UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                                    FORM 10-K

(Mark One)
[ 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
                                  ----------------------------------------------
                                                         or
[  ]  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 33-27399

                    ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

     New Jersey                                           22-2469174
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

        Indiana Avenue & the Boardwalk, Atlantic City, New Jersey 08401
               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code               (609) 340-3400
                                                              ------------------

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

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Sections 13 and 15 (d) of the Securities Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

     All issued and outstanding  partnership  units of the Partnership have been
offered and sold in reliance on exemptions from the registration requirements of
the  Securities  Act of 1933 as  amended.  Therefore,  there  is no  established
trading  market  for any  class of  partnership  units of the  Partnership.  The
Partnership did, in 1989, jointly with the Claridge Hotel and Casino Corporation
("Corporation") and Del Webb Corporation  ("Webb"),  register certain Contingent
Payment  Units.  As stated in the  Prospectus  dated May 5, 1989, the Contingent
Payment  Rights  may or may  not be  securities.  None of the  Partnership,  the
Corporation  or Webb  has  admitted  that  the  Contingent  Payment  Rights  are
securities or that any of them is the issuer of any such securities.

     Registrant's  Partnership  Units  outstanding  on December 31, 1996 was 450
units.



<PAGE>



                                     PART I

Item 1.       Business.


General Development of the Business

Atlantic City Boardwalk Associates,  L.P.  ("Partnership") was formed on October
31, 1983 to acquire the buildings,  parking facility and non-gaming depreciable,
tangible property ("Hotel Assets") of The Claridge Hotel and Casino ("Claridge")
located in Atlantic City, New Jersey;  to hold a leasehold  interest in the land
on which  the  Claridge  is  located;  and to engage in  activities  related  or
incidental  thereto.  On June 16,  1989,  as part of a  financial  restructuring
("Restructuring  Agreement"),  the Partnership acquired all of the rights to the
land  underlying  the Hotel  Assets,  the air rights and related  easement.  The
Partnership's  principal  business  is to lease the Hotel  Assets,  land and air
rights  to  The  Claridge  at  Park  Place,  Incorporated  ("New  Claridge"),  a
wholly-owned   subsidiary   of  The  Claridge   Hotel  and  Casino   Corporation
("Corporation"),  under operating leases. All revenues of the Partnership, other
than immaterial investment income, are derived from those leases.

The  Partnership  maintains  offices at The Claridge  Hotel and Casino,  Indiana
Avenue and the  Boardwalk,  Atlantic City,  New Jersey 08401,  telephone  number
(609)  340-3400;  and at 2880 West Meade  Avenue,  Suite 204, Las Vegas,  Nevada
89102, telephone number (702) 253-7662.


New Claridge's Corporate Structure

In 1983,  New Claridge  acquired the  Claridge's  casino  license and its gaming
equipment  (collectively,  "Casino  Assets")  from Del E. Webb New Jersey,  Inc.
("DEWNJ"),  a wholly-owned  subsidiary of Del Webb Corporation ("Webb");  leased
the Hotel  Assets and  subleased  the land on which the Claridge is located from
the Partnership; and assumed certain liabilities related to the acquired assets.
In connection with those  transactions,  the Partnership  granted the Expandable
Wraparound  Mortgage  (defined below) to New Claridge.  These  transactions were
entered into in connection with the private placement of equity interests in the
Partnership and the Corporation.  Following the 1983 transactions,  Webb and its
affiliates retained  significant  interest in the Claridge.  The common stock of
the Corporation and the limited  partnership  interests of the Partnership  were
sold  together  in a private  placement  as units,  and  because  there has been
relatively  little  trading  in the stock or  partnership  interest,  there is a
substantial  similarity  between the equity ownership of the Corporation and the
Partnership.  Although  the  Partnership  and the  Corporation  are  independent
entities,  approximately  95% of the  Corporation's  common  stock  is  owned by
persons who also own  limited  partnership  interests  in the  Partnership.  The
Partnership  does not currently  engage in any significant  business  activities
other than those relating to the Claridge.

In October 1988, the Partnership,  the Corporation and New Claridge entered into
the Restructuring  Agreement.  The restructuring,  which was consummated in June
1989 (the "Closing"), resulted in (i) a reorganization of the ownership interest
in the Claridge;  (ii)  modifications  of the rights and  obligations of certain
lenders;  (iii)  satisfaction and termination of the obligations and commitments
of Webb and DEWNJ under the original structure;  (iv) modifications of the lease
agreements between New Claridge and the Partnership;  and (v) the forgiveness by
Webb of substantial indebtedness.


<PAGE>

On January 31,  1994,  the  Corporation  completed an offering of $85 million of
First Mortgage Notes ("Notes") due 2002,  bearing interest at 11 3/4%. The Notes
are  secured  by  (i)  a  non-recourse   mortgage  granted  by  the  Partnership
representing  a first lien on the Hotel Assets and the underlying  land,  (ii) a
pledge granted by the Corporation of all outstanding  shares of capital stock of
New Claridge, and (iii) a guarantee by New Claridge. New Claridge's guarantee of
the Notes is secured by a collateral  assignment  of the second lien  Expandable
Wraparound  Mortgage  (described  below), and by a lien on the Claridge's gaming
and other assets, which lien will be subordinated to liens that may be placed on
those  gaming  and other  assets to secure  any  future  revolving  credit  line
arrangement.  On January 28,  1997,  New  Claridge  entered into an agreement to
subject the new self-parking garage to the lien of the mortgage;  such lien will
not be  subordinated  to any liens which may be placed on New Claridge's  gaming
and other  assets to secure  any  future  revolving  credit  line  arrangements.
Interest on the Notes is payable semiannually on February 1 and August 1 of each
year, commencing August 1, 1994.

The net proceeds of the Notes,  totaling $82.2 million net of fees and expenses,
were  used  as  follows:  (i)  to  repay  in  full  on  January  31,  1994,  the
Corporation's  then  outstanding  debt under the Revolving  Credit and Term Loan
Agreement  ("Loan   Agreement"),   including  the  outstanding  balance  of  the
Corporation's  revolving  credit line,  which was secured by the First Mortgage;
(ii) to expand New  Claridge's  casino  capacity by 12,000  square feet in 1994,
including the addition of approximately  500 slot machines and the relocation of
two restaurants and their related  kitchens;  (iii) to purchase property in 1995
and construct on that property a self-parking  garage, which opened in mid-1996;
and (iv) to acquire the Contingent Payment Option (described below).

Recent Developments at New Claridge

During  1994 and 1995,  the cash  provided by  operations  of the  Claridge  was
sufficient to meet the  Corporation's  obligations to pay interest on the Notes,
as well as to make at least some moderate  capital  improvements.  Commencing in
the latter part of 1995, however, competition in the Atlantic City casino market
for bus customers, a principal source of customers for the Claridge at the time,
increased;  this  competition  intensified  even more during 1996 as  additional
casino  square  footage was added,  principally  due to the opening of the Trump
World's Fair  casino.  During 1996,  the average coin  incentive  issued per bus
patron at the Claridge increased to approximately $19, from approximately $13 in
1995. Total cash incentives  issued to Claridge's casino patrons (in the form of
coin to play slot  machines and gaming  chips to play table games)  increased to
approximately  $30.5 million in 1996, from approximately  $25.2 million in 1995.
While the Corporation's  promotional costs have increased  significantly,  total
casino  revenues in 1996 actually  decreased  from 1995 levels.  It had been the
expectation  of the  Corporation  that,  upon  opening  of its new  self-parking
garage,  the Corporation  would be able to reduce its reliance on the bus patron
market; however, the Corporation was forced to close the garage facility on July
10, 1996, only ten days after its opening  following a fatal  accident.  Because
the  facility  was not able to  reopen  until  the end of  September  1996,  the
Corporation  lost any possible  benefit of the facility during the normally busy
summer season.  In addition,  severe winter weather in the first quarter of 1996
adversely affected revenues. As a result, the Corporation experienced a net loss
for 1996 of $15.4 million, compared to a net loss of $1.9 million in 1995.

In late July 1996,  management  of the  Corporation  determined  that due to the
serious deterioration in the Corporation's cash flow, that without a significant
improvement in its operating results, it was unlikely that the Corporation would
be able to meet its  obligations  to pay interest on the Notes beyond the August
1996 payment.  In addition to taking steps to conserve cash by reducing  various
operating expenses, the Corporation engaged a financial advisor,  Dillon, Read &
Co.,  Inc.,  to assist in  formulating a proposal to the holders of the Notes to

<PAGE>

restructure the Corporation's obligations under the Notes. At the same time, the
Corporation was working with Dillon, Read & Co., Inc. to attempt to find a buyer
of the  Corporation  or an  investor  that  would  be in a  position  to  inject
additional  capital into the  Corporation to enable the  Corporation to meet its
ongoing  obligations.  To date, the  Corporation has not received any acceptable
proposals in regards to the possible sale of the Corporation.

In November  1996,  while the sales  efforts were  continuing,  the  Corporation
announced  that  there was a strong  likelihood  that the  Corporation  would be
unable to pay the  interest  due on the Notes on February 3, 1997.  Accordingly,
management,  working  together with financial and legal  advisors,  formulated a
plan for restructuring the Corporation's obligations.  The terms of the proposed
plan were presented to the noteholders at a meeting held on December 3, 1996, at
which time the  noteholders  were urged to form a  steering  committee  or other
representative  body to conduct  negotiations.  Although a group of  noteholders
formed and met with the management of the Corporation on a few occasions, by the
time the committee formally organized itself on January 7, 1997, it consisted of
six members representing  ownership of less than 5% of the total amount of Notes
outstanding. At that time, the Corporation determined that the committee did not
represent a sufficient  portion of the noteholders to negotiate on behalf of the
noteholders  generally.  As a result, the Corporation did not formally recognize
the  committee and did not engage in any  negotiation  with the committee or its
members,  although it did  encourage the members of the committee to continue to
attempt to obtain broader representation of the noteholders.

On January 12, 1997,  management of the  Corporation  was contacted,  through an
agent, by Hilton Hotel Corporation ("Hilton"),  regarding a possible sale of the
Corporation  to  Hilton,   and  shortly   thereafter,   the  Corporation   began
negotiations  with Hilton.  On January 30, 1997, the Corporation  issued a press
release  indicating that the Corporation would not make the interest payment due
on the  Notes  on  February  3,  1997,  and  that the  Corporation  had  entered
negotiations  with Hilton  regarding  acquisition  of the  Corporation by Hilton
through a prepackaged  bankruptcy plan. At that time, a representative of Hilton
indicated  that Hilton had acquired  approximately  35% to 40% of the Notes.  On
February 5, 1997, three holders of the Notes, who were members of the unofficial
committee  which they had formed,  filed a petition for  involuntary  bankruptcy
against the Corporation in the bankruptcy court for the District of New Jersey.

Contemporaneously,  the same three  holders of the Notes  filed a related  state
court lawsuit against the Corporation,  New Claridge,  the Partnership,  certain
officers  and  directors  of the  Corporation,  and the general  partners of the
Partnership. On March 4, 1997, contrary to earlier expectations, the Corporation
was able to pay the  interest  that was due on the Notes on  February  3,  1997,
under the  30-day  grace  period  allowed  in  accordance  with the terms of the
indenture  governing  the Notes  ("Indenture").  In  addition,  the  Corporation
reached agreement with the unofficial  committee of noteholders,  as well as the
three holders of the Notes, providing for the joint dismissal of the involuntary
bankruptcy  petition and the related state court lawsuit.  On March 19, 1997, an
order was entered  dismissing the involuntary  bankruptcy  petition;  as part of
that order, a settlement  agreement was entered  whereby the state court lawsuit
was also dismissed.  The  Corporation  expects the  negotiations  with Hilton to
continue.

The Corporation had sufficient cash to pay the interest on the Notes on March 4,
1997 due to  several  events:  (i) cash flow from  operations  for  January  and
February 1997 improved significantly over what had been expected; (ii) effective
March 1, 1997, the Operating Lease and Expansion Operating Lease (defined below)
were  amended to provide for the deferral of basic rent of $1.3 million on March
1, 1997 (see further  discussion 

<PAGE>

below);  and  (iii)  on  February  28,  1997,  New  Claridge  entered   into  an
agreement  with Thermal  Energy  Limited  Partnership  I  ("Atlantic  Thermal"),
pursuant to which Atlantic Thermal was granted an exclusive license for a period
of twenty years to use,  operate and maintain  certain  steam and chilled  water
production  facilities  at the  Claridge.  In  consideration  for  this  license
agreement, Atlantic Thermal paid New Claridge $1.5 million.

Certain Agreements between the Partnership, the Corporation and New Claridge

The  current   relationships  and  agreements   between  the  Partnership,   the
Corporation and New Claridge are described below:

     Property Ownership and Related Leases and Mortgage

     The  Casino  Assets  are  owned  by New  Claridge.  In  addition,  the  new
     self-parking  garage and the land on which it is  located  are owned by New
     Claridge. The Hotel Assets, the underlying land and air rights are owned by
     the Partnership  and leased by the  Partnership to New Claridge.  The lease
     obligations  are set  forth  in an  operating  lease  ("Operating  Lease"),
     originally  entered  into on October 31, 1983,  and an expansion  operating
     lease ("Expansion  Operating  Lease"),  covering  additions to the Claridge
     made in 1986.


     Operating Lease and Expansion Operating Lease

     New Claridge  leases from the  Partnership the Hotel Assets and the land on
     which the  Claridge is located  for an initial  term of 15 years with three
     10-year renewal  options.  Basic annual rent during the initial term of the
     Operating  Lease in equal monthly  installments  was  $38,055,000  in 1994,
     $39,030,000  in 1995,  $39,906,000  in 1996,  and  escalates  thereafter to
     $41,775,000  in 1997 and  $32,531,000  for the  nine  month  period  ending
     September 30, 1998. If the terms of the lease are extended, basic rent will
     be  calculated  pursuant  to a formula,  with such rent not to be more than
     $29.5  million nor less than $24 million in the lease year  October 1, 1998
     through  September  30, 1999,  and not to be greater than 10% more than the
     basic rent for the  preceding  lease  year in each  lease year  thereafter.
     Under the  terms of the  Operating  Lease,  New  Claridge  has an option to
     purchase,  on September 30, 1998 and, if it renews the Operating  Lease, on
     September 30, 2003, the Hotel Assets and the underlying land for their fair
     market value at the time the option is exercised.

     New Claridge is also required to pay, as additional  rent,  certain  taxes,
     insurance and other charges relating to the occupancy of the land and Hotel
     Assets,  certain expenses and debt service  relating to furniture,  fixture
     and equipment replacements and building improvements  (collectively,  "FF&E
     Replacements")  and  certain  general  and  administrative   costs  of  the
     Partnership.  The  Partnership  is  required  during the entire term of the
     Operating Lease, and any subsequent  renewal terms, to provide New Claridge
     with FF&E Replacements and to provide facility  maintenance and engineering
     services to New Claridge. New Claridge is obligated to lend the Partnership
     any amounts  necessary  to fund the cost of FF&E  Replacements,  and if the
     Partnership's  cash flow,  after  allowance for certain  distributions,  is
     insufficient to provide the facility  maintenance and engineering  services
     required of it, New Claridge is also required to lend the Partnership  such
     necessary funds  (collectively,  "FF&E Notes").  The FF&E Notes are secured
     under the Expandable  Wraparound  Mortgage (see discussion  below), and are
     payable  as  follows.  Generally,  one half of the  principal  is due in 48
     months  and the  remainder  is due 60  months  from the  issue  date of the
     individual notes, with the 

<PAGE>

     following exception. As required by the offering of $85 million of Notes on
     January 31, 1994, $8 million was used to finance  internal  improvements at
     the Claridge. In connection  therewith,  the Expandable Wraparound Mortgage
     as well as the  Operating  Lease and the  Expansion  Operating  Lease  were
     amended to provide that the $8 million  principal on these  additional FF&E
     Notes will be payable on September  30, 2000,  or at final  maturity of the
     Expandable  Wraparound  Mortgage,  as  amended.  All FF&E notes are secured
     under the Wraparound Mortgage up to $25 million.  Thereafter, such advances
     shall be secured  under  separate  security  agreements.  New  Claridge  is
     obligated to pay as additional  rent to the Partnership the debt service on
     all FF&E Notes.

