<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                  FORM 10-Q/A

  [X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR QUARTER ENDED SEPTEMBER 30, 1999

                         Commission File Number 1-9648

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

                             NATIONAL REALTY, L.P.
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                            <C>
                  Delaware                                       75-2163175
       (State or Other Jurisdiction of                        (I.R.S. Employer
       Incorporation or Organization)                       Identification No.)
</TABLE>

         10670 North Central Expressway, Suite 300, Dallas, Texas 75231
               (Address of Principal Executive Office) (Zip Code)

                                 (214) 692-4700
              (Registrant's Telephone Number, Including Area Code)

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

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

<TABLE>
<S>                                            <C>
      Units of Limited Partner Interest                          6,321,524
                   (Class)                           (Outstanding at October 29, 1999)
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

This Form 10-Q/A amends the Registrant's quarterly report on Form 10-Q for the
quarter ended September 30, 1999 as follows:


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Note 4. Notes Receivable - pages
9 - 12; and PART II - OTHER INFORMATION, Item 6. Exhibits and Reports on Form
8-K - page 24, to include Exhibit 2.0.
<PAGE>

                         PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

   The accompanying Consolidated Financial Statements have not been audited by
independent certified public accountants, but in the opinion of the management
of National Realty, L.P., all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of consolidated results of
operations, consolidated financial position and consolidated cash flows at the
dates and for the periods indicated, have been included.

                             NATIONAL REALTY, L.P.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                     September 30, December 31,
                                                         1999          1998
                                                     ------------- ------------
                                                       (dollars in thousands)
<S>                                                  <C>           <C>
                      Assets
Real estate held for investment
  Land.............................................    $  37,462    $  39,400
  Buildings and improvements.......................      302,381      325,779
                                                       ---------    ---------
                                                         339,843      365,179
  Less--accumulated depreciation...................     (167,550)    (197,770)
                                                       ---------    ---------
                                                         172,293      167,409

Notes and interest receivable
  Performing (including $116,889 in 1999 and
   $62,357 in 1998 from affiliates)................      139,946      109,628
  Nonperforming....................................       13,936        6,807
                                                       ---------    ---------
                                                         153,882      116,435
  Less--allowance for estimated losses.............       (1,910)      (1,910)
                                                       ---------    ---------
                                                         151,972      114,525

Cash and cash equivalents..........................          705        9,025
Accounts receivable (including $8,748 in 1999 and
 $11,046 in 1998 from affiliates)..................       11,316       12,316
Prepaid expenses...................................          832        1,230
Escrow deposits and other assets (including $730 in
 1998 from affiliates).............................        7,146       20,506
Marketable equity securities of affiliate, (at
 market)...........................................        3,156        3,205
Deferred financing costs...........................        8,728        9,566
                                                       ---------    ---------
                                                       $ 356,148    $ 337,782
                                                       =========    =========
</TABLE>

                                       2
<PAGE>

                             NATIONAL REALTY, L.P.

                    CONSOLIDATED BALANCE SHEETS--(Continued)

<TABLE>
<CAPTION>
                                                     September 30, December 31,
                                                         1999          1998
                                                     ------------- ------------
                                                       (dollars in thousands)
<S>                                                  <C>           <C>
     Liabilities and Partners' Equity (Deficit)
Liabilities
  Notes and interest payable........................   $297,975      $358,100
  Accrued property taxes............................      4,923         7,121
  Accounts payable and other liabilities (including
   $1,114 in 1999 to affiliates)....................      2,407         1,757
  Tenant security deposits..........................      2,444         2,919
                                                       --------      --------
                                                        307,749       369,897

Commitments and contingencies

Partners' equity (deficit)
  General Partner...................................      1,242          (408)
  Limited Partners (6,321,524 units in 1999 and
   6,321,609 in 1998)...............................     44,271       (34,642)
  Unrealized gain on marketable equity securities of
   affiliate........................................      2,886         2,935
                                                       --------      --------
                                                         48,399       (32,115)
                                                       --------      --------
                                                       $356,148      $337,782
                                                       ========      ========
</TABLE>


  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       3
<PAGE>

                             NATIONAL REALTY, L.P.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                     For the Three Months   For the Nine Months
                                      Ended September 30,   Ended September 30,
                                     ---------------------  -------------------
                                        1999       1998       1999      1998
                                     ---------- ----------  --------- ---------
                                      (dollars in thousands, except per unit)
<S>                                  <C>        <C>         <C>       <C>
Revenues
  Rents............................  $   21,884 $   26,036  $  69,039 $  81,197
  Interest.........................       4,610      1,861     13,182     4,464
                                     ---------- ----------  --------- ---------
                                         26,494     27,897     82,221    85,661
Expenses
  Interest.........................       7,324      6,572     21,398    23,483
  Deferred borrowing costs.........          --      2,607         --    10,346
  Depreciation.....................       1,951      2,618      6,051     7,432
  Property taxes & insurance.......       2,227      2,584      7,015     8,196
  Utilities........................       2,122      2,601      6,557     8,247
  Property-level payroll costs.....       1,404      1,656      3,972     4,944
  Repairs and maintenance..........       5,545      7,351     15,477    18,821
  Other operating expenses.........         777      1,022      2,755     3,365
  Property management fees.........       1,097      1,294      3,446     3,668
  General and administrative.......       1,529      1,524      5,492     5,075
  General partner incentive
   disposition fee.................         200         --      1,148        --
                                     ---------- ----------  --------- ---------
                                         24,176     29,829     73,311    93,577
                                     ---------- ----------  --------- ---------

Income (loss) from operations......       2,318     (1,932)     8,910    (7,916)
Gain on sale of real estate........      49,614      5,583     74,019    34,216
                                     ---------- ----------  --------- ---------
Net income.........................  $   51,932 $    3,651  $  82,929 $  26,300
                                     ========== ==========  ========= =========

Earnings per unit
Net income.........................  $     8.05 $      .57  $   12.86 $    4.08
                                     ========== ==========  ========= =========

Weighted average units of limited
 partner interest used in computing
 earnings per unit.................   6,321,525  6,321,622  6,321,533 6,322,528
                                     ========== ==========  ========= =========
</TABLE>


  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       4
<PAGE>

                             NATIONAL REALTY, L.P.

             CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
                                                        Accumulated  Accumulated
                                                           Other      Partners'
                                    General  Limited   Comprehensive   Equity
                                    Partner  Partners     Income      (Deficit)
                                    -------  --------  ------------- -----------
                                     (dollars in thousands, except per unit)

<S>                                 <C>      <C>       <C>           <C>
Balance, January 1, 1999........... $ (408)  $(34,642)    $2,935      $(32,115)

Comprehensive income

  Unrealized (loss) on marketable
   equity securities of affiliate..     --         --        (49)          (49)
  Net income.......................  1,650     81,279         --        82,929
                                                                      --------
                                                                        82,880

Distributions ($.375 per unit).....     --     (2,366)        --        (2,366)
                                    ------   --------     ------      --------

Balance, September 30, 1999........ $1,242   $ 44,271     $2,886      $ 48,399
                                    ======   ========     ======      ========
</TABLE>



  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       5
<PAGE>

                             NATIONAL REALTY, L.P.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               For the Nine
                                                               Months Ended
                                                              September 30,
                                                            -------------------
                                                              1999      1998
                                                            --------  ---------
                                                               (dollars in
                                                                thousands)
<S>                                                         <C>       <C>
Cash Flows From Operating Activities
  Rents collected.......................................... $ 69,404  $  78,897
  Interest collected.......................................    8,189      2,768
  Interest paid............................................  (19,707)   (22,145)
  Payments for property operations.........................  (40,974)   (50,765)
  General and administrative expenses paid.................   (4,228)    (5,045)
  Other....................................................     (173)        --
                                                            --------  ---------
    Net cash provided by operating activities..............   12,511      3,710

Cash Flows From Investing Activities
  Proceeds from sale of real estate........................  102,559     51,995
  Acquisition of real estate...............................   (7,248)        --
  Real estate improvements.................................  (13,092)    (1,650)
  Collections on notes receivable..........................   18,365     22,632
  Funding of notes receivable..............................  (83,310)   (24,539)
  General partner incentive disposition fee................   (1,148)        --
                                                            --------  ---------
    Net cash provided by investing activities..............   16,126     48,438

