CHELSEA PIERS LP, 10-K, 1997-03-31

CHELSEA PIERS LP
10-K, 1997-03-31
MISCELLANEOUS AMUSEMENT & RECREATION

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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20548

(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from . . . . . . . . . . to . . . . . . . . . .

Commission file number 33-83762

CP FUNDING CORP.
(A Delaware Corporation)
(Exact name of registrant as specified in its
Certificate and Agreement of Limited Partnership)

Delaware 13-3777023
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

AND

CHELSEA PIERS L.P.
(A New York Limited Partnership)
(Exact name of registrant as specified in its
Certificate and Agreement of Limited Partnership)

New York 13-3668842
- ------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

Chelsea Piers - Pier 62, Ste. 300
New York, New York 10011
- --------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrants' telephone number, including area code (212) 336-6800

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:
12 1/2% Discount Exchange First Mortgage Notes

Indicate by check mark whether the registrants (1) have 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, and (2) have been subject to such
requirements for the past 90 days.

YES X NO
----- -----

Indicate the number of shares outstanding of each of the registrants' classes of
common stock, as of December 31, 1996.

100 Shares of Common stock of CP Funding Corp.
$29,763,889 Limited Partnership Interests of Chelsea Piers L.P.

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 registrants' 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. [ ]

1
<PAGE>

PART I

ITEM 1. BUSINESS.

General
- -------

Chelsea Piers L.P. (the "Company") is a New York limited partnership formed
in 1992 to develop and operate a sports and entertainment complex located on
Piers 59-62 at 23rd Street and the Hudson River in the City of New York known as
the Chelsea Piers ("Chelsea Piers" or the "Project").

Chelsea Piers is a multi-faceted sports and entertainment complex that has
been newly constructed within the framework of an historic urban waterfront pier
and headhouse building complex ("Headhouse") Chelsea Piers is made up of a
number of different athletic venues and business activities that are linked
together in the public's mind as a single sports and entertainment center. The
principal sporting venues and business activities that the Company operates or
manages at Chelsea Piers are as follows:

The Golf Club. The Golf Club, located on Pier 59, is an outdoor driving
range that commenced operations in October, 1995.

The Roller Rinks. The Roller Rinks, located on Pier 62, consist of two
outdoor regulation-sized in-line/roller skating rinks. The Roller Rinks
commenced operations in July, 1995.

The Sky Rink. Sky Rink, located on Pier 61, consists of two indoor, year-
round regulation-sized hockey and ice-skating rinks. Sky Rink commenced
operations at Chelsea Piers in September, 1995.

The Field House. The Field House, located in the Headhouse at Chelsea
Piers, houses an athletic facility combining gymnastics, indoor soccer,
basketball, volleyball, batting cages and similar facilities. The Field House
commenced operations in September, 1995.

The Sports Center. The Sports Center, located on Pier 60, houses, among
other things, a health and fitness center, a swimming pool and a year-round
indoor jogging track. The Sports Center commenced operations in February, 1996.

Silver Screen Studios. Located in the Headhouse, Silver Screen Studios
accommodates seven soundstages for television and film productions. As of
December 31, 1996, seven soundstages were occupied under executed leases. In
addition, the Company also entered into a lease with a single tenant for a
fashion photography studio within the Headhouse of the Chelsea Piers.

2
<PAGE>

Marina. The Company operates a full-service marina leasing docking and slip
space to vessels ranging from dinner boats to large private yachts, power and
sail boats and kayaks. Spirit Cruises, Inc. is the anchor dinner boat tenant of
the Company at the Marina.

Restaurants and Other Major Leases. The Company leases space to two large
independently-operated restaurants, The Crab House and Chelsea Brewing Company,
and also leases food service space to a number of smaller restaurant and food
service providers. The Company has entered into a lease with AMF Bowling Center,
Inc. to develop and operate a bowling center of 40 lanes in the headhouse of
Chelsea Piers. Construction of the bowling center commenced in March, 1997, with
a scheduled opening in September, 1997. None of the Company's leases accounts
for more than 3% of the Company's annual revenue.

Office Leasing. The Company has approximately 100,000 square feet of office
and retail space available for lease and has a variety of office lease and
retail tenants, including office leases to production companies using sound
studio space at Silver Screen Studios and athletic equipment retailers serving
the customers of the Company's various sporting venues. New York Hospital has
entered into a lease to operate a sports medicine clinic at Chelsea Piers.

Sponsorship. The Company has sponsorship agreements with approximately a
dozen major corporate sponsors for advertising within the Chelsea Piers venues,
on collateral material and on the Company's electronic message board.

Chelsea Piers Store. The Company operates a retail sportswear and sporting
goods store at the north entrance to the Chelsea Piers where logotyped
merchandise bearing the Chelsea Piers trademarks is sold.

Parking. The Company operates a parking facility with a capacity of 550
cars that is located on the lower levels of Piers 60 and 61 for patrons of the
Chelsea Piers.

Special Events. The Company hosts and caters special events such as
banquets, promotional events, charity benefits and company gatherings for groups
ranging from ten to several thousand people.

Chelsea Piers Management, Inc. ("Management"), the general partner of the
Company, manages the Company and oversees the development of the Project.

3
<PAGE>

The Company made significant capital expenditures during the period
September, 1994, through February, 1996, to renovate Chelsea Piers. The Company
financed these expenditures through equity contributions to the Company and the
proceeds from notes issued by CP Funding Corp. ("Funding"), a Delaware
corporation wholly-owned by the Company that was formed for the limited purpose
of acting as the agent for the Company in the issuance of notes and other debt
instruments and making available the proceeds thereof to the Company on
substantially the same terms as such notes and instruments. See Item 2,
"Properties -- Construction of Improvements."

The Company has incurred significant recurring losses from operations since
inception. For the year ended December 31, 1996, the Company reported a net loss
of approximately $13.8 million, and as of December 31, 1996 had a working
capital deficit of $5.7 million and partners' deficit of $4.1 million.
Management believes that the Company's poor operating results are primarily
attributable to the Project being in its early stages of operation. The Company
has also incurred higher than anticipated capital expenditures in connection
with the construction of the Project, which, together with the recurring losses
from operations, has placed a significant cash burden on the Company. Although
the Company is taking steps to improve cash flow, the Company believes it will
have cash flow deficits for the foreseeable future. The Company's auditors have
raised concern in their Report of Independent Certified Public Accountants, a
copy of which is included with the Company's audited consolidated financial
statements filed herewith, regarding the ability of the Company to continue as a
going concern in light of recurring losses from operations suffered by the
Company. See Note 2 to the Company's financial statements. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Competition
- -----------

The Company competes with numerous sports, fitness, soundstage leasing and
other business operations in the New York Metropolitan area. The Company is not
aware of any competitor that combines all the activities available at the
Chelsea Piers at a single location.

Employees
- ---------

The Company's business is managed by the executives of Chelsea Piers
Management Inc., the general partner of the Company ("Management").

As of February 28, 1997, the Company has 424 employees; and the salaries
and expenses of 5 full time and 5 part time employees of Silver Screen
Management, Inc. (an affiliate of Management) are charged to the Company. In
addition, the Company employs several hundred people on a part-time or
commission basis, such as trainers, coaches and referees in all sports.

4
<PAGE>

ITEM 2. PROPERTIES.

Original Lease
- --------------

In 1992, the Company obtained the right to lease the Chelsea Piers and to
develop and operate a sports and entertainment facility on the premises through
a public auction process pursuant to which the Company submitted a bid and
proposal to the New York State Department of Transportation (the "DOT" or the
"Lessor"). After the Company was awarded the lease, a development and
construction team was assembled, and a 24-month, design and program planning
process began. During this time, an Environmental Impact Statement process was
initiated for the Project, which entailed extensive public review and comment.
The Environmental Impact Statement was completed and certified in December 1993.
Concurrently, the permitting process began with the New York City Board of
Standards and Appeals, the New York State Historic Preservation Office, the U.S.
Army Corps of Engineers, and the New York City Building and Fire Departments and
several other city, state and federal agencies.

The Company entered into an interim lease agreement with the Lessor on
May 14, 1993, with rent payments commencing in July, 1993, which permitted the
Company to operate the facility and the existing businesses based at the Chelsea
Piers.

The Lease between the Company and the Lessor with respect to the
development and operation of the Chelsea Piers (the "Lease") was entered into on
June 24, 1994. The Lease provided for a term of 10 years with a provision for
renewal for an additional 10 years. Renewal is based on an evaluation by the
Lessor of the Company's tenancy based on the following criteria: (i) timeliness
of rental payments, (ii) responsiveness of the Company to make required repairs,
(iii) the nature and extent of improvements made by the Company to the Project,
(iv) timely performance of all material conditions, agreements, covenants, terms
and provisions of the Lease, and (v) impact on the community with advice
solicited from the community in the evaluation. Lessor's decision to renew is
required to be based on the Company's substantial compliance with the above
criteria and, if the Company has substantially complied with the above criteria,
the Lessor shall offer the Company a renewal. The Lease provides that if the
Lease is not renewed after the initial ten year term (other than by reason of
the Company's default), the Lessor is required to pay the Company an amount
equal to the depreciated value of the Lessee Improvements (as defined) (together
with all construction expenditures incurred by or on behalf of the Company prior
to the term), calculated on the basis of actual construction costs and
determined on a straight line or, at Lessor's option, an accelerated
depreciation basis (if permitted by Federal tax law), in each case utilizing
useful life periods for leasehold improvements at the time such property is
placed in service pursuant to Internal Revenue Code Section 168(i)(8). In such
event, the Lease, at the Company's option, shall continue until such payment has
been received by the Company, but such payment by Lessor shall be
proportionately reduced, based on the rent that would have been due, by the
length of such continuation and the reduced depreciation.

5
<PAGE>

On the expiration date of the term, the Company is entitled pursuant to the
terms of the Lease to remove from the premises any items of personal property or
Trade Fixtures, which are necessary for the Company's business; Trade Fixtures
are defined as any fixtures, equipment or property as are installed by or on
behalf of the Company for the Company's business operations at the premises
including, but not limited to, the ice skating rink, studio lighting systems,
track and fitness center equipment, golf driving range equipment and removable
marina dock slips and equipment and designated by the Company as Trade Fixtures.
If the removal of personal property or Trade Fixtures materially and adversely
affects the structural integrity of the premises or the underlying plumbing,
electrical or HVAC systems, the Company is required by the terms of the Lease to
repair the premises to correct such adverse effect.

All Lessee Improvements except Trade Fixtures and all material to be
incorporated in the Improvements at any time during the Lease term shall, upon
purchase or construction of the same and at all times thereafter, constitute the
property of the Lessor, and upon construction of the Lessee Improvements or the
incorporation of such materials therein, title to the Lessee Improvements and
such materials shall vest in the Lessor. Lessee Improvements is defined to mean
those Improvements erected, constructed, rehabilitated or placed upon the land
for Existing Improvements by or on behalf of the Company during the term.
Improvements is defined to mean the buildings, platforms, marinas, piers,
wharfs, berths, slips, parks, stables, golf driving ranges, Equipment and all
other improvements existing at the commencement date or hereafter erected,
rehabilitated or placed upon the land (including, without limitation, the
Existing Improvements and the Lessee Improvements) and the footings, foundations
and other supports beneath the land and all alterations and replacements thereto
and additions and substitutions thereof. Existing Improvements is defined to
mean the Improvements existing at the commencement date upon the land and the
footings, foundations and other supports beneath the land.