     On March 17, 1986, New Claridge  entered into a lease with the  Partnership
     whereby New Claridge  leases from the  Partnership  the Claridge  expansion
     improvements  for an initial  term  beginning  March 17, 1986 and ending on
     September 30, 1998 with three 10-year  renewal  options.  Basic annual rent
     during the initial term of the Expansion  Operating Lease was $3,870,000 in
     1986 (prorated based on the number of days that the expansion  improvements
     were open to the public) and was based on the cost of the  construction  of
     the  expansion  improvements.  Annually  thereafter  the  rental  amount is
     adjusted  based on the Consumer Price Index with any increase not to exceed
     two percent per annum.  Basic annual rent for 1996, 1995, and 1994 amounted
     to $4,718,000,  $4,625,000, and $4,534,000,  respectively.  If the terms of
     the  lease  are  extended,  basic  rent will be  calculated  pursuant  to a
     formula,  with such rent not to be more than $3 million  nor less than $2.5
     million in the lease year October 1, 1998 through  September 30, 1999,  and
     not to be greater than 10% more than the basic rent for the preceding lease
     year in each lease year thereafter.

     New Claridge is also required under the Expansion Operating Lease to pay as
     additional  rent certain  expenses and debt service  relating to furniture,
     fixture and equipment replacements and building improvements (collectively,
     "Expansion FF&E  Replacements") for the expanded facility.  The Partnership
     is required during the entire term of the Expansion  Operating  Lease,  and
     any subsequent  renewal terms,  to provide New Claridge with Expansion FF&E
     Replacements and to provide facility  maintenance and engineering  services
     to New Claridge.  New Claridge is obligated to lend to the Partnership,  in
     the form of FF&E Notes,  any amounts  necessary to fund the Expansion  FF&E
     Replacements.  Any  advances  by New  Claridge  for the  foregoing  will be
     secured under the Expandable  Wraparound Mortgage (see discussion below) in
     an amount up to  $25,000,000.  Thereafter,  such advances  shall be secured
     under separate security agreements.

     The Operating Lease and the Expansion  Operating Lease were amended as part
     of the  Restructuring  Agreement to provide for the deferral of $15,078,000
     of rental  payments during the period July 1, 1988 through the beginning of
     1992, and to provide for the abatement of $38,820,000 of basic rent through
     1998,  thereby reducing the Partnership's  cash flow to an amount estimated
     to be necessary only to meet the Partnership's  cash  requirements.  During
     the third  quarter of 1991,  the maximum  deferral of rent was reached.  On
     August 1, 1991, the Operating Lease and the Expansion  Operating Lease were
     amended  further to revise the  abatement  provisions  so that,  commencing
     January 1, 1991, for each calendar year through 1998, the lease  abatements
     may not exceed $10 million in any one calendar year, and $38,820,000 in the
     aggregate.   Cumulative   abated  rents  as  of  December  31,  1996  total
     $37,066,000  leaving  $1,754,000  to   be  abated  in  the  future  period.
     Additional  abatements  of rent  totaling  $500,000  became  available as a
     result of the acquisition of the option to purchase the Contingent Payment.
     All available rent  abatements  were fully utilized in the first quarter of
     1997.  Further  abatements  would  become  available  in the event that the
     Contingent  Payment option is exercised (see Item 1. Business - "Contingent
     Payment Rights").

     <PAGE>

     The Fifth Amendment to the Operating Lease and the Fourth  Amendment to the
     Expansion  Operating Lease, which were effective on March 1, 1997, provided
     for the  abatement  of  $867,953  of  basic  rent and for the  deferral  of
     $1,300,000  of basic  rent on March 1, 1997,  and  provide  for  additional
     abatements  of basic rent,  commencing  on April 1, 1997,  as  necessary to
     reduce  the  Partnership's  cash  flow to an amount  necessary  to meet the
     Partnership's  cash  requirements  through  December  31, 1998  (determined
     without regard to the repayment of the deferred rent).  The $1.3 million of
     basic rent  deferred on March 1, 1997 is to be paid to the  Partnership  in
     monthly  installments  of  $25,000  for the  period  April 1, 1997  through
     December 31, 1997,  and monthly  installments  of $50,000 for the year 1998
     and thereafter  until paid in full (subject to  acceleration  under certain
     circumstances).  For the years 1999 through 2003,  additional abatements of
     basic rent will be reduced to provide the  Partnership  with amounts needed
     to meet the  Partnership's  cash  requirements  plus an  additional  amount
     ($83,333  per  month in 1999 and  2000,  $125,000  per  month in 2001,  and
     $166,667 per month in 2002 and 2003).

     In  conjunction  with the Fifth  Amendment to the  Operating  Lease and the
     Fourth Amendment to the Expansion  Operating Lease, as discussed above, the
     Corporation,  New Claridge and the Partnership entered into a restructuring
     agreement,  effective  March  1,  1997,  to  modify  certain  terms  of the
     Expandable Wraparound Mortgage (see below). In addition, under the March 1,
     1997 restructuring  agreement, New Claridge agreed to exercise the first of
     three ten-year  renewal  options  extending the term of the Operating Lease
     and Expansion Operating Lease through September 30, 2008.

     Under the terms of the Operating Lease, as amended effective March 1, 1997,
     New Claridge has an option to purchase,  on September  30, 1998,  the Hotel
     Assets and the underlying  land for their fair market value at the time the
     option is exercised,  which in no event may be less than an amount equal to
     the amount then outstanding under the Expandable  Wraparound  Mortgage (see
     below)  plus $2.5  million,  plus any  amount of the $1.3  million  of rent
     deferred on March 1, 1997 not then paid.  If New Claridge does not exercise
     this option on September 30, 1998, it may exercise an option,  on September
     30, 2003, to purchase the Hotel Assets and the  underlying  land on January
     1, 2004, for their fair market value at the time the option is exercised.

     If the Partnership should fail to make any payment due under the Expandable
     Wraparound  Mortgage,  New Claridge may exercise a right of offset  against
     rent or  other  payments  due  under  the  Operating  Lease  and  Expansion
     Operating  Lease to the  extent  of any such  deficiency.  In turn,  if the
     Claridge  should  fail to make any lease  payment  due under the  Operating
     Lease and Expansion  Operating  Lease,  the  Partnership is not required to
     make mortgage payments due under the Expandable Wraparound Mortgage.


     Expandable Wraparound Mortgage

     On October 31, 1983, the Partnership executed and delivered to New Claridge
     a mortgage on the Hotel Assets ("Expandable Wraparound Mortgage") which was
     subordinate to an $80 million first mortgage ("First  Mortgage") granted by
     the Partnership to a group of banks and a $47 million purchase money second
     mortgage  ("Purchase Money Second Mortgage")  granted by the Partnership to
     DEWNJ. The Purchase Money Second  Mortgage,  which was due on September 30,
     2000, was canceled upon satisfaction of certain  conditions set forth in an
     agreement  entered  into  at  the  time  of  the  1989  restructuring.   In
     conjunction  

     <PAGE>
     with the  offering  of $85  million  of  Notes on  January  31,  1994,  the
     outstanding debt  under  the  Loan Agreement,  which  included  the  First 
     Mortgage and a revolving credit line, was satisfied in full.

     By its  terms,  the  Expandable  Wraparound  Mortgage  may secure up to $25
     million of additional  borrowings by the  Partnership  from New Claridge to
     finance  FF&E   Replacements  and  facility   maintenance  and  engineering
     shortfalls.  The Expandable  Wraparound  Mortgage provides that, so long as
     the Partnership is not in default on its  obligations  under the Expandable
     Wraparound  Mortgage,  New Claridge is obligated to make payments  required
     under any senior mortgage  indebtedness.  The  indebtedness  secured by the
     Expandable Wraparound Mortgage,  which matures on September 30, 2000, bears
     interest at an annual rate equal to 14% with certain interest  installments
     that accrued in 1983 through 1988 totaling $20 million being deferred until
     maturity.  In addition,  the  Partnership  is required under the Expandable
     Wraparound  Mortgage to make  payments of principal and interest in respect
     of any loans made to finance FF&E  Replacements or facility  maintenance or
     engineering costs as described above. To the extent those borrowings exceed
     $25 million in the aggregate  outstanding at any time, they will be secured
     under  separate  security  agreements and not by the lien of the Expandable
     Wraparound Mortgage.

     On March 17,  1986,  the First  Mortgage  was  amended  and  assumed by New
     Claridge.  The  amount  of the  amended  and  assumed  First  Mortgage  was
     increased  to secure  up to $96.5  million  to  provide  financing  for the
     Expansion  Improvements.  Indebtedness secured by the Expandable Wraparound
     Mortgage  was  increased  by an amount up to $17  million  to  provide  the
     Partnership with the necessary funding.

     Effective  August 28, 1986, the Partnership  commenced making level monthly
     payments of principal and interest so as to repay on September 30, 1998, in
     full, the principal  balance of this $17 million increase in the Expandable
     Wraparound  Mortgage.  The  Expandable  Wraparound  Mortgage was amended to
     require  that the $127 million  aggregate  principal  amount  secured by it
     would be  repayable in  installments  during the years 1988 through 1998 in
     escalating  amounts totaling $80 million,  with a balloon principal payment
     of $47 million and the $20 million of deferred  interest  due on  September
     30, 2000.

     Effective March 1, 1997, the Corporation, New Claridge, and the Partnership
     entered  into a  restructuring  agreement,  pursuant to which New  Claridge
     agreed to use its best efforts to cause a  modification  of the  Expandable
     Wraparound Mortgage ("Wraparound Modification") that is permitted by, or is
     in  compliance   with,   the  terms  of  the   Indenture.   The  Wraparound
     Modification,  if so  permitted,  will  provide  for  an  extension  of the
     maturity date of the Expandable Wraparound Mortgage from September 30, 2000
     to January 1, 2004. If the Wraparound  Modification  is not permitted by or
     in compliance  with the terms of the Indenture,  New Claridge has agreed to
     effect the Wraparound  Modification at such time as the Notes are no longer
     outstanding,  and to forbear  from  taking any action to  foreclose  on the
     Expandable Wraparound Mortgage until February 2002.

     In connection  with the offering of $85 million of the Notes on January 31,
     1994, the  Corporation  agreed to use not less than $8 million from the net
     proceeds of the offering to finance  certain  internal  improvements to the
     Claridge which were funded  through  additional  FF&E Notes.  In connection
     therewith, the Expandable Wraparound Mortgage Loan Agreement as well as the
     Operating Lease, and the Expansion  Operating Lease were amended to provide
     that the principal on these  additional FF&E Notes will be payable at final
     maturity of the Expandable Wraparound Mortgage.

     <PAGE>

     Note Receivable from New Claridge

     Pursuant  to  the  Restructuring  Agreement  the  Partnership  lent  to New
     Claridge $3.6 million  representing,  at the Closing,  substantially all of
     the  Partnership's  cash and cash equivalents in excess of amounts required
     to pay Partnership  expenses.  The loan bears interest at 12% per annum and
     is due and  payable,  along  with  the  principal,  upon  (i)  the  sale or
     refinancing of the Claridge;  (ii) upon full or partial satisfaction of the
     Expandable  Wraparound  Mortgage;  and (iii) upon full  satisfaction of any
     first mortgage then in place.


     Contingent Payment Rights

     The Restructuring  Agreement  provided for Webb to retain an interest equal
     to $20 million plus  interest from December 1, 1988 accruing at the rate of
     15% per annum compounded quarterly  ("Contingent  Payment") in any proceeds
     ultimately  recovered from the operations and/or the sale or refinancing of
     the  Claridge  facility  in  excess of the  First  Mortgage  loan and other
     liabilities. To give effect to this Contingent Payment, the Corporation and
     the  Partnership  agreed not to make any  distributions  to the  holders of
     their equity  securities,  whether  derived from operations or from sale or
     refinancing proceeds, until Webb had received the Contingent Payment.

     In  connection  with the 1989  restructuring,  Webb agreed to permit  those
     partners/investors   in  the  Partnership   and   Corporation   ("Releasing
     Partners/Investors")  from whom Webb had received written releases from all
     liabilities,  rights  ("Contingent  Payment  Rights")  to  receive  certain
     amounts to the extent available for application to the Contingent  Payment.
     Approximately 84% in interest of the  partners/investors  provided releases
     and   became   Releasing   Partners/Investors.    Payments   to   Releasing
     Partners/Investors  are  to be  made  in  accordance  with  a  schedule  of
     priorities, as defined in the Restructuring Agreement.

     On April 2, 1990, Webb  transferred its interest in the Contingent  Payment
     to an  irrevocable  trust for the  benefit  of the Valley of the Sun United
     Way, and upon such transfer Webb was no longer  required to be qualified or
     licensed by the Commission.

     On February 23, 1996, the Corporation acquired an option to purchase,  at a
     discount from the carrying  value,  the  Contingent  Payment.  The purchase
     price of the option was $1  million,  and the option may be  exercised  any
     time prior to December 31, 1997. Upon exercise of the option,  the purchase
     price of the Contingent Payment would be $10 million,  plus interest at 10%
     per annum for the period from January 1, 1997 to the date of payment of the
     purchase price if the purchase occurs after December 31, 1996. The purchase
     price may also  increase  in an amount not to exceed $10  million if future
     distributions  to Releasing  Partners/Investors  exceed $20 million.  It is
     estimated that at December 31, 1996, the aggregate  amount owing in respect
     of the Contingent Payment was $65.8 million.

     Given the recent operating  results at New Claridge (see Item 1. Business -
     "Recent Developments at New Claridge"), it is unlikely that the Corporation
     would be able to exercise this  Contingent  Payment Option using  available
     working capital, or absent a refinancing or sale transaction.

     In the event  that the  option is  exercised,  it is  anticipated  that the
     Contingent  Payment would be canceled so that neither the  Corporation  nor
     the Partnership would have any obligation to make any payment in respect 

     <PAGE>
     of the Contingent  Payment before making a distribution to limited partners
     or  shareholders.  Upon  the  purchase  and  cancellation,  however,   the 
     Corporation and the  Partnership  would remain  obligated to make  payments
     to the Releasing Partners/Investors, in respect of the Contingent  Payment 
     Rights,  before  any  distribution  may  be  made to limited  partners or  
     shareholders.  These payments would be required to be in the same  amounts 
     as if the Contingent Payment had not been purchased  and  canceled.   As a 
     result, it is not likely that limited partners or  shareholders who are not
     Releasing  Partners/Investors  will  receive  any  distribution from  the  
     Partnership  or  the  Corporation.  In  the  aggregate, Releasing Partners/
     Investors  are  entitled  to  receive  an  amount  equal  to approximately 
     72% of the Contingent Payment if the option is exercised.

     Under the terms of the option, upon purchase of the Contingent Payment, the
     Partnership  and/or the Corporation would be required to make distributions
     in  excess  of  $7  million  to  the  Releasing   Partners/Investors.   The
     Partnership and the Corporation have agreed to cooperate in the purchase of
     the option and the Contingent Payment,  with each contributing  one-half of
     the  purchase  price of the  option  and  each  anticipated  to  contribute
     one-half of the purchase price of the Contingent  Payment. A portion of the
     Partnership's   contribution   would  be  contributed   through  additional
     abatements  of basic rent  payments due under the  Operating  Lease and the
     Expansion Operating Lease.