Cash Flows From Financing Activities
  Proceeds from notes payable..............................   53,376    327,057
  Payments on notes payable................................  (96,240)  (332,822)
  Escrow refunds...........................................    8,204         --
  Reimbursements from (advances to) affiliates.............    2,298     (7,319)
  Distributions to unitholders.............................   (2,366)    (2,373)
  Distributions to Garden Capital, L.P. general partners...     (934)    (1,098)
  Deferred financing costs.................................   (1,025)   (10,143)
  Deposits on pending financings...........................     (270)      (425)
                                                            --------  ---------
    Net cash (used in) financing activities................  (36,957)   (27,123)
                                                            --------  ---------
    Net increase (decrease) in cash and cash equivalents...   (8,320)    25,025

Cash and cash equivalents at beginning of period...........    9,025     17,180
                                                            --------  ---------
Cash and cash equivalents at end of period................. $    705  $  42,205
                                                            ========  =========
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       6
<PAGE>

                             NATIONAL REALTY, L.P.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              For the Nine
                                                              Months Ended
                                                              September 30,
                                                            ------------------
                                                              1999      1998
                                                            --------  --------
                                                               (dollars in
                                                               thousands)
<S>                                                         <C>       <C>
Reconciliation of net income to net cash provided by
 operating activities

Net income................................................. $ 82,929  $ 26,300
 Adjustments to reconcile net income to net cash provided
  by operating activities:
  Depreciation.............................................    6,051     7,432
  Amortization of deferred borrowing costs.................    1,772     2,649
  Deferred borrowing costs written off.....................       --    10,346
  Gain on sale of real estate..............................  (74,019)  (34,216)
  (Increase) in other assets...............................   (1,678)   (2,273)
  (Increase) in interest receivable........................   (4,671)     (924)
  (Decrease) in interest payable...........................      (81)   (1,572)
  Increase (decrease) in other liabilities.................    2,208    (4,032)
                                                            --------  --------
    Net cash provided by operating activities.............. $ 12,511  $  3,710
                                                            ========  ========

Schedule of noncash financing activities:
  Unrealized gain (loss) on marketable equity securities... $    (49) $    172
  Notes payable assumed by buyer upon sale of properties...    6,776     8,584
  Conversion of note receivable to partnership interest....   22,678        --
  Note payable from acquisition of real estate.............      974        --
</TABLE>



  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       7
<PAGE>

                             NATIONAL REALTY, L.P.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

   The accompanying Consolidated Financial Statements of National Realty, L.P.
and consolidated entities (the "Partnership") have been prepared in conformity
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Operating results for the nine month period ended September 30, 1999, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the Consolidated Financial
Statements and Notes thereto included in the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K").

   Certain balances for 1998 have been reclassified to conform to the 1999
presentation.

NOTE 2. ORGANIZATION

   National Realty, L.P. ("National Realty") is a limited partnership which
commenced operations on September 18, 1987, when National Operating, L.P. (the
"Operating Partnership" or "NOLP") acquired all of the assets and assumed all
of the liabilities, of 35 public and private limited partnerships.

   National Realty is the sole limited partner of the Operating Partnership and
owns 99% of the beneficial interest in the Operating Partnership. The general
partner and owner of 1% of the beneficial interest in each of National Realty
and the Operating Partnership is NRLP Management Corp. (the "General Partner"
or "NMC"). NMC is a wholly-owned subsidiary of American Realty Trust, Inc.
("ART"), a publicly held real estate investment company. As of October 29,
1999, ART owned approximately 56.2% of National Realty's outstanding units of
limited partner interest.

   In November 1992, the Partnership refinanced 52 of its apartments and a
wraparound mortgage note receivable with a financial institution. To facilitate
the refinancing, the Operating Partnership transferred those assets to Garden
Capital, L.P. ("GCLP"). The Operating Partnership is the sole limited partner
with a 99.3% limited partner interest in GCLP. GCLP transferred the acquired
apartment net assets, in exchange for a 99% limited partner interest in single
asset limited partnerships which were formed for the purpose of operating,
refinancing and holding title to the apartments. Each of the remaining single
asset limited partnerships has no significant assets other than an apartment
encumbered by mortgage debt. Garden National Realty, Inc. ("GNRI"), a wholly-
owned subsidiary of ART, is the .7% general partner of GCLP and 1% general
partner of the single asset partnerships.

NOTE 3. EARNINGS PER UNIT

   Income per unit of limited partner interest (per "unit") is presented in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
per Share". Income per unit is computed based upon the weighted average number
of units outstanding during each period. The limited partners of National
Realty have a 99% interest and the general partner, NMC, has a 1% interest in
the net income, net loss and distributions of National Realty. National Realty
is allocated 99% of the net income or net loss of NOLP, and the General Partner
is allocated 1% of the net income or net loss of the Operating Partnership. The
1% General Partner interest in each of National Realty and the Operating
Partnership is equal to a 1.99% interest on a combined basis. Accordingly,
income per unit of limited partner interest is derived by multiplying the
Partnership's net income by 98.01% and dividing the result by the weighted
average number of units outstanding in each period.

                                       8
<PAGE>

                             NATIONAL REALTY, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 4. NOTES RECEIVABLE

   In January 1999, the Partnership collected in full a mortgage note
receivable with a principal balance of $350,000. In May 1999, the Partnership
collected in full a mortgage note receivable with a principal balance of $1.5
million. In both cases, the monies were applied to paydown a note payable
partially secured by the mortgage notes.

   In July 1999, the Partnership received $1.3 million in full payment of a
mortgage note receivable, including a $400,000 participation fee.

   In June 1999, a mortgage note receivable from an affiliate of JNC
Enterprises, Ltd. ("JNC"), in the amount of $4.2 million, matured. The note is
secured by (1) a first lien on approximately 450 acres of land in Huerfano
County, Colorado, known as Cuchara Valley Mountain Ski Resort; (2) an
assignment of a $2.0 million promissory note which is secured by approximately
2,623 acres of land in Taos County, New Mexico, known as Ski Rio Resort; and
(3) a pledge of all related partnership interests. In August 1999, the
Partnership received a paydown of $2.3 million on the note receivable, a
portion of the proceeds from the loan funding described in the following
paragraph. In September 1999, the Partnership received a paydown of
$1.0 million in exchange for extending the note's maturity to October 1999.

   In August 1999, the Partnership funded a $2.6 million loan to JNC. The loan
is secured by second liens on a 3.55 acre parcel and a 1.2561 acre parcel of
land in Dallas, Texas, and the personal guaranty of JNC's principal partner.
The loan bears interest at 16.0% per annum and matures in February 2000. All
principal and interest are due at maturity.

   Also in August 1999, a mortgage note receivable in the amount of $942,000
matured. The loan was secured by 4.5 acres of land in Abilene, Texas,
collateral assignment of a $220,000 note receivable and the personal guarantees
of the principal owners of the borrower. The loan bore interest at 14.0% per
annum and all principal and interest were due at maturity. The borrower did not
make the required payments of principal and interest and the loan is classified
as nonperforming in the September 30, 1999 Consolidated Balance Sheet. The
Partnership is negotiating a modification/extension with the borrower. If such
negotiation is not successful, and the Partnership forecloses, it expects to
incur no loss as the fair value of the collateral property, less estimated
costs of sale, exceeds the carrying value of the note.

   During 1998 and through August 1999, the Partnership funded a total of $2.1
million of a $2.2 million loan commitment to Varner Road Partners, L.L.C. The
loan is secured by 129.77 acres of land in Riverside County, California, and a
pledge of the stock of the borrower. The loan bears interest at 15.0% per annum
and matures in November 1999. All principal and interest are due at maturity.

