sold in the Partnership's
public offering were assigned by an initial limited partner to original
investors ("Holders of Interests"). At December 31, 1997, there were
approximately 15,750 Holders of Interests. The Holders of Interests of the
Partnership generally shared in their portion of the benefits of ownership
of the Partnership's assets in accordance with the number of Interests
held. Reference is made to Item 5. Market for the Partnership's Limited
Partnership Interests and Related Security Holder Matters, for a discussion
regarding transfers of the Interests.

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. The lender did not pursue all of its remedies under the
credit facility agreement, which could have included, among other things,
realizing upon the security interests in the Partnership's Properties. The
Partnership sold its remaining assets in accordance with a plan agreed upon
with its lender. In addition, effective December 31, 1997, the Partnership
and its lender entered into a Settlement and Release Agreement
("Agreement") as discussed below.

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 were 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.

<PAGE>

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 ownership and maintenance of certain
facilities, and/or (vi) operating and controlling access to golf, tennis
and other recreational facilities.

The Partnership acquired interests in nine residential real estate
projects (see Item 2. Properties, for a description of the projects).
However, as a result of the real estate recession that commenced in the
early 1990's, the Partnership was unable to develop and sell its properties
as initially contemplated. In 1992, the Partnership was required to
restructure its bank financing. Nevertheless, due to the severity and
length of the real estate recession, the Partnership was unable to pay the
debt service on its bank financing, and its credit facility matured without
repayment on December 30, 1994. The Partnership and its bank lender
entered into various agreements commencing in 1995 pursuant to which, among
other things, the Partnership undertook an orderly liquidation of its
remaining assets with the net proceeds (after payment of operational costs
and general and administrative expenses) from the sale of assets applied to
repayment of the Partnership's bank debt. During 1997, the Partnership
completed the sales of its last remaining interests in real estate.

During May 1997, the Partnership closed on the sale of its Talega
Property to an unaffiliated third party for $31.1 million. The net
proceeds from the sale, after prorations and closing costs, totaled
approximately $19.1 million. Of this amount, approximately $18.8 million
was applied against the outstanding principal balance on the Partnerships'
term loans and $0.3 million was deposited to fund the Partnership's
expenses.

During July 1997, the Partnership closed on the sale of its retail
shopping center at the Heathrow Community to an unaffiliated third party
for $5.1 million. The net proceeds from the sale, after prorations and
closing costs, totaled approximately $5.0 million. Of this amount, $4.9
million was applied against the outstanding principal balance on the
Partnership's term loans and $0.1 million was deposited to fund the
Partnership's expenses.

In addition, during 1997, the Partnership closed on the sale of its
remaining three lots in the Eagle Watch Community.

At December 31, 1997, the Partnership had no remaining real
properties. Effective December 31, 1997, the Partnership and its lender
entered into the Agreement whereby the Partnership's lender agreed to
forgive the Partnership's remaining indebtedness, including all unpaid
principal and accrued interest (totaling in excess of $75 million,
collectively) and fees and expenses related to the credit facilities.

<PAGE>

In exchange for the forgiveness of such indebtedness, the Partnership
has assigned to its lender approximately $617,000 in cash, cash equivalents
and short-term investments (including those held under restricted
collateral arrangements), approximately $664,000 of reimbursable
development expenditures related to the Talega Property, accounts
receivable (including receivables for which collectibility is uncertain),
and the Partnership's right to any net proceeds from its claim pertaining
to certain litigation relating to its former Palm Beach Polo Property in
which the Partnership is currently involved. The ultimate amount of such
net proceeds, if any, is unknown at this time. The lender has agreed to
allow the Partnership to retain approximately $571,000 in cash, cash
equivalents and short-term investments, and an approximate $242,000 account
receivable in order to pay expenses incurred prior to its termination as a
legal entity, including continuing litigation expenses to defend itself in
the lawsuit relating to the Heathrow joint venture and property described
in Part 1. Item 3. Legal Proceedings.

The Agreement further provides that the Partnership will not undertake
any business activity after December 31, 1997, or incur any additional
indebtedness not directly related to the completion of the Partnership's
winding up, and that the Partnership will assign to its lender any assets
of the Partnership that remain after payment of all its expenses relating
to or arising out of the completion of its winding up.

As of December 31, 1997, the Partnership neither operated nor carried
on any business, financial operation or venture, having ceased any such
activities prior to such date, and as a result the Partnership has been
terminated for Federal income tax purposes. The Partnership's only
activity at this time is its involvement in certain pending litigation.
Upon final resolution of the pending litigation, the Partnership will be
terminated as a legal entity. Due to the Partnership's limited assets and
the requirement, pursuant to the Agreement, that any assets remaining after
completion of the Partnership's winding up must be assigned to its lender,
there is no likelihood the Holders of Interests will receive any further
distributions from the Partnership. Moreover, the Holders of Interest have
no obligation or liability to pay, or to make capital contributions for the
payment of, any claims, losses, deficits or expenses the Partnership has
incurred or may incur in the future, and they will not receive any
allocation of profits or losses for tax or accounting purposes for any
period after December 31, 1997. Future items of profit or loss, if any,
will be fully allocable to the General Partner.

The Partnership 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 were owned by Arvida, subject to the Partnership's non-
exclusive right to use the name and the service marks under a license
agreement with Arvida (and subject to the non-exclusive right of certain
third parties to the limited use of the name). In November 1997, St. Joe
Corporation (an unaffiliated third party) completed its acquisition of a
majority interest in St. Joe/Arvida Company, L.P. ("St. Joe/Arvida"), which
acquired the major assets of Arvida, including the Arvida name and service
marks with respect to the Arvida name. In connection with the acquisition
of Arvida's assets, St. Joe/Arvida was assigned Arvida's rights and
obligations under the license agreement with the Partnership. St.
Joe/Arvida also currently employs most of the personnel formerly employed
by Arvida. Affiliates of JMB Realty Corporation own a minority interest in
St. Joe/Arvida.

The Partnership's real properties were 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. None of the Partnership's real estate assets were 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 and Arvida/JMB Partners,
L.P., both of which provided personnel to perform services on behalf of the
Partnership.

<PAGE>

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 were 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. Except where
noted, the Partnership was the developer of the Properties. Reference is
made to Note 8 for a discussion of the mortgages securing most of these
properties.

(a) Orange County, California

The Partnership owned 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. The residential
areas were to be oriented around major amenities such as golf courses,
parks, schools, trails, neighborhood centers and transit centers. The
Partnership ceased development of this Community in late 1991 and sold its
interest in the Property during May 1997, as discussed in Item 1. above.

(b) Palm Beach County, Florida

The Partnership owned 115 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 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 owned 24 acres in Wycliffe, a 600-acre Planned
Unit Development ("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, all of which were sold and
closed as of December 31, 1993.

The Partnership owned 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.

<PAGE>

(d) Seminole County, Florida

The Partnership owned a controlling interest and was 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 Heathrow, a 2,700-acre community. Heathrow is located approximately
15 miles northeast of Orlando, in Seminole County, Florida. The
Partnership developed and sold a wide range of housing products 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 closed on the sale of the remaining
land, the country club and certain related assets within Heathrow, as
discussed in Item 1. above. The Partnership sold its shopping center at
the Heathrow community during July 1997.

(e) Cherokee County, Georgia

Eagle Watch is a 1,000-acre residential and golf course community
located in Cherokee County, Georgia, northwest of Atlanta. The Partnership
owned a 99.9% partnership interest in a partnership that owned Eagle Watch.

The remaining 1/10 of 1% partnership interest was held by the General
Partner. The community offered 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. The Partnership
sold the remaining homesites within this Community during 1997, as
discussed in Item 1. above.

(f) Clayton County, Georgia

The Partnership owned 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 and a pavilion with swimming and tennis
courts. All homesites in this community closed as of December 31, 1995.

(g) Cobb County, Georgia

The Partnership owned 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 owned 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, all of which were closed as of
December 31, 1994.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

The Partnership has been named a defendant in a lawsuit filed on
January 11, 1996 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, fraud in the inducement and conspiracy to commit fraud in the
inducement, breach of the partnership agreement and constructive trust in
connection with the purchase and management of the Heathrow development.
Plaintiffs seek, among other things, unspecified compensatory damages,
punitive damages, 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.

The Partnership has filed a claim in a bankruptcy proceeding entitled
Landmark Land Co. of Florida, Inc., Case No. 2:91-3291-1 against the
debtor, Landmark Land Co. of Florida, Inc., in the United States District
Court for the District of South Carolina, Charleston Division. The
Partnership's claims are for breach of a joint venture agreement and breach
of contract, among other things. The proof of claim, which was filed on
March 6, 1992, seeks damages, as well as pre- and post-judgment interest,
attorneys fees and costs. The adversary proceeding commenced in August
1993. The matter was tried to the Court over a five-week period ending in
the Fall of 1995. The Partnership is awaiting the Court's ruling. The
Partnership has assigned its interest in any net proceeds (after payment of
attorneys' fees and expenses) from a recovery on its claim to its lender.

The Partnership is not subject to any other material pending legal
proceedings, other than ordinary litigation incidental to the business of
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
1997 and 1996.

<PAGE>

PART II

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

As of December 31, 1997, there were 15,750 record Holders of the
233,963 Interests outstanding of the Partnership. There is no public
market for Interests, and no public market for Interests will develop. As
of December 31, 1997, the Partnership neither operated nor carried on any
business, financial operation or venture, having ceased any such activities
prior to such date, and as a result, has been terminated for Federal income
tax purposes. As discussed in Item 1 above, the Partnership and its lender
entered into a Settlement and Release Agreement effective December 31,
1997, pursuant to which, among other things, the lender agreed to forgive
all remaining indebtedness owed to it by the Partnership under its credit
facilities in exchange for an assignment of certain of the Partnership's
remaining assets to the lender. In addition, the Partnership agreed to
transfer to the lender any assets of the Partnership remaining immediately
prior to its termination. Accordingly, there is no likelihood of any
future distributions to be made to the Holders of Interest. In addition,
Holders of Interests will not be allocated any profits or losses of the
Partnership after December 31, 1997. Further, the Partnership has
instructed its transfer agent not to permit transfers of Interests except
by operation of law or upon death of a Holder of Interests.

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
previous inability to reinstate distributions.

<PAGE>

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

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, 1995, 1994 AND 1993

<CAPTION>
(Liquidating
Basis)
1997 1996 1995 1994 1993
------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues. . . . . . $ 37,116,725 25,753,220 25,775,598 52,940,395 60,904,431
============ ============ ============ ============ ============
Net operating
income (loss). . . . . . $ 33,163,029 4,602,058 1,904,695 (43,143,395) (18,502,496)
============ ============ ============ ============ ============

Net income (loss) . . . . $112,421,185 12,366,476 (18,242,348) (61,324,519) (28,388,874)
============ ============ ============ ============ ============
Net income (loss)
per Interest (a) . . . . $ 444.19 64.05 (52.00) (287.36) (95.33)
============ ============ ============ ============ ============

Total assets (b). . . . . $ 1,437,372 4,849,917 24,239,158 43,945,587 93,530,462
============ ============ ============ ============ ============

Total liabilities
(b). . . . . . . . . . . $ 1,437,372 117,271,102 149,026,819 150,490,900 138,751,256
============ ============ ============ ============ ============
Cash distributions
per Interest (c) . . . . $ 1.05 -- -- -- --
============ ============ ============ ============ ============

<PAGE>

<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.

(c) Pursuant to the Partnership Agreement, if upon completion of the liquidation and termination of the
Partnership and final distribution of all Partnership funds, the aggregate capital contributions made by the
Holders of Interests exceed the aggregate distributions paid from the Partnership to the Holders of Interests,
then the General Partner and Associate Limited Partner were required to make payments to the Holders of Interests
totaling the amount of distributions received by the General Partner and Associate Limited Partner from the
Partnership. The distributions of cash flow received by the General Partner and Associate Limited Partner from
the Partnership since its inception total approximately $247,000. Accordingly, during November 1997, the General
Partner and Associate Limited Partner made payments totaling approximately $247,000 to the Partnership and the
Partnership, in turn, made payments totaling approximately $247,000 to the Holders of Interests ($1.05 per
Interest).