Current Financial Condition of The Partnership

The ability of the  Partnership to fulfill its obligations is dependent upon the
ability  of New  Claridge  to pay rental  payments  when due.  Accordingly,  the
financial stability of the Partnership is dependent upon the financial condition
of New Claridge.  The previous discussion  entitled "Recent  Developments at New
Claridge," the following discussion entitled "Current Financial Situation of The
Claridge  Hotel  and  Casino  Corporation"  and the  discussion  concerning  New
Claridge in Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," are taken from the Annual Report on Form 10-K of the
Corporation,  and the Partnership  disclaims any  responsibility for the content
thereof,  except  for the  information  also  included  in  Item  8,  "Financial
Statements and Supplementary Data."


Current Financial Situation of The Claridge Hotel and Casino Corporation

     The Claridge

     The Claridge, located in the Boardwalk casino section of Atlantic City, New
     Jersey, is a 26-story  building that contains the Corporation's  casino and
     hotel facilities.  The Claridge's  casino consists of approximately  59,000
     square  feet of casino  space on three main levels  with  various  adjacent
     mezzanine levels.  The casino currently contains  approximately  1,750 slot
     machines and sixty-five table games,  including forty-one blackjack tables,
     ten craps tables, five roulette tables,  three Caribbean stud poker tables,
     one  mini-baccarat  table,  and five other specialty  games. The hotel with
     related amenities  consists of 502 guest rooms (including 28 corner suites,
     26 specialty suites and five tower penthouse suites),  four restaurants,  a
     buffet area, three lounges,  a private  player's club, a 600-seat  theater,
     limited  meeting  rooms, a gift shop, a beauty salon and a health club with
     an indoor swimming pool.

     Built  in  1929  as a  hotel,  the  Claridge  was  remodeled  at a cost  of
     approximately  $138  million  prior to its  reopening  as a casino hotel in
     1981. The Claridge was further  renovated and expanded in 1986 at a cost of

<PAGE>

     approximately $20 million,  which provided approximately 10,000 square feet
     of casino  space  together  with a 3,600  square  foot  lounge  ("Expansion
     Improvements"). In 1994, approximately $12.7 million was expended to expand
     the Claridge's casino square footage by approximately 12,000 feet. In 1996,
     New Claridge  constructed a self-parking  garage facility  connected to its
     existing  valet-parking garage, at a cost of approximately $28 million. The
     combined garage facility provides parking for approximately 1,200 vehicles.

     New Claridge experiences a seasonal fluctuation in demand, which is typical
     of casino-hotel operations in Atlantic City. Historically,  peak demand has
     occurred during the summer season.  New Claridge's  principal market is the
     Mid-Atlantic  area of the United States.  Casino gaming in Atlantic City is
     highly  competitive  and is strictly  regulated under the New Jersey Casino
     Control Act and regulations  thereunder  which affect virtually all aspects
     of casino operations.


     Results of Operations for the Year Ended December 31, 1996
     as Compared to the Year Ended December 31, 1995

     The  Corporation  had a net loss of $15,389,000 for the year ended December
     31,  1996,  as  compared  to a net loss of  $1,908,000  for the year  ended
     December 31, 1995. Casino revenue in 1996 decreased $6,238,000 or 3.8% from
     the prior year.  Casino revenues were adversely  affected by several severe
     winter storms  during the first  quarter of 1996,  most notably the January
     blizzard,  which  blanketed  the  Northeastern  United States with a record
     amount of snow; this compared to the mild weather conditions experienced in
     the first quarter of 1995. In the second quarter of 1996, the Trump World's
     Fair casino  commenced  operations,  contributing  to the 9.1%  increase in
     citywide  casino square  footage in 1996. In addition,  the number of hotel
     rooms available  citywide  increased in the second quarter of 1996 with the
     opening of the Trump World's Fair casino  (approximately 500 rooms) and the
     Tropicana's  new  600-room  hotel  tower,  adding  to the  already  intense
     competition  for  casino   patrons.   On  July  10,  1996,  the  Claridge's
     self-parking garage, which had opened on June 28, 1996, was closed due to a
     fatal  accident,  and was not  reopened  until  September  20,  1996 , when
     certain structural  enhancements were completed.  As a result of not having
     the use of the  self-parking  garage  during the busy  summer  season,  the
     Claridge was unable to fully take advantage of certain promotional programs
     designed to capture the more profitable drive-in casino patron.

     Beginning in the latter part of 1995,  competition  for bus customers began
     to increase,  in the form of  increased  coin  incentives  offered to these
     customers.  Because of its lack of a self-parking  garage at that time, and
     therefore  its  dependency  on the bus market,  New  Claridge had to remain
     competitive  with the incentives  offered by other Atlantic City casinos in
     order to maintain its share of this market.  In 1996, the  competition  for
     bus  customers  became  even  more  intense,  as the  average  cost of coin
     incentives  issued to patrons arriving by bus to the Claridge  increased to
     approximately $19 in 1996, from approximately $13 in 1995. In total, during
     1996, New Claridge  issued  $19,495,000 in coin incentives to 1,015,000 bus
     patrons,  compared to $12,502,000 of coin incentives  issued to 976,000 bus
     patrons.

     Total costs and  expenses for the year ended  December  31, 1996  increased
     $8,472,000 or 4.1% over the same period in 1995. The increase was primarily
     a result of the increase in casino and general and administrative expenses.
     The increase in casino  expenses was  primarily a result of the increase in
     coin  incentives  issued through the bus program as well as the increase in
     the  cost of  providing  promotional  allowances  to  casino  

     <PAGE>

     patrons.  The increase in general and administrative expenses was primarily
     a result of increased advertising expenditures during the year.

     Factors Which May Influence New Claridge's Future Operating Results

     As discussed,  the  Corporation  experienced  recurring  losses and serious
     deterioration in its cash flow in 1996. Since the Corporation does not have
     substantial  cash reserves or access to a line of credit,  the  Corporation
     will need to experience a significant  improvement in operating  results in
     1997 over 1996 levels in order to meet its on-going obligations,  including
     the interest due on the Notes. Operating results in 1997 have improved over
     1996 levels,  due primarily to the positive  impact of the  availability of
     the self-parking  garage.  Although management of the Corporation  believes
     that operating  results will continue to improve over prior year levels, no
     assurances  as to the  continuation  of  this  improvement  can  be  given.
     Management will continue to conserve cash through various cost  containment
     measures,  including limiting capital expenditures in 1997 to approximately
     $1 million.  Given the various  improvements made to the property in recent
     years,  including the casino  expansion in 1994,  the  construction  of the
     self-parking garage, and other projects such as the refurbishment of all of
     its guest  rooms,  the current  condition  of the property is such that the
     above-mentioned   level  of  capital   expenditures  is  deemed   adequate.
     Management,  together with the Corporation's Board of Directors,  will also
     continue  to work with  Dillon,  Read & Co.,  Inc.  to pursue a sale of the
     Corporation  or some other plan for a significant  infusion of capital into
     the  Corporation.  In  addition,  New Claridge has retained the law firm of
     Zelle and Larson LLP of Minneapolis,  Minnesota to assist in evaluating the
     recovery of certain expenses incurred in reopening the self-parking  garage
     and in evaluating  potential lost profit claims as a result of the accident
     which occurred in the self-parking  garage on July 10, 1996.  Management of
     the Corporation  intends to file a claim to recover these expenses and lost
     profits;  recovery  of these  claims  would have a  positive  impact on New
     Claridge's  financial  results and  liquidity.  No formal  claims have been
     filed to date,  and  there is no  assurance  that the  Corporation  will be
     successful in realizing any recovery.

     Competition  in the Atlantic  City  casino-hotel  market is intense.  As of
     December  31,  1996,  the  twelve   existing  casino   facilities   offered
     approximately  1,080,000 square feet of gaming space, a 12.5% increase over
     the casino square footage as of December 31, 1995 of approximately  960,000
     square feet. In May 1996,  the 49,000 square foot Trump World's Fair casino
     opened, and minor casino expansions occurred at several other properties in
     1996.  For the years  ended  December  31, 1996 and 1995,  citywide  gaming
     revenues, as reported,  increased 1.8% and 9.5%,  respectively,  over prior
     year levels.

     The  Atlantic  City gaming  market is expected  to  experience  significant
     growth  beginning  over the next several years as Atlantic City  transforms
     itself from a "day-trip"  market to a "destination  resort." As a result of
     current high room occupancy rates, a more favorable regulatory climate, the
     reduced threat of competition from potential new gaming jurisdictions,  and
     significant   infrastructure   developments   making   Atlantic  City  more
     accessible,  over $4.6  billion of new  investment  has been  announced  or
     recently  completed  in the  Atlantic  City  gaming  market.  As  currently
     scheduled,  the planned  expansion of existing  casinos alone will increase
     total  Atlantic  City casino  space by over 34%,  and hotel rooms by almost
     145%.  In  addition,  several  Las Vegas  casino  operators  have  recently
     announced plans to construct new casinos in Atlantic City.

     In addition to the major casino  expansions  and the announced new casinos,
     major infrastructure improvements have begun. A new $268 million convention
     center,  scheduled  for  completion  in May 1997,  

     <PAGE>
     is  expected  to contain approximately  500,000 square feet of exhibition  
     space,  45  meeting  rooms,  food   service  facilities  and  a  1,600-car 
     underground parking garage.  The new convention  center will be the largest
     exhibition space between Boston and Atlanta. A 500-room non-casino hotel is
     currently being constructed, and is expected to be completed in the Fall of
     1997;  it  will  be  linked  to  the new convention  center by an elevated 
     walkway.  The  development  of  a corridor which will link the  convention 
     center to the boardwalk  area is currently underway,  and  will feature  a 
     wide,  landscaped boulevard with a reflecting  pool,  and  expanded  park  
     area,  and a 60-foot  lighthouse  which will be illuminated  each night by 
     a  spectacular  light show.  In  February  1997, construction of a new $7.5
     million bus terminal, which is a major component of  this  corridor,  was  
     completed.  The  State  of  New  Jersey  is  also implementing  a  capital 
     plan of approximately  $125 million to upgrade and expand the Atlantic City
     International Airport.

     All  casinos  in  Atlantic  City are part of  hotels  which  offer  dining,
     entertainment,  and  other  guest  facilities.  As the  size of the  gaming
     facilities continue to grow, the need for additional hotel rooms has become
     evident.  During  1996,  the  number  of  hotel  rooms  available  citywide
     increased  in the  second  quarter  of 1996 with the  opening  of the Trump
     World's  Fair  casino  (approximately  500 rooms) and the  Tropicana's  new
     600-room hotel tower.  Several existing Atlantic City casinos have plans to
     increase their hotel space in 1997 and 1998, including Harrah's,  Trump Taj
     Mahal,  Hilton, and Caesars, for a total expected increase of approximately
     2,100 hotel rooms. In addition,  a 500-room non-casino hotel is expected to
     be constructed adjacent to the new convention center, which is scheduled to
     open in 1997.  Competition  among the  existing  casino-hotels  is based on
     factors such as promotional  allowances and incentives;  the attractiveness
     of the  casino  area;  advertising;  customer  service;  the  availability,
     quality and price of rooms,  food, and beverage;  ease and  availability of
     parking and accessing the facility; and entertainment.

     The Atlantic City business is seasonal,  with the highest level of activity
     occurring during the summer months, and the lowest level of activity during
     the winter months. The primary markets for Atlantic City casino patrons are
     Philadelphia,  New Jersey and New York City,  together  with the  secondary
     markets of central Pennsylvania,  Delaware,  Baltimore and Washington, D.C.
     Casinos  offer  incentives,  in the  form of cash and  complimentaries  for
     rooms,  food and beverages,  to their customers based on their casino play.
     In recent years,  competition for, and as a result,  incentives offered to,
     customers has increased  significantly.  Many Atlantic City casino  patrons
     arrive by bus and stay for approximately six hours.  Competitive factors in
     Atlantic  City require the payment of cash  incentives  and coupons for use
     towards the price of meals to patrons arriving under bus programs sponsored
     by the casino operators.  Competition for bus patrons  intensified in 1996.
     During 1996, 9.8 million casino patrons arrived in Atlantic City by bus, an
     11% increase over 1995 levels.  The increased  competition took the form of
     higher coin incentives, which New Claridge matched, thus increasing its per
     patron average coin cost to  approximately  $19 in 1996 from  approximately
     $13 in 1995.  New Claridge  has relied  heavily on  attracting  patrons who
     travel to Atlantic  City by bus because the  Claridge  previously  lacked a
     self-parking  facility,  and has therefore had to remain  competitive  with
     other casino operators in regards to the incentives offered.  Even with the
     1,200-space parking facility, New Claridge will continue to rely on its bus
     customers as a significant source of business.

     The Claridge has positioned itself as the "smaller, friendlier" alternative
     to the other Atlantic City casinos. This strategy,  implemented in 1989, is
     designed to capitalize on the Claridge's  unique physical  facility,  which
     the Corporation  believes  retains the atmosphere of a grand hotel,  and on
     the Claridge's smaller,  more intimate size relative to the larger Atlantic
     City casinos. By emphasizing an environment that is intimate,  friendly and
     service-oriented,  the Claridge  targets a market niche different than that
     of a majority of its 

<PAGE>

     competitors.  The Claridge seeks to attract and  retain  a  customer  base 
     whose  wagering  spans the same market  segments  serviced by other casino 
     hotels, but primarily targets the middle, leaving the high-end business to 
     its  competitors.  New Claridge  believes it is uneconomical to pursue  the
     high-end  market  as its  core  business  because  of the high maintenance 
     cost and potential  volatility in "hold" percentages (the ratio  of  win to
     the amount of gaming chips  purchased  by  patrons).  The typical Claridge 
     patron  has  a  lesser  need  for  credit  as  well  as  a  lower  average 
     complimentary  cost.  The  majority  of the  Claridge's  casino  revenue is
     generated by slot machine play, the fastest growing segment of gaming play.
     In 1995,  77% of the  Claridge's  casino  revenue  came  from  slot play as
     compared to 68% reported for all Atlantic  City  properties.  The trend has
     continued in 1996 with 75% of the Claridge's  casino revenue generated from
     slot play, compared to 69% for all Atlantic City casinos.

     The key  elements  of New  Claridge's  marketing  plan  include  the use of
     complimentaries,   promotional  activities,  entertainment  events,  player
     development  hosts, a bus program,  and the use of  commissioned  agents to
     attract  groups from outside the company's  traditional  market areas.  New
     Claridge  also  operates a direct  marketing  program to attract and retain
     customers.  New Claridge's  Compcard Gold Program,  which allows patrons to
     earn  various  complimentaries,  including  coins for slot machine play and
     gaming  chips for table  play,  based on their  levels of gaming  activity,
     provides  a  valuable  database  of  information  on  playing  preferences,
     frequency  and  denominations  of play,  and the amount of gaming  revenues
     produced  by  gaming  patrons.  Because  of  the  expanded  facilities  and
     amenities now offered at the Claridge,  the "Because Smaller is Friendlier"
     positioning  statement  was  changed to  "Smaller,  Friendlier  and So Much
     More." This position retains the equity in the intimacy-seeking patron, but
     extends it to communicate  that the Claridge now has a facility  capable of
     comfortably  servicing  a  larger  customer  base,  and  offering  the same
     amenities and entertainment found at larger Atlantic City casino hotels.

     Beginning in the Fall of 1988, several events occurred that accelerated the
     presence of casino gaming in the United States. Since then there has been a
     continued  expansion of casino gaming,  lotteries,  including video lottery
     terminals,  and off-track betting in other nearby states. This could have a
     negative effect on the Atlantic City market.