   During 1998 and 1999, the Partnership funded a total of $31.0 million of a
$52.5 million loan commitment to Centura Tower, Ltd ("Centura"). The loan was
secured by 2.244 acres of land and an office building under construction in
Farmers Branch, Texas. The loan bore interest at 12.0% per annum, required
monthly payments based on net revenues after development of the land and
building and matured in January 2003. In August 1999, the Partnership exercised
a participation option included in the loan agreement. The Partnership

                                       9
<PAGE>

                             NATIONAL REALTY, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 4. NOTES RECEIVABLE (Continued)

obtained a combined 80% general and limited partnership interest in Centura in
exchange for a $24.1 million capital contribution through conversion of a
portion of the Partnership's note receivable. The $8.3 million balance of the
note receivable continues as a loan to Centura from the Partnership, bears
interest at a rate of 18.0% per annum, and is payable from cash flows of the
project. Centura's other partners will earn a 12% preferred return on their
respective capital accounts. In conjunction with the exercise of the
participation, Centura obtained a construction loan commitment in the total
amount of $30.0 million, which was finalized in October 1999. The loan bears
interest at a variable rate, currently 9.4725% per annum, and matures in
June 2001. Interest is payable monthly, with the first $2.0 million of interest
being drawn from the loan proceeds. The loan is guaranteed by NOLP, NRLP, GCLP
and Basic Capital Management, Inc, ("BCM"), an affiliate of the General
Partner. In October 1999, Centura received its first draw of $5.0 million under
the loan agreement. The Partnership consolidates Centura for financial
statement purposes.

   In June 1998, the Partnership funded a $365,000 loan to RB Land & Cattle,
L.L.C. The loan is secured by 7,200 acres of undeveloped land near Crowell,
Texas, and the personal guarantee of the borrower. The loan bore interest at
10.0% per annum and matured in December 1998. All principal and interest were
due at maturity. The borrower did not make the required payments and the loan
was classified as nonperforming. The Partnership has begun foreclosure
proceedings. The Partnership expects to incur no loss on foreclosure as the
fair value of the collateral property, less estimated costs of sale, exceeds
the carrying value of the note.

   In August 1998, the Partnership funded a $6.0 million loan to Centura
Holdings, LLC, a subsidiary of Centura Tower, Ltd. The loan is secured by
6.4109 acres of land in Farmers Branch, Texas, bears interest at 15.0% per
annum and matures in August 2000. All principal and interest are due at
maturity. In February 1999, the Partnership funded an additional $37,500.

   Also in August 1998, the Partnership funded a $3.7 million loan to JNC. The
loan was secured by a contract to purchase 387 acres of land in Collin County,
Texas, and the personal guaranty of JNC's principal partner. The loan bore
interest at 12.0% per annum and matured the earlier of termination of the
purchase contract or February 1999. All principal and interest were due at
maturity. This loan was cross-collateralized with the other JNC loans. In
January 1999, ART purchased the contract from JNC and acquired the land. In
connection with the purchase, GCLP funded $6.0 million on a then $95.0 million
loan commitment to ART. A portion of the funds were used to payoff the $3.7
million JNC note to the Partnership, including accrued but unpaid interest,
paydown $1.3 million on the JNC line of credit and paydown $820,000 of the JNC
Frisco Panther Partners, Ltd. loan discussed below. See "Related Party."

   Further in August 1998, the Partnership funded a $635,000 loan to La Quinta
Partners, LLC. The loan is secured by interest bearing accounts prior to being
used as escrow deposits toward the purchase of a total of 956 acres of land in
La Quinta, California. The loan bore interest at 10.0% per annum and matured in
November 1998. All principal and interest were due at maturity. In November and
December 1998, the Partnership received a total of $250,000 in principal
paydowns. In the first quarter of 1999, the Partnership received an additional
$25,000 paydown. In the second quarter of 1999, the loan was modified,
increasing the interest rate to 15.0% per annum and extending the maturity date
to November 1999. Accrued but unpaid interest was added to the principal
balance, increasing it by $42,000 to $402,000.

   In 1997 and 1998, the Partnership funded a $3.8 million loan to Stratford &
Graham Developers, L.L.C. The loan is secured by 1,485 acres of unimproved land
in Riverside County, California. In the first nine months of 1999, the
Partnership funded an additional $316,000, increasing the loan balance to $4.1
million. The loan bore interest at 15.0% per annum and matured in June 1999.
All principal and interest were due at maturity. The borrower did not make the
required payments at the loan's maturity and the loan was classified as

                                       10
<PAGE>

                             NATIONAL REALTY, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 4. NOTES RECEIVABLE (Continued)

nonperforming. The Partnership has begun foreclosure proceedings. No loss is
expected on foreclosure as the fair value of the collateral property, less
estimated costs of sale, exceeds the carrying value of the note.

   In October 1998, the Partnership funded three loans to JNC or affiliated
entities. The first JNC loan of $1.0 million was secured by a second lien on
3.5 acres of land in Dallas, Texas, and the personal guaranty of JNC's
principal partner. The loan bore interest at 14.0% per annum and matured in
October 1999. All principal and interest were due at maturity. This loan was
paid in full in July 1999. The second loan, also $1.0 million, was secured by a
second lien on 2.92 acres of land in Dallas, Texas, and the personal guaranty
of JNC's principal partner. The loan bore interest at 14.0% per annum and
matured in October 1999. All principal and interest were due at maturity. This
loan was paid in full in March 1999. The third loan, in the amount of
$2.1 million, was to Frisco Panther Partners, Ltd. The loan is secured by a
second lien on 408.23 acres of land in Frisco, Texas, and the personal guaranty
of JNC's principal partner. The loan bears interest at 14.0% per annum and
matured in October 1999. All principal and interest are due at maturity. This
loan is cross-collateralized with the other JNC loans funded by the
Partnership. In January 1999, the Partnership received a paydown of $820,000 on
the Frisco Panther Partners, Ltd. loan, as discussed above.

   In March 1998, the Partnership ceased receiving the required payments on a
$3.0 million note receivable secured by an office building in Dallas, Texas. In
October 1998, the Partnership began foreclosure proceedings. In March 1999, the
Partnership received payment in full, including accrued but unpaid interest.

   In December 1998, the Partnership funded $3.3 million of a $5.0 million loan
commitment to JNC. The loan is secured by a second lien on 1,791 acres of land
in Denton County, Texas, and a second lien on 220 acres of land in Tarrant
County, Texas. The loan bears interest at 12.0% per annum and matures in
December 1999. All principal and interest are due at maturity. The loan is
cross-collateralized with the other JNC loans funded by the Partnership. In
January 1999, the Partnership received a $1.3 million paydown. In the first
half of 1999, the Partnership funded an additional $3.0 million, increasing the
loan balance to $5.0 million.

   At December 1998, the Partnership's one wraparound mortgage note receivable
was in default. The Partnership has been vigorously pursuing its rights
regarding the loan. If the Partnership should be unsuccessful, and the
underlying lien holder forecloses the collateral property, the Partnership will
incur no loss in excess of previously established reserves.

   Related Party. In 1998 and the first nine months of 1999, GCLP funded $94.7
million of a then $95.0 million loan commitment to ART. The loan is secured by:
(1) second liens on an office building in Minnesota, three apartments in
Mississippi and one in Texas, and 130.54 acres of land in Texas, (2) the stock
of ART Holdings, Inc., a wholly-owned subsidiary of ART that owned 3,268,535
National Realty units of limited partnership as of October 29, 1999, and (3)
the stock of NMC. The loan bears interest at 12.0% per annum, requires monthly
payments of interest only and matures in November 2003. In September 1999, the
board of GCLP approved an increase in the loan commitment to $125.0 million. In
February 1999, GCLP received a $999,000 paydown on the loan. In October 1999,
GCLP funded an additional $5.5 million and received a paydown of $150,000.

   In February 1999, GCLP funded a $5.0 million unsecured loan to Davister
Corp., which at September 30, 1999, owned approximately 15.8% of the
outstanding shares of ART's common stock. The loan bears interest at 12.0% per
annum and matures in February 2000. All principal and interest are due at
maturity. The loan is guaranteed by BCM.

