<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED SEPTEMBER 30, 1997
                                                        ------------------

                          Commission File Number 1-9648
                                                 ------

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

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


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     .
    ---       --- 


Units of Limited Partner Interest                         6,328,889
---------------------------------             ---------------------------------
         (Class)                              (Outstanding at October 31, 1997)




                                        1

<PAGE>   2




                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements have not been examined 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,
                                                            1997         1996
                                                        ------------  ------------
                                                          (dollars in thousands)
<S>                                                       <C>          <C>      
                   Assets

Real estate held for investment
   Land ...............................................   $  49,758    $  51,342
   Buildings and improvements .........................     393,409      396,626
                                                          ---------    ---------
                                                            443,167      447,968

   Less - accumulated depreciation ....................    (226,741)    (223,204)
                                                          ---------    ---------
                                                            216,426      224,764

Notes and interest receivable, net of deferred
   gains of $15,787 in 1997 and 1996 ..................      23,431       15,189
   Less - allowance for estimated losses ..............      (1,910)      (1,910)
                                                          ---------    ---------
                                                             21,521       13,279

Cash and cash equivalents .............................      18,529        5,872
Accounts receivable ...................................       2,754        2,040
Prepaid expenses ......................................       1,040        1,663
Escrow deposits and other assets (including $256
   in 1996 from affiliates) ...........................       6,118       18,496
Marketable equity securities of affiliate, at
   market .............................................       2,557        1,272
Deferred financing costs ..............................      12,660       13,947
                                                          ---------    ---------

                                                          $ 281,605    $ 281,333
                                                          =========    =========
</TABLE>





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

                                        2

<PAGE>   3

                              NATIONAL REALTY, L.P.
                     CONSOLIDATED BALANCE SHEETS - Continued


<TABLE>
<CAPTION>
                                                           September 30,    December 31,
                                                               1997             1996
                                                           ------------     ------------
                                                               (dollars in thousands)
<S>                                                        <C>              <C>         
    Liabilities and Partners' Equity (Deficit)

Liabilities
   Notes and interest payable .........................    $    337,784     $    325,921
   Pension notes and related interest payable .........              --           13,478
   Accrued property taxes .............................           6,601            6,928
   Accounts payable and other liabilities
      (including $85 in 1996 to affiliates) ...........           4,385            3,040
   Tenant security deposits ...........................           3,226            7,057
                                                           ------------     ------------
                                                                351,996          356,424

Commitments and contingencies

Redeemable General Partner Interest ...................          37,855           37,855

Partners' equity (deficit)
   General Partner ....................................           2,754            2,649
   Limited Partners (6,328,889 units in 1997 and
      6,328,303 units in 1996) ........................         (71,257)         (74,568)
   Unrealized gain on marketable equity securities
      of affiliate ....................................           2,287            1,003
                                                           ------------     ------------
                                                                (66,216)         (70,916)

   Less - Redeemable General Partner Interest .........         (42,030)         (42,030)
                                                           ------------     ------------

                                                               (108,246)        (112,946)
                                                           ------------     ------------
                                                           $    281,605     $    281,333
                                                           ============     ============
</TABLE>




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

                                        3

<PAGE>   4



                              NATIONAL REALTY, L.P.
                      CONSOLIDATED STATEMENTS OF OPERATIONS




<TABLE>
<CAPTION>
                                          For the Three Months            For the Nine Months
                                          Ended September 30,             Ended September 30,
                                       --------------------------     ---------------------------
                                          1997           1996             1997            1996
                                       -----------    -----------     -----------     -----------
                                                 (dollars in thousands, except per unit)
<S>                                    <C>            <C>             <C>             <C>        
Revenues
   Rents ..........................    $    28,287    $    27,636     $    83,896     $    81,821
   Interest .......................          1,510            840           3,274           2,350
                                       -----------    -----------     -----------     -----------

                                            29,797         28,476          87,170          84,171

Expenses
   Interest .......................          8,519          8,503          25,552          25,363
   Depreciation ...................          2,584          2,589           7,726           7,629
   Property taxes & insurance .....          3,048          3,105           9,166           9,280
   Utilities ......................          3,031          3,012           9,036           8,815
   Property-level payroll costs ...          1,738          1,740           4,898           4,858
   Repairs and maintenance ........          6,848          6,696          19,225          18,766
   Other operating expenses .......          1,111          1,048           3,277           3,118
   Property management fees .......          1,186          1,176           3,570           3,503
   General and administrative .....          1,580          1,280           5,081           4,358
                                       -----------    -----------     -----------     -----------