Current Licensing Status of the Partnership and New Claridge

The  ownership  and  operation of  casino-hotel  facilities in Atlantic City are
subject to extensive  state  regulation  under the Casino  Control Act under the
direction of the New Jersey Casino Control Commission ("Commission"). The Casino
Control Act provides that various  categories of entities must hold  appropriate
casino  licenses.  The Partnership  currently  operates under a four-year casino
service industry license effective October 31, 1995, while New Claridge operates
under a four-year casino license effective September 30, 1995.


Employees

The  Partnership  has  one part-time  employee who assists the General  Partners
with  investor-related  matters.  The General Partners are paid  management fees
pursuant  to  the  Partnership  Agreement,  as  amended.  See Items 10 and 11,  
"Directors  and  Executive   Officers  of   the  Registrant"   and   "Executive 
Compensation."

<PAGE>

Item 2.  Properties.

The Claridge hotel was  constructed in 1929 at the  northeastern  end of Absecon
Island, on which Atlantic City is located.  After remodeling,  modernization and
expansion at a cost of  approximately  $138  million,  the Claridge  opened as a
casino-hotel in July 1981.  Located in the Boardwalk  Casino section of Atlantic
City on  Brighton  Park,  approximately  550 feet  north of the  Boardwalk,  the
Claridge  occupies  three parcels of property.  In October 1983 the  Partnership
acquired the building,  parking  facility and non-gaming  depreciable,  tangible
property  of the  Claridge  casino-hotel.  On  June  16,  1989,  as  part of the
Restructuring  Agreement, the Partnership acquired all of the rights to the land
underlying the Hotel Assets, the air rights and related easement.

The  casino-hotel,  situated on the main parcel of land (41,408 square feet with
138 feet  fronting  the  park and 300 feet  deep),  is a  concrete  steel  frame
structure,  26 stories  high at its highest  point.  The  valet-parking  garage,
situated  on an  adjacent  parcel  of  land  (21,840  square  feet)  west of the
casino-hotel site, is an eight-level  reinforced concrete ramp structure,  built
in 1981.  Including the bus  drive-through  area, a bus patron  waiting room and
electrical  room, it totals an area of 197,100 square feet and provides  parking
for  approximately  475  automobiles.   In  1996,  New  Claridge  completed  the
construction  of a  self-parking  garage,  located  on a parcel of land  (29,120
square feet) connected to its existing valet-parking garage. The combined garage
facility provides parking for approximately 1,200 vehicles. The office building,
situated  on an  adjacent  parcel of land (7,766  square  feet),  is a two-story
reinforced  concrete and brick structure with a flat roof.  Constructed  over 50
years ago,  its  interior  has been  modernized.  The building is utilized as an
administration  facility,  and totals an area of 14,020  square  feet.  With the
exception of the self-parking  garage, all of the existing  facilities are owned
by the  Partnership and are leased to New Claridge under the Operating Lease and
the Expansion Operating Lease. The self-parking garage and the property on which
it is located are owned by New Claridge.

Item 3.  Legal Proceedings.

On  February  5,  1997,  three  holders of the  Notes,  who were  members of the
unofficial  committee  which they had formed,  filed a petition for  involuntary
bankruptcy  against the Corporation in the bankruptcy  court for the District of
New  Jersey.  Contemporaneously,  the same three  holders  of the Notes  filed a
related  state  court  lawsuit  against  the  Corporation,   New  Claridge,  the
Partnership,  certain officers and directors of the Corporation, and the general
partners of the Partnership. On March 4, 1997, contrary to earlier expectations,
the  Corporation  was  able to pay the  interest  that  was due on the  Notes on
February 3, 1997,  under the 30-day grace period allowed in accordance  with the
terms of the indenture governing the Notes. In addition, the Corporation reached
agreement with the  unofficial  committee of  noteholders,  as well as the three
holders of the  Notes,  providing  for the joint  dismissal  of the  involuntary
bankruptcy  petition and the related state court lawsuit.  On March 19, 1997, an
order was entered  dismissing the involuntary  bankruptcy  petition;  as part of
that order, a settlement  agreement was entered  whereby the state court lawsuit
was also dismissed.

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

There were no matters  submitted to a vote of security holders during the fourth
quarter of 1996.

<PAGE>

                                     PART II

Item 5.       Market for Registrant's Common Equity and Related Stockholder
              Matters.

No  partnership  interests in the  Partnership  have been  registered  under the
Securities  Act  of  1933,  as  amended   ("Securities  Act").  All  outstanding
partnership  interests have been offered and sold in reliance on exemptions from
the  registration  requirements  of the Securities Act.  Therefore,  there is no
established  trading  market  for any  class  of  partnership  interests  of the
Partnership. Two partnership interests equal one partnership unit, and there are
approximately 479 holders of partnership interests.

The Contingent  Payment Rights received by Releasing  Partners/Investors  may or
may not be  securities.  The  Partnership,  the  Corporation  and  Webb  filed a
registration  statement  under the Securities Act with respect to the Contingent
Payment  Rights  as if they were  securities  and each of the  Corporation,  the
Partnership  and  Webb  were an  issuer  of such  securities.  However,  by such
actions,  none of the  Partnership,  the  Corporation  or Webb admitted that the
Contingent  Payment  Rights are  securities or that any of them is the issuer of
any such securities. There is no market for the Contingent Payment Rights.


Item 6.       Selected Financial Data.

Set forth below is selected  financial data  regarding the  Partnership as of or
for each of the years in the five-year period ended December 31, 1996.

<TABLE>
<CAPTION>

                                              As of or for the year ended December 31,
                                        --------------------------------------------------------
                                         1996         1995         1994        1993         1992
                                         ----         ----         ----        ----         ----
                                             (not covered by Independent Auditors' Report) (a)

                                                              (in thousands)

<S>                                    <C>           <C>          <C>           <C>          <C>
Net income .........................   $  4,753      2,723        1,782         309          512
Net income per limited
partnership unit (b)................   $  10.39       5.95         3.90        0.68         1.12
Total assets  ......................   $130,417    135,175      140,309     138,524      143,410
Long term obligations,
   net of current portion .............$ 92,120    104,315      114,268     115,563      121,820
Partners' capital accounts (deficit)   $ 18,888     14,135       11,412       9,630        9,321

</TABLE>



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

(b)   450 limited partnership units were outstanding at the end of each period.

<PAGE>

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


Results of Operations for the Year Ended December 31, 1996
as Compared to the Year Ended December 31, 1995

Rental  income  for the year ended  December  31,  1996  increased  $881,000  as
compared to the year ended  December 31, 1995 . New Claridge  pays as additional
rent,  certain  expenses and debt  service  relating to  furniture,  fixture and
equipment  replacements and building  improvements  ("FF&E").  During 1996, FF&E
note  principal  and interest  payments  were higher than in 1995,  resulting in
increased rents in 1996.

Investment  income earned on repurchase  agreements  for the year ended December
31, 1996 decreased $30,000 as compared to the year ended December 31, 1995. This
decrease   reflects  the  decrease  in  the  interest  rate  offered  for  these
investments during 1996 as compared to 1995.

The Partnership has an agreement with New Claridge whereby New Claridge provides
facility  and  maintenance  and  engineering  services  for  the  Claridge.  The
agreement calls for the  reimbursement of the actual  facilities and maintenance
costs  incurred  on the  Partnership's  behalf.  The  cost  of  maintaining  and
repairing Hotel Assets  increased  $400,000 for the year ended December 31, 1996
as compared to 1995 due primarily to an increase in New  Claridge's  maintenance
and engineering salaries and wages and payroll related expenses.

For the year ended December 31, 1996, interest expense decreased $1,205,000 from
the prior year due to principal  payments made during 1995 and 1996 that reduced
the average  outstanding  balance of the wraparound and expansion  mortgages and
FF&E notes.

General and  administrative  expenses  decreased  $21,000  during the year ended
December 31, 1996 as compared to 1995. Insurance expense increased approximately
$44,000 due to an increase in the insurance premium. The decrease in general and
administrative  expense is  primarily  due to a $46,000  loss on the disposal of
assets  that  was   recognized   in  1995  and   classified  as  a  general  and
administrative expense, as well as a decrease in professional fees. Professional
fees during 1995 included additional fees incurred with regard to the Contingent
Payment.

Refer to the  "Liquidity  and  Capital  Resources"  section  below  for  further
discussion on the Partnership's operations.

Results of Operations for the Year Ended December 31, 1995
as Compared to the Year Ended December 31, 1994

Rental  income for the year ended  December  31, 1995  increased  $1,281,000  as
compared to the year ended  December 31, 1994 . New Claridge  pays as additional
rent,  certain  expenses and debt  service  relating to  furniture,  fixture and
equipment  replacements  and  building  improvements  ("FF&E").  During 1994 the
Claridge

<PAGE>
expanded its casino.  The  expansion (as well as the related debt) was occurring
throughout 1994 and had been completed prior to  the  beginning  of  1995.  This
caused the Partnership's debt service relating to FF&E to be higher in 1995 when
compared to 1994, resulting in increased rents in 1995.

Investment  income earned on repurchase  agreements  for the year ended December
31, 1995 increased $47,000 as compared to the year ended December 31, 1994. This
increase   reflects  the  increase  in  the  interest  rate  offered  for  these
investments during 1995 as compared to 1994.

The Partnership has an agreement with New Claridge whereby New Claridge provides
facility  and  maintenance  and  engineering  services  for  the  Claridge.  The
agreement calls for the  reimbursement of the actual  facilities and maintenance
costs  incurred  on the  Partnership's  behalf.  The  cost  of  maintaining  and
repairing Hotel Assets  increased  $399,000 for the year ended December 31, 1995
as compared to 1994 due primarily to an increase in New  Claridge's  maintenance
and engineering salaries and wages and payroll related expenses.

For the year ended December 31, 1995,  interest expense decreased  $490,000 from
the prior year due to principal  payments made during 1994 and 1995 that reduced
the average  outstanding  balance of the wraparound and expansion  mortgages and
FF&E notes.

General and  administrative  expenses  decreased  $54,000  during the year ended
December 31, 1995 as compared to 1994. Insurance and professional fees increased
approximately  $67,000  due to an  increase  in  insurance  premium  as  well as
professional fees incurred with regard to the Contingent  Payment.  The decrease
is primarily due to a $46,000 loss on the disposal of assets that was recognized
in 1995  compared to a similar  loss of $170,000 in 1994.  Both of these  losses
were classified as a general and administrative expense.

During 1994, in connection  with the  Claridge's  casino  expansion  project,  a
significant  amount of Hotel  Assets  were placed  into  service.  A full year's
depreciation  was taken on these assets during 1995.  As a result,  depreciation
and  amortization  for the year ended  December 31, 1995  increased  $532,000 as
compared to 1994.


Liquidity and Capital Resources

The  ability of the  Partnership  to  continue  to fulfill  its  obligations  is
dependent  upon the ability of New Claridge to continue to make rental  payments
when due.  Current lease payments from New Claridge,  as recently  amended,  are
sufficient to pay the Partnership's debt service and operating expenses. As part
of the 1989 Restructuring  Agreement,  rental payments in excess of monthly cash
flow  requirements are deferred or abated so that excess cash does not currently
accumulate in the Partnership. The 1997 restructuring continued this deferral or
abatement  of  excess  cash  flow  through  1998.  At the  Closing  of the  1989
restructuring  the  Partnership  loaned New  Claridge  $3.6  million.  The note,
including interest, along with those rentals deferred under the amendment to the
operating  leases,  are to be  repaid  to the  Partnership  upon (i) the sale or
refinancing  of the  Claridge;  (ii) upon full or  partial  satisfaction  of the
Expandable  Wraparound  Mortgage;  and (iii) upon full satisfaction of any first
mortgage  then in place.  The deferral of $1.3 million of rental  obligation  as
part of the 1997 restructuring leaves the Partnership with minimal liquidity.

The Operating Lease, together with the Expansion Operating Lease, was amended as
part of the  Restructuring  Agreement to provide for the deferral of $15,078,000
of rental payments during the period July 1, 1988 through the beginning of 1992,
and to provide for the  abatement of  $38,820,000  of basic rent  through  1998,
thereby 

<PAGE>
reducing  the Partnership's  cash  flow to an amount  estimated  to be necessary
only  to  meet the  Partnership's  cash  requirements.  During the third quarter
of   1991,  the maximum  deferral  of  rent was reached.  On August 1, 1991, the
Operating Lease and the Expansion Operating Lease were amended further to revise
the abatement provisions so that, commencing  January 1, 1991, for each calendar
year through 1998,  the lease  abatements may not exceed $10 million in any one 
calendar year, and $38,820,000 in the aggregate.  Rents abated during the years 
ended  December  31,  1995  and  1996  amounted  to  $7,858,000 and $8,307,000, 
respectively. Cumulative abated rents as of December 31, 1996 total $37,066,000.
The remaining  $1,754,000 of available abatement was fully utilized in the first
quarter of 1997.  Additional  abatements of rent totaling $500,000 are available
as a result of the acquisition of the option to purchase the Contingent Payment,
and further  abatements  would become  available upon  exercising the Contingent
Payment option (see Item 1. Business - "Contingent Payment Rights"). Because the
initial term of the Operating Lease continues through September 30, 1998, rental
payments  after  the  $38,820,000  abatement  is fully  utilized  will  increase
substantially  to $39.7  million in 1997,  as compared to $31.5  million (net of
abatement) in 1996.

The Fifth  Amendment  to the  Operating  Lease and the Fourth  Amendment  to the
Expansion  Operating Lease, which were effective on March 1, 1997,  provided for
the  abatement of $867,953 of basic rent and for the deferral of  $1,300,000  of
basic rent on March 1, 1997,  and provide  for  additional  abatements  of basic
rent, commencing on April 1, 1997, as necessary to reduce the Partnership's cash
flow to an amount necessary to meet the Partnership's cash requirements  through
December 31, 1998  (determined  without  regard to the repayment of the deferred
rent). The $1.3 million of basic rent deferred on March 1, 1997 is to be paid to
the Partnership in monthly  installments of $25,000 for the period April 1, 1997
through December 31, 1997, and monthly installments of $50,000 for the year 1998
and  thereafter  until  paid in full  (subject  to  acceleration  under  certain
circumstances).  For the years 1999 through 2003, additional abatements of basic
rent will be reduced to provide the Partnership  with amounts needed to meet the
Partnership's  cash requirements plus an additional amount ($83,333 per month in
1999 and 2000,  $125,000  per month in 2001,  and $166,667 per month in 2002 and
2003).

In conjunction  with the Fifth  Amendment to the Operating  Lease and the Fourth
Amendment to the Expansion Operating Lease, as discussed above, the Corporation,
New  Claridge  and  the  Partnership  entered  into a  restructuring  agreement,
effective  March 1, 1997, to modify certain terms of the  Expandable  Wraparound
Mortgage.  In addition,  under the March 1, 1997  restructuring  agreement,  New
Claridge  agreed  to  exercise  the  first of  three  ten-year  renewal  options
extending the term of the Operating Lease and Expansion  Operating Lease through
September 30, 2008.

Under the terms of the Operating Lease, as amended  effective March 1, 1997, New
Claridge has an option to purchase,  on September 30, 1998, the Hotel Assets and
the  underlying  land for  their  fair  market  value at the time the  option is
exercised, which in no event may be less than an amount equal to the amount then
outstanding under the Expandable Wraparound Mortgage plus $2.5 million, plus any
amount of the $1.3 million of rent  deferred on March 1, 1997 not then paid.  If
New  Claridge  does not  exercise  this option on  September  30,  1998,  it may
exercise an option,  on September 30, 2003, to purchase the Hotel Assets and the
underlying  land on January 1, 2004, for their fair market value at the time the
option is exercised.