The Lessor retains title to all Equipment. Such Equipment does not mean any
items of personal property owned or leased by the Company or any sublessees or
any Trade Fixtures.

The Lease provides for annual rent of $2,420,106.70, payable monthly and
subject to adjustment every two years based on the Consumer Price Index.

The Lease provides for credits to be taken at specified times during the
Lease term of (i) $600,000 for rents previously paid under the interim prior
lease agreement with the Lessor (which is superseded by the Lease), (ii)
$1,000,000 for one half of the costs of repairing the roofs of Piers 60 and 59,
and (iii) $200,000 for construction and $50,000 per year for maintenance and
operating costs in respect of expenses of construction and maintenance of public
toilets.

The Lease provides that portions of the premises (including Pier 62 which
will house outdoor recreational activities) which are required by the State for
the construction of Route 9A (West Side Highway) or by the appropriate
governmental entity for the development of a state park in accordance with a
waterfront plan, are subject to repossession at any time on six months' notice.
If a portion of the existing headhouse is repossessed by the State, the Lease
requires the Lessor to either restore the headhouse to as near as possible to
the condition prior to such repossession so that the headhouse is against a
complete and functional building usable for the purposes for which it was being
used or was being planned to be used or, at the Company's election, reimburse
the Company for the costs of such restoration. In the event of such a
repossession, rental payments will be reduced proportionately.

6
<PAGE>

The Lease required the Company to expend not less than $50 million in
connection with the erection, construction and renovation of Lessee Improvements
and the acquisition of Equipment, which amount will constitute additional rent
to Lessor. The Lease required substantial completion of (i) the skating rinks by
December 31, 1995, (ii) 75,000 square feet of film, television and photography
facilities studios by January 1, 1996 and (iii) the Pier 61 public spaces by
December 31, 1995, subject in each case to extension for "Unavoidable Delays"
(which is defined in the Lease as delays from any and all causes beyond the
Company's reasonable control, including, without limitation, delays due to
strikes, inability to obtain labor or materials and unavoidable casualty). The
Company complied with each of these deadlines. The Lease requires the Company to
complete other facilities in accordance with a schedule determined by the
Company in its discretion. The Company is required to maintain specified
insurance coverage during the construction period.

The Company is obligated under the Lease to pay all governmental charges
related to the leased premises other than Real Property Taxes (as defined),
which are the obligation of the Lessor.

The Company's interest in the Lease may not be sold, assigned or otherwise
transferred (whether by operation of law or otherwise), nor any capital stock of
the Company's general partner be issued, sold by the holders thereof,
reclassified or mortgaged, or any voting trust entered into with respect to such
stock, if the effect of such action will result in a change in the controlling
stock ownership of the general partner. The general partner's interest in the
Company may not be assigned or transferred without the Lessor's consent. The
Lease permits the Company to sublet any portion of the leased premises without
the Lessor's consent provided, however, that the Company is prohibited from
subletting, except to an Affiliate of the Company (as defined), any portion in
excess of 15% in the aggregate of the gross square footage of the leased
premises to the same person or such person's affiliates without the Lessor's
consent. The Lease provides, however, that the Company may encumber its
leasehold interest with a mortgage to an Institutional Lender (as defined).
Following substantial completion of the Lessee Improvements, the Company is
permitted to assign or transfer its leasehold interest to any business entity
controlled by the holders of the Company's equity or any entity that possesses
sufficient financial ability to perform the Lease's obligations, has experience
and a business reputation reasonably acceptable to the Lessor and has a
substantial business presence in New York City.

Lease Amendment
- ---------------

Upon evaluation by Management of the Company's levels and trends of
revenues and expenses that Management considered most likely to occur over the
coming months, Management concluded that the Company required a change in the
terms of the Lease in order to remain in compliance with the terms of its
existing indebtedness.

7
<PAGE>

On October 22, 1996, after one year of discussion and negotiations, the
Company and the Commissioner of the Department of Transportation executed an
amendment ("Lease Amendment"), dated as of June 30, 1996, to the original Lease
relating to the Project. A copy of the Lease Amendment was filed as Exhibit
10.24 to the Company's current report on Form 8-K dated October 30, 1996 and the
terms thereof are incorporated herein by reference.

The Lease Amendment provides, among other changes, for the following:

1. Term. Extension options that extend the maximum potential term of the
Lease to 48 years and 11 months, subject to renewal at ten year intervals based
upon satisfaction of the same kinds of requirements as are applicable at the
time of renewal of the Lease at year ten.

2. Rent. (a) 75% of the amount that would otherwise constitute base rent
payable for the period July 1, 1996 through June 30, 1998 and 50% of the amount
that would otherwise constitute base rent payable for the period July 1, 1998
through June 30, 1999 will be paid in either (x) a single lump sum on July 1,
2001 or (y) in monthly installments over 10 years beginning on such date with
interest on the unpaid amount accruing at a rate of 5% per annum.

(b) Beginning in year 21, the base rent for each year will be the greater
of (i) base rent for the 20th year adjusted every two years based on the
Consumer Price Index ("CPI") (provided no CPI adjustment will exceed 3.5% per
year), and (ii) the base rent for the 20th year plus (x) 3% of the Company's
gross revenues from the premises that exceed $60 million but are less than $90
million, plus (y) 3.5% of the Company's gross revenues from the premises that
exceed $90 million but are less than $100 million, plus (z) 4% of the Company's
gross revenue from the premises that exceed $100 million.

3. PILOT Payments. The Company will be responsible for payments in lieu of
taxes ("PILOT") to New York City starting in year 21. Years 21 through 26 would
constitute the PILOT phase-in period during which the Company would pay an
escalating percentage of the applicable PILOT payment (i.e., the real property
tax amount that the Company would be obligated to pay if the premises were fully
taxable), plus, during each such year, an amount equal to 50% of the amount that
would otherwise constitute available cash of the Company as of the end of the
applicable fiscal year of the Company up to a maximum aggregate amount for all
payments in such year of the full applicable PILOT payment for such year. By
year 27 the Company will pay 100% of the applicable PILOT due. There is also a
provision in the Lease Amendment for payment by the Company of the PILOT
obligation that is not due in year 21-26 because of the phase-in.

8
<PAGE>

Construction of Improvements
- ----------------------------

Since construction of substantially all of the components of the Chelsea
Piers facility has been completed and most of the planned venues are now
operational, the Company plans to undertake only certain specific capital
expenditures in the future. The Company anticipates that the cost of
construction of these improvements will be financed through the Company's
operating cash flow or through leasehold improvement financing or installment
payment programs with contractors if available. Other than the planned
construction of these facilities, the Company expects that its expenditures will
for the foreseeable future be limited to maintenance and repairs of existing
facilities that will be financed from the Company's operating cash flow or
permitted financing.

The 1.2 million square foot steel framed structure located at the Chelsea
Piers has been deemed an historical landmark. It was originally designed by
renowned architects Warren and Wetmore, who also designed New York's Grand
Central Station.

The Company retained the firm of Butler Rogers Baskett as master planner
and architect for the Project, with Cosentini Associates as mechanical and
electrical engineer and Schrimer Engineering as life safety consultant. These
firms together with Thornton- Tomasetti and Charles Vachris & Associates,
developed the architectural and engineering plans that have been approved by the
Board of Standards and Appeals and served as the basis for construction.

Through February 28, 1997, the Company incurred approximately $7.1 million
in soft costs, primarily for architectural, legal, engineering, permitting and
other consulting services. Through February 28, 1997, the Company has incurred
financing costs of approximately $4.7 million, including placement fees,
mortgage recording taxes and title insurance. Through February 28, 1997, the
Company expended approximately $61.5 million in construction costs. Through
February 28, 1997, the Company has incurred approximately $3.0 million in
pre-opening and marketing costs.

ITEM 3. LEGAL PROCEEDINGS.

The Company knows of no legal proceedings of a material nature to which it
or Funding is a party or of which any of its properties is the subject.

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

There was no vote of the holders of the Notes during the quarter ended
December 31, 1996. As of October, 1995, the Limited Partners of record approved
the issuance of the additional partnership equity interest described under Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity."

9
<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANTS' UNITS OF LIMITED PARTNERSHIP INTEREST AND
COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS.

As of February 28, 1996, there were 29 Limited Partners of record holding
an aggregate of $29,863,889 in limited partnership units of the Company (the
"Interests"). The Interests are not traded securities in any established trading
market.

The Agreement of Limited Partnership of the Company (the "Partnership
Agreement") provides for distributions of Distributable Cash to Limited Partners
at the discretion of Management as frequently as quarterly in accordance with
their respective percentage interests at the time of such distribution, subject
to certain adjustments. No distributions were made to Limited Partners during
1996, 1995 or 1994.

In June, 1994, the Company was partially capitalized through the issuance
of $45,007,000 of net proceeds of discount first mortgage notes payable (the
"Notes"). The Notes provided that they would accrete to their principal amount
at maturity over the period from the date of their issuance until June 15, 1996,
at which time interest began to accrue on a basis that is payable semiannually
commencing December 15, 1996. In addition to the obligation of the Company to
pay current interest on the Notes, beginning in December, 1996, the Company is
obligated to pay additional interest to holders of a series of the Notes
denominated "Series B" (the "B Notes"). The amount of such additional interest
is calculated as 36.34% of the Company's distributable cash for each semiannual
period beginning with the semiannual period ending December 31, 1994. There have
been no distributions to date.

The Company was able to make the December 15, 1996 interest payment of
$3,541,825.00 due on the Notes and the B Notes using the proceeds of permitted
loans from affiliates as described under Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Capital Resources
and Liquidity." The next interest payment date on the Notes and the B Notes is
June 15, 1997. The Company expects it will be unable to make the June 15, 1997
payment of interest due on the Notes and the B Notes out of operating revenues
or current reserves without the infusion of significant additional debt or
equity to fund such payment on the Notes and the B Notes. The Company is
currently evaluating opportunities for refinancing its existing indebtedness and
expects to continue discussions with holders of the Notes and the B Notes in the
future with a view to refinancing such Notes and B Notes. The Company will
depend in the future for its liquid resources on the results of operations of
the Company's business and the availability of additional financing. See Item 7.

As of February 28, 1996, the authorized capital stock of Funding consisted
of 100 shares of common stock, all of which were issued and outstanding and held
beneficially of record by the Company.