                                            29,645         29,149          87,531          85,690
                                       -----------    -----------     -----------     -----------

Income (loss) from operations .....            152           (673)           (361)         (1,519)
Gain on sale of real estate .......          2,067             --           5,654              --
                                       -----------    -----------     -----------     -----------

Net income (loss) .................    $     2,219    $      (673)    $     5,293     $    (1,519)
                                       ===========    ===========     ===========     ===========

Earnings per unit

Net income (loss) .................    $       .34    $      (.10)    $       .82     $      (.24)
                                       ===========    ===========     ===========     ===========

Weighted average units of
   limited partner interest
   used in computing earnings
   per unit .......................      6,328,916      6,333,352       6,326,916       6,389,245
                                       ===========    ===========     ===========     ===========
</TABLE>



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

                                        4

<PAGE>   5



                              NATIONAL REALTY, L.P.
              CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997




<TABLE>
<CAPTION>
                                                                                  Unrealized
                                                                                    Gain On       Redeemable
                                                                                   Marketable       General          Partners'
                                                    General        Limited           Equity         Partner           Equity
                                                    Partner        Partners        Securities       Interest         (Deficit)
                                                 ------------    ------------     ------------    ------------     ------------
                                                                     (dollars in thousands, except per unit)
<S>                                              <C>             <C>              <C>             <C>              <C>          
Balance, January 1, 1997 ....................    $      2,649    $    (74,568)    $      1,003    $    (42,030)    $   (112,946)

Units issued on exercise of
   warrants .................................              --              20               --              --               20

Distributions ($.30 per unit) ...............              --          (1,897)              --              --           (1,897)

Unrealized gain on marketable
   equity securities of affiliate ...........              --              --            1,284              --            1,284

Net income ..................................             105           5,188               --              --            5,293
                                                 ------------    ------------     ------------    ------------     ------------


Balance, September 30, 1997 .................    $      2,754    $    (71,257)    $      2,287    $    (42,030)    $   (108,246)
                                                 ============    ============     ============    ============     ============
</TABLE>




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

                                        5

<PAGE>   6



                              NATIONAL REALTY, L.P.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 For the Nine Months
                                                                 Ended September 30,
                                                           -----------------------------
                                                               1997             1996
                                                           ------------     ------------
                                                              (dollars in thousands)
<S>                                                        <C>              <C>         
Cash Flows From Operating Activities   
   Rents collected ....................................    $     83,541     $     81,567
   Interest collected .................................           2,871            2,158
   Interest paid ......................................         (21,526)         (21,973)
   Payments for property operations ...................         (48,652)         (50,712)
   General and administrative expenses paid ...........          (6,153)          (4,504)
                                                           ------------     ------------
      Net cash provided by operating activities .......          10,081            6,536

Cash Flows From Investing Activities
   Proceeds from sale of real estate ..................           4,409               --
   Real estate improvements ...........................          (2,956)          (3,247)
   Collections on notes receivable ....................           9,884               --
   Funding of notes receivable ........................         (15,893)          (1,485)
                                                           ------------     ------------
      Net cash (used in) investing activities .........          (4,556)          (4,732)

Cash Flows From Financing Activities
   Proceeds from notes payable ........................          24,885            8,116
   Payment of pension notes ...........................         (14,645)              --
   Payments on notes payable ..........................         (12,522)          (8,892)
   Payments from (to) affiliates, net .................              --             (235)
   Receipt from escrow ................................          12,423               --
   Distributions to unitholders .......................          (1,897)         (12,360)
   Deferred financing costs ...........................          (1,132)            (326)
   Exercise of warrants ...............................              20               --
   Repurchase of shares of limited partner interest ...              --             (954)
                                                           ------------     ------------
      Net cash provided by (used in) financing
         activities ...................................           7,132          (14,651)
                                                           ------------     ------------

      Net increase (decrease) in cash and cash
         equivalents ..................................          12,657          (12,847)
Cash and cash equivalents at beginning of period ......           5,872           20,699
                                                           ------------     ------------
Cash and cash equivalents at end of period ............    $     18,529     $      7,852
                                                           ============     ============