</TABLE>

<PAGE>

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

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997 and 1996, the Partnership had cash, cash
equivalents and short-term investments of approximately $477,600 and
$182,000, respectively. Bank overdrafts, which represent checks in
transit, of approximately $10,200 at December 31, 1996 were repaid from
cash on hand in January 1997. The Partnership suspended cash distributions
to its partners in late 1990 due to, among other things, deteriorating
market conditions. The Partnership was 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, and was
unsuccessful in its attempts to negotiate a restructuring of such credit
facilities with its lender.

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
orderly liquidation of the Partnership's remaining assets.

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 were delivered to
the lender and applied against the outstanding principal balances on the
term loans. Through December 31, 1997, the Partnership remitted proceeds
totaling approximately $64.1 million from sales made after becoming subject
to this requirement in September 1994.

In March 1995, the Partnership and its lender entered into Forbearance
Agreements pursuant to which, among other things, a plan for the orderly
liquidation of its remaining assets was established. The Forbearance
Agreements were modified in October 1995, March 1996, and June 1996, and
amended in September 1996 and May 1997 to provide for, among other things,
extensions of the time frame for the orderly liquidation of the
Partnership's assets. In conjunction with the September 1996 amendment,
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 interest on one
of the term loans. The forgiveness of this interest resulted in an
extraordinary gain for financial reporting purposes, and is reflected as
such on the accompanying consolidated statements of operations for the year
ended December 31, 1996. The May 1997 amendment extended the terms of the
forbearance to June 1997, among other things.

During 1997, the Partnership completed the sales of its last remaining
interests in real estate, and as a result, has no remaining properties.
Effective December 31, 1997, the Partnership and its lender entered into a
Settlement and Release Agreement ("Agreement") whereby the Partnership's
lender agreed to forgive the Partnership's remaining indebtedness,
including all unpaid principal and accrued interest (totaling in excess of
$75 million, collectively) and fees and expenses related to the credit
facilities. This forgiveness resulted in an extraordinary gain of
approximately $82.2 million for financial reporting purposes, and is
reflected as such on the accompanying consolidated statements of operations
for the year ended December 31, 1997.

<PAGE>

In exchange for the forgiveness of such indebtedness, the Partnership
has assigned to its lender approximately $617,000 in cash, cash equivalents
and short-term investments (including those held under restricted
collateral arrangements), approximately $664,000 of reimbursable
development expenditures related to the Talega Property, accounts
receivable (including receivables for which collectibility is uncertain),
and the Partnership's right to any net proceeds from its claim pertaining
to certain litigation relating to its former Palm Beach Polo Property in
which the Partnership is currently involved. The ultimate amount of such
proceeds, if any, is unknown at this time. The lender has agreed to allow
the Partnership to retain approximately $571,000 in cash, cash equivalents
and short-term investments, and an approximate $242,000 account receivable
in order to pay any other expenses incurred prior to its termination as a
legal entity, as well as continuing litigation expenses to defend itself in
the lawsuit relating to the Heathrow joint venture and property described
in Part 1. Item 3. Legal Proceedings, subject to the Partnership's
acknowledgement that the lender has no obligation to provide any additional
funds to the Partnership for payment of such expenses.

Pursuant to the Partnership Agreement, if upon completion of the
liquidation and termination of the Partnership and final distribution of
all Partnership funds, the aggregate capital contributions made by the
Holders of Interests exceed the aggregate distributions paid from the
Partnership to the Holders of Interests, then the General Partner and
Associate Limited Partner were required to make payments to the Holders of
Interests totaling the amount of distributions received by the General
Partner and Associate Limited Partner from the Partnership. The
distributions of cash flow received by the General Partner and Associate
Limited Partner from the Partnership since its inception total
approximately $247,000. Accordingly, during November 1997, the General
Partner and Associate Limited Partner made payments totaling approximately
$247,000 to the Partnership and the Partnership, in turn, made payments
totaling approximately $247,000 to the Holders of Interests ($1.05 per
Interest).

As stipulated in a management agreement with the Partnership, Arvida
Company ("Arvida") provided 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 reimbursed
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, totaled approximately $4,609,400. The repayment of such
advances was subordinated to the receipt by the Holders of Interests of
certain levels of return and, therefore, will not be made. Accordingly, in
December 1997, the Partnership recorded an adjustment to reflect this
liability at its fair value of $0. This adjustment resulted in an
extraordinary gain of approximately $4.6 million, and is reflected as such
on the accompanying consolidated statements of operations at December 31,
1997.

<PAGE>

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 had been earned
through December 31, 1997, the payment of which was deferred. The ultimate
payment of these management fees will not be made as such payment was
subordinated to certain levels of return to the Holders of Interests.
Accordingly, in December 1997, the Partnership recorded an adjustment to
reflect this liability at its fair value of $0. This adjustment resulted
in an extraordinary gain of approximately $3.0 million, and is reflected as
such on the accompanying consolidated statements of operations at
December 31, 1997.

As of December 31, 1997, the Partnership neither operated nor carried
on any business, financial operation or venture, having ceased any such
activities prior to such date, and as a result the Partnership has been
terminated for Federal income tax purposes. The Partnership's only
activity at this time is its involvement in certain pending litigation.
Upon final resolution of the pending litigation, the Partnership will be
terminated as a legal entity. Due to the Partnership's limited assets and
the requirement, pursuant to the Agreement, that any assets remaining after
completion of the Partnership's winding up must be assigned to its lender,
there is no likelihood the Holders of Interests will receive any further
distributions from the Partnership. Moreover, the Holders of Interests
have no obligation or liability to pay, or to make capital contributions
for the payment of, any claims, losses, deficits or expenses the
Partnership has incurred or may incur in the future, and they will not
receive any allocation of profits or losses for tax or accounting purposes
for any period after December 31, 1997. Future items of profits or losses,
if any, will be fully allocable to the General Partner.

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 for the years ended December 31, 1997, 1996
and 1995 are primarily attributable to the limited operations of the
Partnership and the sale of the Partnership's assets as it undertook an
orderly liquidation of its remaining assets pursuant to various agreements
with its lender.

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. Operating
properties represents the activity from the club operation, retail shopping
center and cable operations at the Partnership's Heathrow community.
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.

<PAGE>

The Partnership's results of operations for the year ended
December 31, 1997 were generated primarily from the closings of its Talega
Property in May, the shopping center at its Heathrow community in July, the
remaining three lots in its Eagle Watch Community in May, August and
December, respectively, and the sales center used in the Wesmere community
in June. In addition, the Partnership's operating results for 1997 include
the revenues and expenses associated with the operation of the shopping
center at its Heathrow community prior to its sale in July.

During May 1997, the Partnership closed on the sale of its Talega
Property to an unaffiliated third party for $31.1 million. The terms of
the sale were generally in accordance with an agreement made in October
1996 with certain modifications. In conjunction with the sale of the
Talega Property, the Partnership paid all current and delinquent property
taxes (including penalties and interest thereon). In addition, the
Partnership reached an agreement with the Santa Margarita Water District
(the "District") resulting in the Partnership's payment of an agreed upon
amount due for charges and assessments made by the District, including
those with respect to the Partnership's tax exempt bond financing. This
amount was paid at closing, at which time the Partnership received a full
and unconditional release from the District. In addition, all contractual
obligations of the Partnership with respect to the Talega Property were
assumed by the buyer. The net proceeds from the sale, after prorations and
closing costs, totaled approximately $19.1 million. Of this amount,
approximately $18.8 million was applied against the outstanding principal
balance on the Partnership's term loans, in accordance with the terms of
the Forbearance Agreements, and $0.3 million was deposited to fund the
Partnership's expenses. This sale is the primary cause for the
Partnership's gross operating profit for the year ended December 31, 1997
as a result of previous writedowns of the carrying value of Talega.

During July 1997, the Partnership closed on the sale of its retail
shopping center at the Heathrow community to an unaffiliated third party
for $5.1 million. The net proceeds from the sale, after prorations and
closing costs, totaled approximately $5.0 million. Of this amount, $4.9
million was applied against the outstanding principal balance on the
Partnership's term loans, in accordance with the terms of the Forbearance
Agreements, and $0.1 million was deposited to fund the Partnership's
expenses.

The closings of the Talega Property and the shopping center within
Heathrow are the cause for various significant changes reflected on the
accompanying consolidated statements of operations for the year ended
December 31, 1997 as compared to 1996.

The Partnership's results of operations for the year ended
December 31, 1996 were generated primarily from the closings of the
remaining land, country club, cable company and certain related assets
within its Heathrow community, one housing unit in its Heathrow community,
and 20 homesites within its Heathrow and Eagle Watch communities,
collectively. In addition, the Partnership's operating results for 1996
include revenues and expenses associated with the operations of the country
club and cable company in Heathrow prior to their sale in June, operating
activities of the shopping center in its Heathrow community, and revenues
and expenses associated with the Partnership's brokerage and other
operations.

During June 1996, the Heathrow joint venture, in which the Partnership
is the managing general partner, closed on the sale of the remaining land,
country club, cable company 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 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

<PAGE>

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.

The Partnership's results of operations for the year ended
December 31, 1995 were generated primarily from the closings of the
remaining land within the Partnership's Wesmere community, 37 housing units
within its Heathrow and Wesmere communities, collectively, and 146
homesites within its Heathrow, Eagle Watch and Rock Creek communities,
collectively. In addition, operating results for 1995 include the revenues
and expenses associated with the operations of the country club, shopping
center and cable company within its Heathrow community, and revenues and
expenses associated with the Partnership's brokerage and other operations.

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
totaling approximately $1 million which had been paid by the Partnership.
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.

The decline in the gross operating profit margin from homesite
activities for the year ended December 31, 1996 as compared to 1995 is due
primarily to a reduction in the number of closings of higher margin product
at the Partnership's Heathrow community.

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 continued to decrease as a direct
result of the decline in the activities of the Partnership.

The decrease in interest and real estate taxes for the year ended
December 31, 1997 as compared to 1996 is due primarily to the decrease in
taxes attributable to the Talega Property as result of the sale of that
Property in May 1997. In addition, interest expense decreased due to a
reduction in the indebtedness outstanding during the year ended
December 31, 1997 as compared to 1996. 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.

INFLATION

As a result of the decrease in the level of inflation in recent years,
inflation has not had a material effect on the operations of the
Partnership. Due to the Partnership's last real estate investment being
sold in 1997 and the expected dissolution of the Partnership, inflation is
not expected to significantly impact the Partnership in the future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

<PAGE>

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

Statement of Consolidated Net Assets (Liquidating Basis), December 31, 1997

Consolidated Balance Sheet, December 31, 1996

Consolidated Statements of Operations for the years ended
December 31, 1997 (Liquidating Basis), 1996 and 1995

Consolidated Statements of Changes in Partners'
Capital Accounts (Deficits) for the years ended
December 31, 1997 (Liquidating Basis), 1996 and 1995

Consolidated Statements of Cash Flows for the years ended
December 31, 1997 (Liquidating Basis), 1996 and 1995

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.

<PAGE>

REPORT OF ERNST & YOUNG LLP,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

We have audited the consolidated balance sheet of Arvida/JMB Partners,
L.P.-II and Consolidated Ventures as of December 31, 1996, and the related
consolidated statements of operations, changes in partners' capital
accounts (deficits), and cash flows for each of the two years in the period
ended December 31, 1996. In addition, we have audited the consolidated
statement of net assets (liquidating basis) as of December 31, 1997, and
the related consolidated statements of operations (liquidating basis),
changes in partners' capital accounts (liquidating basis), and cash flows
(liquidating basis) for the year ended December 31, 1997. 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 misstatement. 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.