Basic rent during the renewal  term of the  Operating  Lease will be  calculated
pursuant to a formula, with such rent not to be more than $29.5 million nor less
than $24 million in the lease year October 1, 1998 through  September  30, 1999,
and  subsequently,  not to be greater  than 10% more than the basic rent for the
preceding 

<PAGE>
lease year in each  lease year  thereafter.  Basic  rent during the renewal term
of the Expansion Operating Lease will also be calculated  pursuant to a formula,
with such rent not to be more than $3 million  nor less than $2.5 million in the
lease year  October  1, 1998  through  September  30,  1999,  and subsequently, 
not to be greater  than 10% more  than  the  basic  rent for the preceding lease
year in each lease year thereafter.  Therefore, the aggregate basic rent payable
during the initial years of the renewal term of the leases will be significantly
below the 1997 level.

The  Partnership  funds the  purchase of  additional  Hotel  Assets by borrowing
funds, at a 14% interest rate, from New Claridge.  The ensuing notes are secured
under the  Expandable  Wraparound  Mortgage  up to $25  million.  Principal  and
interest  on  these  notes  are  then  reimbursed  to  the  Partnership  through
additional rentals from New Claridge. Under the Operating Lease, New Claridge is
required to reimburse the Partnership for all taxes, assessments,  insurance and
general and administrative costs of the Partnership.

The Partnership had a working capital deficiency of approximately $14,352,000 as
of  December  31, 1995 and  $17,084,000  as of December  31,  1996.  The working
capital  deficiency   primarily  results  from  the  consummation  of  the  1989
Restructuring  Agreement.  As part of the 1989 restructuring,  the Partnership's
cash flow was reduced to an amount no greater than what the Partnership needs to
pay  Partnership  expenses,  including debt service.  Such concept was continued
through  1998  in the  1997  restructuring  (see  Item  1.  Business  -  "Recent
Developments  at New  Claridge").  Thus, so long as the Claridge is  financially
viable and New  Claridge  continues  to make all  payments  under the  operating
leases, the Partnership expects to be able to pay its current liabilities.


Item 8.       Financial Statements and Supplementary Data.

The  Financial  Statements  and Financial  Statement  Schedules are set forth at
pages F-1 to F-21 of this report.



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

None.


                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.

              Name                           Position                     Age

              Anthony C. Atchley             General Partner              55
              Gerald C. Heetland             General Partner              56

Mr.  Atchley has served as General  Partner  since June 16,  1989.  He served as
President  and  Chief  Executive  Officer  of  Consolidated   Casinos  Corp.,  a
subsidiary  of Webb,  and of the Del Webb  Hotel  Group  from  November  1985 to
September  1989.  He  served  as  Executive  Vice  President  of  Sahara  Nevada
Corporation,  a subsidiary  of Webb,  from October 1982 to November  1985 and as
President  and General  Manager of the High 

<PAGE>
Sierra Casino and Hotel from October 1983 to November 1985.  Mr.  Atchley served
as President and General  Manager of the Claridge  from April 1982 to November  
1982,  as well as Vice Chairman and a member of the Board of Directors  of  the 
Corporation  from November 1986 to July 1989.

Mr. Heetland has served as General Partner since June 16, 1989. He has served as
General Counsel of Becker Gaming,  Inc., from January 1997 to present and served
as a private  consultant  and attorney  from  December  1995 to January 1997. He
served as Vice President  General Counsel and Secretary of Fitzgeralds  Casino &
Hotel in Las Vegas,  Nevada and  Fitzgeralds  Casino & Hotel,  Harolds  Club and
Nevada Club in Reno,  Nevada from  September 1990 to November 1995. He served as
Vice  President,  Secretary  and  General  Counsel  of Del Webb  Hotels  and all
affiliated hotel group  subsidiaries  from March 1986 to June 1989. He served as
Vice President,  General  Counsel-Casino/Hotels  and Assistant Secretary of Webb
and Vice President and Secretary of all Webb hotel group subsidiaries from April
1985 to March 1986, as Vice President,  Associate  General Counsel and Assistant
Secretary of Webb from  November  1983 to March 1985,  and as Associate  General
Counsel and  Assistant  Secretary  of Webb from July 1981 to November  1983.  He
served in similar  capacities  in all Webb hotel group  subsidiaries  during the
1981 to 1985 periods noted.  From June 1984 through March 1986, Mr. Heetland was
the  Secretary of the  Corporation,  and from March 1986 through May 1987 he was
Assistant Secretary of the Corporation.


Item 11.      Executive Compensation.

The following table shows the general  partners'  management fee which is all of
the  compensation  paid by the Partnership to all of its executive  officers for
the years ended December 31, 1996, 1995 and 1994.

                                                                  Other  Annual
         Individual                  Capacity           Year       Compensation

       Anthony C. Atchley          General Partner      1996         $65,000
                                                        1995         $65,000
                                                        1994         $65,000

       Gerald C. Heetland          General Partner      1996         $65,000
                                                        1995         $65,000
                                                        1994         $65,000


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


Security ownership of certain beneficial owners

Not applicable.

<PAGE>

Security ownership of management

Per the terms of the Partnership  agreement,  the General Partners,  as a group,
are  entitled  to a 1%  general  partnership  interest  in  the  Partnership  as
described below:


              Name and Address                            Amount and Nature
              of Beneficial Owner                      of Beneficial Ownership

              Anthony C. Atchley
              2880 W. Meade Avenue  Suite 204
              Las Vegas, NV  89102                     0.5% Partnership Interest

              Gerald C. Heetland
              2880 W. Meade Avenue  Suite 204
              Las Vegas, NV  89102                     0.5% Partnership Interest


Changes in Control

Not applicable.


Item 13.      Certain Relationships and Related Transactions.

The Partnership does not currently engage in any significant business activities
other than those  relating to the Claridge.  New Claridge has a direct  material
interest in the Expandable Wraparound Mortgage and Operating Leases. See Item 1.
Business - "Current Financial Condition of The Partnership."

The common stock of the Corporation and the limited partnership interests of the
Partnership  were sold  together in a private  placement  as units,  and because
there has been relatively  little trading in the stock or partnership  interest,
there  is  a  substantial   similarity  between  the  equity  ownership  of  the
Corporation  and the  Partnership.  Although the Partnership and the Corporation
are independent entities, approximately 95% of the Corporation's common stock is
owned by persons who also own limited partnership interests in the Partnership.

The Partnership has an agreement with New Claridge whereby New Claridge provides
facility  and  maintenance  and  engineering  services  for  the  Claridge.  The
agreement calls for the  reimbursement of the actual  facilities and maintenance
costs incurred on the  Partnership's  behalf,  as well as an annual fee equal to
10% of such  facility  and  maintenance  costs,  but not to exceed  $530,000 per
annum.  The agreement is in effect during the entire term of the Operating Lease
including any subsequent renewal terms.

Under the terms of the option to purchase the Contingent Payment,  upon purchase
of the Contingent  Payment,  the Partnership and/or the Corporation are required
to   make   distributions   in   excess   of  $7   million   to  the   Releasing
Partners/Investors. The Partnership and the Corporation have agreed to cooperate
in the purchase of the option and the Contingent Payment, with each contributing
one-half of the purchase price of the option and each  anticipated to contribute
one-half  of the  purchase  price of the  Contingent  Payment.  A portion of the

<PAGE>
Partnership's contribution would be contributed through additional abatements of
basic rent  payments due under the Operating  Lease and the Expansion  Operating
Lease (see Item 1. Business - "Contingent Payment Rights").


                                     PART IV

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

(a) (1) and (2):  The  response  to this  portion of Item 14 is  submitted  as a
separate  section of this report beginning on page F-1. All other schedules have
been omitted as inapplicable or not required because the required information is
included in the financial statements or notes thereto.


(a) (3)       Exhibits

3 (a)   Agreement of Limited Partnership of the Partnership, as amended*

10 (a)   Form of Amended and Restated Loan Agreement*

10 (b)   Form of Amendment to Operating Lease and Expansion Operating Lease*

10 (c)   Form of Amendment to Wraparound Mortgage Loan and Wraparound 
             Mortgage*

10 (d)   Form of Note from New Claridge to the Partnership*

10 (e)   Form of Restructuring Agreement*

10 (f)   Form of Second Amendment to Operating Lease and Expansion Operating
         Lease**

10 (g)   Form of Third Amendment to Operating Lease and Expansion Operating 
         Lease**

10 (h)   Form of Fourth Amendment to Operating Lease and Expansion Operating
         Lease***

10 (i)   Form of Mortgage, Assignment of Leases and Rents, Security Agreement 
         and Financing Statement***

10 (j)   Form of Option Agreement****

10 (k)   Form of Side Agreement****

10 (l)   Form of First Amendment to the Option Agreement****

10 (m)   Form of First Amendment to the Side Agreement****

10 (n)   Form of Fifth Amendment to Operating Lease Agreement and Fourth 
         Amendment to Expansion Operating Lease Agreement

<PAGE>

10 (o)   Form of Restructuring Agreement



*Exhibits  are   incorporated   by  reference  to  the  Exhibits  filed  with  a
Registration  Statement  filed with the  Securities  and Exchange  Commission on
March 13, 1989 (Registration #33-27399)

**Exhibits  are  incorporated  by reference to the Exhibits filed with Form 10-K
for the fiscal  year ended  December  31,  1991  filed with the  Securities  and
Exchange Commission on March 26, 1992.

***Exhibits  are  incorporated by reference to the Exhibits filed with Form 10-K
for the fiscal  year ended  December  31,  1993  filed with the  Securities  and
Exchange Commission on March 30, 1994.

****Exhibits  are incorporated by reference to the Exhibits filed with Form 10-K
for the fiscal  year ended  December  31,  1995  filed with the  Securities  and
Exchange Commission on March 29, 1996.


(b)           Reports on Form 8-K

     The Partnership filed no reports on Form 8-K during the last quarter of the
period covered by this report.

Supplemental Information

No proxy materials are being or have been sent to the Limited Partners.


<PAGE>


                                   SIGNATURES

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

                    Atlantic City Boardwalk Associates, L.P.
                                   Registrant



Date:    April 14, 1997                  /s/  ANTHONY C. ATCHLEY
         --------------                  ---------------------------------------
                                         by  Anthony C. Atchley, General Partner

Date:    April 14, 1997                  /s/  GERALD C. HEETLAND
         --------------                  ---------------------------------------
                                         by  Gerald C. Heetland, General Partner

Date:    April 14, 1997                  /s/  ANTHONY C. ATCHLEY
         --------------                  ---------------------------------------
                                         by   AC Boardwalk Partners Corporation,
                                              General Partner
                                         by   Anthony C. Atchley, President






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



Date:    April 14, 1997                    /s/  GERALD C. HEETLAND
         --------------                   --------------------------------------
                                          by   Gerald C. Heetland, General 
                                                 Partner and Chief Financial 
                                                 Officer

Date:    April 14, 1997                    /s/  ANTHONY C. ATCHLEY
         --------------                   --------------------------------------
                                          by   Anthony C. Atchley, General 
                                                 Partner



<PAGE>


                          INDEX TO FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES



                                                                     Page
                                                                Reference in
                                                                  Report on
                                                                  Form 10-K

Independent Auditors' Report  ..................................      F-2

Balance Sheets as of December 31, 1995 and 1996 ................      F-3

Statements of Operations For the Years Ended
     December 31, 1994, 1995 and 1996 ..........................      F-4

Statements of Partners' Capital Accounts (Deficit)
     For the Years Ended December 31, 1994, 1995 and 1996 .......     F-5

Statements of Cash Flows For the Years Ended
     December 31, 1994, 1995 and 1996 ...........................     F-6

Notes to Financial Statements For the Years Ended
     December 31, 1994, 1995 and 1996 ...........................     F-7

Financial Statement Schedule:

     Schedule III - Real Estate and Accumulated Depreciation.....     F-21

All other schedules have been omitted as  inapplicable  or not required  because
the  required  information  is included  in the  financial  statements  or notes
thereto.




<PAGE>



                          INDEPENDENT AUDITORS' REPORT



The General Partners
Atlantic City Boardwalk Associates, L.P.


We have audited the accompanying financial statements of Atlantic City Boardwalk
Associates,  L.P. as listed in the  accompanying  index.  In connection with our
audits of the financial statements, we also have audited the financial statement
schedule listed in the accompanying  index.  These financial  statements and the
financial  statement  schedule  are  the  responsibility  of  the  Partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and the financial statement schedule 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 financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Atlantic  City  Boardwalk
Associates,  L.P.  as of  December  31,  1995 and 1996,  and the  results of its
operations  and its cash  flows for each of the years in the  three-year  period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.  Also in our opinion, the related financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly, in all material respects, the information set forth therein.

The  accompanying  financial  statements  have been  prepared  assuming that the
Partnership  will  continue as a going  concern.  As  discussed in Note 7 to the
financial  statements,  the  Partnership  has  suffered  recurring  losses  from
operations and has a net capital  deficiency that 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 7. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.




                                                /s/ KPMG Peat Marwick LLP


Las Vegas, Nevada
March 21, 1997


<PAGE>
                    ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
                                 Balance Sheets
                           December 31, 1995 and 1996

                                                      1995                1996
                                                    ---------          ---------
            Assets

Current assets:
     Cash and cash equivalents               $     1,535,000          1,446,000
     Rent due from New Claridge                      298,000            408,000
     Interest receivable from partners                28,000             35,000
     Prepaid expenses                                313,000            264,000
      Other assets                                   199,000            172,000
                                                  ----------       -------------

              Total current assets                 2,373,000          2,325,000
                                                  ----------       -------------

Hotel Assets (notes 4 and 5)                     180,298,000        183,529,000
Less:  Accumulated depreciation and amortization  94,057,000        100,281,000
                                                ------------       -------------

              Net Hotel Assets                    86,241,000         83,248,000
                                                ------------      -------------

Note receivable from New Claridge, including 
     accrued interest  of $2,826,000 and 
     $3,258,000 in 1995 and 1996, respectively     6,426,000          6,858,000
Deferred rent from New Claridge (notes 3 and 6)   39,856,000         37,807,000
Intangibles, net of accumulated amortization of
     $3,526,000 and $3,626,000 in 1995 and 1996, 
     respectively                                    279,000            179,000
                                                 -----------      -------------

                                             $   135,175,000        130,417,000
                                                 ===========       =============
    Liabilities and Partners' Capital Accounts

Current liabilities:
     Accounts payable                        $     1,400,000          1,035,000
     Accrued interest due New Claridge             1,274,000          1,147,000
     Current portion of long-term debt due 
         principally to New Claridge (note 5)     14,051,000         17,227,000
                                                 -----------     ---------------

          Total current liabilities               16,725,000         19,409,000
                                                 -----------     ---------------

Long-term debt due principally to New Claridge, 
     including accrued interest of $20,000,000   104,315,000         92,120,000
      in 1995 and 1996 (note 5)                  -----------        ------------

Partners' capital accounts (deficit):
     New general partners                             57,000            105,000
     Former general partners                         144,000            173,000
     Special limited partners                       (234,000)          (187,000)
     Investor limited partners                    14,168,000         18,797,000
                                                 -----------     ---------------

     Total partners' capital accounts (deficit)   14,135,000          18,888,000

Commitments and contingencies (notes 5, 6, 7 and 9)

                                             $   135,175,000         130,417,000
                                                 ===========      ==============
See accompanying notes to financial statements.