Reconciliation of net income (loss) to net cash
   provided by operating activities
Net income (loss) .....................................    $      5,293     $     (1,519)
   Adjustments to reconcile net income (loss) to
      net cash provided by operating activities
   Depreciation .......................................           7,726            7,629
   Gain on sale of real estate ........................          (5,654)
   Decrease in other assets ...........................           1,516              588
   (Increase) in interest receivable ..................            (167)             (35)
   Increase in interest payable .......................           1,588              299
   (Decrease) in other liabilities ....................            (221)            (426)
                                                           ------------     ------------
      Net cash provided by operating activities .......    $     10,081     $      6,536
                                                           ============     ============

Schedule of noncash financing activities
   Unrealized gain on marketable equity securities ....    $      1,284     $        391
</TABLE>


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

                                        6

<PAGE>   7



                              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, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996 (the "1996 Form 10-K").

NOTE 2. EARNINGS PER UNIT

Net income (loss) per unit of limited partner interest (per "unit") is computed
based upon the weighted average number of units outstanding during each period.
The limited partners of National Realty, L.P. ("National Realty") have a 99%
interest and the general partner, Syntek Asset Management, L.P. (the "General
Partner" or "SAMLP"), has an aggregate 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 National Operating, L.P. ("NOLP" or the "Operating
Partnership"), and the General Partner is allocated an aggregate 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, net income (loss) per unit is derived
by dividing 98.01% of the net income (loss) in each period by the respective
weighted average units of limited partner interest.

NOTE 3. NOTES RECEIVABLE

In January 1997, the Partnership funded a $1.2 million loan to Bordeaux
Investments Two, L.L.C. ("Bordeaux"). The loan is secured by (i) a 100% limited
partnership interest in Bordeaux, which owns a shopping center in Oklahoma City,
Oklahoma; (ii) 100% of the stock of Bordeaux Investments One, Inc., which owns
approximately 6.5 acres of undeveloped land in Oklahoma City, Oklahoma; and
(iii) the personal guarantees of the Bordeaux partners. The loan bears interest
at 14.0% per annum, requires monthly payments of interest only at 12.0% per
annum, with the deferred interest payable annually in December 1997 and 1998,
and matures in January 1999. The Partnership has the option to pay cash of
$50,000 or to reduce the principal balance of the loan by $50,000 in exchange
for 75% ownership of Bordeaux. In July, September and October 1997, a total of
an additional $80,000 was funded and the loan was modified, increasing the
principal balance to $1.3 million. The Partnership has committed to fund an
additional $185,000.




                                        7

<PAGE>   8



                              NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 3. NOTES RECEIVABLE (Continued)

In February 1997, the Partnership funded a third loan to JNC Enterprises, Inc.
("JNC") in the amount of $2.5 million. The loan was secured by a 70.87% limited
partner interest in a limited partnership which owns 250 acres of undeveloped
land in Fort Worth, Texas. The note bore interest at 12% per annum and required
quarterly payments of interest only. In March 1997, the Partnership funded an
additional $1.5 million and modified the loan by increasing the principal
balance to $4.0 million. At its October 1997 maturity the unpaid balance of the
loan was paid in full. In June 1997, the Partnership funded a fourth loan to JNC
in the amount of $2.5 million. In July 1997, an additional $1.0 million was
funded and the loan was modified, increasing the principal balance to $3.5
million. The loan is secured by 81.99 acres of undeveloped land in Frisco,
Texas. The loan bears interest at 16.0% per annum, requires monthly payments of
interest only and matures in June 1998.

Also in June 1997, the Partnership received $1.5 million from JNC, of which $1.0
million was applied to payoff the first loan to JNC funded in June 1996, at its
maturity, $416,000 was applied as a principal reduction payment on the third
loan, discussed above, and the remaining $84,000 was applied to accrued
interest. In July 1997, the Partnership received $2.0 million from JNC, which
was applied to the third loan as a principal reduction payment. In October 1997,
the Partnership received payment in full of the $2.0 million second loan to JNC
funded in November 1996.