As described in note 1 to the consolidated financial statements, upon
disposition of its remaining interest in real estate and execution of a
settlement agreement with its lender effective December 31, 1997,
Arvida/JMB Partners, L.P.-II approved a plan of liquidation and commenced
liquidation shortly thereafter. As a result, the Partnership has changed
its basis of accounting as of December 31, 1997 from the going-concern
basis to a liquidation basis.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Arvida/JMB Partners, L.P.-II and Consolidated Ventures as of December 31,
1996, and the consolidated results of their operations and their cash flows
for each of the two years in the period ended December 31, 1996, their net
assets (liquidating basis) as of December 31, 1997, and the results of
their operations (liquidating basis) and their cash flows (liquidating
basis) for the year then ended, in conformity with generally accepted
accounting principles applied on the basis described in the preceding
paragraph.

Miami, Florida
February 20, 1998

<PAGE>

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

STATEMENT OF CONSOLIDATED NET ASSETS
(LIQUIDATING BASIS)

DECEMBER 31, 1997

ASSETS:

Cash and cash equivalents (note 4). . . . . . . . . . $ 477,532
Restricted cash (note 4). . . . . . . . . . . . . . . 515,905
Trade and other accounts receivable
(net of allowance for doubtful accounts
of $45,261) (note 5). . . . . . . . . . . . . . . . 241,885
Real estate inventories (notes 2, 6, 8 and 12). . . . --
Property and equipment, net (note 7). . . . . . . . . --
Security deposits . . . . . . . . . . . . . . . . . . 202,050
------------

Total assets. . . . . . . . . . . . . . . . $ 1,437,372
============

LIABILITIES:

Accounts payable. . . . . . . . . . . . . . . . . . $ 45,167
Deposits (note 4) . . . . . . . . . . . . . . . . . --
Reserve for liquidating expenses (including $210,000
of estimates due to affiliates of the Partnership)
(notes 8 and 12) . . . . . . . . . . . . . . . . . 1,392,205
Notes and mortgages payable (in default) (note 8) . --
------------

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

Total liabilities . . . . . . . . . . . . . 1,437,372
------------

Net assets. . . . . . . . . . . . . . . . . . . . . . $ --
============

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

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

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 1996

ASSETS:

Cash and cash equivalents (note 4). . . . . . . . . . $ 181,623
Restricted cash (note 4). . . . . . . . . . . . . . . 955,077
Trade and other accounts receivable
(net of allowance for doubtful accounts
of $76,289) (note 5). . . . . . . . . . . . . . . . 103,650
Real estate inventories (notes 2, 6, 8 and 12). . . . 57,598
Property and equipment, net (note 7). . . . . . . . . 2,701,441
Prepaid expenses and other assets (including
security deposits totaling $636,211). . . . . . . . 850,528
------------

Total assets. . . . . . . . . . . . . . . . $ 4,849,917
============

LIABILITIES:

Bank overdrafts . . . . . . . . . . . . . . . . . . $ 10,222
Accounts payable. . . . . . . . . . . . . . . . . . 129,281
Deposits (note 4) . . . . . . . . . . . . . . . . . 33,700
Accrued expenses and other liabilities
(notes 8 and 12) . . . . . . . . . . . . . . . . . 30,605,394
Amounts due to affiliates (notes 3 and 10). . . . . 7,621,046
Notes and mortgages payable (in default) (note 8) . 78,871,459
------------

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

Total liabilities . . . . . . . . . . . . . 117,271,102
------------
Partners' capital accounts (deficits) (note 9)
General Partner and Associate Limited Partner:
Capital contributions. . . . . . . . . . . . . . 2,000
Cumulative net income (loss) . . . . . . . . . . (8,448,354)
Cumulative cash distributions. . . . . . . . . . (246,771)
------------
(8,693,125)
------------
Holders of Interests (note 1):
Capital contributions, net of offering costs . . 209,753,671
Cumulative net loss. . . . . . . . . . . . . . . (304,260,557)
Cumulative cash distributions. . . . . . . . . . (9,221,174)
------------
(103,728,060)
------------
Total partners' deficits. . . . . . . . . . (112,421,185)
------------

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

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

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

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1997 (LIQUIDATING BASIS), 1996 AND 1995

<CAPTION>
(Liquidating
Basis)
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Housing . . . . . . . . . . . . . . . . . . . . . $ -- 140,810 6,203,400
Homesites . . . . . . . . . . . . . . . . . . . . 67,000 1,243,074 7,436,745
Land and property . . . . . . . . . . . . . . . . 36,315,000 20,286,616 4,250,000
Operating properties. . . . . . . . . . . . . . . 734,725 3,315,655 5,289,574
Brokerage and other operations. . . . . . . . . . -- 767,065 2,595,879
------------ ------------ ------------
Total revenues . . . . . . . . . . . . . 37,116,725 25,753,220 25,775,598
------------ ------------ ------------

Cost of revenues:
Housing . . . . . . . . . . . . . . . . . . . . . -- 336,186 5,440,703
Homesites . . . . . . . . . . . . . . . . . . . . 65,075 1,075,568 5,785,737
Land and property . . . . . . . . . . . . . . . . 1,623,754 14,115,847 442,363
Operating properties. . . . . . . . . . . . . . . 494,249 3,023,179 5,399,440
Brokerage and other operations. . . . . . . . . . -- 600,742 2,393,648
------------ ------------ ------------

Total cost of revenues. . . . . . . . . . 2,183,078 19,151,522 19,461,891
------------ ------------ ------------

Gross operating profit. . . . . . . . . . . . . . . 34,933,647 6,601,698 6,313,707

Selling, general and administrative expenses
(notes 3, 8 and 10) . . . . . . . . . . . . . . . 1,770,618 1,999,640 4,409,012
------------ ------------ ------------

Net operating income. . . . . . . . . . . 33,163,029 4,602,058 1,904,695

Interest income . . . . . . . . . . . . . . . . . . 20,752 28,484 200,267
Interest and real estate taxes,
net (notes 1, 8 and 12) . . . . . . . . . . . . . (10,577,474) (12,264,066) (20,347,310)
------------ ------------ ------------

<PAGE>

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

CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED

(Liquidating
Basis)
1997 1996 1995
------------ ------------ ------------

Gain (loss) before extraordinary item . . 22,606,307 (7,633,524) (18,242,348)

Extraordinary items:
Gain on early extinguishment
of debt (note 8). . . . . . . . . . . -- 20,000,000 --
Gain resulting from forgiveness
of indebtedness and adjustments
to convert from historical
cost basis to liquidation basis
(notes 3, 8 and 10) . . . . . . . . . 89,814,878 -- --
------------ ------------ ------------

Net income (loss) . . . . . . . . . . $112,421,185 12,366,476 (18,242,348)
============ ============ ============

Income (loss) before extraordinary
item per Interest . . . . . . . . . . . $ 444.19 64.05 (52.00)
============ ============ ============

Net income (loss) per Interest
(note 1). . . . . . . . . . . . . . . . $ 444.19 64.05 (52.00)
============ ============ ============

Cash distribution per Interest. . . . . . $ 1.05 -- --
============ ============ ============

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

<PAGE>

<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, 1997 (LIQUIDATING BASIS), 1996 AND 1995

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

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)

Contributions . . . . . . . . 246,771 -- 246,771

Distributions . . . . . . . . -- (246,771) (246,771)

Net income (liquidating
basis). . . . . . . . . . . 8,446,354 103,974,831 112,421,185
----------- ------------ ------------
Capital accounts at
December 31, 1997 . . . . . $ -- -- --
=========== ============ ============

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

<PAGE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 (LIQUIDATING BASIS), 1996 AND 1995
<CAPTION>
(Liquidating
Basis)
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . $112,421,185 12,366,476 (18,242,348)

Charges (credits) to net income (loss) not
requiring (providing) cash:
Amortization . . . . . . . . . . . . . . . . . . 103,103 73,032 538,616
Provision for doubtful accounts. . . . . . . . . (22,015) 98,975 (14,522)
(Gain) loss on sale of property and equipment. . (2,320,333) 1,866,865 (2,702)
Extraordinary gain on early extinguishment
of debt . . . . . . . . . . . . . . . . . . . . -- (20,000,000) --
Extraordinary gain resulting from forgiveness
of indebtedness and adjustments to convert from
historical cost basis to liquidation basis. . . (89,814,878) -- --
Changes in:
Restricted cash. . . . . . . . . . . . . . . . . 439,172 1,597,757 (2,348,639)
Trade and other accounts receivable. . . . . . . (116,220) 1,015,390 193,373
Real estate inventories:
Additions to real estate inventories . . . . . -- (4,524,288) (228,478)
Cost of revenues . . . . . . . . . . . . . . . 57,598 15,233,023 10,893,914
Capitalized real estate taxes. . . . . . . . . -- -- (51,688)
Capitalized interest . . . . . . . . . . . . . -- -- (279,639)
Prepaid expenses and other assets. . . . . . . . 545,374 986,886 3,045,175
Accounts payable, and reserve for liquidating
expenses. . . . . . . . . . . . . . . . . . . . (2,043,941) -- --
Accounts payable, accrued expenses
and other liabilities . . . . . . . . . . . . . -- 11,147,042 15,529,990
Deposits . . . . . . . . . . . . . . . . . . . . (33,700) (1,087,723) (66,580)
Amounts due to affiliates. . . . . . . . . . . . (6,543) 29,157 593,847
------------ ------------ ------------
Net cash provided by
operating activities. . . . . . . . . . 19,208,802 18,802,592 9,560,319
------------ ------------ ------------

<PAGE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Liquidating
Basis)
1997 1996 1995
------------ ------------ ------------

Investing activities:
Acquisitions of property and equipment. . . . . . (78,226) -- (180,641)
Proceeds from disposals of property
and equipment . . . . . . . . . . . . . . . . . 5,100,000 1,835,911 2,702
------------ ------------ ------------
Net cash provided by (used in)
investing activities. . . . . . . . . . 5,021,774 1,835,911 (177,939)
------------ ------------ ------------
Financing activities:
Proceeds from notes and mortgages payable . . . . -- -- --
Payments of notes and mortgages payable . . . . . (23,924,445) (21,303,749) (16,803,614)
Repayments of bank overdrafts, net. . . . . . . . (10,222) (540,444) (717,724)
Contribution from General Partner and Associate
Limited Partner. . . . . . . . . . . . . . . . . 246,771 -- --
Distribution to Holders of Interests. . . . . . . (246,771) -- --
------------ ------------ ------------
Net cash used in
financing activities. . . . . . . . . . (23,934,667) (21,844,193) (17,521,338)
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . . . 295,909 (1,205,690) (8,138,958)
Cash and cash equivalents,
beginning of year . . . . . . . . . . . . . . . . 181,623 1,387,313 9,526,271
------------ ------------ ------------
Cash and cash equivalents, end of year. . . . . . . $ 477,532 181,623 1,387,313
============ ============ ============
Supplemental disclosure for cash flow information:
Cash paid for mortgage and other interest,
net of amounts capitalized. . . . . . . . . . . $ -- -- --
============ ============ ============
Non-cash investing and financing activities . . . $ -- -- --
============ ============ ============

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

<PAGE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) OPERATIONS AND BASIS OF ACCOUNTING

Operations

The Partnership's Properties consisted principally of interests in
land developed or planned for development into master-planned residential
communities ("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
a discussion of the orderly liquidation 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.

