<PAGE>

                                   EXHIBIT 13

                          CONAM REALTY INVESTORS 3 L.P.

                               1998 ANNUAL REPORT

<PAGE>

-------------------------------------------------------------------------------
                          CONAM REALTY INVESTORS 3 L.P.
-------------------------------------------------------------------------------



         ConAm Realty Investors 3 L.P. is a California limited partnership
         formed in 1983 to acquire, operate and hold for investment multifamily
         residential properties. At November 30, 1998, the Partnership's
         portfolio consisted of three apartment properties located in Colorado,
         Arizona and Florida. On January 29, 1999, with the consent of the
         Unitholders, all three of the remaining properties were sold for a
         price of $25,200,000 (before closing costs). Substantially all of the
         cash, less an amount for contingencies, was distributed to the
         Unitholders.
<TABLE>
<CAPTION>
                                        <S>     <C>
                                                     CONTENTS
                                         1      Message to Investors
                                         2      Performance Summary
                                         3      Financial Highlights
                                         4      Consolidated Financial Statements
                                         7      Notes to the Consolidated Financial Statements
                                        12      Independent Auditors' Report
                                        13      Report of Former Independent Accountants
                                        14      Net Asset Valuation
</TABLE>

<TABLE>
<S>                                              <C>
--------------------------------------------------------------------------------
    ADMINISTRATIVE INQUIRIES                     PERFORMANCE INQUIRIES/FORM 10-Ks
    ADDRESS CHANGES/TRANSFERS                    Brock, Tibbitts and Snell
    MAVRICC Management Systems, Inc.             625 Broadway, Suite 911
    1845 Maxwell, Suite 101                      San Diego, California 92101
    Troy, MI  48084-4510                         619-232-0365
    Attn: Financial Communications
    248-637-7897
--------------------------------------------------------------------------------
</TABLE>

<PAGE>

--------------------------------------------------------------------------------
                              MESSAGE TO INVESTORS
--------------------------------------------------------------------------------

     Presented for your review is the 1998 Annual Report for ConAm Realty
     Investors 3 L.P. (the "Partnership"). In this report we have included a
     performance summary which addresses operations at each of the properties
     (the "Properties") and the financial highlights for the year.

     We are pleased to announce that the proposed sale of the Partnership's
     three remaining Properties to DOC Investors, L.L.C., a Delaware limited
     liability company, was approved by the Limited Partners on January 15, 1999
     and that the sale was completed on January 29, 1999. Within 30 days of the
     close of the sale of the Properties, distributions of $207.50 per Unit,
     representing the majority of the net proceeds from the sale and other cash
     from operations, were distributed to Unitholders.

     CASH DISTRIBUTIONS
     The Partnership paid cash distributions totaling $4.50 per Unit for the
     year ended November 30, 1998. The General Partner decided not to make a
     fourth quarter distribution pending the outcome of the solicitation of the
     consent of the Unitholders to the sale of the Partnership's Properties.
     Including the distribution in February 1999, since inception the
     Partnership has paid distributions totaling $620.50 per original $500 Unit.
     These distributions include the net proceeds from the sale of the 
     Partnership's Properties in January of 1999 of $205.81 per Unit, and cash 
     from operations of $1.69 per Unit, both of which were distributed on 
     February 26, 1999.

     OPERATIONS OVERVIEW
     Operations at the Properties remained stable in 1998, reflecting healthy
     economic conditions, tempered by increased competition for tenants in the
     markets where the Properties are located. As a result of new apartment
     construction in the Jacksonville and Colorado Springs markets, several
     large apartment Properties have begun to offer rental concessions to
     attract tenants. In Tucson, where Skyline Village is located, many high-end
     renters opted to purchase homes due to low interest rates. Despite these
     trends, strong economic growth in all three areas helped strengthen
     multi-family housing, and the Properties sustained average occupancy levels
     at or above 93% in 1998.

     Several interior and exterior repairs were performed at each Property
     during 1998, including carpet and flooring replacement and other routine
     repairs. In addition, roof replacements at Ponte Vedra Beach Village II
     that were begun in 1997 were completed in the first quarter of 1998.
     Clubhouse renovations and landscaping repairs were completed at Autumn
     Heights in 1998.

     SUMMARY
     The sale of the Properties on January 29, 1999 represents the first step
     toward the liquidation of the Partnership that is expected to be completed
     in August 1999. A final distribution of remaining Partnership cash, if any,
     will be made shortly thereafter.

     Very truly yours,


     /s/ Daniel J. Epstein
     Daniel J. Epstein, President
     Continental American Development Inc.
     General Partner of ConAm Property Services IV, Ltd.

     February 28, 1999

                                       1
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

--------------------------------------------------------------------------------
                               PERFORMANCE SUMMARY
--------------------------------------------------------------------------------

     AUTUMN HEIGHTS COLORADO SPRINGS, COLORADO

     Autumn Heights is a 140-unit apartment complex located in the southwest
     section of Colorado Springs. The property reported stable operations in
     1998, with average occupancy increasing to 94% in fiscal 1998, from 92% in
     fiscal 1997. Strong market conditions over the last two years, however,
     have prompted an increase in new construction of multifamily properties.
     The recent addition of several new apartments to the market led to
     increased competition and a decline in rental rates in 1998 in the market
     area. While competition has been strong, rental income and average
     occupancy at Autumn Heights have increased slightly from the prior year.
     The needed roof replacements were completed in 1998 along with the
     renovation of the clubhouse and needed landscaping. These improvements
     enhanced the property's overall value and helped to increase rents and
     occupancy levels in this competitive market in 1998.