10
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
Period Ended
May 14, 1993
Year Ended Year Ended Year Ended (Inception) to
December 31, December 31, December 31, December 31,
1996 1995 1994 1993
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues ............ $ 22,061,356 $ 7,939,071 $ 5,540,919 $ 1,784,957
--------------- --------------- --------------- ---------------

EXPENSES:
Operating Expenses $ 13,002,675 $ 5,805,757 3,397,924 522,872
Rent ............... 8,689,721 6,915,686 4,715,761 1,179,391
General and
Administrative
Expenses .......... $ 6,841,376 3,778,764 1,973,744 195,943
--------------- --------------- --------------- ---------------
28,533,772 16,500,207 10,087,429 1,898,206
--------------- --------------- --------------- ---------------
Loss from Operations . (6,472,416) (8,561,136) (4,546,510) (113,249)

OTHER INCOME
(Expense):
Interest Income ... 81,299 1,581,432 1,216,938 548
Interest Expense .. (6,913,829) (6,126,996) (2,848,752) ---
Financing Costs ... (471,901) (471,812) (260,769) ---
--------------- --------------- --------------- ---------------
Net Loss ............ ($ 13,776,847) ($ 13,578,512) ($ 6,439,093) ($ 112,701)
================ =============== =============== ===============

</TABLE>

<TABLE>
<CAPTION>
BALANCE SHEET DATA

December 31, December 31, December 31, December 31,
1996 1995 1994 1993
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total Assets ........ $ 61,488,747 $ 66,669,728 $ 58,944,701 $ 3,906,922

Long-Term Debt ...... $ 57,040,000 $ 53,986,925 $ 47,855,929 ---

Partners' Equity
(Deficit) ......... ($ (4,143,264 $ 8,669,694 $ 10,398,206 ($ 112,701)

</TABLE>

11
<PAGE>

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

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Results Of Operation
- --------------------

Revenues for the year ended December 31, 1996 were approximately
$22,061,000 as compared to approximately $7,939,000 for the year ended December
31, 1995. Construction has been substantially completed and the various
facilities began operating in 1995 and 1996 in addition to the property
management sector which began in 1994. The Roller Rinks began operating on July
1, 1995; Sky Rink ceased operations at its West 33rd Street location and opened
September 1, 1995 at its new location; operations at the Field House started
September 15, 1995; the Golf Club commenced operations in October, 1995 and the
Sports Center opened February 1, 1996. Start-up revenues from these businesses
and existing operations contributed to the increase in revenues of 178%.

Operating expenses for the year ended December 31, 1996 were approximately
$13,003,000 as compared to approximately $5,806,000 for the year ended December
31, 1995. This 124% increase is also due to the overall increase in operating
costs attributable to the expansion of the business.

Rent expense for the year ended December 31, 1996 was approximately
$8,690,000 as compared with approximately $6,916,000 in 1995. The primary reason
for the 26% overall rent increase is due to higher amortization of prepaid rent
due to additional capital expenditures.

General and administrative expenses for year ended December 31, 1996 were
approximately $6,841,000 as compared with approximately $3,779,000 for year
ended December 31, 1995. The increase of 81% in general and administrative
expenses is attributable to the full operation of substantially all of the
Project. Advertising and marketing expense and other expenses due to the
expansion of the business also contributed to the increase.

Interest income for the year ended December 31, 1996 was approximately
$81,000 compared to approximately $1,581,000 for the year ended December 31,
1995. There was a decrease in interest income due to a decline in the cash
balance for 1996 as compared to 1995.

Interest expense for the year ended December 31, 1996 was approximately
$6,914,000 as compared to approximately $6,127,000 for the year ended December

12
<PAGE>

31, 1995. The increase is due to the fact that in 1995 the Company had a full
year of bond discount amortization, whereas in 1996 the Company had a half a
year of bond discount amortization and a half a year of interest expense payable
on the Notes.

During the year ended December 31, 1996, the Company incurred an operating
loss of approximately $6,472,000 as compared to an operating loss of
approximately $8,561,000 for the year ended December 31, 1995. After giving
effect to interest expense on the Company's senior indebtedness and other items
of income and expense, the Company's net loss for the year ended December 31,
1996 was approximately $13,777,000 as compared to approximately $13,579,000 for
the year ended December 31, 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
- ---------------------------------------------------------------------

Results Of Operation
- --------------------

Revenues for the year ended December 31, 1995 were approximately $7,939,000
as compared to approximately $5,541,000 for the year ended December 31, 1994.

Operating expenses for the year ended December 31, 1995 were approximately
$5,806,000 as compared to approximately $3,398,000 for the year ended December
31, 1994. This 71% increase is also due to the overall increase in operating
costs attributable to the expansion of the business.

Rent expense for the year ended December 31, 1995 was approximately
$6,915,000 as compared with approximately $4,716,000 in 1994. The primary reason
for the overall rent increase is due to the amortization of prepaid rent for a
full year in 1995 versus six months in 1994.

General and administrative expenses for year ended December 31, 1995 were
approximately $3,779,000 as compared with approximately $1,974,000 for year
ended December 31, 1994. The increase in general and administrative expenses is
attributable in part to the payment of management fees of $500,000 in 1995, a
full year, while in 1994 $250,000 was paid for six months. Advertising and
marketing expense and other expenses due to the expansion of the business also
contributed to the increase.

Interest income for the year ended December 31, 1995 was approximately
$1,581,000 compared to approximately $1,217,000 for the year ended December 31,
1994. A decrease in interest income due to a declining average cash balance for
1995 compared to 1994, was more than offset by an increase in interest income
due to capital invested for a full year in 1995 as opposed to six months in
1994.

Interest expense for the year ended December 31, 1995 was approximately
$6,127,000 as compared to approximately $2,849,000 for the year ended December
31, 1994. The increase is due to amortization of bond discount taken for a full
year in 1995 as opposed to six months in 1994.

13
<PAGE>

Capital Resources and Liquidity
- -------------------------------

The Company had significant capital requirements, principally related to
the renovation of the Chelsea Piers, the construction of improvements at the
Chelsea Piers to house the Company's operations, and the costs to be incurred in
operating and marketing the Company's businesses. The Company budgeted
approximately $60,370,000 as its capital budget for the renovation and
construction of improvements at the Chelsea Piers and for marketing and
financing costs related thereto. As is common in large scale construction
projects, certain elements of the Chelsea Piers construction project have been
more costly than had been anticipated, while others have been as costly or less
costly than anticipated, and certain expenditures for furniture, fixtures and
equipment have been deemed appropriate that were not originally budgeted for. In
addition, the Company's plans for the Field House component of the facility and
certain portions of the Sports Center at Chelsea Piers evolved in a way that the
Company believes will be advantageous to the overall performance of the Chelsea
Piers business. The cost of improvements and enhancements has resulted in an
increase in the overall construction cost of the facility, which the Company has
funded through the issuance of approximately $11,850,000 in additional
partnership equity interests in October, 1995. In January, 1996, the Company
received additional partnership equity of $964,000. The Company has decided to
defer major construction projects until a later period.

In June 1994, the Company was capitalized at an aggregate level of
approximately $61,957,000, consisting of $16,950,000 of partners' capital and
approximately $45,007,000 of net proceeds of discount first mortgage notes
payable (the "Notes"). The Company's agreements with the trustee for the Notes
provided for the release to the Company from time to time of the proceeds of the
Notes upon delivery to the trustee of certificates as to the application of such
proceeds to the payment of costs of improvements at the Chelsea Piers, and for
the release to the Company from time to time of the proceeds of the equity
contributions of the partners of the Company upon delivery to the trustee of
certificates as to the application of such proceeds to the payment of marketing
and opening expenses, development costs, overhead and operating expenses or
costs of issuance of the Notes.

The Company began principal construction of the Chelsea Piers complex in
July, 1994. As of December 31, 1995, disbursements from the Note proceeds had
been expended in its entirety. In accordance with the terms of the Collateral
Trust Agreement, disbursements were made to cover placement fees, title
insurance, certain architectural and engineering fees and construction costs.
The Company utilized the proceeds from the partnership equity offerings to fund
additional expenditures. In October, 1995, the Company issued additional limited
partner interests resulting in proceeds to the Company of approximately
$12,814,000 (of which approximately $964,000 was received by the Company in
January, 1996).

The principal construction of the Chelsea Piers has been completed.
However, the Company continues to incur significant expenditures for capital
improvements. The Company has an agreement with its general contractor, whereby
the Company is to pay $1,200,000 in 1997 and $700,000 in 1998 relating primarily
to construction services previously rendered by such contractor at the Chelsea
Piers. The Company has temporarily suspended payments to such contractor, due to

14
<PAGE>

the cash constraints described below. In 1997, the Company has also contracted
for $2 million in new electrical service infrastructure at the Chelsea Piers to
ensure sufficient capacity for present and future needs. This work must be done
in 1997. The Company has entered into a payment schedule with the electrical
contractor which obligates the Company to make payments of $962,000 in 1997,
$873,000 in 1998 and $218,000 in 1999. The Company has also undertaken a
substantial program of repair and maintenance of the pilings supporting its pier
structures with a budgeted cost of $300,000 - $500,000.

As permitted by the Indentures, during 1996, the Company entered into a
demand working capital grid note with a bank, with maximum borrowings up to
$1,000,000. The note bears interest of 2.5% above LIBOR and is guaranteed by
Roland W. Betts, the Chairman of Management. At December 31, 1996, no amounts
were outstanding on the note. In January, 1997, the Company borrowed $900,000
under the terms of such grid note and applied the proceeds to make permitted
prepayments under the Promissory Notes (as hereinafter defined).

The Company has incurred significant recurring losses from operations since
inception. For the year ended December 31, 1996, the Company reported a net loss
of approximately $13.8 million, a working capital deficit of $5.7 million and
partners' deficit of $4.1 million. Management believes that the Company's poor
operating results are primarily attributable to the Project being in its early
stages of operation. The Company has also incurred higher than anticipated
capital expenditures in connection with the construction of the Project, which,
together with the recurring losses from operations, has placed a significant
cash burden on the Company. The proceeds of the issuance of the Notes and the
equity contributions of the partners of the Company have been expended, and the
Company will depend upon improved operations and the reduction of its costs of
capital to be able to generate the cash flow the Company needs to meet its
obligations. The Company is seeking to refinance its long term indebtedness to
reduce the interest costs that the Company is currently incurring, but there can
be no assurance that the Company will be successful in that effort. The
Company's auditors have raised concern in their Report of Independent Certified
Public Accountants, a copy of which is included with the Company's audited
consolidated financial statements filed herewith, regarding the ability of the
Company to continue as a going concern in light of recurring losses from
operations suffered by the Company. See Note 2 to the Company's financial
statements.

The Company was able to make the interest payment due on the Notes on
December 16, 1996, in a timely manner using the proceeds of additional
indebtedness permitted under the Indentures and advanced by Roland W. Betts and
Tom A. Bernstein. Such financing is described below. The Company expects that in
the absence of the availability of additional financing or the reduction of the
interest costs associated with its long term debt, the Company will not have the
resources to make its interest payments due June 15, 1997, in respect of the
Notes. There is no assurance that any such additional financing will be
available at that time.