Basis of Presentation and Reserve for Liquidating Expenses

The Partnership closed on the sale of its last remaining interest in
real estate in December 1997. As a result, in December 1997, the
Partnership changed its basis of accounting for its financial statements
from the going concern basis of accounting to the liquidation basis of
accounting in accordance with generally accepted accounting principles.
Consequently, at December 31, 1997, assets have been valued at estimated
realizable values and liabilities are presented at their estimated
settlement amounts, including estimated costs associated with carrying out
the liquidation. The valuation of assets and liabilities requires many
estimates and assumptions, and there are substantial uncertainties during
the liquidation process.

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 Partnership's real estate inventories were carried at the lower of
carrying amount or fair value less costs to sell as determined through an
evaluation of individual projects. Fair value accounting assumes a bulk
sale of the property in its current state of development under present
market conditions. 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

<PAGE>

became known. 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
was reduced by the cost of subsequent work performed.

Capitalized Interest and Real Estate Taxes

Interest and real estate taxes were capitalized as incurred to
qualifying assets, principally real estate inventories. Such capitalized
interest and real estate taxes were charged to cost of revenues as revenue
from real estate inventories was recognized. Interest, including the
amortization of loan fees, of $7,736,256, $10,294,290 and $13,416,110 was
incurred for the years ended December 31, 1997, 1996 and 1995,
respectively, of which $0, $0 and $279,639 was capitalized. No interest
payments were made during the three year period ended December 31, 1997.
The Partnership has not made the required monthly interest payments on its
credit facility since September 1994.

Real estate taxes of $2,841,218, $1,969,776 and $7,262,527 were
incurred for the years ended December 31, 1997, 1996 and 1995,
respectively, of which $0, $0 and $51,688 were capitalized. Real estate
tax payments of $11,287,749, $524,024 and $484,409 were made for the years
ended December 31, 1997, 1996 and 1995, 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 increase in real estate taxes paid
in 1997 as compared to 1996 and 1995 is due to the payment of all current
and delinquent property taxes (including penalties and interest thereon)
for the Talega Property in conjunction with its closing in May 1997. The
decrease in real estate taxes for the year ended December 31, 1996 as
compared to 1995 was 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 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.

<PAGE>

Property and Equipment and Other Assets

Property and equipment and other assets, subject to impairment
considerations (note 13), were 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 ranged from
three to 25 years. In accordance with Statement No. 121, the Partnership
discontinued recording depreciation on its depreciable assets in 1996 as
they were all held for disposal. Other assets were amortized on the
straight-line method over the useful lives of the assets, which ranged from
one to five years. Expenditures for maintenance and repairs were charged
to expense as incurred. Costs of major renewals and improvements which
extend useful lives were capitalized. Amortization of other assets of
approximately $103,000, $73,000 and $119,000 was recorded for the years
ended December 31, 1997, 1996 and 1995, 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:

<PAGE>

<TABLE>

1997 1996
------------------------------ ------------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>

Total assets. . . . . . . . . . . . $ 1,437,372 -- 4,849,917 263,981,955
Partners' capital accounts
(deficits):
General and Associate
Limited Partner. . . . . . . . . -- -- (8,693,125) --
Holders of Interests. . . . . . . -- -- (103,728,060) 103,015,077
Net income (loss):
General and Associate
Limited Partner, net . . . . . . 8,446,354 (246,771) (2,638,424) --
Holders of Interests. . . . . . . 103,974,831 (102,768,306) 15,004,900 (8,623,515)
Net income (loss) per
Interest. . . . . . . . . . . . . 444.19 (439.25) 64.05 (36.82)
Capital Contributions:
General and Associate
Limited Partner . . . . . . . . 246,771 246,771 -- --
Holders of Interests. . . . . . . -- -- -- --
Distributions:
General and Associate
Limited Partner . . . . . . . . -- -- -- --
Holders of Interests. . . . . . . 246,771 246,771 -- --

=========== ============ ============= =============
</TABLE>

<PAGE>

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 1996 and 1995
consolidated financial statements to conform with the 1997 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

The Partnership had no investment properties at December 31, 1997. At
December 31, 1996, the Partnership's assets included completed inventories,
commercial properties, and brokerage and other ancillary operations.

(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, country club, cable
company and certain related assets within the Heathrow Community. The
Heathrow venture agreement provided 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 joint venture pursuant to the agreement through
June 1996; however, as the managing partner of the Heathrow joint venture,
the Partnership retained control over major decisions affecting the
Property. For the years ended December 31, 1997, 1996 and 1995, management
fees of approximately $0, $212,200 and $468,800, respectively, had been
earned, the payment of which has been deferred. The cumulative amount of
such deferred fees as of December 31, 1997 is approximately $3,005,200.
Such deferred fees did not bear interest and will not be paid as the
ultimate payment of these management fees was subordinated to certain
levels of return to the Holders of Interests. Accordingly, in December
1997, the Partnership recorded an adjustment to reflect this liability at
its fair value of $0. This adjustment resulted in an extraordinary gain of
approximately $3.0 million, and is reflected as such on the accompanying
consolidated statements of operations at December 31, 1997.

<PAGE>

(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. Restricted cash at December 31, 1997 and 1996 consists of the
amount 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. Additional amounts were deposited
into the restricted collateral account pursuant to the sale of the
Partnership's remaining land, country club and cable operation within its
Heathrow community in 1996, the sale of the Talega Property in May 1997 and
the sale of the shopping center in Heathrow in July 1997. Such cash has
been used to fund the Partnership's expenses, subject to the approval of
the Partnership's lender. Reference is made to note 8 for a discussion of
an agreement entered into between the Partnership and its lender effective
December 31, 1997. 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 at December 31, 1997 and 1996. 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

Trade and other accounts receivable at December 31, 1997 consist
primarily of a receivable due from one of the Partnership's insurance
carriers related to a claim filed by the Partnership in 1997. The
Partnership received this payment in February 1998. Reference is made to
note 8 for a discussion of an agreement entered into between the
Partnership and its lender effective December 31, 1997. At December 31,
1996, Trade and other accounts receivable consisted primarily of operating
receivables which resulted from the normal course of operations.

(6) REAL ESTATE INVENTORIES

The Partnership had no Real estate inventories at December 31, 1997.
Real estate inventories at December 31, 1996 consist of completed
inventory.

Reference is made to note 8 for a discussion regarding sales of the
Partnership's real estate inventories.

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

(7) PROPERTY AND EQUIPMENT

The Partnership had no Property and equipment at December 31, 1997.

Property and equipment at December 31, 1996 is summarized as follows:

1996
----------

Land . . . . . . . . . . . . . . . . . . . . . . $ 289,279
Land improvements. . . . . . . . . . . . . . . . --
Buildings. . . . . . . . . . . . . . . . . . . . 4,106,232
Equipment and furniture. . . . . . . . . . . . . 28,091
Construction in progress . . . . . . . . . . . . --
-----------
Total . . . . . . . . . . . . . . . . . . . 4,423,602
Accumulated depreciation. . . . . . . . . . (1,722,161)
-----------
Property and equipment, net . . . . . . . . $ 2,701,441
===========

<PAGE>

Depreciation expense of approximately $419,400 was recorded for the
year ended December 31, 1995. In conjunction with the provisions of FASB
Statement No. 121, (note 13), the Partnership discontinued recording
depreciation expense on its depreciable assets in 1996 as they were all
held for disposal.

Reference is made to note 8 for a discussion regarding the sales of
the Partnership's country club, cable company and retail shopping center
located within the Heathrow community.

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

(8) NOTES AND MORTGAGES PAYABLE

Notes and mortgages payable at December 31, 1997 and 1996 are
summarized as follows:

1996
1997 (In Default)
------------ ----------
Term loan credit facility of
$52,500,000, bearing interest
at approximately 9.75% at
December 31, 1996. . . . . . . . . . . $ -- 11,420,548

Term loan credit facility of
$67,500,000, bearing interest
at approximately 10.25% at
December 31, 1996. . . . . . . . . . . -- 55,967,084

Revolving line of credit of
$14,301,839, bearing interest
at approximately 9.75% at
December 31, 1996. . . . . . . . . . . -- 11,483,827
----------- -----------

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

The Partnership's credit facilities consisted 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 was also a $5 million letter of credit facility which secured
performance obligations of the Partnership. Availability under such
facility was reduced to the extent there were 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 and was
unsuccessful in its attempts to negotiate a restructuring of such credit
facilities with its Lender.

Prior to the maturity of the credit facilities on December 30, 1994,
the loans carried varying rates of interest. 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, 1997, 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.

<PAGE>

In March 1995, the Partnership and its lender entered into Forbearance
Agreements pursuant to which, among other things, a plan for the orderly
liquidation of its remaining assets was established. The Forbearance
Agreements were modified in October 1995, March 1996, and June 1996, and
amended in September 1996 and May 1997 to provide for, among other things,
extensions of the time frame for the orderly disposition of the
Partnership's assets. In conjunction with the September 1996 amendment,
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 interest on one
of the term loans. The May 1997 amendment extended the terms of the
forbearance to June 1997, among other things.

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
totaling approximately $1 million which had been paid by the Partnership.
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,
country club, cable company and certain related assets within the
Partnership's Heathrow Community for approximately $19.3 million. 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 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.

On May 30, 1997, the Partnership closed on the sale of its Talega
Property to an unaffiliated third party for $31.1 million. The terms of
the sale were generally in accordance with the agreement made in October
1996 with certain modifications. In conjunction with the sale of the
Talega Property, the Partnership paid all current and delinquent property
taxes (including penalties and interest thereon). In addition, the
Partnership reached an agreement with the Santa Margarita Water District
(the "District") resulting in an agreed upon amount due for charges and
assessments made by the District, including those with respect to the
Partnership's tax exempt bond financing. This amount was paid at closing,
at which time the Partnership received a full and unconditional release
from the District. In addition, all contractual obligations of the
Partnership with respect to the Talega Property were assumed by the buyer.
The net proceeds from the sale, after prorations and closing costs, totaled
approximately $19.1 million. Of this amount, approximately $18.8 million
was applied against the outstanding principal balance on the Partnership's
term loans, in accordance with the terms of the Forbearance Agreements, and
$0.3 million was deposited to fund the Partnership's expenses. This sale
is the primary cause for the Partnership's gross operating profit for the
year ended December 31, 1997 as a result of previous writedowns of the
carrying value of Talega.

<PAGE>

(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 were
allocated such that the General Partner and the Associate Limited Partner
were allocated profits equal to the amount of cash flow distributed to them
for such fiscal period, except that the General Partner was allocated at
least 1% of profits, and the Holders of Interests were allocated the
remaining profits and (ii) losses were allocated 1% to the General Partner,
1% to the Associate Limited Partner and 98% to the Holders of Interests.

For Federal income tax and financial reporting purposes, subject to
Sections 4.2C and 4.2F (described below), all profits of the Partnership
were allocated such that the General Partner and the Associate Limited
Partner were allocated profits equal to the amount of cash flow distributed
to them, except that the General Partner was allocated at least 1% of
profits, and the Holders of Interests were allocated the remaining profits.

<PAGE>

Losses were 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
Partner and Associate Limited Partner, collectively, as a result of the
limitation under Section 4.2C was approximately $0 and $2,640,000 for 1997
and 1996, respectively. For Federal income tax purposes for 1997 and 1996,
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 Federal
income tax purposes for 1997 and 1996 in addition to their respective
allocations, pursuant to Section 4.2A of the Partnership Agreement, of the
Partnership's 1997 and 1996 losses for Federal income tax purposes, as
adjusted for such allocation of Profits.

The General Partner and Associate Limited Partner made initial capital
contributions to the Partnership of $1,000 each. Pursuant to the
Partnership Agreement, if upon completion of the liquidation and
termination of the Partnership and final distribution of all Partnership
funds, the aggregate capital contributions made by the Holders of Interests
exceed the aggregate distributions paid from the Partnership to the Holders
of Interests, then the General Partner and Associate Limited Partner were
required to make payments to the Holders of Interests totaling the amount
of distributions received by the General Partner and Associate Limited
Partner from the Partnership. The distributions of cash flow received by
the General Partner and Associate Limited Partner from the Partnership
since its inception total approximately $247,000. Accordingly, during
November 1997, the General Partner and Associate Limited Partner made
payments totaling approximately $247,000 to the Partnership and the
Partnership, in turn, made payments totaling approximately $247,000 to the
Holders of Interests ($1.05 per Interest).