   Beginning in 1997 and through January 1999, the Partnership funded a $1.6
million loan commitment to Bordeaux Investments Two, L.L.C. ("Bordeaux"). The
loan is secured by (1) a 100% interest in Bordeaux,

                                       11
<PAGE>

                             NATIONAL REALTY, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 4. NOTES RECEIVABLE (Continued)

which owns a shopping center in Oklahoma City, Oklahoma; (2) 100% of the stock
of Bordeaux Investments One, Inc., which owns 6.5 acres of unimproved land in
Oklahoma City, Oklahoma; and (3) the personal guarantees of the Bordeaux
partners. The loan bears interest at 14.0% per annum. Until November 1998, the
loan required monthly payments of interest only at the rate of 12.0% per annum,
with the deferred interest payable at maturity in January 1999. In November
1998, the loan was modified to allow payments based on monthly cash flow of the
collateral property and the maturity date was extended to December 1999. In the
second quarter of 1999, the loan was again modified, increasing the loan
commitment to $2.1 million and the Partnership funded an additional $33,000. In
the third quarter of 1999, the Partnership funded an additional $213,000. The
property has had no cash flow, therefore, the Partnership ceased accruing
interest in the second quarter of 1999. In October 1999, the Partnership
received a $724,000 paydown on the loan, which was applied first to accrued but
unpaid interest due of $261,000 then to principal, reducing the loan balance to
$1.4 million. In October 1999, Richard D. Morgan, a Bordeaux shareholder, was
elected a director of NMC, the General Partner of the Partnership.

During 1998, the Partnership funded a $1.8 million loan to Warwick of Summit
Square, Inc. ("Warwick"). The loan is secured by a second lien on a shopping
center in Rhode Island, by 100% of the stock of the borrower and by the personal
guarantee of the principal shareholder of the borrower. The loan bears interest
at 14.0% per annum and matures in December 1999. All principal and interest are
due at maturity. During 1999, the Partnership funded an additional $314,000,
increasing the loan balance to $2.1 million. Richard D. Morgan is a Warwick
shareholder.

NOTE 5. REAL ESTATE AND DEPRECIATION

   In January 1999, GCLP sold the 199 unit Olde Towne Apartments in Middleton,
Ohio, for $4.6 million, receiving net cash of $4.4 million after the payment of
various closing costs, including a real estate brokerage commission of $136,000
to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of the General Partner.
A gain of $2.7 million was recognized on the sale.

   In February 1999, GCLP sold the 225 unit Santa Fe Apartments in Kansas City,
Missouri, for $4.6 million, receiving net cash of $4.3 million after the
payment of various closing costs, including a real estate brokerage commission
of $137,000 to Carmel Realty. A gain of $1.3 million was recognized on the
sale.

   Also in February 1999, GCLP sold the 480 unit Mesa Ridge Apartments in Mesa,
Arizona, for $19.5 million, receiving net cash of $793,000 after the payment of
various closing costs, including a real estate brokerage commission of $585,000
to Carmel Realty and remitting $17.8 million to the lender to hold in escrow
pending a substitution of collateral. In May 1999, the 259 unit Bavarian Woods
Apartments and the 149,855 sq. ft. Westwood Shopping Center were approved by
the lender as substitute collateral. GCLP received net cash of $7.8 million
after paying off $7.2 million in mortgage debt secured by the Bavarian Woods
Apartments and Westwood Shopping Center, funding required escrows and the
payment of various closing costs on the two properties, and paying off $2.2
million of Mesa Ridge debt, including a $133,000 prepayment penalty. A gain of
$12.4 million was recognized on the sale. NMC earned an incentive disposition
fee of $948,000 in accordance with the partnership agreement.

   In April 1999, GCLP sold the 166 unit Horizon East Apartments in Dallas,
Texas, for $4.0 million, receiving net cash of $1.2 million after paying off
$2.6 million in mortgage debt and the payment of various closing costs,
including a real estate brokerage commission of $79,000 to Carmel Realty. A
gain of $2.2 million was recognized on the sale.

   Also in April 1999, GCLP sold the 120 unit Lantern Ridge Apartments in
Richmond, Virginia, for $3.4 million, receiving net cash of $880,000 after the
payment of various closing costs, including a real estate brokerage commission
of $103,000 to Carmel Realty. The purchaser assumed the $2.4 million mortgage
secured by the property. A gain of $2.6 million was recognized on the sale.

   In May 1999, the Partnership purchased the 27,000 sq. ft. Cooley Office
Building in Farmers Branch, Texas, for $3.5 million, paying $1.5 million in
cash and obtaining mortgage financing of $2.0 million. The

                                       12
<PAGE>

                             NATIONAL REALTY, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 5. REAL ESTATE AND DEPRECIATION (Continued)

mortgage bears interest at a variable rate, currently 9.0% per annum, requires
monthly payments of principal and interest of $17,875 and matures in May 2019.
A real estate brokerage commission of $35,000 was paid to Carmel Realty.

   In June 1999, the Partnership purchased the Lake Houston land, a 33.58 acre
parcel of unimproved land in Harris County, Texas, for $2.5 million in cash. A
real estate brokerage commission of $75,000 was paid to Carmel Realty. The
Partnership has obtained a construction loan in the amount of $13.7 million to
develop a 312 unit apartment complex on the site. Construction costs are
expected to approximate $16.7 million. Construction was begun in July 1999 and
is expected to be completed in the third quarter of 2000. Through October 1999,
the Partnership has invested $1.9 million in construction of the apartments and
received $1.8 million in loan and escrow proceeds.

   Further in June 1999, GCLP sold the 368 unit Barcelona Apartments in Tampa,
Florida, for $9.8 million, receiving net cash of $2.2 million after paying off
$7.0 million in mortgage debt and the payment of various closing costs,
including a real estate brokerage commission of $294,000 to Carmel Realty. A
gain of $3.2 million was recognized on the sale.

   In July 1999, the Partnership purchased the Stone Meadows land, a 13.5 acre
parcel of unimproved land in Harris County, Texas, from ART, at its carrying
cost of $2.2 million, paying $1.3 million in cash and assuming $974,000 in
mortgage debt. The mortgage bore interest at 10.0% per annum, required
quarterly payments of principal and interest of $100,000 and matured in October
1999. The mortgage was paid in full at maturity. The land was acquired as a
future apartment development site.

   In August 1999, the Partnership sold the 152 unit Country Place Apartments
in Round Rock, Texas, for $6.0 million, receiving net cash of $1.3 million
after the payment of various closing costs, including a real estate brokerage
commission of $179,000 paid to Carmel Realty. The purchaser assumed the $4.3
million mortgage secured by the property. A gain of $3.9 million was recognized
on the sale. NMC earned an incentive disposition fee of $201,000 in accordance
with the partnership agreement.

   Also in August 1999, the Partnership sold the 588 unit Lake Nora Apartments
and the 336 unit Fox Club Apartments in Indianapolis, Indiana, to a single
buyer for a total of $29.1 million. The Partnership received net cash of $2.7
million, after paying off $24.5 million in mortgage debt, including an $889,000
prepayment penalty, and the payment of various closing costs, including a real
estate brokerage commission of $873,000 to Carmel Realty. A gain totaling $18.1
million was recognized on the sale.

   In September 1999, the Partnership sold the 409 unit Oakhollow Apartments
and the 408 unit Windridge Apartments in Austin, Texas, to a single buyer for a
total of $35.5 million. The Partnership received net cash of $7.8 million,
after paying off $22.2 million in mortgage debt, including a $912,000
prepayment penalty, and the payment of various closing costs, including a real
estate brokerage commission of $1.1 million paid to Carmel Realty. In
conjunction with the sale, the Partnership provided $2.1 million in purchase
money financing secured by limited partnership units in two limited
partnerships owned by the buyer. The financing bears interest at 16.0% per
annum, requires monthly payments of interest only at 6.0%, beginning in
February 2000 and a $200,000 principal paydown in December 1999, and matures in
August 2000. The Partnership has an option to obtain the buyer's general and
limited partnership interests in full satisfaction of the financing. A gain of
$27.7 million was recognized on the sale. NMC earned an incentive disposition
fee of $239,000 in accordance with the partnership agreement, which was paid in
October 1999.

                                       13
<PAGE>

                             NATIONAL REALTY, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 6. NOTES AND INTEREST PAYABLE

   In February 1999, the Partnership obtained mortgage financing secured by the
unencumbered 54,649 sq. ft. 56 Expressway Office Building in Oklahoma City,
Oklahoma, in the amount of $1.7 million, receiving net cash of $1.7 million
after the payment of various closing costs, including a mortgage brokerage and
equity refinancing fee of $17,000 to BCM. The mortgage bears interest at a
variable rate, currently 8.75% per annum, requires monthly payments of
principal and interest of $15,000 and matures in February 2019.