In December, 1996, Roland W. Betts and Tom A. Bernstein (collectively, the
"Holder"), principals of Management, the general partner of the Company,
advanced to the Company the following amounts evidenced by two promissory notes.
The Company executed (i) a promissory note (the "Capital Expenditures Promissory
Note"), in favor of the Holder, dated as of December 16, 1996, in the principal

15
<PAGE>

amount of $1,951,623.17; and (ii) a promissory note (the "Equipment Financing
Promissory Note"; and together with the Capital Expenditures Promissory Note,
the "Promissory Notes"), in favor of the Holder, dated as of December 16, 1996,
in the principal amount of $1,590,201.83. The Company used the proceeds of the
Promissory Notes to make its December, 1996 interest payment under the Notes.

As permitted by the terms of the Indentures, the Capital Expenditures
Promissory Note represents an amount loaned to the Company in respect of certain
capital expenditures undertaken by the Company. Pursuant to the terms of the
Indentures, to secure the obligations of the Company to the Holder under the
Capital Expenditures Promissory Note, the Company has granted a second priority
lien and security interest in certain non-real estate collateral of the Company,
subject and subordinate in all respects to the security interest granted to the
Trustee under the Collateral Documents (as each such term is defined in the
Indentures).

As permitted by the terms of the Indentures, the Equipment Financing
Promissory Note represents an amount loaned to the Company in respect of the
cost of equipment described on a schedule attached to such promissory note
("Equipment"), acquired by the Company within the twelve month period prior to
December 16, 1996. Pursuant to the terms of the Indentures, to secure the
obligations of the Company to the Holder under the Equipment Financing
Promissory Note, the Company has granted a first priority lien and security
interest in all rights, title and interest of the Company in and to the
Equipment, subject and subordinate in all respects to the security interest
granted to the Trustee under the Collateral Documents (as each such term is
defined in the Indentures).

The Company may prepay the principal amount of each Promissory Note, in
whole or part, at any time without penalty. In January and February 1997, the
Company made an aggregate payment of $1.6 million under the Promissory Notes. As
funds become available in the future, the Company intends to repay the
Promissory Notes in full.

Each Promissory Note matures on the fifth anniversary of the date of such
promissory note (the "Maturity Date") and each Promissory Note accrues interest
at a rate per annum equal to 12.5%, compounded quarterly ("Interest Rate"). All
accrued and unpaid interest will be due and payable commencing on April 1, 1997
and on each January 1, April 1, July 1 and October 1 thereafter. The Company has
the right under each Promissory Note to defer its interest payment obligations
for any calendar quarter until the Maturity Date without penalty; provided that
interest on such Promissory Note continues to accrue at the Interest Rate.
Pursuant to the terms of the Capital Expenditures Promissory Note, the Company
will not be required to make a principal payment in respect of such promissory
note in an amount in excess of two million dollars in any calendar year if at
the time of such payment the Indentures remain in full force and effect.

16
<PAGE>

The terms of each Promissory Note require that they be construed and
applied so as to be consistent with, and not to result in a default by the
Company under, the terms and conditions of the Indentures.

A copy of the Capital Expenditure Promissory Note and the Equipment
Financincg Promissory Note are attached hereto as Exhibit 10.25 and Exhibit
10.26 respectively and the terms thereof are incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the financial statements referenced in Item 14 of this annual report.

ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

17
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Chelsea Piers L.P. is a limited partnership managed by Management and has
no officers or directors. The following table sets forth the name, age,
position, and term of office of each executive officer, director and significant
employee of Funding and Management:

Name Age Position
- ---- --- --------

Roland W. Betts 50 Director, Chairman and Secretary of Funding;
and Director, Chairman and Secretary of
Management

Tom A. Bernstein 44 Director, President and Treasurer of Funding;
and Director, President and Treasurer of
Management

David A. Tewksbury 35 Director and Executive Vice President of
Funding; and Director and Executive Vice
President of Management

Barbara Stubenrauch 58 Senior Vice President of Management

Richard S. Kasof 54 First Vice President of Management

Dana B. Thayer 40 First Vice President, Marketing of Management

Keith C. Champagne 41 Vice President, Operations of Management

Liz Brevetti 32 Vice President and Director of Special Events

Lisa M. LePore 28 Assistant Vice President of Finance

Directors of Funding and Management are elected annually to serve until the
next annual meeting of stockholders or until their successors have been elected
and qualified.

The Company operates as a single entity through operating divisions.
Management is the general partner of the Company and is responsible for the
operation and oversight of the Chelsea Piers complex.

Business Experience
- -------------------

The following information summarizes the business experience of each
executive officer, director and significant employee of Funding and Management
during the past five years.

18
<PAGE>

Roland W. Betts, 50, Chairman of Management and Chairman of Funding, is the
founder of Silver Screen Management, Inc. and the affiliated Silver Screen
companies. Mr. Betts is and has been the President, Treasurer, a Director and
principal shareholder of Silver Screen Management, Inc., the managing general
partner of Silver Screen Partners, Silver Screen Partners II and Silver Screen
Partners III, and of Silver Screen Management Services, Inc., the managing
general partner of Silver Screen Partners IV since the formation of each such
entity. Since 1983, the Silver Screen partnerships, taken as a whole, have
raised approximately $1 billion from 140,000 investors and have produced 74
films with Home Box Office, Inc. and The Walt Disney Company. These films
include such box office successes as Beauty and The Beast, Pretty Woman, The
Little Mermaid and Three Men and A Baby. Mr. Betts is also the President of
International Film Investors, Inc., which is the managing general partner of
International Film Investors, L.P., a limited partnership active in film
financing from 1978 to 1985. Films financed and produced by International Film
Investors include Gandhi and The Killing Fields. Mr. Betts is the largest owner
of the Texas Rangers Baseball Club.

Mr. Betts graduated from Yale University in 1968. He taught school at I.S.
201 in Central Harlem and trained teachers as part of a not-for-profit
corporation, The Teachers Incorporated. Mr. Betts remained in public education
as a teacher and served as an assistant principal until 1975. Mr. Betts wrote
Acting Out: Coping with Big City Schools, a book published by Little Brown in
1978 which explores his experience in the public school system.

After graduating from Columbia Law School in 1978, Mr. Betts practiced law
in the Entertainment Department at Paul, Weiss, Rifkind, Wharton & Garrison
until leaving to finance movies.

Mr. Betts also serves in the following pro bono capacities: Trustee of the
New York City Parks Foundation; Trustee of The Parks Council; Trustee of the
American Museum of Natural History; Trustee of the Santa Fe Art Institute;
member of the Board of Governors of Columbia University; member of the Buildings
and Grounds Committee of the Yale Corporation and member of the Board of
Directors of the United States Olympic Committee.

Tom A. Bernstein, 44, President and Treasurer of Management and President
and Treasurer of Funding, is a director, principal shareholder, Secretary and
Executive Vice President of Silver Screen Management, Inc. and Silver Screen
Management Services, Inc. Mr. Bernstein is one of the principal owners of the
Texas Rangers Baseball Club.

In 1984, Mr. Bernstein produced the motion picture Sakharov for Home Box
Office, Inc. The film was the most honored show at the Seventh Annual Awards for
Cable Excellence, winning four major awards including Best Movie or Miniseries.
From 1978 to 1983, Mr. Bernstein was an attorney with the Entertainment
Department of the law firm of Paul, Weiss, Rifkind, Wharton & Garrison in New
York. From 1977 to 1978, he served as a law clerk for the Honorable Jack B.

19
<PAGE>

Weinstein in federal district court in New York. Mr. Bernstein graduated summa
cum laude from Yale College in 1974 and from Yale Law School in 1977, where he
was an Editor of the Yale Law Journal.

Mr. Bernstein is President of the Board of Directors of The Lawyers
Committee for Human Rights. Formed in 1978, the Lawyers Committee works around
the world to protect and promote fundamental human rights. The Committee has a
staff of 35 persons and an annual budget of roughly $3 million. He is also a
member of the Board of Directors of the WNYC Foundation which supports two
public radio stations, WNYC-AM and WNYC-FM (the homes of National Public Radio
in New York). In addition, Mr. Bernstein is a member of the Council on Foreign
Relations and a member of the Visiting Committee of The New School for Social
Research.

David A. Tewksbury, 35, has been Executive Vice President and principal of
Management, the managing general partner of the Company, since January 1, 1993.
Mr. Tewksbury's responsibilities at Management during the development phase
included the daily oversight of the Project development team (architect,
engineers, general contractor, etc.), and construction. Working closely with Mr.
Betts and Mr. Bernstein, Mr. Tewksbury has coordinated and guided the start-up
of all Chelsea Piers operations. He also works closely with Mr. Betts and Mr.
Bernstein in negotiating contracts and leases for businesses wishing to
establish operations at Chelsea Piers, including Spirit Cruises, Universal
Television, DreamWorks SKG and AMF Bowling Center, Inc.

Mr. Tewksbury graduated from Yale University in 1983 with a B.A. in
Economics. Prior to his full time involvement on the Chelsea Piers Project, Mr.
Tewksbury was a Director of Cushman & Wakefield, Inc., a national commercial
real estate services firm. During his tenure there, his primary focus was the
leasing and managing commercial office space in the New York City (Manhattan)
market.

From 1989 through mid-1993, Mr. Tewksbury served pro-bono as the President
of the Board of Directors of Sky Rink Winter Games Training Facilities, Inc., a
not-for-profit organization, which operated Sky Rink, New York's city only
year-round indoor ice skating arena. He continues to serve as President of this
organization which now financially supports New York City youths who wish to
participate in various Sky Rink programs.

Barbara Stubenrauch, 58, Senior Vice President, Management. Ms. Stubenrauch
has also been a Senior Vice President of Silver Screen Management, Inc. since
April 1985 and from April 1983 until April 1985 she was a Vice President of that
company. She also serves as the controller of International Film Investors, Inc.
Prior to such association, which began in 1981, Ms. Stubenrauch was a credit
manager at James Thompson & Company, Inc.

Richard S. Kasof, CPA, 54, First Vice President, Tax, Management, and
Silver Screen Management, Inc. Prior to joining Silver Screen in 1990, Mr. Kasof
was a partner at Laventhol & Horwath, where as part of his responsibilities he

20
<PAGE>

served as tax consultant to the Silver Screen partnerships. He is a graduate of
Baruch College of the City University of New York.

Dana B. Thayer, 40, First Vice President, Marketing, Management. Ms. Thayer
has also been a Vice President of Silver Screen Management, Inc. since 1988.
From October 1986 until July 1988 she was an Assistant Vice President. Prior to
that time, Ms. Thayer was employed by Cappy Productions, Inc., a New York-based
sports film production company, from 1981 to 1984, and KQED, a public
broadcasting station, from 1979 to 1981. She is a graduate of Williams College
and the Columbia Business School.

Keith C. Champagne, 41, Vice President, Operations, Management. Mr.
Champagne has also been a Vice President of Silver Screen Management, Inc. since
1985. Mr. Champagne joined Silver Screen Management in June 1983. He is a
graduate of Louisiana State University.

Liz Brevetti, 32, Vice President and Director of Special Events. Ms.
Brevetti has also been a Vice President of Silver Screen Management, Inc. since
April 1993. Prior to that, Ms. Brevetti was a Director of Investor Relations.
She joined Silver Screen Management in September 1987. Ms. Brevetti is a
graduate of the School of Communications at Ithaca College.