     PONTE VEDRA BEACH VILLAGE II PONTE VEDRA BEACH, FLORIDA

     Ponte Vedra Beach Village II is a 124-unit luxury apartment complex located
     in an oceanside residential area to the southeast of Jacksonville. The
     property reported an average occupancy level of 93% in fiscal 1998, a small
     decrease from 95% in fiscal 1997. Rental income was consistent with the
     prior year. Property improvements for the year included roof replacements,
     carpet replacement and other improvements to increase the appearance of the
     property. Favorable market conditions in the Jacksonville area have led to
     an increase in new multifamily construction, with new construction adding
     approximately 2,617 new apartment units throughout the year. Although
     population and job growth in the Jacksonville area remain strong,
     continuing construction at this pace and the affordable housing market has
     lead to significant softness and increased market vacancy.

     SKYLINE VILLAGE TUCSON, ARIZONA

     Skyline Village contains 168 units and is located in the northwest area of
     Tucson. The property continued to perform well despite strong competition
     with a small decrease in its average occupancy rate from 97% during 1997 to
     95% for 1998. Overall, apartment vacancy rates remain high in this market,
     but significant population growth in Tucson over the last few years is
     slowly reducing the number of available units. Low interest rates and
     affordable home prices have also increased competition by luring many
     renters to purchase homes. This competition has led to the reemergence of
     rental incentives and other concessions to attract tenants. Rental income
     remained steady as rental rate increases at the property offset the
     decrease in occupancy. Property improvements in 1998 included painting,
     carpet replacement and ceiling fan replacement in selected units.


                                       2
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

--------------------------------------------------------------------------------
                              FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
     SELECTED FINANCIAL DATA
     For the periods ended November 30,                  1998           1997           1996           1995          1994
     -------------------------------------------------------------------------------------------------------------------
     DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA
     <S>                                                 <C>            <C>            <C>            <C>           <C>
     Total Income                                        $3,693         $3,632         $3,745         $4,203        $4,298
     Loss on Sale of Property                                --             --             --            (84)           --
     Net Income (loss)                                      (35)          (195)           354             85            18
     Net Cash Provided by Operating Activities              976            921          1,205          1,185         1,197
     Long-term Obligations                                8,152          8,293          8,435          8,565        11,599
     Total Assets at Year End                            17,432         18,075         18,977         19,650        27,614
     Net Income (loss) per Limited Partnership             (.43)         (2.42)          3.98            .87           .20
         Unit*
     Distributions per Limited Partnership Unit*           4.50           6.00          10.00          10.00         14.00
     Special Distributions per Limited                       --             --             --          50.00         30.00
         Partnership Unit*
</TABLE>

     * 80,000 UNITS OUTSTANDING

<TABLE>
<CAPTION>
     CASH DISTRIBUTIONS
     PER LIMITED PARTNERSHIP UNIT                                             1998             1997
     ------------------------------------------------------------------- ---------------- ----------------
     <S>                                                                 <C>              <C>
     First Quarter                                                            $1.50            $1.50
     Second Quarter                                                           $1.50            $1.50
     Third Quarter                                                            $1.50            $1.50
     Fourth Quarter                                                           $ --             $1.50
                                                                         ---------------- ----------------
     TOTAL                                                                    $4.50            $6.00
     ------------------------------------------------------------------- ---------------- ----------------
</TABLE>

     Cash distributions were reduced in 1998 due to a suspension of
     distributions pending the outcome of the solicitation of the consent the
     Unitholders to the sale of the Properties.


                                       3
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

<TABLE>
<CAPTION>
     -------------------------------------------------------------------------------------------------------------------
     CONSOLIDATED BALANCE SHEETS                                              AT NOVEMBER 30,            AT NOVEMBER 30,
                                                                                         1998                       1997
     -------------------------------------------------------------------------------------------------------------------
     <S>                                                                      <C>                        <C>
     ASSETS
     Investments in real estate:
          Land                                                                  $   5,817,668              $   5,817,668
          Buildings and improvements                                               22,534,407                 22,465,678
                                                                                 ---------------------------------------
                                                                                   28,352,075                 28,283,346
          Less accumulated depreciation                                           (12,020,027)               (11,223,921)
                                                                                 ----------------------------------------
                                                                                   16,332,048                 17,059,425
     Cash and cash equivalents                                                        849,125                    796,824
     Restricted cash                                                                  107,640                    109,843
     Other assets, net of accumulated amortization
         of $249,225 in 1998 and $206,209 in 1997                                     143,646                    109,293
     -------------------------------------------------------------------------------------------------------------------
          TOTAL ASSETS                                                          $  17,432,459              $  18,075,385
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------

     LIABILITIES AND PARTNERS' CAPITAL
     -------------------------------------------------------------------------------------------------------------------
     Liabilities:
        Mortgages payable                                                       $   8,151,572              $   8,292,972
        Distribution payable                                                               --                    146,659
        Accounts payable and accrued expenses                                         302,618                    218,266
        Due to general partner and affiliates                                          15,684                     16,703
        Security deposits                                                              98,029                    101,198
                                                                                 ---------------------------------------
          Total Liabilities                                                         8,567,903                  8,775,798
                                                                                 ---------------------------------------
     
     Partners' Capital (Deficit):
        General Partner                                                              (995,408)                  (955,059)
        Limited Partners (80,000 Units outstanding)                                 9,859,964                 10,254,646
                                                                                 ---------------------------------------
          Total Partners' Capital                                                   8,864,556                  9,299,587
     -------------------------------------------------------------------------------------------------------------------
          TOTAL LIABILITIES AND PARTNERS' CAPITAL                               $  17,432,459              $  18,075,385
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

      SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                       4
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

<TABLE>
<CAPTION>
     -------------------------------------------------------------------------------------------------------------------
     CONSOLIDATED STATEMENTS OF OPERATIONS
     FOR THE YEARS ENDED NOVEMBER 30,                                            1998             1997              1996
     -------------------------------------------------------------------------------------------------------------------
     <S>                                                                 <C>             <C>                <C>
     INCOME
     Rental                                                              $  3,671,959    $   3,593,135      $  3,688,364
     Interest and other                                                        20,755           38,921            57,109
                                                                          ----------------------------------------------
     Total Income                                                           3,692,714        3,632,056         3,745,473
     -------------------------------------------------------------------------------------------------------------------
     EXPENSES
     Property operating                                                     1,820,339        1,838,576         1,581,543
     Depreciation and amortization                                            918,690          922,261           908,783
     Interest                                                                 723,420          736,373           748,229
     General and administrative                                               177,538          177,129           152,783
     Write-off of assets                                                       87,759          153,200                --
                                                                          ----------------------------------------------
          Total Expenses                                                    3,727,746        3,827,539         3,391,338
     -------------------------------------------------------------------------------------------------------------------
          NET INCOME (LOSS)                                              $    (35,032)        (195,483)     $    354,135
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------
     NET INCOME (LOSS) ALLOCATED:
          To the General Partner                                         $       (350)          (1,955)     $     35,413
          To the Limited Partners                                             (34,682)        (193,528)          318,722
     -------------------------------------------------------------------------------------------------------------------
          NET INCOME (LOSS)                                              $    (35,032)        (195,483)     $    354,135
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------
     PER LIMITED PARTNERSHIP UNIT
          (80,000 UNITS OUTSTANDING):                                    $     (0.43)     $     (2.42)      $       3.98
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
     -------------------------------------------------------------------------------------------------------------------
     CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
     FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997, AND 1996               GENERAL             LIMITED
                                                                         PARTNER            PARTNERS               TOTAL
     -------------------------------------------------------------------------------------------------------------------
     <S>                                                             <C>               <C>                 <C>
     BALANCE (DEFICIT) AT NOVEMBER 30, 1995                          $  (846,302)      $  11,409,452       $  10,563,150
     Net income                                                           35,413             318,722             354,135
     Distributions ($10.00 per Unit)                                     (88,888)           (800,000)           (888,888)
     -------------------------------------------------------------------------------------------------------------------
     BALANCE (DEFICIT) AT NOVEMBER 30, 1996                          $  (899,777)      $  10,928,174       $  10,028,397
     Net loss                                                             (1,955)           (193,528)           (195,483)
     Distributions ($6.00 per Unit)                                      (53,327)           (480,000)           (533,327)
     --------------------------------------------------------------------------------------------------------------------
     BALANCE (DEFICIT) AT NOVEMBER 30, 1997                          $  (955,059)      $  10,254,646       $   9,299,587
     Net loss                                                               (350)            (34,682)            (35,032)
     Distributions ($4.50 per Unit)                                      (39,999)           (360,000)           (399,999)
     -------------------------------------------------------------------------------------------------------------------
     BALANCE (DEFICIT) AT NOVEMBER 30, 1998                          $  (995,408)      $   9,859,964       $   8,864,556
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

      SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                       5
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

<TABLE>
<CAPTION>
     -------------------------------------------------------------------------------------------------------------------
     CONSOLIDATED STATEMENTS OF CASH FLOWS
     FOR THE YEARS ENDED NOVEMBER 30,                                            1998             1997              1996
     -------------------------------------------------------------------------------------------------------------------
     <S>                                                                 <C>                 <C>             <C>
     CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                   $    (35,032)        (195,483)     $    354,135
     Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
        Depreciation and amortization                                         918,690          922,261           908,783
        Write-off of assets                                                    87,759          153,200                --
        Increase (decrease) in cash arising from changes 
        in operating assets and liabilities:
          Fundings to restricted cash                                        (220,235)        (128,748)         (156,654)
          Release of restricted cash to property operations                   222,438          103,839           132,861
          Other assets                                                        (77,369)          21,259           (25,471)
          Accounts payable and accrued expenses                                84,352           61,480           (17,938)
          Due to general partners and affiliates                               (1,019)             895               798
          Security deposits                                                    (3,169)         (17,403)            8,725
                                                                          ----------------------------------------------
     Net cash provided by operating activities                                976,415          921,300         1,205,239
     -------------------------------------------------------------------------------------------------------------------
     CASH FLOWS FROM INVESTING ACTIVITIES:
     Insurance recovery of real estate additions                               54,191               --                --
     Additions to real estate                                                (290,247)        (458,198)         (162,200)
                                                                          -----------------------------------------------
     Net cash used in investing activities                                   (236,056)        (458,198)         (162,200)
     -------------------------------------------------------------------------------------------------------------------
     CASH FLOWS FROM FINANCING ACTIVITIES:
     Mortgage  principal payments                                            (141,400)        (141,871)         (130,016)
     Distributions                                                           (546,658)        (608,890)         (888,888)
                                                                          -----------------------------------------------
     Net cash used in financing activities                                   (688,058)        (750,761)       (1,018,904)
     -------------------------------------------------------------------------------------------------------------------
     Net increase (decrease) in cash and cash equivalents                      52,301         (287,659)           24,135
     Cash and cash equivalents, beginning of period                           796,824        1,084,483         1,060,348
     -------------------------------------------------------------------------------------------------------------------
     CASH AND CASH EQUIVALENTS, END OF PERIOD                            $    849,125          796,824      $  1,084,483
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------
     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for interest                            $    663,658          736,373      $    748,229
     -------------------------------------------------------------------------------------------------------------------
     SUPPLEMENTAL DISCLOSURE OF NON-CASH
     INVESTING ACTIVITIES:
     Write-off of buildings and improvements                             $   (167,327)        (319,300)     $         --
     Write-off of accumulated depreciation                               $     79,568          166,100      $         --
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

      SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                       6
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

     NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
     NOVEMBER 30, 1998, 1997 AND 1996

     1. ORGANIZATION
     ConAm Realty Investors 3 L.P. (the "Partnership") was organized as a
     limited partnership under the laws of the State of California pursuant to a
     Certificate and Agreement of Limited Partnership (as subsequently amended
     the "Partnership Agreement") dated July 14, 1983. The Partnership was
     formed for the purpose of acquiring and operating multi-family residential
     real estate. The general partners of the Partnership were RI 3-4 Real
     Estate Services, Inc. ("RI 3-4"), an affiliate of Lehman Brothers, Inc.
     (see below), and ConAm Property Services IV, Ltd. ("CPS IV"), an affiliate
     of Continental American Properties, Ltd. (the "General Partners"). On
     January 27, 1998, CPS IV acquired RI 3-4's co general partner interest in
     the Partnership, effective July 1, 1997, pursuant to a purchase agreement
     between CPS IV and RI 3-4 dated August 29, 1997. As a result, CPS IV now 
     serves as the sole general partner (the "General Partner") of the 
     Partnership. In conjunction with this transaction, the name of the 
     Partnership changed from Hutton/ConAm Realty Investors 3 to ConAm Realty 
     Investors 3 L.P. On January 15, 1999, a majority in interest of 
     Unitholders agreed to the sell the Partnership's remaining properties and 
     liquidate the Partnership (Note 10). The Partnership sold its properties on
     January 29,1999 and expects to liquidate during fiscal year 1999.

     2. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

     FINANCIAL STATEMENTS The consolidated financial statements are prepared on
     the accrual basis of accounting and include the accounts of the Partnership
     and its affiliated ventures when the Partnership has a controlling interest
     in the ventures. The effects of transactions between the Partnership and
     its ventures have been eliminated in consolidation.

     INVESTMENTS IN REAL ESTATE INVESTMENTS in real estate are recorded at cost
     less accumulated depreciation and include the initial purchase price of the
     property, legal fees, acquisition and closing costs.

     Revenue is recognized when earned and expenses (including depreciation) are
     recognized when incurred in accordance with generally accepted accounting
     principles. Leases are generally for terms of one year or less.

     Depreciation is computed using the straight-line method based upon the
     estimated useful lives of the properties (25 years). Maintenance and
     repairs are charged to operations as incurred. Costs incurred for
     significant betterments and improvements are capitalized and depreciated
     over their estimated useful lives.

     For assets sold or otherwise disposed of, the cost and related accumulated
     depreciation are removed from the accounts, and any resulting gain or loss
     is reflected in net income for the period.

     IMPAIRMENT OF LONG-LIVED ASSETS The Partnership assesses its real estate
     investments for impairment whenever events or changes in circumstances
     indicate that the carrying amount of the real estate may not be
     recoverable. Recoverability of real estate to be held and used is measured
     by a comparison of the carrying amount of the real estate to future net
     cash flows (undiscounted and without interest) expected to be generated by
     the real estate. If the real estate is considered to be impaired, the
     impairment to be recognized is measured as the amount by which the carrying
     amount of the real estate exceeds the fair value of the real estate.

     As of November 30, 1998, the Partnership's properties were assets to be 
     held and used as the Partnership did not have the ability to sell the
     properties without the approval of a majority of the Unitholders.

     OTHER ASSETS Included in other assets are costs incurred in connection with
     obtaining financing for the Partnership's properties. Such costs are
     amortized over the initial term of the loan on a method that approximates
     the effective-interest method.

     INCOME TAXES No provision for income taxes has been made in the financial
     statements, as the liability for such taxes is that of the partners rather
     than the Partnership.

     CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of highly
     liquid short-term investments with original maturities of three months or
     less.

                                       7
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

     CONCENTRATION OF CREDIT RISK Financial instruments which potentially
     subject the Partnership to a concentration of credit risk principally
     consist of cash and cash equivalents and restricted cash in excess of the
     financial institution's federally insured limits. The Partnership invests
     its cash and cash equivalents and restricted cash with high credit quality
     federally insured financial institutions or treasury based money market 
     funds.

     RESTRICTED CASH Restricted cash consists of escrows for real estate taxes
     as required by the first mortgage lender.

     USE OF ESTIMATES Management of the Partnership has made a number of
     estimates and assumptions relating to the reporting of assets and
     liabilities, the disclosure of contingent assets and liabilities at the
     date of the financial statements and the reported amounts of revenue and
     expenses during the reporting period to prepare these financial statements
     in conformity with generally accepted accounting principles. Actual results
     could differ from those estimates.

     3. THE PARTNERSHIP AGREEMENT The Partnership Agreement provides that net
     cash from operations, as defined, is to be distributed quarterly, 90% to
     the limited partners and 10% to the General Partners.

     Net loss for any fiscal year is to be allocated 99% to the limited partners
     and 1% to general partners. Net income for any fiscal year will generally
     be allocated 90% to the limited partners and 10% to the General Partners.