In January 1997, the note receivable secured by the Nellis Bonanza Shopping
Center in Las Vegas, Nevada matured. In August 1997, the borrower paid the note
in full. The Partnership received net cash of $4.4 million after payoff of the
underlying note payable. As a result of the payment in full, the Partnership
recognized a deferred gain of $2.1 million from the Partnership's 1986 sale of
the property.

In April 1997, the Partnership funded a $1.5 million loan to Highway 544
Partners, L.P. ("Highway Partners"). The loan is secured by a first lien on
approximately 49 acres of undeveloped land in Plano, Texas, a pledge of 100% of
the partnership interest and the personal guarantee of the owner of Highway
Partner's general partner. The note receivable bears interest at 18% per annum,
requires quarterly interest only payments at 12% per annum, with the deferred
interest payable annually in April 1998 and 1999, and matures in April 1999.

In July 1997, the Partnership funded a $700,000 loan to an individual. The loan
is secured by a first lien on an oil, gas and mineral lease in Anderson County,
Texas and by a second lien on a ranch in Henderson County, Texas. The loan bears
interest at 12.0% per annum, requires monthly payments of interest only and
matures in March 1998.

Also in July 1997, the Partnership funded a $1.4 million loan to Avex Fund III,
Inc. The loan was secured by a first lien on 14.5 acres of



                                        8

<PAGE>   9



                              NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



NOTE 3. NOTES RECEIVABLE (Continued)

undeveloped land in Las Colinas, Texas. The loan bore interest at 12.0% per
annum, required monthly payments of interest only and matured in July 1999. The
loan was paid in full in August 1997.

In August 1997, the Partnership funded an $800,000 loan to Frisco Eldorado
Partners, L.L.C. The loan is secured by a first lien on 45 acres of undeveloped
land in Frisco, Texas. The loan bears interest at 15.0% per annum, requires
monthly payments of interest only and matures in August 1998. $250,000 of the
loan balance is guaranteed by the Frisco Economic Development Corporation.

Also in August 1997, the Partnership funded a $2.8 million loan to Dallas
Parkway Properties, Inc. The loan is secured by a first lien on an office
building in Addison, Texas. The loan bears interest at 14.0% per annum, requires
monthly payments of interest only and matures in August 1999. In conjunction
with the loan origination, the Partnership obtained financing secured by the
note receivable in the amount of $2.0 million. The loan bears interest at 9.4%
per annum, requires monthly payments of interest only and matures in August
1999.

NOTE 4. REAL ESTATE

In April 1997, the Partnership sold Tollhill East, a 81,115 square foot office
building in Dallas, Texas. The building was sold for $7.0 million in cash, the
Partnership receiving net cash of $4.6 million after the payoff of $2.4 million
in existing mortgage debt and the payment of various closing costs associated
with the sale. The Partnership paid Carmel Realty, Inc. ("Carmel Realty"), an
affiliate of the Partnership's General Partner, a real estate brokerage
commission of $209,000 based on the $7.0 million sales price of the property.
The Partnership recognized a gain of $3.6 million on the sale.

In June 1997, the Partnership sold the Fondren Building, a 47,808 square foot
office building in Houston, Texas, for $661,000 in cash. The Partnership
received net cash of $610,000 after the payment of various closing costs
associated with the sale of the property. The Partnership recognized no gain or
loss on the sale.

NOTE 5. NOTES PAYABLE

In April 1996, the mortgage debt secured by the Club Mar Apartments in Sarasota,
Florida was voluntarily placed into default to facilitate a request for debt
relief under the Housing and Urban Development ("HUD") Partial Payment of Claim
("PPC") program. The request was necessitated due to the negative impact of road
improvements in front of the property which have been ongoing since January
1995. The Partnership expects to successfully complete a restructuring of the
mortgage under the PPC program.




                                        9

<PAGE>   10



                              NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



NOTE 5. NOTES PAYABLE (Continued)

In April 1997, the Partnership modified and extended the mortgage secured by the
Cross County Mall in Mattoon, Illinois. In conjunction with the modification,
the Partnership made a principal reduction payment of $137,500. The modified and
extended mortgage bears interest at a variable rate, currently 10.4% per annum,
requires monthly payments of principal and interest of $72,671 and matures in
April 2002.