<PAGE>
                    ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
                            Statements of Operations
              For the Years Ended December 31, 1994, 1995, and 1996

<TABLE>
<CAPTION>

                                               1994          1995         1996
                                            -----------   ----------   ---------
Revenues:
<S>                                         <C>            <C>          <C> 
     Rent from New Claridge for the
         lease of Hotel Assets 
         (notes 3 and 6)                     $ 37,236,000  38,517,000   39,398,000
     Interest from New Claridge                   432,000     432,000      432,000
     Interest from Special Limited Partners        36,000      36,000       36,000
     Investment                                    83,000     130,000      100,000
                                              -----------  ----------   ----------

                                               37,787,000  39,115,000   39,966,000
                                              -----------  ----------   ----------


Expenses:
     Cost of maintaining and repairing
         Hotel Assets paid to New Claridge     11,317,000  11,716,000   12,116,000
     Interest, principally on mortgages to
         New Claridge (note 5)                 17,729,000  17,239,000   16,034,000
     General and administrative                   684,000     630,000      609,000
     General Partners' management fee             130,000     130,000      130,000
     Depreciation and amortization              6,145,000   6,677,000    6,324,000
                                              -----------  ----------   ----------

                                               36,005,000  36,392,000   35,213,000
                                              -----------  ----------   ----------

Net income                                $     1,782,000   2,723,000    4,753,000
                                          ===============  ==========   ==========

Net income per limited partnership 
   unit (note 1)(450 units outstanding 
at the end of each year)                  $         3,896       5,953       10,391
                                          ===============   =========   ==========

See accompanying notes to financial statements.

</TABLE>


<PAGE>


<TABLE>
<CAPTION>

                    ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
               Statements of Partners' Capital Accounts (Deficit)
              For the Years Ended December 31, 1994, 1995 and 1996

                                                           Class A       Class B        Class A          Class B            Total
                               New           Former        Special       Special        Investor         Investor          Partners'
                             General         General       Limited       Limited        Limited          Limited           Capital
                            Partners         Partners      Partners      Partners       Partners         Partners          Accounts

<S>                        <C>              <C>            <C>          <C>              <C>             <C>               <C>
Partners' Capital
Accounts (Deficit),
December 31, 1993          $  12,000         116,000       (18,000)     (260,000)        2,380,000        7,400,000        9,630,000

Net income                    18,000          11,000         1,000        16,000           426,000        1,310,000        1,782,000
                            --------        --------       -------      --------        ----------      -----------       ----------

Partners' Capital
Accounts (Deficit),
December 31, 1994             30,000         127,000       (17,000)     (244,000)        2,806,000        8,710,000       11,412,000

Net income                    27,000          17,000         2,000        25,000           651,000        2,001,000        2,723,000
                            --------        --------       -------      --------        ----------      -----------      -----------

Partners' Capital
Accounts (Deficit),
December 31, 1995             57,000         144,000       (15,000)     (219,000)        3,457,000       10,711,000       14,135,000

Net income                    48,000          29,000         3,000        44,000         1,136,000        3,493,000        4,753,000
                            --------        --------       -------      --------         ---------      -----------      -----------

Partners' Capital
Accounts (Deficit),
December 31, 1996          $ 105,000         173,000       (12,000)     (175,000)        4,593,000       14,204,000       18,888,000
                             =======         =======        ======       =======         =========       ==========       ==========

</TABLE>


See accompanying notes to financial statements.


<PAGE>

<TABLE>
<CAPTION>

                    ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
                            Statements of Cash Flows
              For the Years Ended December 31, 1994, 1995, and 1996

                                                            1994               1995            1996
                                                       ------------       -------------     ----------
Cash flows from operating activities:
<S>                                                    <C>                  <C>              <C>      
     Net income                                        $  1,782,000         2,723,000        4,753,000
         Adjustments to reconcile net income to
         net cash provided by operating activities:
              Depreciation and amortization               6,145,000         6,677,000        6,324,000
              Accretion of discount on mortgage note      1,153,000         1,327,000        1,524,000
              Loss on disposal of assets                    170,000            46,000             -
              Decrease in deferred rent                   2,164,000         1,598,000        2,049,000
              Deferred interest on receivable 
               from New Claridge                           (432,000)         (432,000)        (432,000)
              Changes in current assets and liabilities:
                  Increase in rent due from New Claridge,
                      interest receivable from partners,
                      prepaid expenses and other assets     (41,000)         (188,000)         (41,000)
                  (Decrease) increase in accounts payable and
                      accrued interest due New Claridge    (212,000)          100,000         (492,000)
                                                        ------------       -----------      -----------

                      Net cash provided by 
                         operating activities            10,729,000        11,851,000       13,685,000
                                                        ------------       ----------      ------------

Cash flows from investing activities:
     Purchase of Hotel Assets                            (9,620,000)       (2,160,000)      (3,231,000)
     Proceeds from sale of Hotel Assets                      12,000            21,000             -
                                                        ------------       -----------     ------------

                  Net cash used in investing activities  (9,608,000)       (2,139,000)      (3,231,000)
                                                        ------------       -----------     ------------

Cash flows from financing activities:
     Proceeds of borrowings from New Claridge             9,610,000         2,483,000        3,508,000
     Principal payments of debt, principally 
          to New Claridge                               (10,548,000)      (12,324,000)     (14,051,000)
                                                        -----------        -----------     -----------

                  Net cash used in financing activities    (938,000)       (9,841,000)     (10,543,000)
                                                        ------------       -----------      ----------

Net increase (decrease) in cash and cash equivalents        183,000          (129,000)         (89,000)
Cash and cash equivalents, beginning of period            1,481,000         1,664,000        1,535,000
                                                        ------------       -----------      -----------

Cash and cash equivalents, end of period          $       1,664,000         1,535,000        1,446,000
                                                        ===========        ===========      ===========

Supplemental cash flow information:
     Interest paid (net of amount capitalized)    $      16,570,000        16,022,000       14,637,000
                                                         ==========        ==========       ==========

Supplemental noncash investing and financing activities:
     Trade-in value on purchase of Hotel Assets   $          68,000             1,000             -
                                                        ===========      ==============   ===========
     Capital lease obligation incurred 
          to acquire Hotel Assets                 $          -                557,000             -
                                                        ============     =============    ===========
</TABLE>

See accompanying notes to financial statements.



<PAGE>


                    ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
                          Notes to Financial Statements
              For the Years Ended December 31, 1994, 1995, and 1996


(1)      The Partnership

    (a)  General

         Atlantic City Boardwalk Associates,  L.P. ("Partnership") was formed on
         October  31,  1983 to  acquire  the  buildings,  parking  facility  and
         non-gaming  depreciable,   tangible  property   (collectively,   "Hotel
         Assets")  of The  Claridge  Hotel and  Casino  ("Claridge")  located in
         Atlantic City, New Jersey; to hold a leasehold  interest in the land on
         which the  Claridge is located  ("Land"),  which Land was  subsequently
         acquired  by the  Partnership  as  part  of a  financial  restructuring
         ("Restructuring  Agreement");  and to engage in  activities  related or
         incidental thereto. The Partnership leases the Land and Hotel Assets to
         The  Claridge  at  Park  Place,   Incorporated   ("New  Claridge"),   a
         wholly-owned  subsidiary of The Claridge  Hotel and Casino  Corporation
         ("Corporation"), under operating leases.

    (b)  Current Licensing Status

         The ownership and operation of casino-hotel facilities in Atlantic City
         are subject to extensive state  regulation under the Casino Control Act
         under  the  direction  of the  New  Jersey  Casino  Control  Commission
         ("Commission"). The Casino Control Act provides that various categories
         of entities must hold  appropriate  casino  licenses.  The  Partnership
         currently  operates under a four-year  casino service  industry license
         effective  October  31,  1995,  while  New  Claridge  operates  under a
         four-year casino license effective September 30, 1995.

    (c)  General Partners

         The General Partners of the Partnership are Anthony C. Atchley,  Gerald
         C.  Heetland  and  AC  Boardwalk  Partners  Corporation,  a New  Jersey
         corporation  formed on August 26, 1983,  all of whose shares of capital
         stock are owned by Messrs.  Atchley and Heetland.  The General Partners
         receive, in the aggregate,  an annual compensation of $130,000 from the
         Partnership  as  well as a 1%  interest  in the  Partnership's  income,
         gains,   losses  and   deductions   for  periods   subsequent   to  the
         restructuring.  The  Partnership  maintains  insurance  to protect  the
         General Partners against certain liabilities arising from their actions
         as General Partners. Del Webb Corporation ("Webb"), formerly affiliated
         with the  Claridge,  has agreed to indemnify  the General  Partners for
         claims and liabilities  resulting from acts or omissions occurring as a
         result of or prior to the restructuring.

         The general partners prior to the Restructuring  Agreement  executed on
         June 16, 1989 were Robert K.  Swanson,  Everett L. Mangam and T. Edward
         Plant ("Former  General  Partners").  The Former General  Partners were
         entitled  to  receive,   in  the  aggregate,   a  1%  interest  in  the
         Partnership's  income,  gains,  losses and  deductions  for the periods
         prior to the  restructuring,  and now are  entitled  to  receive a 0.6%
         interest  for  periods  subsequent  to the  restructuring,  as  limited
         partners. The Partnership and Del E. Webb New Jersey, Inc. ("DEWNJ"), a
         wholly-owned  subsidiary  of Webb,  have agreed to indemnify the Former
         General Partners against certain liabilities arising from their actions
         as general partners.

<PAGE>

    (d)  Special Limited Partners

         Oppenheimer  Holdings,  Inc. and officers and  employees of  affiliated
         Oppenheimer  & Co.,  Inc.  ("Special  Limited  Partners")  committed to
         contribute  $400,000  by  issuing  9%  notes  maturing  in  1998.  This
         contribution  entitles  them  to an  aggregate  of 1%  interest  in the
         Partnership's  income,  gains,  losses and deductions until the Limited
         Partners,  as described  below,  receive  aggregate cash  distributions
         equal to their capital contributions.  Thereafter,  the Special Limited
         Partners are entitled to an aggregate of 10% of each item. Upon receipt
         of the cash,  the  Partnership  will reflect this  contribution  in its
         financial statements.

         Subsequent to the Restructuring Agreement, the Special Limited Partners
         were  classified  into two  categories,  those  not  consenting  to the
         restructuring ("Class A Special Limited Partners") and those consenting
         to the  restructuring  ("Class B Special  Limited  Partners").  Class A
         Special Limited Partners' interest after the restructuring is .065%, in
         the aggregate,  representing their same  proportionate  share as before
         the   restructuring.   Class  B  Special  Limited  Partners'   interest
         subsequent  to the  restructuring  was reduced by a portion of the 0.6%
         interest issued to the Former General  Partners,  thereby entitling the
         Class B Special Limited Partners to a .927% interest, in the aggregate.

    (e)  Investor Limited Partners

         Investor  Limited  Partners  contributed  $37,151,000  in  cash  to the
         Partnership  for a 98%  interest in the  Partnership's  income,  gains,
         losses  and  deductions,  to be  reduced  to 89% upon  receipt  of cash
         distributions equal to their capital  contributions.  Subsequent to the
         restructuring  the Investor  Limited  Partners were classified into two
         categories,  those  not  consenting  to  the  restructuring  ("Class  A
         Investor Limited  Partners") and those consenting to the  restructuring
         ("Class  B  Investor  Limited  Partners").  Class  A  Investor  Limited
         Partners'   interest  after  the  restructuring  is  23.912%,   in  the
         aggregate,  representing their same  proportionate  share as before the
         restructuring.  Class B Investor Limited Partners' interest  subsequent
         to the  restructuring  was  reduced by a portion  of the 0.6%  interest
         issued to the Former General  Partners,  thereby  entitling the Class B
         Investor Limited Partners to a 73.496% interest, in the aggregate.

(2)      Basis of Presentation and Summary of Significant Accounting Policies

         The  Partnership's  policy  is to  maintain  its books of  records  and
         prepare  its income tax  returns on the  accrual  basis of  accounting 
         ("Tax Basis").  The accompanying  financial statements are prepared in 
         accordance  with  generally  accepted  accounting  principles ("GAAP") 
         and differ from Tax Basis as follows:

         o      Certain  property and equipment are  depreciated on a different 
                basis and over different  lives for GAAP than those used for Tax
                Basis;

         o      In 1994 the Claridge  facilities  were  remodeled  and expanded.
                During the construction period interest was incurred on the debt
                related to this project.  This interest was capitalized for GAAP
                and is being amortized on a  straight-line  basis over 10 years,
                while for Tax Basis the interest was expensed in full in 1994;

<PAGE>
         o      The  Expandable  Wraparound  Mortgage was  discounted  for GAAP 
                as a result of the effect on the  obligation  of $20 million of 
                deferred interest;

         o      Tax Basis rental income is recognized  according to the terms of
                the  Operating  Lease,  whereas  for GAAP  rental  payments  are
                leveled so that each period reflects the same basic rent.


         The significant  accounting  policies used to prepare the  accompanying
GAAP financial statements are as follows:

         a.     Hotel Assets are stated at cost and are depreciated or amortized
                on a  straight-line  basis over the  following estimated useful 
                lives:

                Building                                               40 years
                Building improvements                                  10 years
                Furniture, fixtures and equipment                        7 years

          b.   The   Partnership   adopted  the  provisions  of  SFAS  No.  121,
               Accounting  for  the  Impairment  of  Long-Lived  Assets  and for
               Long-Lived  Assets to Be  Disposed  Of, on January 1, 1996.  This
               Statement   requires   that   long-lived   assets   and   certain
               identifiable  intangibles  be reviewed  for  impairment  whenever
               events or changes in  circumstances  indicate  that the  carrying
               amount  of an asset  may not be  recoverable.  Recoverability  of
               assets to be held and used is  measured  by a  comparison  of the
               carrying  amount of an asset to future net cash flows expected to
               be generated by the asset.  If such assets are  considered  to be
               impaired,  the  impairment  to be  recognized  is measured by the
               amount by which the carrying amount of the assets exceed the fair
               value of the assets. Assets to be disposed of are reported at the
               lower of the  carrying  amount or fair  value less costs to sell.
               Adoption of this Statement did not have a material  impact on the
               Partnership's  financial  position,  results  of  operations,  or
               liquidity.

          c.   Deferred financing costs are being amortized on a straight-line 
               basis over 5 to 17 years.

          d.   The  Expandable  Wraparound  Mortgage  Note has  been  discounted
               utilizing  a  14%  interest  rate.  The  resulting   discount  is
               reflected in the basis of the Hotel Assets.

          e.   The  accompanying  financial  statements  do not reflect  federal
               income tax expense or benefit since such  liability or benefit is
               that of the individual partners.

          f.   Cash equivalents are composed of investments in  interest-bearing
               repurchase  agreements  with initial or remaining  maturities  of
               less than three months at the time the investment is made.

          g.   Due to the nature of the  relationships  between the  Partnership
               and New Claridge and the Partnership and the partners, estimation
               of the fair value of the financial  instruments  due from and due
               to these related  parties is not practical as there is no trading
               market for these financial  instruments.  See Notes 3 and 5 for a
<PAGE>         

               description  of  the  terms  of  these  instruments.   All  other
               financial  instruments  are stated at their  carrying value which
               approximates  their  fair  value.  The  carrying  amount  of cash
               equivalents, interest  receivable  from  partners  and  current  
               liabilities  approximates fair  value because of the   short-term
               maturity  of  these instruments.

          h.   Management of the  Partnership has made estimates and assumptions
               relating to the reporting of assets and  liabilities  at the date
               of the financial  statements and the reported amounts of revenues
               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.