     Net proceeds from sales or refinancing are to be distributed 100% to the
     limited partners until each limited partner has received an amount equal to
     his adjusted capital value (as defined) and an annual, non-compounded
     cumulative 7% return thereon. The balance, if any, is to be distributed 85%
     to the limited partners and 15% to the General Partners. Generally, all
     gain from sales is to be allocated in the same manner as net proceeds from
     sales or refinancing.

     Effective July 1, 1997, all general partner allocations were made solely to
     CPS IV.

     4. INVESTMENTS IN REAL ESTATE
     The Partnership owns three residential apartment complexes that were
     acquired either directly or through an investment in a joint venture as
     follows:

<TABLE>
<CAPTION>
                                            APARTMENT                                      DATE                PURCHASE
     PROPERTY NAME                           UNITS             LOCATION                   ACQUIRED              PRICE
     -------------------------------------------------------------------------------------------------------------------
     <S>                                    <C>           <C>                             <C>               <C>
     Autumn Heights                           140         Colorado Springs, CO             1/25/85          $  9,234,438
     Skyline Village                          168         Tucson, AZ                       3/20/85            10,388,068
     Ponte Vedra Beach Village II             124         Jacksonville, FL                 8/22/85             6,547,829
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

     Skyline Village was acquired through a joint venture with an unaffiliated
     developer. The Partnership assigned its rights to acquire Skyline Village
     and contributed cash equal to the purchase price of the property to the
     joint venture. The developer did not make an initial capital contribution
     to these ventures.

     Skyline Village's joint venture was converted to a limited partnership. The
     Partnership entered into an amended and restated Agreement of Limited
     Partnership, dated as of July 1, 1992 with its two corporate General
     Partners, RI 3-4 Real Estate Services, Inc. and ConAm Property Services IV,
     Ltd., as General Partners, and the Partnership as the sole limited partner.

     The amended limited partnership agreement of Skyline Village substantially
     provides that:

     a. Available cash from operations is to be distributed 100% to the
     Partnership until it has received an annual, non-cumulative preferred
     return for Skyline Village of $675,000. Any remaining balance is to be
     distributed 99% to the Partnership and 1% to the corporate General Partner.

                                       8
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

     b. Net income is to be allocated first, proportionately to partners with
     negative capital accounts, as defined, until such capital accounts have
     been increased to zero then, to the Partnership up to the amount of any
     payments made on account of its preferred return and thereafter, 99% to the
     Partnership and 1% to the corporate General Partner. All net losses are to
     be allocated first, to the partners with positive capital accounts, as
     defined, until such accounts have been reduced to zero and then, 99% to the
     Partnership and 1% to the corporate General Partner.

     c. Income from a sale is to be allocated first, to the Partnership until
     the Partnership's capital accounts, as defined, are equal to the fair
     market value of the ventures' assets at the date of the amendment. Then,
     any remaining balance is to be allocated 99% to the Partnership and 1% to
     the corporate General Partners. Net proceeds from a sale or refinancing are
     to be distributed first, to the partners with the positive capital account
     balance, as defined; thereafter, 99% to the Partnership and 1% to the
     corporate General Partners.


     5. MORTGAGES PAYABLE
     The Partnership's first mortgage loans payable are comprised as follows:

     AUTUMN HEIGHTS On January 6, 1994, the Partnership obtained a first
     mortgage loan from John Hancock. Total proceeds of $5,500,000 were received
     and are collateralized by a Deed of Trust, Security Agreement and Fixture
     Filing with Assignment of Rents Agreement encumbering the property. The
     loan is for a term of seven years and bears interest at an annual rate of
     8% requiring monthly installments of principal and interest based on a 25
     year amortization schedule. The loan requires monthly real estate tax
     escrow fundings. The loan matures on January 1, 2001, upon which time a
     balloon payment of $4,736,587 and any accrued interest are due.

     SKYLINE VILLAGE On December 20, 1991, the venture obtained a first mortgage
     loan of $3,350,000 from the Penn Mutual Life Insurance Company ("Penn
     Mutual") collateralized by a deed of trust on the land and the
     improvements, and an assignment of rents. During 1996, Penn Mutual
     transferred the first mortgage loan to GE Capital Asset Management Corp.
     ("GE") under the existing terms. The loan is for a term of seven years and
     bears interest at an annual rate of 10.125% requiring monthly installments
     of principal and interest. The loan matures on December 31, 1998, upon
     which time a balloon payment of $3,054,594 and any accrued interest are
     due. Management obtained GE's approval to a six-month extension.

     In conjunction with the sale of the Properties on January 29, 1999, the
     mortgage loan with respect to Skyline Village was repaid in full and the
     Partnership's obligations under the loan with respect to Autumn Heights
     were assumed by the Purchaser of that property (Note 10).


     6. FAIR VALUE OF FINANCIAL INSTRUMENTS
     Statement of Financial Accounting Standards No. 107, "Disclosures about
     Fair Value of Financial Instruments", requires that the fair values be
     disclosed for the Partnership's financial instruments. The carrying amount
     of cash and cash equivalents, distributions payable, accounts payable and
     accrued expenses, due to general partners and affiliates and security
     deposits are reasonable estimates of their fair values due to the
     short-term nature of those instruments.

     The carrying amount of the mortgages payable is a reasonable estimate of
     fair value based on management's belief that the interest rates and terms
     of the debt are comparable to those commercially available to the
     Partnership in the marketplace for similar instruments.