In June 1997, the Partnership refinanced the mortgage debt secured by the
Pheasant Ridge Apartments in Bellevue, Nebraska in the amount of $5.7 million.
The Partnership received net cash of $804,000 after the payoff of $4.6 million
in existing mortgage debt, the funding of escrows, and the payment of various
closing costs associated with the refinancing. The new mortgage bears interest
at 7.89% per annum, requires monthly payments of principal and interest of
$41,742 and matures in July 2007. The Partnership paid Basic Capital Management,
Inc. ("BCM"), an affiliate of the Partnership's General Partner, a mortgage
brokerage and equity refinancing fee of $57,000 based on the new $5.7 million
mortgage.

Also in June 1997, the Partnership refinanced the mortgage debt secured by the
Regency Apartments in Lincoln, Nebraska in the amount of $3.4 million. The
Partnership received net cash of $374,000 after the payoff of $2.5 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs associated with the refinancing. The new mortgage bears interest
at 7.89% per annum, requires monthly payments of principal and interest of
$24,577 and matures in July 1997. The Partnership paid BCM a mortgage brokerage
and equity refinancing fee of $34,000 based on the new $3.4 million mortgage.

As discussed in NOTE 3. "NOTES RECEIVABLE," the Partnership obtained a loan
secured by a note receivable in August 1997.

In September 1997, the Partnership obtained mortgage financing secured by four
previously unencumbered office buildings: 56 Expressway, an office building in
Oklahoma City, Oklahoma; Executive Court, an office building in Memphis,
Tennessee; Melrose Business Park, an office building in Oklahoma City, Oklahoma;
and University Square, an office building in Anchorage, Alaska; and by a
security interest in NOLP's 99.3% limited partnership interest in Garden
Capital, L.P., a Delaware limited partnership which owns 52 apartment properties
and one wraparound note receivable, in the amount of $15.0 million. The
Partnership received net cash of $14.7 million after the payment of various
closing costs associated with the sale. The mortgage bears interest at a
variable rate, requires monthly payments of interest only and matures in
September 1998. The Partnership paid BCM a mortgage brokerage and equity
refinancing fee of $150,000 based on the $15.0 million mortgage. The net
refinancing proceeds were used to pay the Pension Notes at their maturity. See
NOTE 6. "PENSION NOTES."



                                       10

<PAGE>   11



                              NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 6. PENSION NOTES

In connection with its formation, the Partnership issued $4.7 million of 8%
subordinated Pension Notes to certain investors in exchange for their interest
in the net assets of certain of the "rolled-up" partnerships. The Pension Notes
were unsecured, subordinated obligations of the Partnership and bore interest at
the rate of 8% compounded annually. Principal and interest were due at the
Pension Notes September 18, 1997 maturity. The Pension Notes and all accrued but
unpaid interest were paid at maturity.

NOTE 7. WARRANTS

Pursuant to the Moorman Settlement Agreement (as defined in NOTE 8. "LEGAL
PROCEEDINGS"), on February 14, 1992, the Partnership issued warrants to purchase
an aggregate of 2,019,579 of its units of limited partner interest subject to
adjustment. Each warrant initially entitled the holder thereof to purchase three
quarters of one unit at the exercise price of $11.00 per warrant. The initial
exercise price was equal to $14.67 per unit and increased to $16.00 per unit on
February 14, 1993. The warrants were exercisable for five years from the date of
issuance and expired on February 14, 1997. Prior to their expiration a total of
1,631 warrants were exercised for the purchase of 1,226 units.
See NOTE 9. "LEGAL PROCEEDINGS."

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

Moorman Settlement. The Partnership is party to a settlement agreement, dated as
of May 9, 1990, between plaintiffs Joseph B. Moorman, et al. and defendants
Robert A. McNeil, National Realty, the Operating Partnership, SAMLP, Gene E.
Phillips and William S. Friedman, and Shearson Lehman Hutton Inc.,
successor-in-interest to defendant E.F. Hutton & Company Inc., relating to the
action entitled Moorman, et al. v. Southmark Corporation, et al. Such action was
filed on September 2, 1987, in the Superior Court of the State of California,
County of San Mateo. On May 9, 1990, the Partnership agreed to settle such
action pursuant to the terms of a written agreement (the "Moorman Settlement
Agreement"). On June 29, 1990, after a hearing as to its fairness,
reasonableness and adequacy, the Moorman Settlement Agreement was granted final
court approval.