Lisa M. LePore, 28, Assistant Vice President Finance, Management and Silver
Screen Management, Inc. Prior to joining Chelsea Piers L.P. in 1996, Ms. LePore
was a Manager of Finance at Viacom New Media, a New York based video/computer
developer. She is a graduate of Fairleigh Dickinson University.

Involvement in Legal Proceedings
- --------------------------------

No legal proceedings have occurred during the past five years that are
material to an evaluation of the ability or integrity of any director, person
nominated to become a director, or executive officer of Funding or Management,
nor has any such event occurred with respect to any promoter or control person
of Funding or Management during the past five years that is material to a voting
or investment decision.

ITEM 11. EXECUTIVE COMPENSATION.

The Company has no executive officers or employees whose compensation
exceeded $100,000 in 1996. The executive function of the Company is discharged
by Management. See Item 13.

The Partnership Agreement provides that certain expenses incurred by the
Company, including, among other things, legal, auditing and accounting expenses,
and the expenses of preparing and distributing reports to the Limited Partners,
will be billed to and paid by the Company. Subject to restrictions contained in
the Partnership Agreement, Management has been reimbursed for certain
administrative services.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The authorized capital stock of Funding consists of one hundred shares of
common stock. As of December 31, 1996, all of Funding's common stock was issued
and outstanding and held beneficially and of record by the Company.

Management has a single class of common stock, which is owned 37.5% by
Roland W. Betts, 37.5% by Tom A. Bernstein and 25% by David A. Tewksbury. There
is no shareholders' agreement or other agreement relating to the ownership of
the common stock of Management.

The following table sets forth the security ownership of limited partner
interests by all officers and directors of Management and Funding and by
beneficial owners of more than five (5%) percent of such interests:

21
<PAGE>

Percentage Interest Capital
Name of Limited Partner in Company Contribution
- ----------------------- ---------- ------------

Roland W. Betts* 21.22% $ 6,336,437.50

Tom A. Bernstein* 15.19% 4,536,437.50

David A. Tewksbury* 1.53% 457,625.00

Lerner Enterprises
Chelsea Piers, L.P. 9.92% 2,963,889.00

* Messrs. Betts, Bernstein and Tewksbury are the sole shareholders and
directors of Management.

Some of the limited partners of the Company may be deemed to be
"controlling persons" with respect to the Company and Funding within the meaning
of Section 15 of the Securities Act.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company is obligated to pay to Management a management fee in an amount
equal to $500,000 for each of the first two twelve-month periods commencing on
July 1, 1994, $1.0 million for each of the third and fourth such twelve-month
periods, $1.5 million for the fifth such twelve-month period, and for each
subsequent twelve-month period an amount equal to the management fee for the
immediately preceding twelve-month period increased by the Consumer Price Index.
This management fee is required to be paid monthly in arrears. Management is
solely responsible for the payment of salaries to Messrs. Betts, Bernstein and
Tewksbury. The Company has no executive employees whose compensation exceeds
$100,000 per annum.

Management has contributed 1% of the initial equity capitalization of the
Company, and will be entitled, pursuant to the agreement of limited partnership
of the Company, to receive 1% of all cash distributions made by the Company
until the time at which the Company has made aggregate distributions equal to
the amount of capital invested in the Company by its limited partners (currently
$29,863,889). After such time, Management is entitled to receive 15% of all such
cash distributions.

The Company has executed the Capital Expenditures Note and the Equipment
Note, each dated as of December 16, 1996, in favor of Roland W. Betts and Tom A.
Bernstein. A copy of the Capital Expenditure Promissory Note and the Equipment
Financing Promissory Note are attached hereto as Exhibit 10.25 and Exhibit 10.26
respectively and the terms thereof are incorporated herein by reference. See
Item 7 hereof.

Also See Items 10, 11 and 12 hereof.

22
<PAGE>

PART IV

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

(a)1. Consolidated Financial Statements

The following consolidated financial statements of Chelsea Piers L.P. (a
Limited Partnership) and its wholly-owned subsidiary, CP Funding Corp., are
included pursuant to Item 8 hereof:

Page
----

Report of Independent Certified Public Accountants ........ F-1

Balance sheets as of December 31, 1996 and 1995 ........... F-2

Statement of operations for the years ended
December 31, 1996, 1995 and 1994 .............. F-3

Statement of partners' equity (deficit) for
the years ended December 31, 1996,
1995 and 1994 ................................... F-4

Statement of cash flows for the years ended
December 31, 1996, 1995 and 1994 ................. F-5

Notes to Financial Statements ............................. F-6-15

(a)2. Financial Statement Schedules

Schedules have been omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.

(a)3. Exhibits

Exhibit 4 -- Instruments defining the rights of security-holders*

- --------
* Incorporated by reference to Exhibits 4.1 through 4.8 of the Registrants'
registration statement filed under the Securities Act of 1933, as amended (no.
33-83762)

23
<PAGE>

Exhibit 10 -- Material Contracts**

Exhibit 10.24 -- Lease Amendment***

Exhibit 10.25 -- Capital Expenditure Promissory Note

Exhibit 10.26 -- Equipment Financing Promissory Note

Exhibit 21 -- Subsidiaries of the registrant****

(b) Reports on Form 8-K

The Company and CP Funding have filed the following two reports on Form 8-K
during the last quarter of the period covered by this annual report:

Form 8-K dated October 30, 1996 regarding Lease Amendment.

Form 8-K dated January 28, 1997 regarding the Capital Expenditure Note and
the Equipment Note.

- --------
** Incorporated by reference to Exhibits 10.1 through 10.23 of the
Registrants' registration statement filed under the Securities Act of
1933, as amended (no. 33-83762)
*** Incorporated by reference to Exhibit 10.24 of the Registrants' current
report on Form 8-K dated October 30, 1996.
**** Incorporated by reference to Exhibit 21 of the Registrants'
registration statement filed under the Securities Act of 1933, as
amended (no. 33-83762)

24
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have caused this Report to be signed on
their behalf by the undersigned thereunto duly authorized on the 31st day of
March, 1997.

CP FUNDING CORP.

By: /s/ Tom A. Bernstein
-----------------------------------
Tom A. Bernstein, President

CHELSEA PIERS L.P.
A New York limited partnership

By: Chelsea Piers Management Inc.,
Managing General Partner

By: /s/ Tom A. Bernstein
-----------------------------------
Tom A. Bernstein, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrants in
the capacities indicated on March 31, 1997.

/s/Roland W. Betts Chairman of the Board, Secretary and Director
- ------------------ of CP Funding Corp.; and Chairman of the
Roland W. Betts Board, Secretary and Director of Chelsea Piers
Management Inc.

/s/Tom A. Bernstein President, Treasurer and Director of CP
- ------------------- Funding Corp.; and President, Treasurer and
Tom A. Bernstein Director of Chelsea Piers Management Inc.

/s/David A. Tewksbury Executive Vice President and Director of CP
- --------------------- Funding Corp.; and Executive Vice President
David A. Tewksbury and Director of Chelsea Piers Management Inc.

25
<PAGE>

PROMISSORY NOTE

$1,951,623.17 December 16, 1996

For value received, the undersigned, Chelsea Piers L.P., a New York limited
partnership having its principal place of business at Chelsea Piers - Pier 62,
Suite 300, New York, New York 10011 (hereinafter referred to as "Maker"), hereby
promises to pay to the order of Roland W. Betts and Tom A. Bernstein
(hereinafter collectively referred to as "Holder"), at Chelsea Piers - Pier 62,
Suite 300, New York, New York 10011, or at such other address as Holder may
designate from time to time in a notice given to Maker, the principal amount of
One Million Nine Hundred Fifty-One Thousand Six Hundred Twenty-Three Dollars and
Seventeen Cents ($1,951,623.17) representing an amount loaned by Holder to Maker
in respect of capital expenditures undertaken by Maker during 1996 at Chelsea
Piers and financed by Maker through working capital, together with interest on
the unpaid principal balance thereof at the rate hereinafter provided, all of
which payments shall be paid in lawful money of the United States of America
which shall be legal tender for the payment of all debts, public or private, at
the time of payment, and shall be due and payable as follows:

A. During the period commencing on the date of this Note first above
written and continuing through and including the fifth anniversary of
the date first above written ("the Maturity Date"), interest shall
accrue on the outstanding principal balance of this Note at a rate per
annum which is equal to 12.5%, compounded quarterly ("Interest Rate").

B. All accrued and unpaid interest shall be due and payable, in arrears,
commencing on April 1, 1997 and on each January 1, April 1, July 1 and
October 1 thereafter (each, an "Interest Payment Date"), through and
including the Maturity Date; provided, however, that Maker may by
notice given to Holder elect to defer its interest payment obligations
hereunder for any calendar quarter without premium or penalty and
interest shall continue to accrue on the Note at the Interest Rate.

C. Maker may prepay the principal amount of this Note, in whole or in
part, at any time without premium or penalty; provided, however, Maker
shall in no event make a principal payment in respect of this Note in
an amount in excess of two million dollars in any calendar year if at
the time of such payment the Indentures (as hereinafter defined) remain
in full force and effect.

D. On the Maturity Date, an amount equal to any remaining principal
balance of this Note plus any accrued and unpaid interest, shall be due
and payable; provided, however, Maker may by notice given to Holder

P-I-1
<PAGE>

elect to extend the Maturity Date of the Note as to all or any portion
of such principal balance for such period of time as it shall elect
without premium or penalty. Any such extension of the final maturity
date of the Note shall thereafter be deemed the "Maturity Date" for
purposes of this Note. If the Maturity Date shall occur at a time when
the Indentures (as hereinafter defined) remain in effect, Maker shall
be deemed to have elected to extend to the first day of the following
calendar year the Maturity Date as to that portion of the remaining
principal balance as is necessary so that no more than two million
dollars of the principal amount hereof is due in any calendar year.

All amounts paid or payable to Holder shall be paid 50% to Roland W. Betts
and 50% to Tom A. Bernstein. All amounts received by Holder with respect to this
Note are to be applied first to any accrued and unpaid interest on the principal
balance of this Note, then toward any amounts (other than principal and
interest) due pursuant to this Note, and then to the outstanding principal
balance of this Note. Interest shall be computed based on the actual number of
days elapsed in a 365-day year. If any payment required hereunder becomes due
and payable on a Saturday, Sunday or legal holiday or a day on which banking
institutions are authorized to close in New York State, the due date of such
payment shall be extended to the next succeeding business day and, during such
extension, interest shall continue to accrue and shall be payable at the rate
per annum specified in Paragraph A above. "Indentures" as used herein shall mean
the (i) the Indenture, dated as of June 27, 1994, between Maker and The Bank of
New York relating to the 12.5% A Discount First Mortgage Notes Due 2004, and
(ii) the Indenture, dated as of June 27, 1994, between Maker and The Bank of New
York relating to the 11% B Discount First Mortgage Notes Due 2009.

The failure of Maker to pay any installment of principal or interest or any
other amount required by this Note, which failure remains uncured for more than
10 working days after the receipt by Maker of notice from Holder of such
nonpayment, shall constitute a "Note Event of Default."