   Also in February 1999, the Partnership obtained mortgage financing secured
by the unencumbered 124,200 sq. ft. Melrose Business Park in Oklahoma City,
Oklahoma, in the amount of $900,000, receiving net cash of $870,000 after the
payment of various closing costs, including a mortgage brokerage and equity
refinancing fee of $9,000 to BCM. The mortgage bears interest at a variable
rate, currently 8.75% per annum, requires monthly payments of principal and
interest of $8,000 and matures in February 2019.

   In May 1999, the Partnership obtained mortgage financing secured by the
unencumbered 257 unit Pines Apartments in Little Rock, Arkansas, and by a $5.0
million note receivable secured by second liens on two parcels of land in
Denton County and Tarrant County, Texas, in the amount of $4.0 million. The
Partnership received net cash of $3.9 million after the payment of various
closing costs, including a mortgage brokerage and equity refinancing fee of
$40,000 to BCM. The mortgage bore interest at 14.0% per annum, required monthly
payments of interest only and was scheduled to mature in May 2000. In September
1999, the Partnership refinanced the mortgage debt in the amount of $3.1
million. The Partnership used the net refinancing proceeds and cash of $1.1
million to pay off the $4.0 million of mortgage debt and the payment of various
closing costs, including a mortgage brokerage and equity refinancing fee of
$31,000 to BCM. The new mortgage bears interest at a variable rate, currently
8.3% per annum, requires monthly payments of principal and interest of $24,552
and matures in April 2001.

   In June 1999, the Partnership obtained mortgage financing secured by the
unencumbered 100 unit Stonebridge Apartments in Florissant, Missouri, in the
amount of $3.0 million. The Partnership received net cash of $2.9 million after
the payment of various closing costs, including a mortgage brokerage and equity
refinancing fee of $30,000 to BCM. The mortgage bears interest at 8.33% per
annum, requires monthly payments of principal and interest of $23,814 and
matures in July 2002.

   In July 1999, the Partnership obtained mortgage financing secured by the
unencumbered 76 unit Bridgestone Apartments in Friendswood, Texas, in the
amount of $2.1 million. The Partnership received net cash of $2.0 million after
the payment of various closing costs, including a mortgage brokerage and equity
refinancing fee of $21,000 to BCM. The mortgage bears interest at 7.72% per
annum, requires monthly payments of principal and interest of $15,144 and
matures in August 2009.

   In August 1999, the Partnership refinanced the mortgage debt secured by the
102 unit Whispering Pines Apartments in Canoga Park, California, in the amount
of $3.5 million, receiving net cash of $1.1 million after paying off $2.2
million in mortgage debt, the funding of required escrows and the payment of
various closing costs, including a mortgage brokerage and equity refinancing
fee of $35,000 to BCM. The new mortgage bears interest at 7.84% per annum,
requires monthly payments of principal and interest of $24,931 and matures in
September 2009.

   In September 1999, the Partnership obtained mortgage financing secured by
the unencumbered 209 unit Blackhawk Apartments in Indianapolis, Indiana, in the
amount of $4.1 million. The Partnership received net cash of $4.0 million,
after the payment of various closing costs, including a mortgage brokerage and
equity refinancing fee of $41,000 paid to BCM. The mortgage bears interest at a
variable rate, currently 8.38% per annum, requires monthly payments of
principal and interest of $32,923 and matures in April 2001.

                                       14
<PAGE>

                             NATIONAL REALTY, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 7. OPERATING SEGMENTS

   Significant differences among the accounting policies of the Partnership's
operating segments as compared to the Partnership's consolidated financial
statements principally involve the calculation and allocation of general and
administrative expenses. Management evaluates the performance of each of the
operating segments and allocates resources to each of them based on their
operating income and cash flow. The Partnership based reconciliation of
expenses that are not reflected in the segments is $5.5 million and $5.1
million of general and administrative expenses for the nine months ended
September 30, 1999, and 1998, respectively. There are no intersegment revenues
and expenses, and the Partnership conducts all of its business within the
United States.

   Presented below is operating income of each of the Partnership's reportable
operating segments for the nine months ended September 30, and each segment's
assets at September 30.

<TABLE>
<CAPTION>
                                    Commercial
1999                                Properties Apartments Receivables  Total
----                                ---------- ---------- ----------- --------
<S>                                 <C>        <C>        <C>         <C>
Rents..............................  $ 7,303    $ 61,736   $     --   $ 69,039
Property operating expenses........    2,914      36,308         --     39,222
Interest income....................       --          --     12,860     12,860
Interest expense--notes
 receivable........................       --          --        784        784
                                     -------    --------   --------   --------
Operating income...................  $ 4,389    $ 25,428   $ 12,076   $ 41,893
                                     =======    ========   ========   ========

Depreciation.......................  $ 1,590    $  4,461   $     --   $  6,051
Interest on debt...................    1,875      18,739         --     20,614
Real estate improvements...........   11,615       1,477         --     13,092
Assets.............................   66,170     106,123    151,972    324,265

<CAPTION>
                                               Apartments              Total
Property sales:                                ----------             --------
<S>                                 <C>        <C>        <C>         <C>
Sales price...................................  $116,350              $116,350
Cost of sales.................................    42,331                42,331
                                                --------              --------
Gain on sales.................................  $ 74,019              $ 74,019
                                                ========              ========

<CAPTION>
                                    Commercial
1998                                Properties Apartments Receivables  Total
----                                ---------- ---------- ----------- --------
<S>                                 <C>        <C>        <C>         <C>
Rents..............................  $ 7,741    $ 73,456   $      -   $ 81,197
Property operating expenses........    3,689      43,552         --     47,241
Interest income....................       --          --      3,287      3,287
Interest expense--notes
 receivable........................       --          --      1,688      1,688
                                     -------    --------   --------   --------
Operating income...................  $ 4,052    $ 29,904   $  1,599   $ 35,555
                                     =======    ========   ========   ========

Depreciation.......................  $ 1,933    $  5,499   $     --   $  7,432
Interest on debt...................    2,962      20,521         --     23,483
Real estate improvements...........      394       1,256         --      1,650
Assets.............................   27,041     149,338     39,387    215,766

<CAPTION>
                                    Commercial
                                    Properties Apartments    Other     Total
Property sales:                     ---------- ---------- ----------- --------
<S>                                 <C>        <C>        <C>         <C>
Sales price........................  $17,932    $ 33,890   $    800   $ 52,622
Cost of sales......................   16,789      14,625         28     31,442
                                     -------    --------   --------   --------
Gain on sales......................  $ 1,143    $ 19,265   $    772   $ 21,180
                                     =======    ========   ========   ========
</TABLE>

                                       15
<PAGE>

                             NATIONAL REALTY, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 8. INCOME TAXES

   No federal or state income taxes have been provided for in the accompanying
Consolidated Statements of Operations as the partners include their share of
Partnership income or loss in their respective tax returns. For income or loss
allocation purposes, limited partners are allocated their proportionate share
of income or loss commencing with the calendar month subsequent to their entry
into the Partnership.

NOTE 9. LEGAL PROCEEDINGS

   The Partnership is involved in various lawsuits arising in the ordinary
course of business. In the opinion of management, the outcome of these lawsuits
will not have a material effect on the Partnership's financial condition,
results of operations or liquidity.

NOTE 10. SUBSEQUENT EVENTS

   In October 1999, the Partnership sold the 838 unit Tanglewood Apartments in
Arlington Heights, Illinois, for $41.0 million. The Partnership received net
cash of $8.4 million, after paying off $28.9 million in mortgage debt,
including a $1.2 million prepayment penalty, and the payment of various closing
costs, including a real estate brokerage commission of $1.1 million to Triad
Realty, Inc., an affiliate of the General Partner. A gain will be recognized on
the sale. NMC earned an incentive disposition fee of $706,000 in accordance
with the partnership agreement.

   Also in October 1999, the Partnership collected in full a mortgage note
receivable with a principal balance of $740,000.

   Further in October 1999, GCLP funded a $4.7 million loan to Realty Advisors,
Inc., the corporate parent of BCM. The loan is secured by a pledge of 100% of
Realty Advisors, Inc.'s interest in American Reserve Life Insurance Company.
The loan bears interest at a variable rate, currently 10.25% per annum, and
matures in November 2001. All principal and interest are due at maturity.