As of December 31, 1997, the Partnership neither operated nor carried
on any business, financial operation or venture, having ceased any such
activities prior to such date, and as a result the Partnership has been
terminated for Federal income tax purposes. The Partnership's only
activity at this time is its involvement in certain pending litigation.
Upon final resolution of the pending litigation, the Partnership will be
terminated as a legal entity. Due to the Partnership's limited assets and
the requirement, pursuant to the Agreement, that any assets remaining after
completion of the Partnership's winding up must be assigned to its lender,
there is no likelihood the Holders of Interests will receive any further
distributions from the Partnership. Moreover, the Holders of Interests
have no obligation or liability to pay, or to make capital contributions
for the payment of, any claims, losses, deficits or expenses the
Partnership has incurred or may incur in the future, and they will not
receive any allocation of profits or losses for tax or accounting purposes
for any period after December 31, 1997. Future items of profits or losses,
if any, will be fully allocable to the General Partner.

<PAGE>

(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, 1997, 1996 and 1995 are as follows:

UNPAID AT
DECEMBER 31,
1997 1996 1995 1997
------- ------- ------- ------------

Insurance commissions . . $ -- 1,921 38,255 --
Reimbursement (at cost)
for accounting
services . . . . . . . . 2,374 7,806 50,424 --
Reimbursement (at cost)
for portfolio manage-
ment . . . . . . . . . . 5,021 11,645 16,646 --
Reimbursement (at cost)
for legal services . . . 63,663 28,465 26,643 --
Reimbursement (at cost)
for other adminis-
trative and out-of-
pocket expenses. . . . . 63,428 2,372 50,588 --
-------- -------- -------- ------
$134,486 52,209 182,556 --
======== ======== ======== ======

The Partnership also received 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 $400, $0 and $9,900 for the years ended
December 31, 1997, 1996 and 1995, respectively, for such costs. At
December 31, 1997, approximately $400 was owed to the Partnership, none of
which was paid as of February 20, 1998.

Arvida, pursuant to an agreement with the Partnership, provided
development, construction, management and other personnel and services to
the Partnership for its projects and operations. In accordance with such
agreement, the Partnership reimbursed 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, 1997, 1996 and 1995 was
approximately $212,500, $192,300 and $819,600, respectively. At
December 31, 1997, approximately $3,300 was unpaid, none of which was paid
as of February 20, 1998.

Prior to June 1996, the Partnership and Arvida/JMB Partners, L.P. (a
publicly-held limited partnership affiliated with the General Partner,
"Arvida/JMB-I") each employed project-related and administrative personnel
who performed services on behalf of both partnerships. In addition,
certain out-of-pocket expenditures related to such services and certain
general and administrative expenditures were incurred and charged to each
partnership as appropriate. The Partnership reimbursed or received
reimbursements from Arvida/JMB-I for such costs (including salary and
salary-related costs). Subsequent to June 1996, the Partnership no longer
employed any project-related or administrative personnel, and incurred no
costs on behalf of Arvida/JMB-I. For the year ended December 31, 1997, the
Partnership was obligated to reimburse Arvida/JMB-I approximately $112,900.

At December 31, 1997, approximately $9,900 was unpaid, all of which was
paid as of February 20, 1998. For the years ended December 31, 1996 and
1995, 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.

<PAGE>

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 was subordinated to the
receipt by the Holders of Interests of certain levels of return, and
therefore, will not be made. Accordingly, in December 1997, the
Partnership recorded an adjustment to reflect this liability at its fair
value of $0. This adjustment resulted in an extraordinary gain of
approximately $4.6 million and is reflected as such on the accompanying
consolidated statements of operations at December 31, 1997. 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, 1997 and
December 31, 1996, none of which was received as of February 20, 1998.

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

The Partnership incurred certain general and administrative costs
which were paid by the Partnership on behalf of its affiliated homeowners
associations. The Partnership received reimbursements from the affiliates
for such costs. The Partnership was not entitled to receive any amounts
from such affiliates for the year ended December 31, 1997. For the years
ended December 31, 1996 and 1995, the Partnership was entitled to receive
approximately $1,800 and $38,600, respectively, from such affiliates.

In accordance with the Partnership Agreement, the General Partner and
Associate Limited Partner 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,
will not be paid.

(11) COMMITMENTS AND CONTINGENCIES

The Partnership has been named a defendant in a lawsuit filed on
January 11, 1996 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.

The Partnership has filed a claim in a bankruptcy proceeding entitled
Landmark Land Co. of Florida, Inc., Case No. 2:91-3291-1 against the
debtor, Landmark Land Co. of Florida, Inc. in the United States District
Court for the District of South Carolina, Charleston Division. The
Partnership's claims are for breach of a joint venture agreement and breach
of contract, among other things. The proof of claim, which was filed on
March 6, 1992, seeks damages, as well as pre- and post-judgment interest,
attorneys fees and costs. The adversary proceeding commenced in August
1993. The matter was tried to the Court over a five-week period ending in
the Fall of 1995. The Partnership is awaiting the Court's ruling. The
Partnership has assigned its interest in any net proceeds (after payment of
attorneys' fees and expenses) from a recovery on its claim to its lender.

<PAGE>

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 may seek indemnification from the
Partnership against liabilities and expenses Merrill Lynch incurs in these
claims. 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 $72,175, $84,868 and $99,350 for the years ended
December 31, 1997, 1996 and 1995, respectively.

(12) TAX-EXEMPT BOND FINANCING

In connection with the development of the Talega Property (which was
suspended during 1990), the Partnership had utilized bond financing to
construct certain on-site and off-site water and sewer infrastructure
improvements which the Partnership would have otherwise been obligated to
finance and construct as a condition to obtaining certain approvals for the
project. The principal amount of bonds issued was $62 million, and all of
the proceeds from the offering have been utilized. In conjunction with the
May 1997 sale of the Talega Property, the Partnership reached an agreement
with the District resulting in an agreed upon amount due for charges and
assessments made by the District, including those with respect to the
Partnership's tax exempt bond financing. This amount was paid at closing,
at which time the Partnership received a full and unconditional release
from the District.

(13) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

The Partnership adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of", effective January 1, 1996. In accordance with FASB No. 121, the
Partnership discontinued recording depreciation in 1996 as all of its
assets were held for disposal. Operating results for properties which were
held for sale or disposition are reflected as operating properties revenues
and cost of revenues on the accompanying consolidated statements of
operations for the years ended December 31, 1997 and 1996.

During the second quarter of 1997, Statements of Financial Accounting
Standards No. 128 ("Earnings per Share") and No. 129 ("Disclosure of
Information about Capital Structure") were issued. As the Partnership's
capital structure consists of only general and limited partnership
interests, the adoption of these standards had no impact on the
Partnership.

<PAGE>

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

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

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 11,
1998. 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 11, 1998. 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.

<PAGE>

The foregoing director and officers are also officers and/or directors
of 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, L.P.-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.-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 partnerships. The foregoing director and
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-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. Certain of the foregoing 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 includes the
following:

Judd D. Malkin (age 60) is Chairman 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 also 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 60) 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
also a principal of Walton Street Real Estate Fund I, L.P. and 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 48) 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.

<PAGE>

Gailen J. Hull (age 49) 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 62) 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 45) is Executive Vice President and General Counsel
of JMB, and an officer of various JMB affiliates. Mr. Nickele has been
associated with JMB since February, 1984. He holds a J.D. degree from the
University of Michigan Law School and is a member of the Bar of the State
of Illinois.

<PAGE>

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 were entitled to receive
a share of cash distributions, when and as cash distributions were 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 Note 9
of the consolidated financial statements filed with this annual report for
a description of such distributions and allocations. The General Partner
and the Associate Limited Partner did not receive any cash distributions in
1997, 1996 or 1995.

Pursuant to the Partnership Agreement, the General Partner and
Associate Limited Partner were allocated net losses in the aggregate amount
of $246,771 for Federal income tax purposes for 1997. Reference is made to
Note 9 for further discussion of this allocation. Such losses may be used
to offset taxable income from other sources.

In January 1996, the Partnership, the General Partner, Arvida and JMB
Realty Corporation were named as defendants in a lawsuit entitled Land
Investment I, Ltd., et al. v. Arvida/JMB Managers-II, Inc., et al. (the
"Heathrow litigation"). The complaint in the Heathrow litigation includes
counts for breach of the management agreement, fraud in the inducement and
conspiracy to commit fraud in the inducement, breach of the partnership
agreement and constructive trust in connection with the purchase and
management of the Heathrow development. Plaintiffs seek, among other
things, unspecified compensatory and punitive damages. The Partnership has
paid and expects to pay all of the litigation and related expenses
(consisting primarily of attorneys' fees and expenses) incurred in
defending the claims in the Heathrow litigation on behalf of itself and the
General Partner and its affiliates.

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.

<PAGE>

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 1997, such expenses were approximately $212,500,
approximately $3,300 of which was unpaid as of December 31, 1997. In
November 1997, St. Joe Corporation completed its acquisition of a majority
interest in St. Joe/Arvida Company, L.P. ("St. Joe/Arvida"), which acquired
the major assets formerly owned by Arvida, including the Arvida name and
service marks with respect to the Arvida name, subject to the Partnership's
non-exclusive right to use the name and service marks under a license
agreement (and the non-exclusive rights of certain third parties to the
limited use of the name and service marks). St. Joe/Arvida also currently
employs most of the personnel formerly employed by Arvida. St. Joe/Arvida
may provide accounting and certain other administrative services to the
Partnership prior to its termination, the cost of which would be reimbursed
by the Partnership to St. Joe/Arvida. Affiliates of JMB own a minority
interest in St. Joe/Arvida.

Prior to June 1996, the Partnership and Arvida/JMB Partners, L.P. (a
publicly-held limited partnership affiliated with the General Partner,
"Arvida/JMB-I") each employed project-related and administrative personnel
who performed services on behalf of both partnerships. In addition,
certain out-of-pocket expenditures related to such services and certain
general and administrative costs were paid and charged to each partnership
as appropriate. The Partnership reimbursed or received reimbursements from
Arvida/JMB-I for such costs (including salary and salary-related costs).
Subsequent to June 1996, the Partnership no longer employed any project
related or administrative personnel, and incurred no costs on behalf of
Arvida/JMB-I. The Partnership owed approximately $112,900 to Arvida/JMB-I
for such costs and services incurred in 1997. Approximately $9,900 was
unpaid as of December 31, 1997.

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, 1997. The repayment of such advances is subordinated to the
receipt by the Holders of Interests of certain levels of return, and
therefore will not 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, 1997.

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 1997,
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 $63,400, all of which was paid
as of December 31, 1997.

Additionally, the General Partner and its affiliates are entitled to
reimbursements for legal, accounting and portfolio management services.
Such costs for 1997 were approximately $71,000, all of which was paid as of
December 31, 1997.

Prior to the June 1996 sale of the remaining land, country club, cable
company and certain related assets within the Heathrow community, Arvida
was entitled to receive a management fee in connection with providing
development management services to the Heathrow venture. Through
December 31, 1997, management fees of approximately $3,005,000 had been
earned. Such deferred fees will not be paid. Reference is made to Note 3.

<PAGE>

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. The General Partner is also the general
partner of Arvida/JMB Associates Limited Partnership-II, the Associate
Limited Partner, and has sole voting and investment power with respect to
the interest of the Associate Limited Partner in 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.

<PAGE>

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.

<PAGE>

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.