                                       9
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

     7. TRANSACTIONS WITH RELATED PARTIES
     The following is a summary of fees earned and reimbursable expenses to the
     General Partners and affiliates for the years ended November 30, 1998, 1997
     and 1996, and the unpaid portion at November 30, 1998:

<TABLE>
<CAPTION>
                                                            EARNED AND
                                                             UNPAID AT
                                                           NOVEMBER 30,                         EARNED
                                                                        ---------------------------------------------------
     YEAR                                                          1998             1998             1997             1996
     ----------------------------------------------------------------------------------------------------------------------
     <S>                                                   <C>                  <C>              <C>              <C>
     RI 3-4 Real Estate Services, Inc.
     And affiliates:
          Out-of-pocket expenses                               $    --          $     --         $  2,216         $  1,125
     ConAm and affiliates:
          Property operating salaries                               --           282,599          258,808          233,653
          Property management fees                              15,684           184,337          180,111          184,685
                                                       --------------------------------------------------------------------
     TOTAL                                                     $15,684          $466,936         $441,135         $419,463
     ----------------------------------------------------------------------------------------------------------------------
</TABLE>

     8. RECONCILIATION OF FINANCIAL STATEMENT AND TAX INFORMATION
     The following is a reconciliation of consolidated net income for financial
     statement purposes to net income (loss) for federal income tax purposes for
     the years ended November 30, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                            1998                 1997               1996
     -------------------------------------------------------------------------------------------------------------------
     <S>                                                             <C>                  <C>                <C>
     Net income (loss) per financial statements                      $   (35,032)         $  (195,483)       $   354,135
     Depreciation deducted for tax
          purposes less than (in excess) of depreciation
          expense per financial statements                               (24,516)              17,787           (143,654)
     Tax basis joint venture net
          income (loss) in excess of GAAP
          basis joint venture net loss                                   (75,097)             (72,635)           (72,634)
     Other                                                               (16,385)              13,854            (11,175)
     -------------------------------------------------------------------------------------------------------------------
        TAXABLE NET INCOME (LOSS) (UNAUDITED)                        $  (151,030)         $  (236,477)       $   126,672
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

     The following is a reconciliation of partners' capital for financial
     statement purposes to partners' capital for federal income tax purposes as
     of November 30, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                            1998                 1997               1996
     -------------------------------------------------------------------------------------------------------------------
     <S>                                                           <C>                  <C>                <C>
     Partners' capital per financial statements                    $   8,864,556        $   9,299,587      $  10,028,397
     
     Adjustment for cumulative difference
         between tax basis net income (loss) and
         net income (loss) per financial statements                   (3,609,752)          (3,493,754)        (3,452,760)
     -------------------------------------------------------------------------------------------------------------------
        PARTNERS' CAPITAL PER INCOME TAX RETURN (UNAUDITED)        $   5,254,804        $   5,805,833      $   6,575,637
     ----------------------------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------------------------
</TABLE>

     At November 30, 1998, the tax basis of the Partnership's assets was
     $10,681,981 and the tax basis of the Partnership's liabilities was
     $5,427,177. The Partnership does not consolidate its investment in the 
     joint ventures for income tax purposes.

                                      10
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

     9.  DISTRIBUTIONS PAID
     Distributions, per the consolidated statements of partners' capital, are
     recorded on the accrual basis, which recognizes specific record dates for
     payments within each fiscal year. The consolidated statements of cash flows
     recognize actual cash distributions paid during the fiscal year. The
     following table discloses the annual differences as presented on the
     consolidated financial statements:

<TABLE>
<CAPTION>
                                  DISTRIBUTIONS                                                            DISTRIBUTIONS
                                     PAYABLE             DISTRIBUTIONS             DISTRIBUTIONS             PAYABLE
                                BEGINNING OF YEAR           DECLARED                  PAID                 NOVEMBER 30,
     -------------------------------------------------------------------------------------------------------------------
     <S>                        <C>                      <C>                       <C>                     <C>
     1998                        $   146,659              $   399,999               $  546,658             $     --
     1997                            222,222                  533,327                  608,890               146,659
     1996                            222,222                  888,888                  888,888               222,222
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

     10. SALE OF PROPERTIES
     On January 29, 1999, the Partnership consummated the sale of the Properties
     to DOC Investors, L.L.C., a Delaware limited liability company, for a sales
     price of $25,200,000 (before selling costs and prorations). As required by 
     the Partnership's Partnership Agreement, the General Partner solicited the 
     consent of a majority in interest of the Unitholders to the sale pursuant 
     to a Consent Solicitation Statement dated December 16, 1998. The requisite
     consent was obtained on January 15, 1999. The Partnership received 
     $16,624,444 of cash proceeds from the sale, net of closing costs of 
     approximately $42,000 and repayment or assumption of indebtedness of 
     approximately $8,533,556.

     On February 26, 1999, the Partnership distributed $16,600,000 ($207.50 
     per Unit) to the Unitholders and $15,037 to the General Partner, out of 
     cash proceeds from the sale and Net Cash From Operations, as defined.

                                      11
<PAGE>

CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES

--------------------------------------------------------------------------------
                          INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------




     The General Partner
     ConAm Realty Investors 3 L.P.:


     We have audited the accompanying consolidated balance sheets of ConAm 
     Realty Investors 3 L.P. (a California limited partnership) and 
     consolidated ventures (the "Partnership"), as of November 30, 1998 and 
     1997, and the related consolidated statements of operations, partners' 
     capital, and cash flows for the years then ended. These consolidated 
     financial statements are the responsibility of the Partnership's 
     management. Our responsibility is to express an opinion on these 
     consolidated financial statements based on our audit.