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

                                       16
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Introduction

   National Realty is a Delaware limited partnership formed on January 29,
1987, that owns and operates through the Operating Partnership, also a Delaware
limited partnership, a portfolio of real estate and mortgage notes. Most of the
Operating Partnership's properties were acquired in transactions consummated on
September 18, 1987, pursuant to which National Realty acquired all of the
assets and assumed all of the liabilities of 35 public and private limited
partnerships.

Liquidity and Capital Resources

   Cash and cash equivalents totaled $705,000 at September 30, 1999, compared
to $9.0 million at December 31, 1998. The principal reasons for this decrease
in cash are discussed in the following paragraphs.

   The General Partner has discretion in determining methods of obtaining funds
for the Partnership's operations. The Partnership's governing documents place
no limitation on the amount of leverage that the Partnership may incur either
in the aggregate or with respect to any particular property or other
investment. At September 30, 1999, the aggregate loan-to-value ratio of the
Partnership's real estate portfolio was 65.6%, computed on the basis of the
ratio of total property-related debt to aggregate appraised values as of
December 31, 1998, as compared with a loan-to-value ratio of 63.5% at December
31, 1998.

   The Partnership's principal sources of cash have been and will continue to
be from property operations, collection of principal and interest on its
mortgage notes receivable and externally generated funds. Externally generated
funds include borrowings, proceeds from the sale of the Partnership's
properties and other assets and proceeds from borrowings secured by the
Partnership's properties or mortgage notes receivable. The Partnership expects
that its cash on hand, cash flow from property operations together with
externally generated funds will be sufficient to meet the Partnership's various
cash needs, including, but not limited to, funding of lending commitments,
distributions to unitholders, the payment of debt service obligations coming
due and property maintenance and improvements, as more fully discussed in the
paragraphs below.

   The Partnership's cash flow from property operations (rents collected less
payments for property operating expenses) increased to $28.4 million in the
nine months ended September 30, 1999, from $28.1 million in the nine months
ended September 30, 1998. The increase was due to the payment in 1998 of $2.7
million in property level payables at December 31, 1997. This increase was
partially offset by the sale of 11 apartments in 1999 and 10 apartments and two
commercial properties in 1998.

   Interest collected on mortgage notes receivable increased to $8.2 million in
the nine months ended September 30, 1999, from $1.8 million in 1998. Of this
increase, $5.6 million was due to the ART loan, funding of which began in 1998
and has continued in 1999, $244,000 was due to the payoff of a loan that had
matured in 1998 and for which interest was not being recognized until it was
collected, $677,000 was due to a partial payment on a loan and $1.0 million was
due to the collection of interest on the payoffs of six mortgage loans in 1999
for which interest was not due until the loans' payoff or maturity. These
increases were partially offset by a decrease of $968,000 due to loans that
were paid off in 1998 and $143,000 due to a loan modified in 1998 to only
require interest be paid from the collateral property's cash flow.

   Interest paid decreased to $19.7 million in the nine months ended September
30, 1999, from $22.1 million in 1998. Of this decrease, $1.3 million was due to
the sale of 11 apartments in 1999 and 10 apartments and two commercial
properties in 1998 and $3.2 million was due to loans paid off in 1998. These
decreases were partially offset by an increase of $2.1 million due to
properties refinanced, where the debt balance was increased or unencumbered
properties financed in 1998 and 1999 and $124,000 was due to properties
acquired in 1999.

                                       17
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)


Liquidity and Capital Resources (Continued)

   General and administrative expenses paid decreased to $4.2 million in the
nine months ended September 30, 1999, from $5.0 million in 1998. The decrease
was due to a decrease in legal and other expenses due to the settlement of two
lawsuits in 1998 partially offset by an increase in cost reimbursements to BCM.

   The Partnership paid incentive disposition fees of $1.1 million to the
General Partner in the nine months ended September 30, 1999, related to the
sales of the Mesa Ridge Apartments and the Country Place Apartments. No such
fee was paid in 1998.

   In the first nine months of 1999, a total of $18.4 million was received on
the collection of seven mortgage notes receivable and partial paydowns of six
other mortgage note receivables.

   In January 1999, the Olde Towne Apartments in Middleton, Ohio, was sold for
$4.6 million. Net cash of $4.4 million was received after the payment of
various closing costs.

   In February 1999, GCLP funded a $5.0 million unsecured loan to Davister
Corp., which at September 30, 1999, owned approximately 15.8% of the
outstanding shares of ART's common stock. The loan is guaranteed by BCM.

   Also in February 1999, the Santa Fe Apartments in Kansas City, Missouri, was
sold for $4.6 million. Net cash of $4.3 million was received after the payment
of various closing costs.

   Further in February 1999, the Mesa Ridge Apartments in Mesa, Arizona, was
sold for $19.5 million. Net cash of $793,000 was received after the payment of
various closing costs and remitting $17.8 million to the lender to hold in
escrow pending a substitution of collateral. In May 1999, the Bavarian Woods
Apartments and Westwood Shopping Center were approved as substitute collateral.
Net cash of $7.8 million was received after paying off $7.2 million in mortgage
debt secured by the Bavarian Woods Apartments and Westwood Shopping Center,
funding required escrows and the payment of various closing costs on the two
properties, and paying off $2.2 million of Mesa Ridge debt, including a
$133,000 prepayment penalty.

   In February 1999, mortgage financing secured by the unencumbered 56
Expressway Office Building in Oklahoma City, Oklahoma, in the amount of $1.7
million was obtained. Net cash of $1.7 million was received after the payment
of various closing costs.

   Also in February 1999, mortgage financing secured by the unencumbered
Melrose Business Park in Oklahoma City, Oklahoma, in the amount of $900,000 was
obtained. Net cash of $870,000 was received after the payment of various
closing costs.

   In April 1999, GCLP sold the 166 unit Horizon East Apartments in Dallas,
Texas, for $4.0 million. Net cash of $1.2 million was received after paying off
$2.6 million in mortgage debt and the payment of various closing costs.

   Also in April 1999, the Lantern Ridge Apartments in Richmond, Virginia, was
sold for $3.4 million. Net cash of $880,000 was received after the payment of
various closing costs and the purchaser's assumption of the $2.4 million
mortgage debt.

   In May 1999, mortgage financing secured by the unencumbered Pines Apartments
in Little Rock, Arkansas, and by a $5.0 million note receivable in the amount
of $4.0 million was obtained. Net cash of $3.9 million was received after the
payment of various closing costs. In September 1999, the mortgage debt was
refinanced in the amount of $3.1 million. The net refinancing proceeds and cash
of $1.1 million were used to payoff $4.0 million of mortgage debt and the
payment of various closing costs.

                                       18
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)


Liquidity and Capital Resources (Continued)

   Also in May 1999, the Partnership purchased the 27,000 sq. ft. Cooley Office
Building in Farmers Branch, Texas, for $3.5 million, paying $1.5 million in
cash and obtained mortgage financing of $2.0 million.

   In June 1999, mortgage financing secured by the unencumbered Stonebridge
Apartments in Florissant, Missouri, in the amount of $3.0 million was obtained.
Net cash of $2.9 million was received after the payment of various closing
costs.

   Also in June 1999, the Lake Houston land, a 33.58 acre parcel of unimproved
land in Harris County, Texas, was purchased for $2.5 million in cash. A
construction loan in the amount of $13.7 million was obtained enabling
development of a 312 unit apartment complex on the site. Construction, expected
to approximate $16.7 million in costs, was begun in July 1999 and completion is
expected in the third quarter of 2000.

   Further in June 1999, the Barcelona Apartments in Tampa, Florida, was sold
for $9.8 million. Net cash of $2.2 million was received after paying off $7.0
million in mortgage debt and the payment of various closing costs.

   In July 1999, the Stone Meadows land, a 13.5 acre parcel of unimproved land,
in Harris County, Texas, was purchased from ART for $2.2 million, $1.3 million
in cash and assuming $974,000 in mortgage debt. The mortgage was paid in full
at its October 1999 maturity.

   Also in July 1999, mortgage financing secured by the unencumbered 76 unit
Bridgestone Apartments in Friendswood, Texas, in the amount of $2.1 million was
obtained. Net cash of $2.0 million was received after the payment of various
closing costs.