4.13. Amendment of Forbearance and Modification
Agreement dated May 13, 1997 is incorporated herein by reference to the
Partnership's Report for June 30, 1997 on Form 10-Q (File No. 0-19245)
dated August 8, 1997.

4.14. Letter of Credit Reimbursement Agreement among
Bank of American National Trust and Savings Association, Bank of America
Illinois and Arvida/JMB Partners, L.P.-II dated May 30, 1997 is
incorporated herein by reference to the Partnership's Report for June 30,
1997 on Form 10-Q (File No. 0-19245) dated August 8, 1997.

4.15. Indemnification Agreement dated May 30, 1997
between Arvida/JMB Partners, L.P.-II and Catellus Residential Group,
Standard Pacific of Orange County, Inc. and Starwood Opportunity Fund IV,
L.P. is incorporated herein by reference to the Partnership's Report for
June 30, 1997 on Form 10-Q (File No. 0-19245) dated August 8, 1997.

<PAGE>

4.16. Amendment No. 1 to Letter of Credit
Reimbursement Agreement dated June 30, 1997 by and between Arvida/JMB
Partners, L.P.-II and Bank of America National Trust and Savings
Association and Bank of America Illinois is incorporated herein by
reference to the Partnership's Report for September 30, 1997 on Form 10-Q
(File No. 0-19245) dated November 12, 1997.

4.17. Amendment No. 1 to Indemnification Agreement
dated June 30, 1997 by and among Arvida/JMB Partners, L.P.-II and Catellus
Residential Group, Standard Pacific of Orange County, Inc., and Starwood
Opportunity Fund IV, L.P. is incorporated herein by reference to the
Partnership's Report for September 30, 1997 on Form 10-Q (File No. 0-19245)
dated November 12, 1997.

4.18. Settlement and Release Agreement dated as of
December 31, 1997 by and between Arvida/JMB Partners, L.P.-II and Bank of
America National Trust and Savings Association is filed herewith.

4.19. Assignment dated December 31, 1997 by and
between Arvida/JMB Partners, L.P.-II and Bank of America National Trust and
Savings Association is filed herewith.

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.***

<PAGE>

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. Amendment dated March 18, 1997 to Agreement
for Purchase and Sale of Real Property 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 herein by reference to
Exhibit 10.9 to the Partnership's Report for December 31, 1996 on Form 10-K
(File No. 0-19245) dated March 21, 1997.

10.10. 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.

10.11 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 herein by reference to
Exhibit 10.16 to the Partnership's Report for September 30, 1996 on Form
10-Q (File No. 0-19245) dated November 8, 1996.

10.12 Amendment dated March 18, 1997 to Agreement
for Purchase and Sale of Real Property 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 herein by reference to
Exhibit 10.9 to the Partnership's Report for December 31, 1996 on Form 10-K
(File No. 0-19245) dated March 21, 1997.

<PAGE>

10.13 Amendment dated December 9, 1996 to Agreement
for Purchase and Sale of Real Property and Escrow Instructions 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 herein by reference to Exhibit 2.3 to the Partnership's Report
on Form 8-K (File No. 0-19245) dated June 16, 1997.

10.14 Amendment dated May 20, 1997 to Agreement for
Purchase and Sale of Real Property and Escrow Instructions 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
herein by reference to Exhibit 2.4 of the Partnership's Report on Form 8-K
(File No. 0-19245) dated June 16, 1997.

10.15. Agreement for Sale and Purchase of Real
Property dated May 27, 1997 by and between Heathrow Development Associates,
Ltd. and Roliho, Inc. for the sale of the shopping plaza at Heathrow is
incorporated herein by reference to Exhibit 2.1 to the Partnership's Report
on Form 8-K (File No. 0-19245) dated July 15, 1997.

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 Exhibit 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.

<PAGE>

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 1997 has been
sent to the Partners of the Partnership. An annual report will be sent to
the Partners subsequent to this filing.

<PAGE>

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 25, 1998

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 25, 1998

JUDD D. MALKIN
By: Judd D. Malkin, Chairman
(Principal Financial Officer)
Date: March 25, 1998

GARY NICKELE
By: Gary Nickele, Vice President,
General Counseland Director
Date: March 25, 1998

GAILEN J. HULL
By: Gailen J. Hull, Vice President
(Principal Accounting Officer)
Date: March 25, 1998

<PAGE>

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

<PAGE>

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

4.13. Amendment of Forbearance and
Modification Agreement dated
May 13, 1997 Yes

4.14. Letter of Credit Reimbursement
Agreement among Bank of
American National Trust and
Savings Association, Bank of
America Illinois and Arvida/
JMB Partners, L.P.-II dated
May 30, 1997 Yes

<PAGE>

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

4.18. Settlement and Release Agreement
dated December 31, 1997 by
and between Arvida/JMB Partners,
L.P.-II and Bank of America
National Trust and Savings
Association. No

4.19. Assignment dated December 31,
1997 by and between Arvida/
JMB Partners, L.P.-II and
Bank of America National Trust
and Savings Association. No

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

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

<PAGE>

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

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

10.10. 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

<PAGE>

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

10.15. Agreement for sale and Purchase
of Real Property dated May 27,
1997 by and between Heathrow
Development Associates, Ltd.
and Roliho, Inc. for the sale
of the shopping plaza at Heathrow 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 4.18
- ------------
(Arvida II)

SETTLEMENT AND RELEASE AGREEMENT

THIS SETTLEMENT AND RELEASE AGREEMENT (this "Agreement"), dated for
identification purposes as of December 31, 1997 (the "Effective Date"), has
been entered into by and between ARVIDA/JMB PARTNERS, L.P. - II, a Delaware
limited partnership ("Borrower"), and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national banking association, as successor by merger
to Bank of America Illinois, formerly known as Continental Bank, N.A. and
Continental Bank (the "Bank") in its capacities as (i) Managing Co-Agent
and Lender under the Co-Lenders' Agreement for the benefit of the Lenders,
and under the Amended and Restated Credit Agreement (as defined herein) and
(ii) as Agent and Lender under the Credit Agreement (as defined herein).

RECITALS
--------

The Bank and Borrower entered into that certain Amended and Restated
Credit Agreement dated as of June 23, 1992 (the "AMENDED AND RESTATED
CREDIT AGREEMENT"), pursuant to which Borrower executed and delivered
certain promissory notes in the aggregate principal amount of
$130,698,161.30 (the "Senior Obligations"). The Bank and Borrower also
entered into that certain Credit Agreement dated as of June 23, 1992 (the
"CREDIT AGREEMENT"), pursuant to which Borrower executed and delivered
certain promissory notes in the aggregate principal amount of
$14,301,838.70 (the "Subordinate Obligations"). The Senior Obligations and
the Subordinate Obligations are hereinafter collectively called the "CREDIT
FACILITIES." The Credit Facilities are, or were, secured by mortgages,
deeds of trust, and other security instruments creating liens on certain
real and personal property of Borrower.

As a result of Borrower's default of its obligations under the Credit
Facilities, the Bank and Borrower entered into (i) that certain Forbearance
and Modification Agreement (Amended and Restated Credit Agreement) dated as
of March 21, 1995 (the "SENIOR FORBEARANCE AND MODIFICATION AGREEMENT")
modifying certain terms of the Amended and Restated Credit Agreement, and
(ii) that certain Forbearance and Modification Agreement (Credit Agreement)
dated as of March 21, 1995 (the "SUBORDINATE FORBEARANCE AND MODIFICATION
AGREEMENT") modifying certain terms of the Credit Agreement. The Senior
Forbearance and Modification Agreement and the Subordinate Forbearance and
Modification Agreement were then modified by (I) those certain letter
agreements between the Bank and Borrower dated October 3, 1995,
October 31, 1995, March 28, 1996, June 3, 1996 and June 6, 1996
(collectively, the "LETTER AGREEMENTS"), (II) that certain Amendment of
Forbearance and Modification Agreements dated as of September 24, 1996 (the
"FIRST AMENDMENT"), and (III) that certain Second Amendment to Forbearance
Agreement and Third Amendment to Modification Agreements dated as of
May 13, 1997 (the "SECOND AMENDMENT"). The Senior Forbearance and
Modification Agreement and the Subordinate Forbearance and Modification
Agreement, as modified by the Letter Agreements, the First Amendment, and
the Second Amendment shall hereinafter be collectively referred to as the
"FORBEARANCE AGREEMENTS."

Pursuant to the Forbearance Agreements, the Bank agreed, among other
things, to forgive Borrower's remaining indebtedness to the Bank, including
all unpaid principal, accrued interest and fees and expenses related to the

<PAGE>

Credit Facilities (collectively, "Borrower's Outstanding Debt") upon
satisfaction of certain conditions set forth in the First Amendment,
including but not limited to: (a) Borrower's delivery to the Bank of
principal reduction payments in an aggregate amount of not less than
FOURTEEN MILLION THREE HUNDRED TWENTY-THREE THOUSAND AND NO/100
DOLLARS
($14,323,000.00) (collectively, the "PRINCIPAL REDUCTION PAYMENT"), and
(b) assignment to the Bank of all of Borrower's remaining assets
("BORROWER'S ASSETS"), including but not limited to all of Borrower's
right, title, and interest in and to a claim filed by Borrower in that
certain Chapter 11 bankruptcy proceeding entitled IN RE LANDMARK LAND
COMPANY OF FLORIDA INC. (Civil Action No. 2:91-3291-1/5291-1), currently
pending in the U.S. District Court for South Carolina (Charleston Div.)
sitting in bankruptcy (the "PALM BEACH CLAIM"). The Agreements further
provided that Borrower's partnership would be dissolved as quickly as
possible following assignment of Borrower's Assets to the Bank and
forgiveness of Borrower's Outstanding Debt.

By an oral agreement between Borrower and the Bank, the Bank has
agreed to allow Borrower to delay partnership dissolution until certain
litigation filed against Borrower and other related Arvida/JMB companies
entitled LAND INVESTMENT I, LTD. ET. AL. V. ARVIDA/JMB MANAGERS-II, INC.
(Fla. Cir. Ct., Seminole County, Case No: 96-0062-CA-15-B)(the "HEATHROW
LITIGATION") has been finally resolved. The Bank has further agreed to
allow Borrower to retain certain "Excluded Assets" (as defined in the
Assignment attached hereto as EXHIBIT "A") from Borrower's Assets to be
assigned to the Bank in order to fund Borrower's dissolution expenses as
well as Borrower's expenses related to defending the Heathrow litigation,
subject to Borrower's acknowledgement that the Bank has no obligation to
provide any funds other than the Excluded Assets to Borrower for payment of
such expenses. Finally, the Bank has agreed to take an assignment of
Borrower's interest in the proceeds of the Palm Beach Claim, rather than an
assignment of the claim itself, subject to the Borrower's agreement to
continue to prosecute the claim on the Bank's behalf as set forth in the
Assignment (as hereinafter defined).

Borrower has delivered the Principal Reduction Payment to the Bank,
such that Borrower's Outstanding Debt as of the Effective Date is
approximately equal to $75,624,132.12. The Bank and Borrower now desire to
provide for forgiveness of Borrower's Outstanding Debt, and satisfaction of
any remaining conditions thereto, all on the terms and conditions set forth
herein.

NOW, THEREFORE, in consideration of the foregoing recitals, the
covenants and conditions contained herein, and other good and valuable
consideration, the parties agree as follows:

1. DEBT FORGIVENESS.

(a) The Bank hereby confirms that Borrower's Outstanding Debt
has been forgiven as of the Effective Date hereof, subject to satisfaction
of the conditions set forth in SECTION 2 below, and further subject to the
provisions of SECTION 1(b) below.