         Following are the Partnership's assets and liabilities as determined in
         accordance  with GAAP and for federal income tax reporting  purposes at
         December 31:

<TABLE>
<CAPTION>

                                           1995                              1996
                               -------------------------------       ------------------------
                               GAAP                 Tax              GAAP               Tax
                               Basis                Basis            Basis              Basis
                                                       (in thousands)

         <S>                  <C>                   <C>            <C>                  <C>   
         Total assets         $   135,175            69,741         $  130,417           61,521
         Total liabilities    $   121,040           125,300         $  111,529          114,906

</TABLE>
(3)      Restructuring Agreement

         On October 27, 1988, the Partnership,  the  Corporation,  New Claridge,
         Webb and the mortgage lenders entered into the Restructuring Agreement.
         On June 13, 1989 the  required  majority of the  partners  approved the
         Restructuring  Agreement  and on June 16,  1989 the  restructuring  was
         concluded (the "Closing").  The following paragraphs are an overview of
         the events that took place as a result of the restructuring.

          o    Webb  transferred  all of its rights to the land  underlying  the
               Hotel  Assets,  the air rights and the  related  easement  to the
               Partnership. The Partnership's book value of the Hotel Assets was
               not affected due to the uncertainty of the incremental  value, if
               any, of the land.

          o    The operating and expansion  operating leases were amended to add
               the land and air  rights,  defer  portions of rent  through  1992
               totaling $15,078,000  otherwise payable to the Partnership by New
               Claridge, and to abate approximately  $39,820,000 of future rents
               commencing  in 1992.  In addition,  the  Partnership  lent to New
               Claridge $3.6 million representing, at the Closing, substantially
               all of the  Partnership's  cash and cash equivalents in excess of
               amounts  required  to pay  Partnership  expenses.  The loan bears
               interest  at 12% per annum that  becomes  payable at the time the
               principal is paid.  The  

<PAGE>
               deferred rent and the $3,600,000  loan  become  due upon (i) the 
               sale or refinancing   of  the   Claridge;   (ii)  upon  full  or 
               partial satisfaction  of the Expandable Wraparound  Mortgage; and
               (iii) upon full satisfaction of any first mortgage then in place.
               The  Restructuring   Agreement   requires  that  the  Partnership
               maintain cash  flows  in amounts  necessary  to  pay  Partnership
               expenses,  including  debt  service,  only,  and  prohibits  the 
               Partnership  from   making  distributions   to  partners  for  an
               indefinite  period of time.

          o    The  Partnership  (as  successor  in  interest  to DEWNJ) and New
               Claridge  terminated  the Land  Option  Agreement  which gave New
               Claridge  the option to  purchase  from the  Partnership  certain
               parcels and tracts of land in  Atlantic  City,  New Jersey.  This
               termination resulted in payment of $100,000 by the Partnership to
               New Claridge.

          o    New General Partners were admitted to the Partnership. The Former
               General  Partners  became  limited  partners  with  an  aggregate
               limited  partnership  interest of 0.6%. This limited  partnership
               interest  was made  available  by  reducing  proportionately  the
               limited   partnership   interests  of  those   limited   partners
               consenting  to  the  restructuring.   In  addition,  for  nominal
               consideration,  the Former  General  Partners  transferred to the
               General  Partners  all of the  outstanding  shares of the  common
               stock of AC Boardwalk Partners Corporation, the corporate general
               partner of the Partnership.

(4)  Hotel Assets

         A summary of Hotel Assets at December 31, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>

                                                  Accumulated
                                                Depreciation and           Net
December 31, 1995               Cost              Amortization        Hotel Assets
-----------------          ---------------      ---------------        ------------
<S>                        <C>                  <C>                   <C>          
Building                   $  101,353,000       $  30,828,000         $  70,525,000
Building improvements          25,911,000          18,223,000             7,688,000
Furniture, fixtures and
  equipment                    51,881,000          44,432,000             7,449,000
Capital lease asset             1,153,000             574,000               579,000
                            -------------        ------------          ------------
                           $  180,298,000       $  94,057,000         $  86,241,000
                           ==============       =============         =============



                                                Accumulated
                                               Depreciation and             Net
December 31, 1996               Cost             Amortization          Hotel Assets
-----------------         ---------------     ----------------        ------------

Building                   $  101,353,000      $   33,362,000         $  67,991,000
Building improvements          28,287,000          20,071,000             8,216,000
Furniture, fixtures and
   equipment                   52,736,000          46,160,000             6,576,000
Capital lease asset             1,153,000             688,000               465,000
                            -------------      --------------          ------------

                           $  183,529,000      $  100,281,000        $   83,248,000
                           ==============      ==============        ===============
</TABLE>

<PAGE>


(5)      Long-term Debt

         At  December  31,  1995  and  1996,  long-term  debt  consisted  of the
following:


                                                  1995                  1996
                                                  ----                  ----

14% Wraparound mortgage, net of            $  93,185,000          $ 84,709,000
    unaccreted discount of $9,815,000
    and $8,291,000, respectively
14% Expansion mortgage                         6,522,000             4,496,000
14% FF&E notes                                18,346,000            20,035,000
Capital lease obligations                        313,000               107,000
                                           -------------        --------------
                                             118,366,000           109,347,000
Less: Current portion of long-term debt       14,051,000            17,227,000
                                           -------------          ------------

                                           $ 104,315,000         $  92,120,000
                                           =============        ==============


         The wraparound and expansion mortgages are non-recourse  obligations as
         neither the Partnership  nor its partners are personally  liable to New
         Claridge  for  non-payment  of any  principal  of, or interest  on, the
         notes. Various  restrictions are placed upon the Partnership's  ability
         to sell  assets  and  incur  additional  obligations.  Included  in the
         wraparound  mortgage is $20 million of accrued interest,  discounted at
         14%,  which  accrued  from 1983 to 1988 and has been  deferred  without
         interest  until  maturity.  Monthly  principal  and  interest  payments
         continue  through 1998 with  interest  only  payments from January 1999
         until  October  2000 at which time a balloon  principal  payment of $47
         million and the $20 million of deferred  interest is due. The expansion
         mortgage has  principal  and interest  payments of $234,000 due monthly
         through September 30, 1998.

         The Partnership  funds the purchase of additional  furniture,  fixtures
         and equipment ("FF&E") by borrowing from New Claridge at a 14% interest
         rate. In addition,  during the term of the Expansion  Operating  Lease,
         the Partnership is required to provide New Claridge with expansion FF&E
         replacements under the same borrowing arrangement.  Generally, one half
         of the principal is due in 48 months and the remainder is due 60 months
         from  the  issue  date of the  individual  notes,  with  the  following
         exception.  As required by the terms of the Claridge's $85 million debt
         offering,  $8 million was used to finance internal  improvements at the
         Claridge.  The $8  million  principal  on these  notes will come due on
         September  30, 2000.  All FF&E notes are secured  under the  wraparound
         mortgage up to $25 million.

         During 1995 the  Partnership  financed  the  purchase of some  computer
         equipment  through a 6.5% capital lease.  This  thirty-six  month lease
         required the final six month's  payments be made at its  inception  and


<PAGE>

         that principal and interest  payments of approximately  $17,000 be made
         monthly  until its maturity in July 1997.  During 1991 the  Partnership
         financed  the  purchase of a Hotel Asset  through a 14% capital  lease.
         This five year lease required monthly  principal and interest  payments
         of approximately $4,000 until its maturity in June 1996.

         Aggregate  maturities  of debt for each of the next  five  years are as
follows:

                   1997                         $    17,227,000
                   1998                              18,615,000
                   1999                               2,046,000
                   2000                              77,996,000
                   2001                               1,754,000
                                                  -------------

                                                    117,638,000
                   Less: Discount                     8,291,000
                                                  --------------

                                                $   109,347,000
                                                  =============


(6)      Leases

         The  Partnership  leases the Land and the Hotel  Assets,  excluding the
         FF&E, to New Claridge under an operating  lease expiring  September 30,
         1998, with three 10-year renewal  options.  The Partnership also leases
         the FF&E to New  Claridge for an amount  sufficient  to fund payment of
         principal and interest on the FF&E notes.  The operating leases provide
         that New Claridge will have the option to purchase the Hotel Assets and
         the leasehold  interest in the land and air rights at their fair market
         value on September 30, 1998.

         Minimum  future  rental  receipts for each of the next five years under
         leases to New Claridge are as follows:


               1997                                 $     50,233,000
               1998                                       42,034,000
               1999                                        7,583,000
               2000                                       12,010,000
               2001                                        1,877,000
                                                       -------------

               Minimum future rentals               $    113,737,000
                                                         ===========



          Future Partnership activities including anticipated purchases of Hotel
          Assets and payments of related debt may cause actual future rentals to
          differ  from  those  presented  above.  Rents  are  used to fund  debt
          service,  facilities and maintenance costs and fees, general partners'
          management fees and
<PAGE>
          general  and   administrative   expenses  of  the   Partnership.   The
          Restructuring  Agreement  requires that the Partnership  maintain cash
          flows in amounts necessary to pay Partnership  expenses including debt
          service, only, and is prohibited from making distributions to partners
          for an indefinite  period of time. Any rents not required for the cash
          flow needs of the Partnership are to be deferred up to $15,078,000. As
          of December  31, 1991,  $15,078,000  in rents had been  deferred,  and
          excess rents are now being abated,  as described  below.  The deferred
          rent becomes payable upon (i) the sale or refinancing of the Claridge;
          (ii) upon full or partial  satisfaction  of the Expandable  Wraparound
          Mortgage;  and (iii) upon full satisfaction of any first mortgage then
          in place.

          Per  the  terms  of an  amendment  to the  Operating  Lease  Agreement
          executed  as of  August  1,  1991,  during  the  years  1991  to  1998
          contractual  rents in excess of debt service and Partnership  expenses
          can be abated up to  $38,820,000 in the aggregate but not in excess of
          $10,000,000  in any  one  calendar  year.  Prior  to  this  amendment,
          scheduled rents totaling  $39,820,000  were to be abated  beginning in
          1992  through  the end of 1999.  Rents  abated  during the years ended
          December  31, 1995 and 1996  amounted to  $7,858,000  and  $8,307,000,
          respectively.  Cumulative  abated  rents as of December 31, 1996 total
          $37,066,000,   leaving  $1,754,000  still  to  be  abated.  Additional
          abatements of rent totaling  $500,000 are available as a result of the
          acquisition  of the option to purchase  the  Contingent  Payment,  and
          further   abatements   would  become  available  upon  exercising  the
          Contingent Payment option (see Note 9,  "Contingencies").  As of March
          1997 the  abatement  remaining  as of December 31, 1996 has been fully
          utilized.

          The  Partnership  accounts for leases in accordance with the Financial
          Accounting   Standards  Board's  Statement  of  Financial   Accounting
          Standards  No. 13,  Accounting  for Leases,  whereby  rental income is
          recognized on a straight-line  basis over the life of the lease. As of
          December  31,  1995 and  December  31,  1996,  deferred  rent from New
          Claridge  included  rental  income  of  $24,778,000  and  $22,729,000,
          respectively, that was earned in excess of actual rent receipts.

(7)       Recent Developments at New Claridge

          The ability of the Partnership to fulfill its obligations is dependent
          upon the  ability of New  Claridge  to pay rental  payments  when due.
          Accordingly,  the financial  stability of the Partnership is dependent
          upon the financial condition of New Claridge.

          During 1994 and 1995,  the cash provided by operations of the Claridge
          was sufficient to meet the  Corporation's  obligations to pay interest
          on the  Notes,  as  well as to make at  least  some  moderate  capital
          improvements.   Commencing  in  the  latter  part  of  1995,  however,
          competition  in the Atlantic City casino market for bus  customers,  a
          principal source of customers for the Claridge at the time, increased;
          this  competition  intensified  even more  during  1996 as  additional
          casino square footage was added, principally due to the opening of the
          Trump  World's Fair casino.  During 1996,  the average coin  incentive
          issued per bus patron at the Claridge  increased to approximately $19,
          from  approximately  $13 in 1995.  Total  cash  incentives  issued  to
          Claridge's  casino  patrons (in the form of coin to play slot machines
          and gaming chips to play table games) increased to approximately $30.5
          million in 1996, from  approximately  $25.2 million in 1995. While the
          Corporation's  promotional costs have increased  significantly,  total
          casino  revenues in 1996 actually  decreased from 1995 levels.  It had
          been the expectation of the Corporation  that, upon opening of its new
          self-parking  garage,  the  Corporation  would 

<PAGE>
          be able to reduce its reliance on the bus patron market;  however, the
          Corporation  was forced to close the garage facility on July 10, 1996,
          only ten days after its opening  following a fatal  accident.  Because
          the facility  was not able to reopen until the end of September  1996,
          the Corporation  lost any possible  benefit of the facility during the
          normally busy summer season. In addition, severe winter weather in the
          first quarter of 1996 adversely  affected  revenues.  As a result, the
          Corporation experienced a net loss for 1996 of $15.4 million, compared
          to a net loss of $1.9 million in 1995.

         In late July 1996, management of the Corporation determined that due to
         the serious  deterioration in the Corporation's cash flow, that without
         a significant  improvement  in its operating  results,  it was unlikely
         that  the  Corporation  would be able to meet  its  obligations  to pay
         interest on the Notes  beyond the August 1996  payment.  In addition to
         taking steps to conserve cash by reducing various  operating  expenses,
         the Corporation engaged a financial advisor,  Dillon, Read & Co., Inc.,
         to assist in  formulating  a  proposal  to the  holders of the Notes to
         restructure the Corporation's  obligations under the Notes. At the same
         time,  the  Corporation  was working with Dillon,  Read & Co.,  Inc. to
         attempt to find a buyer of the Corporation or an investor that would be
         in a position to inject  additional  capital  into the  Corporation  to
         enable the  Corporation to meet its ongoing  obligations.  To date, the
         Corporation has not received any acceptable proposals in regards to the
         possible sale of the Corporation.

          In  November  1996,  while  the sales  efforts  were  continuing,  the
          Corporation  announced  that  there was a strong  likelihood  that the
          Corporation  would be unable to pay the  interest  due on the Notes on
          February  3, 1997.  Accordingly,  management,  working  together  with
          financial and legal advisors,  formulated a plan for restructuring the
          Corporation's  obligations.  The  terms  of  the  proposed  plan  were
          presented to the noteholders at a meeting held on December 3, 1996, at
          which time the noteholders were urged to form a steering  committee or
          other representative body to conduct negotiations. Although a group of
          noteholders formed and met with the management of the Corporation on a
          few occasions,  by the time the committee formally organized itself on
          January 7, 1997, it consisted of six members representing ownership of
          less than 5% of the total amount of Notes  outstanding.  At that time,
          the  Corporation  determined  that the  committee  did not represent a
          sufficient  portion of the  noteholders  to negotiate on behalf of the
          noteholders  generally.  As a result, the Corporation did not formally
          recognize the committee and did not engage in any negotiation with the
          committee or its members, although it did encourage the members of the
          committee to continue to attempt to obtain broader  representation  of
          the noteholders.

          On January 12, 1997,  management  of the  Corporation  was  contacted,
          through an agent, by Hilton Hotel Corporation ("Hilton"),  regarding a
          possible sale of the  Corporation to Hilton,  and shortly  thereafter,
          the Corporation  began  negotiations with Hilton. On January 30, 1997,
          the Corporation issued a press release indicating that the Corporation
          would not make the  interest  payment  due on the Notes on February 3,
          1997, and that the  Corporation had entered  negotiations  with Hilton
          regarding   acquisition  of  the   Corporation  by  Hilton  through  a
          prepackaged  bankruptcy plan. At that time, a representative of Hilton
          indicated  that Hilton had  acquired  approximately  35% to 40% of the
          Notes.  On  February  5, 1997,  three  holders of the Notes,  who were
          members of the  unofficial  committee  which they had formed,  filed a
          petition for  involuntary  bankruptcy  against the  Corporation in the
          bankruptcy court for the District of New Jersey.