   In August and September 1999, the Partnership received a total of $3.3
million in paydowns on a mortgage note receivable, and funded a $2.6 million
mortgage loan.

   Also in August 1999, the Country Place Apartments in Round Rock, Texas, was
sold for $6.0 million. Net cash of $1.3 million was received after the payment
of various closing costs and the purchaser's assumption of the $4.3 million
mortgage debt.

   Further in August 1999, the Lake Nora Apartments and the Fox Club Apartments
in Indianapolis, Indiana, were sold for a total of $29.1 million. Net cash of
$2.7 million was received after paying off $24.5 million in mortgage debt, the
funding of required escrows and the payment of various closing costs.

   In September 1999, the Oakhollow Apartments and the Windridge Apartments in
Austin, Texas, were sold for a total of $35.5 million. Net cash of $7.8 million
was received after paying off $22.2 million in mortgage debt and the payment of
various closing costs.

   Also in September 1999, mortgage financing secured by the unencumbered
Blackhawk Apartments in Indianapolis, Indiana, in the amount of $4.1 million
was obtained. Net cash of $4.0 million was received after the payment of
various closing costs.

   In 1998, the Partnership funded a $6.0 million loan to Centura Holdings,
LLC, a subsidiary of Centura Tower, Ltd. The loan is secured by 6.4109 acres of
land in Dallas, Texas. In February 1999, the Partnership funded an additional
$37,500.

   Also in 1998, the Partnership funded a $3.7 million loan to JNC. The loan
was secured by a contract to purchase 387 acres of land in Collin County,
Texas, and the personal guaranty of JNC's principal partner. In January 1999,
ART purchased the contract from JNC and acquired the land. In connection with
the purchase,

                                       19
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

GCLP funded an additional $6.0 million of a $95.0 million loan commitment to
ART. A portion of the funds were used to payoff the $3.7 million JNC loan,
including accrued but unpaid interest, paydown by $1.3 million of the JNC line
of credit and paydown a portion of the JNC Frisco Panther Partners, Ltd. loan.

   In 1997 and 1998, the Partnership funded a $3.8 million loan to Stratford &
Graham Developers, LLC. The loan is secured by 1,485 acres of unimproved land
in Riverside County, California. In the first nine months of 1999, the
Partnership funded an additional $316,000 increasing the loan balance to $4.1
million.

   Also in 1998 and the first nine months of 1999, the Partnership funded a
$5.0 million loan commitment to JNC. The loan is secured by a second lien on
1,791 acres of land in Denton County, Texas, and a second lien on 220 acres of
land in Tarrant County, Texas. In January 1999, the Partnership received a $1.3
million paydown on the loan, as discussed above.

   Further in 1998 and the first nine months of 1999, GCLP funded $94.7 million
of a then $95.0 million loan commitment to ART. The loan is secured by: (1)
second liens on an office building in Minnesota, three apartments in
Mississippi and one in Texas and 130.54 acres of land in Texas; (2) the stock
of ART Holdings, Inc., a wholly-owned subsidiary of ART that owns 3,268,535
National Realty units of limited partnership; and, (3) by the stock of NMC. In
September 1999, the board of GCLP approved an increase in the loan commitment
to $125.0 million. In February 1999, GCLP received a $999,000 paydown on the
loan. In October 1999, GCLP funded an additional $5.5 million and received a
paydown of $150,000.

   During 1998 and the first nine months of 1999, the Partnership funded a
total of $31.0 million of a $52.5 million loan commitment to Centura Tower,
Ltd. The loan is secured by a mortgage on 2.244 acres of land and a building
under construction in Dallas, Texas. In August 1999, $24.1 million of the note
and accrued but unpaid interest was converted to a partnership interest.

   During 1998 and 1999, the Partnership funded a total of $2.1 million of a
$2.2 million loan commitment to Varner Road Partners, L.L.C. The loan is
secured by 129.77 acres of land in Riverside County, California, and a pledge
of the stock of the borrower.

   In 1997, 1998 and 1999, the Partnership funded $1.8 million of a $2.1
million loan commitment to Bordeaux Investments Two, L.L.C. ("Bordeaux"). The
loan is secured by (1) a 100% interest in Bordeaux, which owns a shopping
center in Oklahoma City, Oklahoma; (2) 100% of the stock of Bordeaux
Investments One, Inc., which owns approximately 6.5 acres of unimproved land in
Oklahoma City, Oklahoma; and (3) the personal guarantees of the Bordeaux
partners. In October 1999, the Partnership received a paydown of $724,000.

   In July 1999, the Partnership received a total of $2.5 million on the
collection of two mortgage notes receivable, including accrued but unpaid
interest.

   In the first nine months of 1999, the Partnership paid distributions of
$.375 per unit, or a total of $1.6 million.

   Management reviews the carrying values of the Partnership's properties and
mortgage notes receivable at least annually and whenever events or a change in
circumstances indicate that impairment may exist. Impairment is considered to
exist if, in the case of a property, the future cash flow from the property
(undiscounted and without interest) is less than the carrying amount of the
property. For notes receivable impairment is considered to exist if it is
probable that all amounts due under the terms of the note will not be
collected. If impairment is found to exist, a provision for loss is recorded by
a charge against earnings. The Partnership's mortgage note receivable review
includes an evaluation of the collateral property securing such

                                       20
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)


Liquidity and Capital Resources (Continued)

note. The property review generally includes selective property inspections, a
review of the property's current rents compared to market rents, a review of
the property's expenses, a review of maintenance requirements, a review of the
property's cash flow, discussions with the manager of the property and a review
of properties in the surrounding area.

Results of Operations

   The Partnership reported net income of $51.9 million and $82.9 million for
the three and nine months ended September 30, 1999, including gains on sale of
real estate of $49.6 million and $74.0 million. The Partnership had net income
of $3.7 million and $26.3 million for the three and nine months ended
September 30, 1998, including gains on sale of real estate of $5.6 million and
$34.2 million. These and other factors contributing to the Partnership's net
income are discussed in the following paragraphs.

   Rents decreased to $21.9 million and $69.0 million in the three and nine
months ended September 30, 1999, from $26.0 million and $81.2 million in 1998.
$4.3 million and $13.7 million of the decrease was due to the sale of 11
apartments in 1999 and 10 apartments and two commercial properties in 1998.
These decreases were partially offset by increases of $249,000 and $1.1 million
due to increased rental rates at the Partnership's apartments. Rents are
expected to continue to decrease during the remainder of 1999 as the
Partnership continues to selectively sell properties.

   Interest income increased to $4.6 million and $13.2 million in the three and
nine months ended September 30, 1999, from $1.9 million and $4.5 million in
1998. Increases of $3.5 million and $10.7 million were attributable to loans
funded in 1998 and 1999. These increases were partially offset by decreases of
$150,000 and $1.1 million due to loans paid off during 1998 and 1999 and
$710,000 and $836,000 due to decreases in short-term investments. Interest
income during the remainder of 1999 is expected to increase due to additional
funds on the ART line of credit.

   Interest expense decreased to $7.3 million and $21.4 million in the three
and nine months ended September 30, 1999, from $6.6 million and $23.5 million
in 1998. Decreases of $160,000 and $3.0 million were due to loans paid off in
1998, and decreases of $598,000 and $2.7 million were due to the sale of a
total of 23 properties, subject to debt, in 1998 and 1999. These decreases were
partially offset by increases of $133,000 and $147,000 on properties acquired
in 1999 and $1.6 million and $3.3 million due to interest expense recorded on
borrowings secured by mortgages on two unencumbered apartments and two
unencumbered commercial properties in 1999 and four unencumbered apartments and
seven notes receivable in 1998, the refinancing of 47 of the GCLP apartments
and the refinancing of mortgages in 1998 and 1999 where the loan balance was
increased. Interest expense is expected to decline during the remainder of 1999
as a result of the refinancing of the GCLP properties at a lower interest rate
and the expected sale of selected properties.

   Deferred borrowing costs for the three and nine months ended September 30,
1998, is the unamortized borrowing costs associated with the November 1992
financing of the GCLP properties on their refinancing in July 1998.