Holder shall be entitled during the pendency of a Note Event of Default, by
notice to Maker, to declare the entire unpaid principal amount of this Note, and
all accrued and unpaid interest thereon immediately due and payable. Presentment
for payment, demand, protest and further notice of any kind, are all hereby
expressly waived by Maker. Forbearance by Holder in exercising its right to
accelerate the maturity of this Note shall not constitute a waiver of Holder's
right to do so at any time with respect to any subsequent Note Event of Default.
No cure by Maker shall limit or restrict the rights or remedies of Holder as to
subsequent Note Events of Default.

P-I-2
<PAGE>

proceeds of the foregoing ("Collateral"), subject and subordinate in all
respects to the security interest granted to the Trustee under the Collateral
Documents. In no event shall the security interest granted hereunder be deemed
to extend to any property that constitutes real property under applicable law.

From and after, and during the continuance of, a Note Event of Default,
Holder shall be entitled to exercise all of the rights and remedies of a secured
party available under the Uniform Commercial Code of the State of New York for
the protection and enforcement of its rights in respect of the Collateral.

Anything to the contrary herein notwithstanding, the terms of this Note
shall be construed and applied so as to be consistent with, and not to result in
a default by the Maker under, the terms and conditions of the Indentures and the
Collateral Documents (defined herein as such term is defined in the Indentures).
In the event of any conflict between the terms hereof and the terms of the
Indentures or the Collateral Documents, the terms hereof shall be deemed to have
been reformed so as to eliminate any such conflict.

Notwithstanding any provision to the contrary contained in this Note, the
total obligation for payments which are legally regarded as interest shall not
exceed the maximum limits imposed by applicable state and federal laws in effect
on the date hereof.

Maker waives all notices, demands for payment, presentment for payment,
notice of dishonor, notice of protest, protest, and diligence in collection as
to this Note and as to each, every and all installments hereof, and agrees that
the granting to Maker of any extension or extensions of time for the payment of
any sum or sums due pursuant to this Note shall not in any way release or affect
the liability of Maker. Maker shall pay Holder all sums which are payable
pursuant to the terms of this Note without setoff, recoupment or deduction of
any kind or for any reason whatsoever.

No provision of this Note may be waived, changed, modified, amended or
discharged orally; only a written agreement which is signed by the party against
whom enforcement of any waiver, change, modification, amendment or discharge is
sought shall be effective.

This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York.

This Note may not be assigned to any person or entity by Holder without the
express prior written consent of Maker.

Whenever used in this Note, the term "Maker" shall refer to the Maker named
in this Note, its legal representatives, successors and assigns. Whenever used
in this Note, the term "Holder" shall refer to the Holder named in this Note and
their legal representatives, successors and permitted assigns. The pronouns used
in this Note shall include, when appropriate, either gender and both singular
and plural.

P-I-3
<PAGE>

Any notice required or permitted to be given by this Note shall be given in
writing and be effective and shall be deemed received three days after its
deposit, postage prepaid and registered or certified with return receipt
requested, in the United States mail, addressed to Maker or Holder at the
address set forth above, or upon its delivery and receipt by hand at the address
set forth above, or to such other address as each party may designate for itself
by notice given in accordance with this paragraph.

IN WITNESS WHEREOF, Maker has executed this Note by its duly authorized
representative on the day and year first above written.

MAKER:

CHELSEA PIERS L.P.

By: Chelsea Piers Management Inc.,
as General Partner

By: /s/ Roland W. Betts
-----------------------------------
Name: Roland W. Betts
Title: Chairman

P-I-4
<PAGE>

PROMISSORY NOTE

$1,590,201.83 December 16, 1996

For value received, the undersigned, Chelsea Piers L.P., a New York limited
partnership having its principal place of business at Chelsea Piers - Pier 62,
Suite 300, New York, New York 10011 (hereinafter referred to as "Maker"), hereby
promises to pay to the order of Roland W. Betts and Tom A. Bernstein
(hereinafter collectively referred to as "Holder"), at Chelsea Piers - Pier 62,
Suite 300, New York, New York 10011, or at such other address as Holder may
designate from time to time in a notice given to Maker, the principal amount of
One Million Five Hundred Ninety Thousand Two Hundred One Dollars and
Eighty-Three Cents ($1,590,201.83) representing an amount loaned by Holder to
Maker to finance the cost of equipment ("Equipment"), as set forth on Schedule I
attached hereto, acquired by Maker within the twelve month period prior to the
date hereof, together with interest on the unpaid principal balance thereof at
the rate hereinafter provided, all of which payments shall be paid in lawful
money of the United States of America which shall be legal tender for the
payment of all debts, public or private, at the time of payment, and shall be
due and payable as follows:

B. All accrued and unpaid interest shall be due and payable, in arrears,
commencing on April 1, 1997 and on each January 1, April 1, July 1 and
October 1 thereafter (each, an "Interest Payment Date"), through and
including the Maturity Date; provided, however, that Maker may by
notice given to Holder elect to defer its interest payment obligations
hereunder for any calendar quarter until the Maturity Date without
premium or penalty and interest shall continue to accrue on the Note at
the Interest Rate.

C. Maker may prepay the principal amount of this Note, in whole or in
part, at any time without premium or penalty.

D. On the Maturity Date, an amount equal to any remaining principal
balance of this Note plus any accrued and unpaid interest, shall be due
and payable.

All amounts paid or payable to Holder shall be paid 50% to Roland W. Betts
and 50% to Tom A. Bernstein. All amounts received by Holder with respect to this

P-II-1
<PAGE>

Note are to be applied first to any accrued and unpaid interest on the principal
balance of this Note, then toward any amounts (other than principal and
interest) due pursuant to this Note, and then to the outstanding principal
balance of this Note. Interest shall be computed based on the actual number of
days elapsed in a 365-day year. If any payment required hereunder becomes due
and payable on a Saturday, Sunday or legal holiday or a day on which banking
institutions are authorized to close in New York State, the due date of such
payment shall be extended to the next succeeding business day and, during such
extension, interest shall continue to accrue and shall be payable at the rate
per annum specified in Paragraph A above. "Indentures" as used herein shall mean
the (i) the Indenture, dated as of June 27, 1994, between Maker and The Bank of
New York relating to the 12.5% A Discount First Mortgage Notes Due 2004, and
(ii) the Indenture, dated as of June 27, 1994, between Maker and The Bank of New
York relating to the 11% B Discount First Mortgage Notes Due 2009.

This Note is a full recourse Note, provided that in no event shall any
general or limited partner of Maker have any liability to Holder hereunder. To
secure this Note and the obligations of Maker hereunder, Maker hereby grants to
Holder a first priority lien and security interest in all rights, title and
interest of Maker in the Equipment ("Collateral"), subject and subordinate in
all respects to the security interest granted to the Trustee under the
Collateral Documents. In no event shall the security interest granted hereunder
be deemed to extend to any property that constitutes real property under
applicable law. Maker and Holder agree that, at any time after the date hereof,
if any further action is necessary in the judgment of Holder to perfect or
maintain such security interests, then Maker shall take such further action,
including the execution and delivery of such further instruments and documents
as Holder may reasonably request.

P-II-2
<PAGE>

This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York.

This Note may not be assigned to any person or entity by Holder without the
express prior written consent of Maker.

P-II-3
<PAGE>

IN WITNESS WHEREOF, Maker has executed this Note by its duly authorized
representative on the day and year first above written.

MAKER:

CHELSEA PIERS L.P.

By: Chelsea Piers Management Inc.,
as General Partner

By: /s/ Roland W. Betts
----------------------------------
Name: Roland W. Betts
Title: Chairman

P-II-4
<PAGE>

CHELSEA PIERS L.P.
AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

F-i
<PAGE>

Chelsea Piers L.P.
and Subsidiary

Contents

Report of independent certified public accountants ............... F-1

Consolidated financial statements:
Balance sheets ................................................ F-2
Statements of operations ...................................... F-3
Statements of partners' equity (deficit) ...................... F-4
Statements of cash flows ...................................... F-5
Notes to consolidated financial statements .................... F-6 - F-17

F-ii
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Chelsea Piers L.P.
New York, New York

We have audited the accompanying consolidated balance sheets of Chelsea
Piers L.P. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, partners' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company'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.

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

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has suffered recurring
losses from operations and at December 31, 1996 has deficiencies in working
capital and partners' equity of approximately $5.7 million and $4.1 million,
respectively. These matters raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ BDO Seidman, LLP
------------------------
BDO Seidman, LLP

New York, New York
February 12, 1997

F-1
<PAGE>

CHELSEA PIERS L.P.
AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31, 1996 1995
- ------------ ------------ ------------

ASSETS
Current:
Cash and cash equivalents .................. $ 308,971 $ 8,128,625
Accounts receivable ........................ 317,853 163,134
Inventory (Note 1) ......................... 101,531 --
Prepaid insurance .......................... 640,317 306,488
Due from related parties ................... -- 43,190
Preopening costs (Note 1) .................. -- 723,420
------------ ------------
Total current assets ................. 1,368,672 9,364,857

Property and equipment, at cost,
less accumulated depreciation
(Notes 1 and 3) ............................. 2,482,708 1,949,101
Prepaid rent (Notes 1 and 5) ................. 52,185,238 49,893,481
Financing costs, less accumulated
amortization of $1,185,483
and $713,581, respectively
(Notes 1 and 4) ............................. 3,533,536 4,005,438
Deferred rent (Notes 1 and 5) ................ 1,708,743 1,243,001
Other assets ................................. 209,850 213,850
------------ ------------
$ 61,488,747 $ 66,669,728
============ ============

LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current:
Notes payable - partners (Note 8) .......... $ 3,541,825 $ --
Accounts payable and accrued expenses ...... 1,255,790 860,916
Construction costs payable -
current (Note 6) .......................... 1,248,888 2,352,876
Deferred revenues (Note 1) ................. 541,879 504,067
Interest payable ........................... 295,152 --
Due to related parties ..................... 137,031 --
------------ ------------
Total current liabilities ............. 7,020,565 3,717,859

Construction costs payable -
long-term (Note 6) .......................... 1,339,545 --
Discount First Mortgage Notes payable,
net of discount of $ -0- and
$3,053,075, respectively
(Notes 1 and 4) ............................. 57,040,000 53,986,925
Other liabilities ............................ 231,901 295,250
------------ ------------
Total liabilities ..................... 65,632,011 58,000,034

Commitments and contingencies
(Notes 1, 4, 5, 6, 7, 8 and 9)
Partners' equity (deficit):
General partner ............................ (169,571) (31,803)
Limited partners ........................... (3,973,693) 8,701,497
------------ ------------
Total partners' equity (deficit) ...... (4,143,264) 8,669,694
------------ ------------
$ 61,488,747 $ 66,669,728
============ ============

See accompanying notes to consolidated financial statements.