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

     As further discussed in Note 10 to the consolidated financial statements,
     the Partnership sold substantially all of its assets on January 29, 1999.

     In our opinion, the consolidated financial statements referred to above 
     present fairly, in all material respects, the financial position of ConAm 
     Realty Investors 3 L.P. and consolidated ventures as of November 30, 1998 
     and 1997, and the results of their operations and their cash flows for the 
     years then ended, in conformity with generally accepted accounting 
     principles.


                                              KPMG LLP


     San Diego, California
     January 29, 1999, except for the second paragraph
          of Note 10 to the consolidated financial 
          statements, as to which the date is 
          February 26, 1999

                                      12
<PAGE>

--------------------------------------------------------------------------------
                    REPORT OF FORMER INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------




     To the Partners of 
     ConAm Realty Investors 3 L.P.:

     We have audited the consolidated balance sheet of ConAm Realty Investors 3
     L.P. (formerly Hutton/ConAm Realty Investors 3), a California Limited
     Partnership, and Consolidated Ventures as of November 30, 1996 and the
     related consolidated statements of operations, partners' capital (deficit)
     and cash flows for the year then ended. These consolidated financial 
     statements are the responsibility of the Partnership's management. Our 
     responsibility is to express an opinion on these consolidated financial
     statements based on our audit.

     We conducted our audit 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 audit
     provides a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
     present fairly, in all material respects, the consolidated financial
     position of ConAm Realty Investors 3 L.P., a California Limited
     Partnership, and Consolidated Ventures as of November 30, 1996, and the
     consolidated results of their operations and their cash flows for the 
     year then ended in conformity with generally accepted accounting 
     principles.


     COOPERS & LYBRAND L.L.P.



     Hartford, Connecticut
     February 14, 1997

                                      13
<PAGE>

--------------------------------------------------------------------------------
                               NET ASSET VALUATION
--------------------------------------------------------------------------------

     COMPARISON OF ACQUISITION COSTS TO NOVEMBER 30, 1998 PROPERTY VALUES AND
     DETERMINATION OF NET ASSET VALUE PER UNIT AT NOVEMBER 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 ACQUISITION COST
                                                                  (PURCHASE PRICE
                                                                   PLUS GENERAL         PARTNERSHIP'S      
                                                   DATE OF           PARTNERS'        SHARE OF PROPERTY    NET ASSET VALUE
     PROPERTY                                    ACQUISITION     ACQUISITION FEES)        VALUE (1)         DETERMINATION
     -----------------------------------------------------------------------------------------------------------------------
     <S>                                         <C>             <C>                  <C>                  <C>
     Autumn Heights                                01-25-85           $ 9,687,174          $11,300,000
     Skyline Village                               03-20-85            10,838,195            8,100,000
     Ponte Vedra Beach Village II                  08-22-85             6,869,917            5,800,000
     Aggregate Property Value at 11-30-98                                                                   $25,200,000
     Less estimated transaction costs in escrow                                                                 (42,000)
                                                                                                          ------------------
     Sales proceeds (before repayment or buyer assumption of secured debt)                                   25,158,000
     Cash and cash equivalents (including previously restricted cash)                                           956,765
     Other assets                                                                                                33,070
                                                                                                          ------------------
     Total assets                                                                                            26,147,835
                                                                                                          ------------------
     Less:
          Secured debt                                                                                        8,151,572
          Prepayment penalty                                                                                    350,406
          Other liabilities                                                                                     416,331
          Contingency amounts (2)                                                                               614,489
                                                                                                          ------------------
     Total liabilities                                                                                        9,532,798

                                                                                                          ------------------
     Partnership Net Asset Value (3)                                                                         16,615,037
                                                                                                          ------------------

     Net Asset Value Allocated:
          Limited Partners                                                                                   16,600,000
          General Partner                                                                                        15,037
                                                                                                          ------------------
                                                                                                             16,615,037
                                                                                                          ------------------
     NET ASSET VALUE PER UNIT
          (80,000 UNITS OUTSTANDING)                                                                            $207.50
     -----------------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  Represents the Partnership's share of the fair market value of the
          properties as reflected in the purchase and sale agreements pursuant
          to which the properties were sold on January 29, 1999. The purchase
          prices contained in such agreements were negotiated and agreed to
          within approximately 30 days of November 30, 1998.
     (2)  Includes a provision for estimated future costs related to the sale
          and liquidation and an amount the General Partner determined to set
          aside for contingencies, net of expected cash provided by operations
          through the date of sale.
     (3)  The Partnership Net Asset Value assumes a sale at November 30, 1998
          of all the Partnership's properties at prices equal to the sales
          prices set forth in the purchase and sale agreements described in
          Note (1), payment of all Partnership liabilities, and the
          distribution of the net proceeds of such sale and other Partnership
          cash, to the Partners.

     Since the Partnership sold all of its real property assets in January 1999,
     is in dissolution, and is in the process of winding up and liquidating, the
     foregoing Partnership Net Asset Value is intended to approximate the
     liquidation value of the Partnership and the Net Asset Value Per Unit is
     intended to approximate the per Unit amount which is expected to be
     distributed to the Limited Partners in connection with the Partnership's
     liquidation. The Net Asset Valuation does not take into account the
     illiquid nature of an investment in the Units or the fact that at November
     30, 1998 a holder of Units would likely not have been able to sell their
     Units for the Net Asset Value Per Unit set forth above. Fiduciaries of
     Limited Partners which are subject to ERISA or other provisions of law
     requiring valuation of Units should consider all relevant factors,
     including but not limited to Net Asset Value Per Unit, in determining the
     fair market value of the investment in the Partnership for such purposes.