The Moorman Settlement Agreement is complex and the following summary is
qualified in its entirety by reference to the text thereof, which was




                                       11
<PAGE>   12



                             NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 9. LEGAL PROCEEDINGS (Continued)

previously included as an exhibit to the Partnership's Form 10-Q for the quarter
ended March 31, 1990, as filed with the Securities and Exchange Commission. The
Moorman Settlement Agreement provides for a plan (the "Moorman Settlement Plan")
consisting of, among other things, the following: (i) the appointment and
operation of a committee (the "Oversight Committee"), to oversee the
implementation of the Moorman Settlement Plan, (ii) the appointment and
operation of an audit committee having a majority of members unaffiliated with
Messrs. Phillips and Friedman or SAMLP, (iii) the establishment of specified
annually increasing targets described below (each a "Target") for each of the
next five years through May 1995, relating to the price of the units of limited
partner interest as decreased for certain distributions to unitholders, (iv) an
agreement by SAMLP not to seek reimbursement of greater than $500,000 per year
for Messrs. Phillips' and Friedman's salaries for serving as general partners of
SAMLP, (Mr. Friedman resigned as general partner of SAMLP effective March 4,
1994) and a deferral of such payments until such time as a Target may be met,
and, if SAMLP resigns as General Partner, a waiver of any compensation so
deferred, (v) a deferral until such time as a Target may be met of certain
future annual General Partner compensation payable, pursuant to the
Partnership's governing documents, to SAMLP or its affiliates, and, if SAMLP
resigns as General Partner, a waiver of any compensation so deferred, (vi) the
required distribution to unitholders of all the Partnership's operating cash
flow in excess of certain renovation costs, unless the Oversight Committee
approves alternative uses for such operating cash flow, (vii) the issuance of
Warrants to purchase an aggregate of up to 2,019,579 units (the "Warrants") to
Class Members, (viii) the contribution by certain co-defendants of cash and
notes payable to the Partnership aggregating $5.5 million (including $2.5
million to be contributed by SAMLP and its general partners over a four-year
period), (ix) the amendment of the Partnership Agreement to reduce the vote
required to remove the General Partner from a two-thirds vote to a majority vote
of the units, (x) the Partnership's redemption of its unit purchase rights and
an agreement not to adopt a similar rights plan without Oversight Committee
approval and (xi) the Partnership's payment of certain settlement costs,
including plaintiffs' attorneys' fees in the amount of $3.4 million. The Moorman
Settlement Plan remains in effect until SAMLP has resigned as General Partner
and a successor general partner is elected and takes office, and the Warrants
remained exercisable for five years from the date of issuance and expired on
February 14, 1997. Prior to their expiration a total of 1,631 Warrants were
exercised for the purchase of 1,226 units.

SAMLP, on behalf of itself and its general partners, has made the payments of
$2.5 million (including accrued interest), to the Partnership, as required by
the Moorman Settlement Agreement.

If Targets are not met for any two successive years of the Moorman Settlement
Plan or for the final year of the Moorman Settlement Plan, SAMLP will be
required to withdraw as General Partner effective at the




                                       12

<PAGE>   13



                              NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 9. LEGAL PROCEEDINGS (Continued)

time a successor general partner is elected. Upon, among other things, the
withdrawal of SAMLP as General Partner and the due election and taking office of
a successor, the Moorman Settlement Plan would terminate.

The Targets for the first and second anniversary dates were not met. Since the
Targets were not met for two successive years, the Moorman Settlement Agreement
requires that SAMLP resign as General Partner, effective upon the election and
qualification of its successor. On July 8, 1992, SAMLP notified the Oversight
Committee of the failure to meet the Target for two successive years.

Upon, among other things, the withdrawal of SAMLP as General Partner and the due
election and taking office of a successor, the Moorman Settlement Plan will
terminate. Withdrawal of SAMLP as General Partner pursuant to the Moorman
Settlement Agreement requires unitholders to elect a successor general partner
by majority vote. Upon the withdrawal or removal of the General Partner without
the selection of a successor, the Partnership would be dissolved.