F-2
<PAGE>

CHELSEA PIERS L.P.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended December 31, 1996 1995 1994
------------ ------------ ------------

Revenues (Notes 5, 10 and 11) .. $ 22,061,356 $ 7,939,071 $ 5,540,919
Expenses:
Operating expenses .......... 13,002,675 5,805,757 3,397,924
Rent (Note 5) ............... 8,689,721 6,915,686 4,715,761
General and administrative .. 6,841,376 3,778,764 1,973,744
------------ ------------ ------------
Total expenses ......... 28,533,772 16,500,207 10,087,429
------------ ------------ ------------
Loss from operations ... (6,472,416) (8,561,136) (4,546,510)
Other (expense) income:
Interest income ............. 81,299 1,581,432 1,216,938
Interest expense ............ (6,913,829) (6,126,996) (2,848,752)
Financing costs ............. (471,901) (471,812) (260,769)
------------ ------------ ------------
Net loss ....................... $(13,776,847) $(13,578,512) $ (6,439,093)
============ ============ ============

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

CHELSEA PIERS L.P.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 1996, General Limited
1995 AND 1994 Partner Partners Total
- ------------------------------ ------------ ------------ ------------
Balance, January 1, 1994 ....... $ (1,127) $ (111,574) $ (112,701)
Partners' capital contribution . 169,500 16,780,500 16,950,000
Net loss ....................... (64,391) (6,374,702) (6,439,093)
------------ ------------ ------------
Balance, December 31, 1994 ..... 103,982 10,294,224 10,398,206
Partners' capital contribution . -- 11,850,000 11,850,000
Net loss ....................... (135,785) (13,442,727) (13,578,512)
------------ ------------ ------------
Balance, December 31, 1995 ..... (31,803) 8,701,497 8,669,694
Partners' capital contribution . -- 963,889 963,889
Net loss ....................... (137,768) (13,639,079) (13,776,847)
------------ ------------ ------------
Balance, December 31, 1996 ..... $ (169,571) $ (3,973,693) $ (4,143,264)
============ ============ ============

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

CHELSEA PIERS L.P.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTES 1 AND 12)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ----------------------- ------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,776,847) $(13,578,512) $(6,439,093)
------------ ------------ -----------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation ................... 840,566 369,574 7,061
Amortization ................... 10,916,501 11,775,191 5,645,364
Decrease (increase) in:
Accounts receivable ......... (154,719) (75,339) (49,271)
Inventory ................... (101,531) -- --
Due from related parties .... 43,190 (16,125) (27,065)
Prepaid insurance ........... (333,829) (188,332) (118,156)
Preopening costs ............ -- (682,621) (133,921)
Deferred rent ............... (465,742) (728,288) (514,713)
Other assets ................ 4,000 268,594 (243,999)
Increase (decrease) in:
Interest payable ............ 295,152 -- --
Due to related parties ...... 137,031 -- (158,950)
Accounts payable, accrued
expenses and other
current liabilities ........ (1,958,002) 2,624,391 134,840
Deferred revenues ........... 37,812 459,142 44,925
Other liabilities ........... (62,862) 239,011 56,240
------------ ------------ -----------
Total adjustments ......... 9,197,567 14,045,198 4,642,355
------------ ------------ -----------
Net cash provided by (used
in) operating activities . (4,579,280) 466,686 (1,796,738)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment .......... (1,249,566) (2,279,834) (32,234)
Increase in prepaid rent .......... (6,496,522) (47,109,930) (7,113,893)
Changes in restricted cash ........ -- 44,820,618 (44,820,618)
------------ ------------ -----------
Net cash used in
investing activities ..... (7,746,088) (4,569,146) (51,966,745)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of discount
first mortgage notes ............. -- -- 45,053,648
Capital contributions from partners 963,889 11,850,000 13,543,888
Note payable - partners ........... 3,541,825 -- --
Financing costs ................... -- -- (4,719,018)
------------ ------------ -----------
Net cash provided
by financing activities .. 4,505,714 11,850,000 53,878,518
------------ ------------ -----------
Net increase (decrease) in cash and
cash equivalents .................... (7,819,654) 7,747,540 115,035
Cash and cash equivalents,
beginning of year ................... 8,128,625 381,085 266,050
------------ ------------ -----------
Cash and cash equivalents, end of year $ 308,971 $ 8,128,625 $ 381,085
============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

CHELSEA PIERS L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF (A) BASIS OF PRESENTATION
ACCOUNTING POLICIES
The consolidated financial statements
include the accounts of Chelsea Piers
L.P. (the "Partnership") and its
wholly-owned subsidiary, CP Funding
Corp. (collectively referred to as the
"Company"). All significant intercompany
balances and transactions have been
eliminated.

(b) ORGANIZATION

The Company was formed in May 1992 to
develop and operate a sports and
entertainment complex (the "Complex") on
Piers 59-62 on the Hudson River in New
York ("Chelsea Piers"). The Company
began business on May 14, 1993, and
began principal construction and
operation on the piers in July 1994. The
various facilities were completed and
placed into service as follows: Roller
Rink - July 1995, Sky Rink (at its new
location) September 1995, Field House -
September 1995, Golf Club October 1995,
and the Sports Center - February 1996.

The Company also subleases commercial,
soundstage and marina space. Since the
Complex primarily entails the operation
of a single sports and entertainment
facility, the Company is considered to
operate in a single business segment.

The partnership agreement provides that
distributions of available cash will
generally be made in accordance with
each partner's percentage interest.
Income or loss for the period prior to
June 27, 1994 shall be allocated 1% to
the general partner, 57.6% to Roland W.
Betts and 41.4% to Tom A. Bernstein.

Subsequent income from operations shall
generally be allocated to the partners as
follows:

1. first, to the partners having deficits
in their capital accounts in excess of
their respective shares of minimum gain
in the ratio of such excess deficits
until such excess deficits are
eliminated;

F-6
<PAGE>

2. next, to the partners in the ratio of,
and in an aggregate amount not to
exceed, the amounts of available cash
from operations distributed to them
reduced by previous allocation of
income; and

3. finally, to the extent of any remaining
income or gain, to the partners in
accordance with their percentage
interests.

Subsequent losses from operations shall be
allocated to the partners as follows:

1. first, to the partners in a manner so
that the capital accounts of the
partners have balances which are as
close as possible to the total
distributions each partner would receive
as if the Partnership were liquidated at
the end of such fiscal year (assuming
solely for the purpose of this
allocation that there would be no
additional gain or loss on the
liquidation of the Partnership); and

2. next, to the partners in the ratio of
their percentage interests.

At such time as aggregate distributions
(plus sale proceeds in the event of a
sale of a limited partner's interest)
exceed invested capital of a limited
partner, the percentage interest of the
general partner shall include 14.1415%
of such limited partner's interest.

Chelsea Piers Management Inc., the
general partner (the "GP"), has full,
complete and exclusive discretion and
authority to manage the business of the
Company. Commencing July 1, 1994, the GP
began receiving a fee (the "Management
Fee") of $500,000 for each of the first
two twelve-month periods, $1 million for
each of the next two twelve-month
periods and $1.5 million annually
thereafter, adjusted by the consumer
price index. The Company shall reimburse
the GP for certain costs and expenses of
the Company that may be advanced from
time to time.

(d) INVENTORY

Inventory, which consist primarily of
sporting merchandise, is stated at the
lower of cost or market. Cost is
determined using the retail method.

F-7
<PAGE>

(e) PROPERTY AND EQUIPMENT AND DEPRECIATION

Property and equipment is stated at
cost. Depreciation is computed by the
declining balance method over the
estimated useful lives of the assets
ranging from five to seven years.

(f) PREPAID RENT

Prepaid rent consists of costs incurred
in connection with the development and
construction of the piers. In accordance
with the lease with the Department of
Transportation (see Note 5), these costs
constitute additional rent and are being
amortized on a straight-line basis over
a ten-year period.

(g) PREOPENING COSTS

All incremental costs, which primarily
include salaries paid to employees to
solicit membership at the various
facilities at the piers, were deferred
and amortized, commencing with the
opening of the respective facilities,
over a twelve-month period. These costs
have been fully amortized as of December
31, 1996.

(h) FINANCING COSTS

Financing costs are amortized, using the
straight-line method, over 10 years (the
term of the A Notes). See Note 4.

(i) NOTE DISCOUNT

Accretion of note discount is computed
using the effective interest method.
Full accreted value was reached June 15,
1996 and interest is paid semi-annually
starting December 15, 1996.

(j) REVENUE RECOGNITION

The Company offers various sports and
entertainment facilities at the piers.
Revenue is recognized when the
facilities are used.

Membership fees for the Company's health
club are recognized as revenue on a
straight-line basis over the membership
term. Deferred revenue represents those
membership fees received and not yet
earned. Initiation fees are recognized
as revenue when received since the
Company is under no obligation to
perform additional services relating to
those fees.

F-8
<PAGE>

The Company leases soundstages,
commercial space and marina facilities
generally under leases of less than
twelve months duration. In addition, the
Company has long-term subleases under
which revenue is recognized on a
straight-line basis over the lease term.
The Company's deferred rent represents
the amount of the excess of rental
revenues recognized on a straight-line
basis over the annual rent payments
under the sublease.

The Company has sponsorship agreements
with various sponsors. These agreements
call for various forms of advertising
which incorporates the Company's and
sponsor's name. Sponsorship income is
recognized ratably over the life of the
respective sponsorship agreements.

(k) OPERATING EXPENSES

Operating expenses consist primarily of
costs to generate revenues. Certain
administrative services have been
provided to the Company by an affiliate
at no cost prior to June 30, 1994.
Management has determined the value of
these services to be immaterial.

(l) INCOME TAXES

Income or loss of the Company is
required to be reported by the
respective partners on their income tax
returns and with the exception of New
York City unincorporated business tax is
not taxed to the Company.

(m) CASH EQUIVALENTS

For purposes of the statements of cash
flows, the Company considers all highly
liquid investments purchased with a
maturity of three months or less to be
cash equivalents.

F-9
<PAGE>

(n) ESTIMATES

The preparation of financial statements
in conformity with generally accepted
accounting principles requires
management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. Actual results could
differ from those estimates.

(o) LONG-LIVED ASSETS

In 1996, the Company adopted Statement
of Financial Accounting Standards No.
121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived
Assets to be Disposed of". The Company
reviews certain long-lived assets for
impairment whenever events or changes in
circumstances indicate that the carrying
amount may not be recoverable. In that
regard, the Company assesses the
recoverability of such assets based upon
estimated nondiscounted cash flow
forecasts. The adoption of this
statement did not affect the financial
statements.

(p) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of financial
instruments including cash and cash
equivalents, accounts receivable and
accounts payable approximate fair value
due to the relatively short maturities
of these instruments. The fair value of
long-term debt is based on quoted market
prices for the same or similar issues or
on the current rates offered to the
Company for similar debt of the same
maturities.

(q) PRESENTATION OF PRIOR YEAR DATA

Certain reclassifications have been made
to conform prior year data with the
current presentation.