<PAGE>
          Contemporaneously, the same three holders of the Notes filed a related
          state  court  lawsuit  against  the  Corporation,  New  Claridge,  the
          Partnership,  certain officers and directors of the  Corporation,  and
          the general partners of the Partnership. On March 4, 1997, contrary to
          earlier  expectations,  the  Corporation  was able to pay the interest
          that was due on the Notes on February 3, 1997,  under the 30-day grace
          period allowed in accordance with the terms of the indenture governing
          the  Notes  ("Indenture").   In  addition,   the  Corporation  reached
          agreement with the unofficial committee of noteholders, as well as the
          three holders of the Notes,  providing for the joint  dismissal of the
          involuntary  bankruptcy  petition and the related state court lawsuit.
          On March 19, 1997,  an order was entered  dismissing  the  involuntary
          bankruptcy petition; as part of that order, a settlement agreement was
          entered  whereby  the state  court  lawsuit  was also  dismissed.  The
          Corporation expects the negotiations with Hilton to continue.

          The  Corporation  had sufficient cash to pay the interest on the Notes
          on March 4, 1997 due to several events:  (i) cash flow from operations
          for January and February  1997  improved  significantly  over what had
          been expected;  (ii) effective  March 1, 1997, the Operating Lease and
          Expansion  Operating Lease were amended to provide for the deferral of
          basic rent of $1.3  million on March 1, 1997 (see  further  discussion
          below);  and (iii) on February 28, 1997, New Claridge  entered into an
          agreement  with  Thermal  Energy  Limited   Partnership  I  ("Atlantic
          Thermal"), pursuant to which Atlantic Thermal was granted an exclusive
          license  for a period of twenty  years to use,  operate  and  maintain
          certain steam and chilled water production facilities at the Claridge.
          In consideration for this license agreement, Atlantic Thermal paid New
          Claridge $1.5 million.

          The Fifth Amendment to the Operating Lease and the Fourth Amendment to
          the Expansion  Operating Lease, which were effective on March 1, 1997,
          provided  for the  abatement  of  $867,953  of basic  rent and for the
          deferral of $1,300,000 of basic rent on March 1, 1997, and provide for
          additional  abatements of basic rent,  commencing on April 1, 1997, as
          necessary to reduce the Partnership's cash flow to an amount necessary
          to meet the Partnership's cash requirements  through December 31, 1998
          (determined without regard to the repayment of the deferred rent). The
          $1.3 million of basic rent  deferred on March 1, 1997 is to be paid to
          the  Partnership  in monthly  installments  of $25,000  for the period
          April 1, 1997 through  December 31, 1997, and monthly  installments of
          $50,000 for the year 1998 and  thereafter  until paid in full (subject
          to  acceleration  under  certain  circumstances).  For the years  1999
          through 2003,  additional  abatements of basic rent will be reduced to
          provide the Partnership with amounts needed to meet the  Partnership's
          cash requirements plus an additional amount ($83,333 per month in 1999
          and 2000,  $125,000 per month in 2001,  and $166,667 per month in 2002
          and 2003).

          Also effective March 1, 1997, the Corporation,  New Claridge,  and the
          Partnership entered into a restructuring agreement,  pursuant to which
          New Claridge agreed to use its best efforts to cause a modification of
          the Expandable Wraparound Mortgage ("Wraparound Modification") that is
          permitted by, or is in compliance  with,  the terms of the  Indenture.
          The  Wraparound  Modification,  if so  permitted,  will provide for an
          extension of the maturity date of the Expandable  Wraparound  Mortgage
          from  September  30,  2000  to  January  1,  2004.  If the  Wraparound
          Modification  is not permitted by or in  compliance  with the terms of
          the  Indenture,  New  Claridge  has  agreed to effect  the  Wraparound
          Modification at such time as the Notes are no longer outstanding,  and
          to  forbear  from  taking any action to  foreclose  on the  Expandable
          Wraparound Mortgage until February 2002.

<PAGE>      
          As discussed, the Corporation experienced recurring losses and serious
          deterioration in its cash flow in 1996. Since the Corporation does not
          have  substantial  cash  reserves  or access to a line of credit,  the
          Corporation  will need to  experience  a  significant  improvement  in
          operating  results in 1997 in order to meet its on-going  obligations,
          including  the  interest due on the Notes.  Operating  results in 1997
          have improved over 1996 levels,  due primarily to the positive  impact
          of the availability of the self-parking garage. Although management of
          the  Corporation  believes  that  operating  results will  continue to
          improve over prior year levels,  no assurances as to the  continuation
          of this improvement can be given. Management will continue to conserve
          cash through various cost  containment  measures,  including  limiting
          capital  expenditures in 1997 to approximately  $1 million.  Given the
          various  improvements made to the property in recent years,  including
          the casino  expansion in 1994, the  construction  of the  self-parking
          garage,  and other  projects such as the  refurbishment  of all of its
          guest  rooms,  the current  condition of the property is such that the
          above-mentioned  level of  capital  expenditures  is deemed  adequate.
          Management will also continue to work with Dillon, Read & Co., Inc. to
          pursue a sale of the  Corporation or some other plan for a significant
          infusion of capital into the  Corporation.  In addition,  New Claridge
          has  retained  the law firm of Zelle and  Larson  LLP of  Minneapolis,
          Minnesota to assist in  evaluating  the  recovery of certain  expenses
          incurred  in  reopening  the  self-parking  garage  and in  evaluating
          potential  lost  profit  claims  as a  result  of the  accident  which
          occurred in the  self-parking  garage on July 10, 1996.  Management of
          the Corporation  intends to file a claim to recover these expenses and
          lost profits; recovery of these claims would have a positive impact on
          New Claridge's financial results and liquidity.  No formal claims have
          been filed to date,  and there is no  assurance  that the  Corporation
          will be successful in realizing any recovery.

(8)       Related Party Transactions

          The  common  stock  of the  Corporation  and the  limited  partnership
          interests of the Partnership were sold together in a private placement
          as units, and because there has been relatively  little trading in the
          stock or  partnership  interests,  there is a  substantial  similarity
          between the equity  ownership of the Corporation and the  Partnership.
          Although the Partnership and the Corporation are independent entities,
          approximately  95% of the  Corporation's  common  stock  is  owned  by
          persons who also own limited partnership interests in the Partnership.

          The  Partnership  has an  agreement  with  New  Claridge  whereby  New
          Claridge  provides  facility and maintenance and engineering  services
          for the Claridge.  The agreement  calls for the  reimbursement  of the
          actual  facilities and maintenance costs incurred on the Partnership's
          behalf,  as well as an annual  fee equal to 10% of such  facility  and
          maintenance  costs not to exceed  $530,000  per annum.  The  agreement
          expires on September 30, 1998.

          Under the terms of the option to purchase the Contingent  Payment (see
          Note 9, "Contingencies"), upon purchase of the Contingent Payment, the
          Partnership   and/or  the  Corporation   would  be  required  to  make
          distributions   in   excess   of   $7   million   to   the   Releasing
          Partners/Investors. The Partnership and the Corporation have agreed to
          cooperate  in the purchase of the option and the  Contingent  Payment,
          with each  contributing  one-half of the purchase  price of the option
          and each  anticipated to contribute  one-half of the purchase price of
          the Contingent  Payment.  A portion or the Partnership's  contribution
          would be  contributed  through  additional  abatements  of basic  rent
          payments due under the  Operating  Lease and the  Expansion  Operating
          Lease. Given the recent operating results at New Claridge (see Note 7,
          "Recent  

<PAGE>
          Developments  at New  Claridge"),  it is unlikely that the Corporation
          would  be  able to  exercise  this  Contingent  Payment  Option  using
          available   working   capital,   or  absent  a  refinancing   or  sale
          transaction.

(9)       Contingencies

          The  Restructuring  Agreement  provided for Webb to retain an interest
          equal to $20 million plus  interest  from December 1, 1988 accruing at
          the rate of 15% per annum compounded quarterly  ("Contingent Payment")
          in any proceeds  ultimately  recovered from the operations  and/or the
          sale or  refinancing  of the Claridge  facility in excess of the First
          Mortgage loan and other liabilities. To give effect to this Contingent
          Payment,  the Corporation  and the Partnership  agreed not to make any
          distributions  to the  holders  of their  equity  securities,  whether
          derived from  operations or from sale or refinancing  proceeds,  until
          Webb had received the Contingent Payment.

          In connection with the 1989 restructuring, Webb agreed to permit those
          partners/investors  in the  Partnership  and  Corporation  ("Releasing
          Partners/Investors") from whom Webb had received written releases from
          all  liabilities,  rights  ("Contingent  Payment  Rights")  to receive
          certain  amounts  to  the  extent  available  for  application  to the
          Contingent   Payment.   Approximately   84%   in   interest   of   the
          partners/investors    provided    releases   and   became    Releasing
          Partners/Investors. Payments to Releasing Partners/Investors are to be
          made in accordance  with a schedule of  priorities,  as defined in the
          Restructuring Agreement.

          On April 2, 1990,  Webb  transferred  its  interest in the  Contingent
          Payment to an  irrevocable  trust for the benefit of the Valley of the
          Sun United Way, and upon such transfer Webb was no longer  required to
          be qualified or licensed by the Commission.

          On February 23, 1996, the Corporation  acquired an option to purchase,
          at a discount from the carrying  value,  the Contingent  Payment.  The
          purchase  price of the  option was $1  million,  and the option may be
          exercised  any time prior to December 31, 1997.  Upon  exercise of the
          option,  the purchase  price of the  Contingent  Payment  would be $10
          million, plus interest at 10% per annum for the period from January 1,
          1997 to the date of payment of the purchase price.  The purchase price
          may also  increase  in an amount not to exceed  $10  million if future
          distributions to Releasing  Partners/Investors  exceed $20 million. It
          is estimated that at December 31, 1996, the aggregate  amount owing in
          respect of the Contingent Payment was $65.8 million.

          Given  the  recent  operating  results  at New  Claridge  (see Note 7,
          "Recent  Developments  at New  Claridge"),  it is  unlikely  that  the
          Corporation  would be able to exercise this Contingent  Payment Option
          using  available  working  capital,  or absent a  refinancing  or sale
          transaction.

          In the event that the option is exercised,  it is anticipated that the
          Contingent  Payment would be canceled so that neither the  Corporation
          nor the  Partnership  would have any obligation to make any payment in
          respect of the  Contingent  Payment  before making a  distribution  to
          limited partners or shareholders.  Upon the purchase and cancellation,
          however, the Corporation and the Partnership would remain obligated to
          make payments to the Releasing  Partners/Investors,  in respect of the
          Contingent  Payment  Rights,  before any  distribution  may be made to
          limited partners or shareholders.  These payments would be required to
          be in the  same  amounts  as if the  Contingent  Payment  had not been
          purchased  and  canceled.  As a result,  it is not likely that limited
          partners or shareholders who are not Releasing 

<PAGE>
          Partners/Investors  will receive any distribution from the Partnership
          or the Corporation. In the aggregate, Releasing Partners/Investors are
          entitled  to  receive  an  amount  equal to  approximately  72% of the
          Contingent Payment if the option is exercised.

          Under  the  terms  of the  option,  upon  purchase  of the  Contingent
          Payment,  the Partnership  and/or the Corporation would be required to
          make   distributions   in  excess  of  $7  million  to  the  Releasing
          Partners/Investors. The Partnership and the Corporation have agreed to
          cooperate  in the purchase of the option and the  Contingent  Payment,
          with each  contributing  one-half of the purchase  price of the option
          and each  anticipated to contribute  one-half of the purchase price of
          the Contingent  Payment.  A portion of the Partnership's  contribution
          would be  contributed  through  additional  abatements  of basic  rent
          payments due under the  Operating  Lease and the  Expansion  Operating
          Lease.

<PAGE>
<TABLE>
<CAPTION>


                                                   SCHEDULE III
                                                                                                                          
                                     ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.                                             Life
                                     Real Estate and Accumulated Depreciation                                               on 
                                                                                                                          which
                                   Years Ended December 31, 1994, 1995 and 1996                                           Deprec.
                                                                                                                            in
                                                                                                             Date         latest
                                                                             Gross Amount                    of       Statement of
                            Initial Cost                   Cost Capitalized  at which            Accumu-    Con          Operations
                            to Partnership                 Subsequent to     Carried at Close    lated      struc-  Date    is
Description Encumbrances(A) Land(B) Building               Acquisition       of Period (C)(D)    Deprec.(E) tion    Acq.  Computed
-----------------------------------------------------------------------------------------------------------------------------------
<S>          <C>            <C>    <C>         <C>        <C>    <C>        <C>         <C>                <C>    <C>    
                                               Initial 
                                   112,500,000 Cost
                                               Less:
                                                 Original                    Bldg.   101,353,000         N/A   10/31/83  40 yrs
                                                 Discount  Bldg.             Bldg.                       1983- 
                                                 on        Impr. 28,287,000  Impr.    25,287,000         1996     N/A    10 yrs
                                   (11,147,000)  Mortgage  FF&E  53,889,000  FF&E     53,889,000         N/A   1983-1996  7 yrs
                                   ------------                  ----------           ----------                                
Hotel & 
Casino
Atlantic 
City, NJ     109,347,000     -     101,353,000                   82,176,000           183,529,000 100,281,000
             -----------  -------  -----------                   ----------           ----------- -----------


</TABLE>

NOTES:

(A)  Encumbrances  represents  the amount owed at December 31, 1996
     on the Wraparound Mortgage, Expansion Mortgage, FF&E Notes and
     Capital lease obligations.

(B)  The land  under the  building was acquired  from DEWNJ,  at no
     cost to the Partnership, as part of the 1989 Restructuring.

(C)  The aggregate cost of real  estate owned at  December 31, 1996
     for Federal income tax purposes is $196,181,000.

(D)  Reconciliation of Real Estate Carrying Costs:

                                      1994           1995           1996

Balance at beginning of year       168,303,000    177,682,000    180,298,000
  Building improvements              6,299,000        259,000      2,376,000
  Furniture, fixtures and
     equipment (FF&E) acquired       4,384,000      2,459,000        855,000
  FF&E retired                        (311,000)      (102,000)          -
  Construction completed              (993,000)           -             -
                                   ------------   -----------    -----------
  Balance at end of year           177,682,000    180,298,000    183,529,000
                                   ===========    ===========    ===========

(E)  Reconciliation of Accumulated Depreciation:

                                      1994           1995           1996

Balance at beginning of year       81,583,000     87,541,000     94,057,000
  Provision for depreciation        6,017,000      6,550,000      6,224,000
  Accumulated depreciation
    of FF&E retired                   (59,000)       (34,000)         -
                                   ----------     ----------    -----------
  Balance at end of year           87,541,000     94,057,000    100,281,000
                                   ==========     ==========    ===========


<PAGE>
                          INDEPENDENT AUDITORS' REPORT


The General Partners
Atlantic City Boardwalk Associates, L.P.

We have audited the accompanying financial statements of Atlantic City Boardwalk
Associates,  L.P. as listed in the  accompanying  index.  In connection with our
audits  of  the  financial  statements,  we  also  have  audited  the  financial
statements   scheduled  listed  in  the  accompanying   index.  These  financial
statements and the financial  statement  schedule are the  responsibility of the
Partnership's  management.  Out responsibility is to express an opinion on these
financial statements and the financial statement schedule 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 financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Atlantic  City  Boardwalk
Associates,  L.P.  as of  December  31,  1995 and 1996,  and the  results of its
operations  and its cash  flows for each of the years in the  three-year  period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles. Also in our opinion, the related financial statements schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly, in all material respects, the information set forth herein.

The  accompanying  financial  statements  have been  prepared  assuming that the
Partnership  will  continue as a going  concern.  As  discussed in Note 7 to the
financial statements, New Claridge has suffered recurring losses from operations
and has a net capital  deficiency as of December 31, 1996.  The  Partnership  is
dependent upon New Claridge making its contractual lease payments to provide the
Partnership the ability to make its contractual  debt service payments and other
obligations. These circumstances raise substantial doubt about the Partnership's
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also  described in Note 7. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.


                              /s/ KPMG Peat Marwick L.L.P.


Las Vegas, Nevada
March 21, 1997