                                      14
<PAGE>

     SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
     NOVEMBER 30, 1998

<TABLE>
<CAPTION>
                                                                                           CONSOLIDATED
                                                                    PONTE VEDRA                 VENTURE
     RESIDENTIAL PROPERTY:                    AUTUMN HEIGHTS      BEACH VILLAGE II      SKYLINE VILLAGE            TOTAL
     -------------------------------------------------------------------------------------------------------------------
     <S>                                <C>                       <C>                   <C>               <C>
     Location                           Colorado Springs, CO      Jacksonville, FL           Tucson, AZ               na
     Construction date                             1983-1985             1984-1985            1984-1985               na
     Acquisition date                               01-25-85              08-22-85             03-20-85               na
     Life on which depreciation
     in latest income statements
     is computed                                    25 years              25 years             25 years               na
     Encumbrances                              $   5,092,055         $          --        $   3,059,517   $    8,151,572
     Initial cost to Partnership:
          Land                                 $   1,581,000         $     788,000        $   3,410,000   $    5,779,000
          Buildings and
          improvements                         $   8,123,598         $   6,138,289        $   7,510,205   $   21,772,092
     Costs capitalized 
     subsequent to acquisition--
          Land, buildings
          and improvements                     $     688,584         $     466,896        $     132,130   $    1,287,610
     Write-off of buildings
          and improvements                     $    (330,327)        $    (156,300)       $          --   $    (486,627)
     Gross amount at which
     carried at close of period: (1)
          Land                                 $   1,589,840         $     789,882        $   3,437,946   $    5,817,668
          Buildings and
          improvements                             8,473,015             6,447,003            7,614,389       22,534,407
     -------------------------------------------------------------------------------------------------------------------
                                               $  10,062,855         $   7,236,885        $  11,052,335   $   28,352,075
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------

     Accumulated depreciation (2)              $   4,477,994         $   3,293,997        $   4,248,036   $   12,020,027
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

     (1) Represents aggregate cost for both financial reporting for Federal
         income tax purposes.
     (2) The amount of accumulated depreciation for Federal income tax purposes
         is $12,447,272.

     A reconciliation of the carrying amount of real estate and accumulated
     depreciation for the years ended November 30, 1998, 1997, and 1996 follows:

<TABLE>
<CAPTION>
                                                                              1998                 1997             1996
     -------------------------------------------------------------------------------------------------------------------
     <S>                                                             <C>                  <C>             <C>
     INVESTMENTS IN REAL ESTATE:
     Beginning of period                                             $  28,283,346        $ 28,144,448    $   27,982,248
     Additions                                                             236,056             458,198           162,200
     Dispositions                                                         (167,327)           (319,300)               --
     -------------------------------------------------------------------------------------------------------------------
     End of period                                                   $  28,352,075        $ 28,283,346    $   28,144,448
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------

     ACCUMULATED DEPRECIATION:
     Beginning of period                                             $  11,223,921        $ 10,510,777    $    9,645,010
     Depreciation                                                          875,674             879,244           865,767
     Dispositions                                                          (79,568)           (166,100)               --
     -------------------------------------------------------------------------------------------------------------------
     End of period                                                   $  12,020,027        $ 11,223,921    $   10,510,777
     -------------------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

     SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.

                                     F-1
<PAGE>

--------------------------------------------------------------------------------
                          INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------



     The General Partner
     ConAm Realty Investors 3 L.P.:


     Under date of January 29, 1999, we reported on the consolidated balance
     sheets of ConAm Realty Investors 3 L.P. (a California limited partnership)
     and consolidated ventures (the "Partnership"), as of November 30, 1998 and
     1997, and the related consolidated statements of operations, partners'
     capital, and cash flows for the years then ended, as contained in the 1998
     annual report to Unitholders. These consolidated financial statements 
     and our report thereon are incorporated by reference in the 1998 annual
     report on Form 10-K. In connection with our audits of the aforementioned
     consolidated financial statements, we also have audited the related 
     consolidated financial statement schedule. This consolidated financial 
     statement schedule is the responsibility of the Partnership's management.
     Our responsibility is to express an opinion on this consolidated financial
     statement schedule based on our audits.

     In our opinion, the consolidated financial statement schedule, when
     considered in relation to the basic consolidated financial statements taken
     as a whole, presents fairly, in all material respects, the information set
     forth therein.

                                                KPMG LLP



     San Diego, California
     January 29, 1999

                                     F-2
<PAGE>

-------------------------------------------------------------------------------
                    REPORT OF FORMER INDEPENDENT ACCOUNTANTS
-------------------------------------------------------------------------------




     Our report on the consolidated financial statements of ConAm Realty
     Investors 3 L.P. (formerly Hutton/ConAm Realty Investors 3), a California
     Limited Partnership, and Consolidated Ventures has been incorporated by
     reference in this Form 10-K from the Annual Report to Unitholders of ConAm
     Realty Investors 3 L.P. for the year ended November 30, 1996. In connection
     with our audit of such financial statements, we have also audited the 
     related financial statement schedule listed in the index of this Form 10-K.

     In our opinion, the financial statement schedule referred to above, when
     considered in relation to the basic financial statements taken as a whole,
     presents fairly, in all material respects, the information required to be
     included therein.


     COOPERS & LYBRAND L.L.P.


     Hartford, Connecticut
     February 14, 1997

                                     F-3