F-10
<PAGE>

2. GOING CONCERN The Company has incurred significant recurring losses
from operations since inception. For the year ended
December 31, 1996, the Company reported a net loss of
approximately $13.8 million, and as of December 31,
1996 had a working capital deficit of approximately
$5.7 million and partners' deficit of approximately
$4.1 million. The Company's poor operating results are
primarily attributed to the Complex being in its early
stages of operation. The Company has also incurred
higher than anticipated capital expenditures in
connection with the construction at the Chelsea Piers,
which, together with the recurring losses from
operations, has placed a significant cash burden on the
Company. These circumstances raise substantial doubt
about the Company's ability to continue as a going
concern.

In order to improve cash flow, the Company has
renegotiated its lease with the Department of
Transportation. The amended lease calls for a
significant deferral of rent payable over the next
several years (see Note 5). The Company is also
currently negotiating to refinance its long-term debt,
and has borrowed approximately $3.5 million from
certain partners to provide working capital. Although
these steps improve cash flow, the Company believes it
will have cash flow deficits for the foreseeable
future. Although the Company has received capital
contributions from certain of its partners in the past,
there can be no assurances that this will continue or
that the Company will be able to refinance its
long-term debt.

The accompanying financial statements have been
prepared assuming that the Company will continue as a
going concern; they do not include adjustments relating
to the recoverability of recorded amounts and
classification of recorded assets and liabilities.

F-11
<PAGE>

3. PROPERTY AND Major classes of property and equipment consist of the
EQUIPMENT following:

December 31, 1996 1995
------------ ----------- -----------

Furniture and fixtures $ 1,295,163 $ 821,311
Machinery and equipment 2,402,322 1,508,077
----------- -----------
3,697,485 2,329,388

Accumulated depreciation (1,214,777) (380,287)
----------- -----------
$ 2,482,708 $ 1,949,101
=========== ===========

4. LONG-TERM DEBT On June 27, 1994, CP Funding Corp. (the "Issuer"), a
wholly-owned subsidiary of and agent for the
Partnership, issued $53,950,000 of 12-1/2% A Discount
First Mortgage Notes (the "A Notes") and $3,090,000 of
11% B Discount First Mortgage Notes (the "B Notes")
(collectively, the "Notes"). The offering resulted in
gross proceeds of $42,504,000 for the A Notes and
$2,503,000 for the B Notes. The funds were invested in
short-term liquid investments and their use was
restricted primarily for the payment of improvements at
the Chelsea Piers.

The A Notes mature on June 15, 2004. The B Notes mature
on June 15, 2009. The outstanding Notes bear interest at
12-1/2% annually for the A Notes and 11% annually for
the B Notes. This interest will be payable semi-annually
on June 15 and December 15 commencing December 15, 1996.
From the time of issuance until June 15, 1996, discount
will accrete on the Notes at the above-mentioned rates.

Holders of the B Notes are also entitled to receive
contingent interest in an amount equal to 36.34% of the
Company's distributable cash, as defined in the bond
indenture. These payments are due each June 15 and
December 15 and continue until June 15, 2009. The
Company was not required to pay additional interest with
respect to the B Notes in 1996.

F-12
<PAGE>

Annual principal payments on the A Notes of
approximately $4.25 million are required on June 15 of
each year commencing June 15, 1999 and continuing until
maturity. No annual principal payments are required on
the B Notes prior to maturity. Holders of the Notes have
the option to require the purchase of the Notes if there
is a change in control of the Company (as defined in the
bond indenture).

The A Notes are redeemable in whole or in part at the
option of the Issuer at any time on or after June 15,
1999. They are redeemable initially at 106.25% of their
face amount, declining to 100% of their face amount on
or after June 15, 2001. Accrued interest is also payable
at the time of redemption.

The Company's obligation to pay principal and interest
on the Notes is secured by liens on certain collateral
in the form of a mortgage representing a first priority
lien on the Company's leasehold interest in the land and
buildings and other improvements located at the Chelsea
Piers. The Notes contain covenants limiting the
Company's ability to create liens, sell assets, engage
in mergers and consolidations, amend its partnership
agreement in a manner adverse to the holders of the
Notes or conduct other businesses.

5. LEASES On June 24, 1994 (as amended on October 22, 1996), the
Company entered into a 10-year lease with the Department
of Transportation of the State of New York (the "DOT"),
for the Chelsea Piers property. The lease, as amended,
provides for extension options that extend the maximum
potential term of the lease to 48 years and 11 months,
subject to renewal at ten year intervals based upon the
Company substantially complying with specified
performance criteria.

F-13
<PAGE>

In addition, the Company was required to expend not less
than $50,000,000 in connection with the erection,
construction and renovation of the premises which, under
the lease, constitutes additional rent allocated pro
rata over the 10-year life of the lease. The unamortized
portion of these costs is classified in the balance
sheet as prepaid rent. The lease provides generally,
that if it is not renewed beyond its initial 10-year
term, except by reason of termination after an event of
default, the DOT is required to pay the Company an
amount equal to the depreciated value of these costs,
employing the life and method prescribed under a
specified section of the Internal Revenue Code.

Annual base rent under this lease is $2,420,000, subject
to adjustment every two years based on the consumer
price index. Additionally, 75% of the amount that would
otherwise constitute base rent payable for the period
July 1, 1996 through June 30, 1998 and 50% of the amount
that would otherwise constitute base rent payable for
the period July 1, 1998 through June 30, 1999 will be
paid in either a single lump sum on July 1, 2001 or in
monthly installments over 10 years with interest on the
unpaid amount accruing at a rate of 5% per annum. Rent
expense is recognized on a straight-line basis, with the
difference between the expense and amounts payable
resulting in an adjustment to prepaid rent. The 10-year
obligation of the Company under the lease is guaranteed
by Silver Screen Management, Inc. and Silver Screen
Management Services, Inc., companies which have
substantial common ownership with the GP.

The base rent is payable in monthly installments and
reduced by a $600,000 credit relating to rent paid under
a prior interim lease and by half of the cost of certain
roof repairs (not to exceed $1,000,000) and other
credits not to exceed $200,000 for the term of the lease
and $50,000 per year. Additionally, the Company is
entitled to approximately $240,000 in credits relating
to the period of time that the DOT occupied a portion of
the piers. For the years ended December 31, 1996 and
1995, the Company received $250,000 and $550,000,
respectively, relating to roof repairs (included as a
reduction of prepaid rent), and approximately $285,000
and $840,000, respectively, in other credits.

F-14
<PAGE>

The following is a schedule by year of future minimum
rental payments required under operating leases (as
amended) before the above-listed deductions and
adjustments:

Year ending December 31,
--------------------------------------------------------
1997 $ 489,000
1998 957,000
1999 2,115,000
2000 2,939,000
2001 3,389,000
Thereafter 12,678,000
========================================================

The above table does not include amortization of the
prepaid rent.

The following is a schedule by year of future rent
receivable under operating subleases:

Year ending December 31,
--------------------------------------------------------
1997 $ 4,149,000
1998 3,957,000
1999 4,100,000
2000 4,188,000
2001 4,152,000
Thereafter 10,825,000
========================================================

In addition to the base rent, certain subleases also
provide for payment of percentage rent relating to the
gross receipts of the sublessee, if such percentage rent
exceeds the base rent. Rental income, which is included
with revenues, for the years ended December 31, 1996,
1995 and 1994 was approximately $4,522,000, $2,470,000
and $2,016,000, respectively.

F-15
<PAGE>

6. CONSTRUCTION COSTS The Company has an agreement with a contractor, whereby
the Company is to pay $1,200,000 in 1997 and $700,000 in
1998 relating primarily to construction services
previously rendered. The Company has temporarily
suspended payments to the contractor due to the cash
constraints as described in Note 2. The Company also
entered into an agreement with a former sublessee, from
which the Company purchased certain equipment and
leaseholds. The agreement calls for monthly payments of
$6,111, including interest, from April 1996 thorough
April 2012.

7. NOTE PAYABLE -
BANK During 1996, the Company entered into a one year demand
grid note with Republic National Bank, with maximum
borrowings up to $1,000,000. The note bears interest of
2.5% above LIBOR and is guaranteed by Roland W. Betts.
At December 31, 1996, no amounts were outstanding on the
note.

8. NOTES PAYABLE -
PARTNERS In December 1996, Roland W. Betts and Tom A. Bernstein
loaned $3,541,825 to the Company through the issuance of
promissory notes for the purpose of meeting the December
15, 1996 interest payment on the "A" and "B" Notes (see
Note 4). The promissory notes bear interest of 12.5% and
mature December 2001. One of the promissory notes is
collateralized by a secured lien on certain non-real
estate assets of the Company, and the other by a first
lien on the equipment in respect of which the financing
represented by the note was incurred. The notes are
subordinate to the "A" and the "B" Notes. Repayment
provisions allow the Company to prepay some or all of
the amounts oustanding prior to maturity. In January and
February of 1997, the Company made payments on the
promissory notes aggregating approximately $1.6 million,
$900,000 of which came from a draw down on Note Payable
- Bank (see Note 7).

9. LICENSE AGREEMENT Sky Rink, a nonprofit corporation and the former
operator of an indoor ice skating facility, has agreed
to license the name "Sky Rink", and variations thereof,
to the Company in connection with the operation of an
indoor ice skating facility. The term of the agreement
is 20 years. Under the license agreement, the Company is
required to pay Sky Rink 0.75% of its gross skating rink
operating income, starting in 1996. For the year ended
December 31, 1996, payments required under this
agreement were minimal.

10. SPONSORSHIP
INCOME The Company has entered into various sponsorship
agreements calling for minimum sponsorship payments to
the Company of approximately $1,043,000 in 1997,
$685,000 in 1998 and $226,000 in 1999. Sponsorship
income, which is included in revenues, amounted to
approximately $990,000 during the year ended December
31, 1996.

11. SIGNIFICANT
CUSTOMERS Revenues from two customers accounted for approximately
12% and 11% of total revenues for the year ended
December 31, 1994. No customers represented more than
10% of revenue in 1995 or 1996.

F-16
<PAGE>

12. STATEMENTS OF
CASH FLOWS (a) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Year ended December 31, 1996 1995 1994
-------------------------------------------------------
Interest paid $3,541,000 $- $-
=======================================================

(b) NONCASH FINANCING ACTIVITIES

During 1996, the Company financed construction
costs of $1.9 million and the acquisition of
certain equipment and leaseholds of $688,000.

During 1994, approximately $3.4 million in partner
advances was converted to capital.

F-17
<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE AUDITED BALANCE SHEET AS OF DECEMBER 31, 1996, AND THE STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 309
<SECURITIES> 0
<RECEIVABLES> 318
<ALLOWANCES> 0
<INVENTORY> 102
<CURRENT-ASSETS> 1,369
<PP&E> 3,697
<DEPRECIATION> 1,215
<TOTAL-ASSETS> 61,489
<CURRENT-LIABILITIES> 7,021
<BONDS> 57,040
<COMMON> 0
0
0
<OTHER-SE> (4,143)
<TOTAL-LIABILITY-AND-EQUITY> 61,489
<SALES> 22,061
<TOTAL-REVENUES> 22,061
<CGS> 0
<TOTAL-COSTS> 28,534
<OTHER-EXPENSES> 471
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,914
<INCOME-PRETAX> (13,777)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,777)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,777)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>