(b) In the event that the Bank is required to return any
payments received from Borrower or assets assigned hereby (collectively,
the "Disgorged Assets"), whether such Disgorged Assets are returned to
Borrower, Borrower's estate in bankruptcy, any creditor of Borrower, or any
other party, then Borrower's Outstanding Debt shall be immediately
reinstated to the extent of the value of such Disgorged Assets (the
"Reinstated Amount") and the Bank shall be entitled to payment of such
Reinstated Amount as if such Reinstated Amount had remained unpaid and
outstanding after the Effective Date hereof.

<PAGE>

2. CONDITIONS. The following shall constitute conditions
precedent to the Bank's forgiveness of Borrower's Outstanding Debt as set
forth in SECTION 1 above, which such conditions shall be deemed satisfied
as of December 31, 1997:

(a) Borrower shall have executed and delivered to the Bank an
assignment of assets (the "Assignment") in the form attached hereto as
EXHIBIT A;

(b) Borrower shall have provided to the Bank an Opinion of
Borrower's Counsel in the form attached hereto as EXHIBIT B;

(c) Borrower shall deliver a Release in the form attached
hereto as EXHIBIT C executed on behalf of its general partner, Arvida/JMB
Managers II, Inc., and its affiliates Arvida Company and JMB Realty
Corporation; and

(d) Borrower's representations and warranties as set forth
herein and in Section 5 of the Assignment shall be true and correct as of
February 20, 1998.

3. DISSOLUTION OF THE PARTNERSHIP. The Bank acknowledges and
agrees that Borrower may delay termination of its partnership until such
time as the Heathrow Litigation is finally resolved. Notwithstanding the
foregoing, Borrower acknowledges and agrees that its sole business from and
after the Effective Date hereof shall be the winding up of the affairs of
Borrower's partnership and that Borrower shall in no event undertake any
subsequent business activity, or incur any further indebtedness not
directly related to winding up Borrower's partnership. In consideration
for the Bank's agreement to allow Borrower to retain the Excluded Assets,
Borrower further acknowledges and agrees that the Bank shall have no
further obligation to disburse any funds to Borrower for payment of any
expenses incurred in connection with: (i) the dissolution of Borrower,
(ii) defense or settlement of, or payment of any judgments awarded in, the
Heathrow Litigation, or (iii) any other expense incurred by Borrower after
the Effective Date, including any subsequent litigation expenses.

4. BORROWER'S RELEASE OF THE BANK.

(a) As further consideration for the Bank's agreement to forgive
Borrower's Outstanding Debt as set forth in SECTION 1 above, Borrower,
acting on behalf of itself, its subsidiaries and affiliates, and each of
their successors and assigns, partners, officers, employees, managers,
attorneys, accountants, agents, and servants, hereby releases and forever
discharges the Bank and its participants and assigns, and each of their
successors, assigns, parents, subsidiaries and affiliates, officers,
directors, employees, managers, attorneys (including in-house attorneys),
accountants, agents, and servants, and each of them, in all capacities,
including individually (collectively "Lender Group") from any and all
actions, liabilities, liens, debts, damages, claims, suits, judgments,
executions and demands of every kind, nature and description, including but
not limited to tort claims, that Borrower may have or hereafter may acquire
against any member of Lender Group in connection with the Credit Facilities
("Claims"), ; PROVIDED, THAT Lender Group shall not be released from any
obligations arising pursuant to this Agreement or from its conduct after
the execution of this Agreement.

<PAGE>

(b) Borrower hereby expressly waives and relinquishes any and all
defenses and rights of offset which Borrower may have with respect to the
Assigned Assets or payment in full of Borrower's Outstanding Debt under
this Agreement, the Forbearance Agreements or any instruments delivered in
connection herewith. Borrower's waiver and relinquishment of any and all
such defenses and rights of offset expressly includes a waiver of any right
which Borrower currently has, or may in the future have, to offset any
amounts owed to Borrower for any reason, including any expenses incurred by
Borrower in connection with the Palm Beach Polo Claim, against the amount
of proceeds awarded to Borrower in connection with such Palm Beach Polo
Claim and assigned to the Bank pursuant to the Assignment. Notwithstanding
the foregoing, the Bank's right, title and interest to such proceeds shall
remain subject to the provisions of that certain Attorney's Fee Agreement
executed by and between Borrower and its litigation counsel as more
particularly set forth in Section 2(b) of the Assignment.

(b) Borrower hereby expressly waives and relinquishes any
right or benefit which Borrower has or may have under any provision of
statutory or nonstatutory law of the State of Illinois providing that a
general release does not extend to claims which the Borrower does not know
of or suspect to exist at the time of executing the release, that if known
by Borrower might materially affect Borrower's settlement with the Bank.
Borrower acknowledges that it is aware that it or its attorneys or agents
may hereafter discover facts in addition to or different from those which
they now know or believe to exist with respect to the subject matter of
this release, but that it is Borrower's intention hereby fully, finally and
forever to settle and release all of suspected or unsuspected Claims, which
now exist or may exist hereafter against Lender Group except as otherwise
expressly provided in this release. This release shall be and remain in
effect as a full and complete release notwithstanding the discovery or
existence or any such additional or different facts.

(c) Borrower warrants and represents to Lender Group that
Borrower is the sole and lawful owner of all right, title and interest in
and to all of the claims released hereby and that Borrower has not
heretofore voluntarily or involuntarily, by operation of law or otherwise,
assigned or transferred or purported to assign or transfer to any person
any such claim or any portion thereof.

(d) This release is not intended for the benefit of any
person who is not a party hereto or specifically named a beneficiary in
this release.

(e) Borrower agrees not to sue any of Lender Group or in any
way assist any other person or entity in suing any of Lender Group with
respect to any claim released herein. This release may be pleaded as a
full and complete defense to, and may be used as the basis for an
injunction against, any action, suit or other proceeding which may be
instituted, prosecuted or attempted in breach of the release contained
herein.

(f) Nothing contained herein shall be construed as an
admission by anyone of any liability of any kind.

<PAGE>

(g) Borrower acknowledges to Lender Group that it has been
represented by independent legal counsel of its own choice throughout all
of the negotiations which preceded the execution of this release and that
it has executed this release after receiving the advice of such independent
legal counsel, and without reliance upon any promise or representation of
any person or persons acting for on behalf of any of Lender Group.
Borrower further acknowledges that it and its counsel have had adequate
opportunity to make whatever investigation or inquiry they may deem
necessary or desirable in connection with the subject matter of this
release prior to the execution of this Agreement and release. Counsel for
Borrower has read and approved the language of this release.

5. REPRESENTATIONS AND WARRANTIES OF BORROWER.

(a) Borrower is duly organized, validly existing and in good
standing under Delaware law. Borrower has all necessary power and
authority to execute and deliver this Agreement and all assignments and
other documents entered into by Borrower pursuant hereto. Borrower's
execution, delivery and performance of this Agreement and all assignments
and other documents entered into by Borrower pursuant thereto have been
authorized by all necessary partnership action.

(b) This Agreement and the Assignment have been duly executed
and delivered on behalf of Borrower and constitute valid and binding
obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the
effect of equitable principles, whether applied in an action at law or a
suit in equity. Borrower shall not in the future assert any further Claim
against the Assigned Assets.

6. TAX EFFECT OF TRANSACTION. Borrower and the Bank both
represent and warrant that they have not relied on the other party for tax
advice in connection with the transactions contemplated by this Settlement
Agreement. Borrower and the Bank both acknowledge that they are entering
into this Agreement, the Assignment and all other documents related thereto
based solely on their own determination of the possible tax effects of the
transactions contemplated hereby, and neither party has made any
representation or warranty to the other party regarding the probable
treatment of those transactions by the Internal Revenue Service or any
other taxing authority.

7. FURTHER ASSURANCES. Each party to this Agreement will,
whenever and as often as it shall be requested to do so by the other party,
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, any and all such further documents and do any and all other acts
as may be necessary to carry out the intent and purpose of this Agreement.

8. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Bank and Borrower and their respective successors and
assigns.

<PAGE>

9. EXCULPATION. This Agreement is subject to the provisions of
Section 9.29 of the Forbearance Agreements, which are incorporated by
reference herein.

10. ENTIRE AGREEMENT. This Agreement, with its attached Exhibits,
is intended by the parties to be the final expression of their agreement
with respect to the subject matter hereof, and is intended as the complete
and exclusive statement of the terms of the Agreement between the parties.
As such, this Agreement supersedes any prior understandings between the
parties, whether oral or written.

11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

12. GOVERNING LAW. The validity, interpretation, enforceability,
and performance of this Agreement shall be governed by and construed in
accordance with the law of the State of Illinois, without reference to its
conflicts of law rules.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date set forth opposite their respective signatures below.

BORROWER:

Executed this _____ day of ARVIDA/JMB PARTNERS, L.P. -II, a
February, 1998 Delaware limited partnership

By: Arvida/JMB Managers II, Inc., a
Delaware corporation,
its General Partner

By: ______________________________
Name:_________________________
Title:________________________

BANK:

Executed this _____ day of BANK OF AMERICA NATIONAL TRUST
February, 1998 AND SAVINGS ASSOCIATION, a national
banking association, as successor
by merger to Bank of America
Illinois, in its capacity as
Managing Co-Agent

By: ______________________________
Name:_________________________
Title:________________________

Executed this _____ day of BANK OF AMERICA NATIONAL TRUST
February, 1998 AND SAVINGS ASSOCIATION, a national
banking association, as successor by
merger to Bank of America Illinois,
in all capacities hereunder other than
as Managing Co-Agent

By: ______________________________
Name:_________________________
Title:________________________

BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, a national
banking association

By: ______________________________
Name:_________________________
Title:________________________

<PAGE>

EXHIBIT "A"

ASSIGNMENT

<PAGE>

EXHIBIT "B"

OPINION OF BORROWER'S COUNSEL

<PAGE>

EXHIBIT "C"

RELEASE

EXHIBIT 4.19
- ------------
(Arvida II)

ASSIGNMENT

THIS ASSIGNMENT (this "Assignment") is dated for identification
purposes as of December 31, 1997 (the "Effective Date") by ARVIDA/JMB
PARTNERS, L.P. - II, a Delaware limited partnership ("Borrower"), in favor
of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national
banking association, as successor by merger to Bank of America Illinois,
formerly known as Continental Bank, N.A. and Continental Bank (the "Bank").

RECITALS
--------

As of June 23, 1992, the Bank extended certain loans (the "Credit
Facilities") to Borrower which were secured by liens on certain real and
personal property of Borrower. Borrower has defaulted on its obligations
under the Credit Facilities. As of the Effective Date hereof, Borrower is
indebted to the Bank in an amount approximately equal to SEVENTY-FIVE
MILLION, SIX HUNDRED TWENTY-FOUR THOUSAND, ONE HUNDRED THIRTY-TWO
AND
12/100 DOLLARS ($75,624,132.12), including unpaid principal and interest
accrued thereon, plus any and all fees and expenses owed to the Bank in
connection with the Credit Facilities (collectively, "Borrower's
Outstanding Debt").

Concurrently herewith, the Bank and Borrower have entered into a
Settlement and Release Agreement (the "Settlement Agreement") providing for
forgiveness of the Borrower's Outstanding Debt upon satisfaction of certain
conditions precedent, including, but not limited to, assignment to the Bank
of all of Borrower's right, title and interest in and to (i) any proceeds
of a claim filed by Borrower in that certain Chapter 11 bankruptcy
proceeding entitled IN RE LANDMARK LAND COMPANY OF FLORIDA INC. (Civil
Action No. 2:91-3291-1/5291-1), currently pending in the U.S. District
Court for South Carolina (Charleston Div.) sitting in bankruptcy (the "PALM
BEACH CLAIM"), and (ii) all other remaining assets of Borrower ("BORROWER'S
ASSETS"). Borrower's obligation to assign Borrower's Assets to the Bank is
subject to Borrower's right to retain certain assets (the "EXCLUDED
ASSETS") as more particularly set forth herein.