   Depreciation, property taxes and insurance, utilities, property level
payroll, repairs and maintenance, other operating expenses and property
management fees in the three and nine months ended September 30, 1999, all
declined from 1998 due to the sale of 10 apartments and two commercial
properties in 1998 and 11 apartments in 1999. These costs are expected to
continue to decrease during the remainder of 1999 as the Partnership continues
to selectively sell properties.

   General and administrative expenses increased to $1.5 million and $5.5
million in the three and nine months ended September 30, 1999, from $1.5
million and $5.1 million in 1998. The nine month increase was

                                       21
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)

Results of Operations (Continued)

due to an increase of $1.2 million in cost reimbursements to an affiliate of
the General Partner, partially offset by a decrease of $891,000 in legal fees
as a result of the settlement of two lawsuits in 1998.

   The Partnership paid $200,000 and $1.1 million in incentive disposition fees
to its General Partner in the three and nine months ended September 30, 1999,
related to the sales of Mesa Ridge Apartments and Country Place Apartments. No
such fees were paid in 1998.

   In the three and nine months ended September 30, 1999, gains on sale of real
estate totaling $49.6 million and $74.0 million were realized, $2.7 million on
the sale of the Olde Towne Apartments in January, $1.3 million on the sale of
the Santa Fe Apartments and $12.4 million on the sale of the Mesa Ridge
Apartments in February, $2.2 million on the sale of the Horizon East Apartments
and $2.6 million on the sale of the Lantern Ridge Apartments in April, $3.2
million on the sale of the Barcelona Apartments in June, $3.9 million on the
sale of Country Place Apartments and $18.1 million on the sale of Lake Nora
Apartments and Fox Club Apartments in August and $27.7 million on the sale of
Oakhollow Apartments and Windridge Apartments in September. For the three and
nine months ended September 30, 1998, gains on sale of real estate totaling
$5.6 million and $34.2 million, were realized; $3.1 million on the sale of the
Brookview Apartments, $2.9 million on the sale of the Creekwood Apartments and
$772,000 on the sale of the Indian Meadows land in April, $8.5 million on the
sale of the Alexandria Apartments in May, $1.1 million on the sale of the
Countryside Plaza in June, $1.7 million on the sale of Lakewood Park Apartments
and $3.9 million on the sale of Royal Oaks Apartments in July and a $12.2
million deferred gain on a prior year's property sale, on the payoff of the
mortgage note receivable secured by such property in June.

Tax Matters

   National Realty is a publicly traded limited partnership and, for federal
income tax purposes, all income or loss generated by the Partnership is
included in the income tax returns of the individual partners. Under Internal
Revenue Service guidelines generally applicable to publicly traded partnerships
and thus to the Partnership, a limited partner's use of his or her share of
partnership losses is subject to special limitations.

Inflation

   The effects of inflation on the Partnership's operations are not
quantifiable. Revenues from apartment operations tend to fluctuate
proportionately with inflationary increases and decreases in housing costs.
Fluctuations in the rate of inflation also affect the sales values of the
Partnership's properties and the ultimate gains to be realized by the
Partnership from property sales. Inflation also has an effect on the
Partnership's earnings from short-term investments and on its interest income
and interest expense to the extent that such income and expense is affected by
floating interest rates.

Environmental Matters

   Under various federal, state and local environmental laws, ordinances and
regulations, the Partnership may be potentially liable for removal or
remediation costs, as well as certain other potential costs relating to
hazardous or toxic substances (including governmental fines and injuries to
persons and property) where property-level managers have arranged for the
removal, disposal or treatment of hazardous or toxic substances. In addition,
certain environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may seek recovery from the
Partnership for personal injury associated with such materials.

   The General Partner is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the
Partnership's business, assets or results of operations.

                                       22
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (Continued)


Year 2000

   BCM has informed management that its computer hardware operating system and
computer software have been certified as year 2000 compliant.

   Carmel Realty Services, Ltd. ("Carmel, Ltd."), an affiliate of BCM that
performs property management services for the Partnership's properties, has
informed management that effective January 1, 1999, it began using year 2000
compliant computer hardware and property management software for the
Partnership's commercial properties. With regard to the Partnership's
apartments, Carmel, Ltd. has informed management that its subcontractors are
also using year 2000 compliant computer hardware and property management
software.

   The Partnership has not incurred nor does it expect to incur any costs
related to its computer hardware and accounting and property management
computer software being modified, upgraded or replaced to make them year 2000
compliant. Such costs have been or will be borne by either BCM, Carmel, Ltd. or
the property management subcontractors of Carmel, Ltd.

   Management has completed its evaluation of the Partnership's computer
controlled building systems, such as security, elevators, heating and cooling,
etc., to determine what systems are not year 2000 compliant. Management
believes that necessary modifications are insignificant and do not require
significant expenditures to make the affected systems year 2000 compliant, as
enhanced operating systems are readily available.

   The Partnership has or will have in place the year 2000 compliant systems
that will allow it to operate. The risks the Partnership faces are that certain
of its vendors will not be able to supply goods or services and that financial
institutions and taxing authorities will not be able to accurately apply
payments made to them. Management believes that other vendors are readily
available and that financial institutions and taxing authorities will, if
necessary, apply monies received manually. The likelihood of the above having a
significant impact on the Partnership's operations is negligible.

                                       23
<PAGE>

                           PART II--OTHER INFORMATION

ITEM 5. OTHER INFORMATION

 Proposed Transaction with American Realty Investors, Inc.

   On November 3, 1999, the Partnership and ART jointly announced the agreement
of their respective Boards to combine, in a tax free exchange, the two entities
into a new holding company to be named American Realty Investors, Inc. ("ARI").
Under the proposal, ARI will distribute shares of its common stock to ART
stockholders and NRLP unitholders. NRLP unitholders, except for ART, would
receive one share of ARI common stock for each unit of NRLP held. ART
stockholders would receive .91 shares of ARI common stock for each share of ART
held. ART preferred stock would convert into one share of preferred stock of
ARI, having substantially the same rights as ART's preferred stock. The share
exchange and merger are subject to a vote of stockholders/unitholders of both
entities. Approval requires the vote of a majority of the unitholders holding a
majority of the Partnership's outstanding units, and the vote of a majority of
the stockholders holding a majority of ART's outstanding shares of common and
preferred stock. As of November 3, 1999, ART owned approximately 56.2% of the
outstanding units of the Partnership and BCM owned approximately 30.0% of the
outstanding units of the Partnership and 56.9% of the outstanding shares of
ART's common stock. A date for the special meeting of the
stockholders/unitholders to vote on the merger proposal has not been set.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

<TABLE>
<CAPTION>
   Exhibit
   Number  Description
   ------- -----------
   <C>     <S>
    2.0    Agreement and Plan of Reorganization, dated as of November 3, 1999 by
           and among American Realty Investors, Inc, National Realty L.P. and
           American Realty Trust, Inc.
   27.0    Financial Data Schedule
</TABLE>

(b) Reports on Form 8-K:

     None.

                                       24
<PAGE>

                                 SIGNATURE PAGE

   Pursuant to the requirements 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.

                                          NATIONAL REALTY, L.P.

                                          By its General Partner:

                                          NRLP MANAGEMENT CORP.

Date: December 8, 1999                    By: /s/ Karl L. Blaha
  -------------------------                  ----------------------------------
                                             Karl L. Blaha
                                             President

Date: December 8, 1999                    By: /s/ Thomas A. Holland
  -------------------------                  ----------------------------------
                                             Thomas A. Holland
                                             Executive Vice President and
                                             Chief Financial Officer
                                             (Principal Financial and
                                             Accounting Officer)

                                       25
<PAGE>

                             NATIONAL REALTY, L.P.

                                  EXHIBITS TO
                         QUARTERLY REPORT ON FORM 10-Q

                    For the Quarter ended September 30, 1999

<TABLE>
<CAPTION>
 Exhibit                            Page
 Number        Description         Number
 ------- -----------------------   ------
 <C>     <S>                       <C>
  2.0    Agreement and Plan of
         Reorganization, dated
         as of November 3, 1999
         by and among American
         Realty Investors, Inc.,
         National Realty, L.P.
         and American Realty
         Trust, Inc.
 27.0    Financial Data Schedule
</TABLE>

                                       26