A. Pursuant to the Settlement Agreement, Borrower hereby desires
to assign the proceeds of the Palm Beach Claim and Borrower's Assets (other
than the Excluded Assets) to the Bank, and the Bank hereby desires to
accept such assignment of the proceeds of the Palm Beach Claim and
Borrower's Assets (other than the Excluded Assets), on the terms and
conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals, the
covenants and conditions contained herein, and other good and valuable
consideration, including the Bank's forgiveness of Borrower's Outstanding
Debt, the parties hereby agree as follows:

1. ASSIGNMENT OF BORROWER'S ASSETS.

(a) As of the Effective Date, Borrower hereby absolutely
assigns, conveys and transfers to the Bank, and the Bank hereby accepts
from Borrower, all of Borrower's right, title and interest in and to
Borrower's Assets, other than the "Excluded Assets" (as defined in SECTION
1(b) below), including, but not limited to, Borrower's right, title and
interest in and to the proceeds of any judgment (including interest
thereon) awarded to Borrower in the Palm Beach Claim and all other assets
listed on SCHEDULE "1" attached hereto (hereinafter, the "ASSIGNED
ASSETS").

<PAGE>

(b) The Bank and Borrower hereby acknowledge and agree that
the Assigned Assets do not include the "EXCLUDED ASSETS" listed on SCHEDULE
"2" attached hereto. Borrower shall be entitled to retain all of its
right, title and interest in and to the Excluded Assets in order to fund
Borrower's dissolution expenses as well as Borrower's expenses related to
defending that certain litigation filed against Borrower and other related
Arvida/JMB companies entitled LAND INVESTMENT I, LTD. ET. AL. V. ARVIDA/JMB
MANAGERS-II, INC. (Fla. Cir. Ct., Seminole County, Case No: 96-0062-CA-15-
B)(the "HEATHROW LITIGATION"), provided however, that if any portion of
such Excluded Assets (the "Surplus Assets") shall remain as an asset of
Borrower after payment of all expenses relating to, or arising out of the
dissolution and winding up of the affairs of the Borrower's partnership,
including but not limited to any expenses or liabilities arising from the
Heathrow Litigation, such Surplus Assets shall be assigned to the Bank as
further consideration for the Bank's forgiveness of Borrower's Outstanding
Debt.

2. THE PALM BEACH CLAIM.

(a) In connection with Borrower's assignment of the proceeds
from the Palm Beach Claim set forth in SECTION 1(a) above, Borrower agrees
to continue to prosecute the Palm Beach Claim on behalf of the Bank until
such time as a "Final Judgment" (as defined below) is entered in the Palm
Beach Claim, except as hereinafter provided. In the event that Borrower
desires to enter into a proposed settlement of the Palm Beach Claim prior
to Final Judgement, Borrower shall present the terms of any proposed
settlement to the Bank and Bank shall have a period of thirty (30) days
after receipt of written notice of such proposed settlement terms to
disapprove the settlement. If the Bank fails to notify Borrower by the end
of such thirty (30) day period of its approval or disapproval of any such
settlement, the Bank shall be deemed to have approved such settlement. If
the Bank does so notify Borrower of its disapproval of the settlement
within such thirty day (30) period, Borrower may then assign the Palm Beach
Claim directly to the Bank, and the Bank shall assume such claim, in which
case Borrower shall have no further obligation to prosecute the Palm Beach
Claim on behalf of the Bank. Furthermore, in the event that the Palm Beach
Claim is so assigned to the Bank, the Bank shall indemnify Borrower from
any liability to pay (i) the opposing party's attorneys fees and expenses
which may be assessed against Borrower, and (ii) any further liability to
Borrower's Litigation Counsel for any fees and expenses incurred in
connection with the Palm Beach Claim after the date on which the Bank so
assumes the Palm Beach Claim. For purposes of this Assignment, "Final
Judgment" shall be defined as the point at which judgment has been entered
by the court on all claims filed by Borrower in the matter, and any
applicable period for filing an appeal of such judgment has subsequently
expired.

(b) Borrower hereby discloses to the Bank that Borrower has
entered into a contingent attorneys' fee arrangement with its attorneys in
the Palm Beach Claim, Bienstock and Clark of Miami, Florida, and Levy and
Goodwin of Columbia, South Carolina (collectively, "Borrower's Litigation
Counsel"). A copy of the Attorneys' Fee Agreement dated September 17, 1993
between Borrower and Borrower's Litigation Counsel is attached hereto as
ATTACHMENT "A." Pursuant to the Attorneys' Fee Agreement, Borrower's
Litigation Counsel are entitled to payment of their professional fees and
expenses from the proceeds of any judgment awarded to Borrower in
connection with the Palm Beach Claim. The Bank hereby acknowledges and
agrees that Borrower's assignment of the proceeds of the Palm Beach Claim
is subject to the terms of the Attorneys' Fee Agreement. Therefore, Bank
acknowledges that the rights of Borrower's Litigation Counsel have priority
over the Bank's right, title and interest in the proceeds of the Palm Beach
Claim. Notwithstanding the foregoing, Bank shall not be obligated to pay
any fees and expenses of Borrower's Litigation Counsel except as
specifically set forth in the Attorneys' Fee Agreement or as otherwise
provided in SECTION 2(a) above.

<PAGE>

(c) Borrower and the Bank agree that the assignments set
forth herein shall not include an assignment of the Attorneys' Fee
Agreement to the Bank. No attorney-client relationship exists, nor shall
be deemed to be created, between Borrower's Litigation Counsel and the
Bank.

3. POWER OF ATTORNEY. As of the Effective Date hereof, Borrower
hereby irrevocably constitutes and appoints the Bank as Borrower's true and
lawful attorney, with full power of substitution, in Borrower's name and
stead, but on behalf and for the benefit of the Bank, to prosecute from
time to time in its name or otherwise, any and all proceedings at law, in
equity or otherwise which the Bank may deem proper for the collection and
enforcement of any claim or right of any kind hereby assigned, granted,
transferred or set over.

4. FURTHER ASSURANCES. Borrower will, whenever and as often as it
shall be requested to do so by the Bank, execute, acknowledge and deliver,
or cause to be executed, acknowledged and delivered, any and all such
further assignments and any and all other documents and do any and all
other acts as may be necessary to carry out the intent and purpose of this
Assignment.

5. REPRESENTATIONS AND WARRANTIES OF BORROWER.

(a) Borrower hereby represents and warrants to the Bank that
the Excluded Assets and the Assigned Assets (including Borrower's right,
title and interest in the Palm Beach Claim) constitute all of Borrower's
Assets as of the Effective Date hereof, whether Borrower's right, title and
interest in and to such assets is contingent as of the Effective Date or
not.

(b) Except as otherwise indicated on Schedule "1" attached
hereto, Borrower is the sole owner and holder of all right, title and
interest in the Assigned Assets and has the full right, power and authority
to assign the Assigned Assets and the Palm Beach Claim to the Bank.

6. BINDING EFFECT. This Assignment shall be binding upon and
inure to the benefit of the Bank and Borrower and their respective
successors and assigns.

7. EXCULPATION. This Assignment is subject to the provisions of
Section 9.29 of the Forbearance Agreements, which are incorporated by
reference herein.

8. COUNTERPARTS. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

9. GOVERNING LAW. The validity, interpretation, enforceability,
and performance of this Assignment shall be governed by and construed in
accordance with the law of the State of Illinois, without reference to its
conflicts of law rules.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date set forth opposite their respective signatures below.

BORROWER:

Executed this _____ day of ARVIDA/JMB PARTNERS, L.P. -II, a
February, 1998 Delaware limited partnership

By: Arvida/JMB Managers II, Inc., a
Delaware corporation,
its General Partner

By: ______________________________
Name:_________________________
Title:________________________

BANK:

Executed this _____ day of BANK OF AMERICA NATIONAL TRUST
February, 1998 AND SAVINGS ASSOCIATION, a national
banking association, as successor by merger
to Bank of America Illinois, in its
capacity as Managing Co-Agent

By: ______________________________
Name:_________________________
Title:________________________

Executed this _____ day of BANK OF AMERICA NATIONAL TRUST
February, 1998 AND SAVINGS ASSOCIATION, a national
banking association, as successor by
merger to Bank of America Illinois,
in all capacities hereunder other than
as Managing Co-Agent

By: ______________________________
Name:_________________________
Title:________________________

BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, a national
banking association

By: ______________________________
Name:_________________________
Title:________________________

<PAGE>

SCHEDULE "1"

Assigned Assets
---------------

1. Cash and cash equivalents $497,773.54 (a)

2. Proceeds of the Palm Beach Claim Amount Unspecified(b)

3. Collateral for open claims under worker's
compensation insurance (held in trust by
LaSalle National Bank for the benefit
of Home Insurance Co.) $ 95,455.00

4. Accounts Receivable from Santa Margarita
Water District $618,397.00(c)

5. Accounts Receivable from Heathrow Golf
and Country Club $ 45,261.53(d)

6. Proceeds from sale of Eagle Watch Lot $ 13,977.30(e)

7. Home Buyers Warranty Program Deposit $ 10,000.00

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

(a) Cash on deposit with Bank of America in Account #71-11185, plus any
other cash or cash equivalent belonging to the Borrower whether held by the
Bank or otherwise, less disbursement to Borrower of $474,450.00.

(b) Borrower makes no representation regarding the amount of the proceeds
which the Bank is likely to recover, and shall have no liability to the
Bank if the amount of proceeds so recovered does not equal this estimated
amount. Moreover, Borrower's interest in such proceeds remains subject to
the Attorneys' Fee Agreement attached hereto as Attachment "A" which
provides that Borrower's Litigation Counsel shall be entitled to 50% of any
judgment awarded in the matter (less the amount of any fees or expenses
previously paid to Borrower's Litigation Counsel by either Borrower or the
Bank).

(c) These accounts receivable may be subject to that certain Compromise
Settlement and Mutual Release Agreement by and between Borrower and Santa
Margarita Water District. The Bank has been provided a copy of such
Compromise Settlement and Mutual Release Agreement and is fully aware of
its terms.

(d) Accounts Receivables over 18 months old. These accounts have been
placed with Windham Associates collection agency, which will retain 50% of
any amounts recovered.

(e) Purchase Price of $14,000 less recording fees and transfer taxes. In
the event that this amount is paid over to the Bank as a principal
reduction payment after the Effective Date hereof, the Bank shall reduce
the amount of Borrower's Outstanding Debt to be forgiven by a corresponding
amount.

<PAGE>

SCHEDULE "2"

Excluded Assets
---------------

A. Cash reserves disbursed by the Bank $474,050.00
(Account # 71-11185)

B. Cash collateral, plus interest thereon, $ 96,596.00
held by the Bank related to certain
performance bonds
(Account # 12-18433)

C. Insurance claim against Awkright $283,864.04
Insurance Company related to
Heathrow Shops

<PAGE>

ATTACHMENT "A"

Attorneys' Fee Agreement
-------------------------

EXHIBIT 21

LIST OF SUBSIDIARIES

The Partnership is a limited partner in Arvida Management-II Limited
Partnership and Arvida Realty Limited Partnership, Delaware limited
partnerships. 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, 1997 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-31-1997
<PERIOD-END> DEC-31-1997

<CASH> 993,437
<SECURITIES> 0
<RECEIVABLES> 287,146
<ALLOWANCES> 45,261
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,437,372
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,437,372
<SALES> 37,116,725
<TOTAL-REVENUES> 37,116,725
<CGS> 2,183,078
<TOTAL-COSTS> 2,183,078
<OTHER-EXPENSES> 12,327,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,606,307
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,606,307
<DISCONTINUED> 0
<EXTRAORDINARY> 89,814,878
<CHANGES> 0
<NET-INCOME> 112,421,185
<EPS-PRIMARY> 444.19
<EPS-DILUTED> 444.19

</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.