The Moorman Settlement Agreement provides that between the date of the
certification causing the General Partner's resignation and the date a successor
general partner takes office, the resigning General Partner shall limit its
activities, as General Partner, to the conduct of the business of the
Partnership in the ordinary course, shall not, without consent of the Oversight
Committee, purchase or sell any real estate or other assets of the Partnership
not in progress on said date, shall cooperate in the election of a successor
general partner and shall cooperate with its successor to facilitate a change in
the office of General Partner of the Partnership. The resigning General Partner
will continue to receive fees, expenses and distributions, if any, while the
solicitation is prepared.

The withdrawal of the General Partner would require the Partnership to acquire
the General Partner's interest in the Partnership (the "Redeemable General
Partner Interest") at its then fair value, and to pay certain fees and other
compensation, as provided in the Partnership Agreement and the Moorman
Settlement Agreement. Under the Moorman Settlement Agreement, payment for such
Redeemable General Partner Interest, fees and other compensation may, at the
Oversight Committee's option, be paid over a three year period pursuant to a
secured promissory note bearing interest at the prime rate and containing
commercially reasonable terms and collateral. Under the Moorman Settlement Plan,
the purchase price for Redeemable General Partner Interest would be calculated,
as of the time SAMLP withdraws as General Partner under the Partnership's
governing documents. The Managing General Partner has calculated the Redeemable
General Partner Interest at December 31, 1996 to be $42.0 million, and believes
there has been no material change in such value since such date. The Partnership
would be entitled to offset against any such payment the then outstanding




                                       13

<PAGE>   14



                              NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 9. LEGAL PROCEEDINGS (Continued)

principal balance ($4.2 million at September 30, 1997) plus all accrued but
unpaid interest ($6.9 million at September 30, 1997) on the note receivable from
SAMLP for its capital contribution to the Partnership. In the accompanying
Consolidated Financial Statements, the Redeemable General Partner Interest is
shown as a reduction of Partners' Equity. The note receivable from the General
Partner has been offset against the Redeemable General Partner Interest. The
Oversight Committee previously has informed the Partnership that it calculated
the amount of such Redeemable General Partner Interest to be less than the
amount calculated by the Managing General Partner. When SAMLP withdraws as
General Partner of the Partnership, the value of the Redeemable General Partner
Interest would depend on the fair value of the Partnership's assets at the time
of calculation and there can be no assurance that the Redeemable General Partner
Interest, fees and other compensation payable on any such withdrawal will not be
substantially higher or lower than any current estimate or calculation.

On January 27, 1995, National Realty, SAMLP, the Oversight Committee and William
H. Elliott executed an Implementation Agreement which provided for the
nomination of an entity controlled by Mr. Elliott as successor general partner
and for the resolution of all related matters under the Moorman Settlement. On
February 20, 1996, the parties to the Implementation Agreement executed an
Amended and Restated Implementation Agreement.

On September 23, 1996, the Supervising Judge entered an order granting tentative
approval of the Amended and Restated Implementation Agreement and the form of
notice to be sent to the original class members. On April 7, 1997, the
Supervising Judge entered an order amending the September 23, 1996 order,
approving the formal notice and setting a hearing on the Implementation
Agreement for June 27, 1997. A notice was sent to all class members and
unitholders in April 1997 and the hearing was held on June 27, 1997. On
September 8, 1997, the Supervising Judge rendered a Statement of Decision in
which he declined to approve the Implementation Agreement.

If the successor general partner had been elected pursuant to the terms of the
Amended and Restated Implementation Agreement, SAMLP would have received
$12,471,500 from the Partnership. This amount represents a compromise settlement
of the net amounts owed by the Partnership to SAMLP upon SAMLP's withdrawal as
General Partner and any amounts which SAMLP and its affiliates may owe to the
Partnership. This amount would have been paid to SAMLP pursuant to a promissory
note in accordance with the terms set forth in the Amended and Restated
Implementation Agreement.

As a result of the Statement of Decision, the existing Moorman Settlement
Agreement shall remain in full force and effect and all of the provisions of the
Amended and Restated Implementation Agreement have




                                       14

<PAGE>   15



                              NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



NOTE 9. LEGAL PROCEEDINGS (Continued)

been voided. SAMLP and the Oversight Committee are considering alternative
methods to implement the election of a successor general partner as required
under the Moorman Settlement Agreement.

On September 26, 1997, one of the original Moorman litigation defendants, Robert
A. McNeil, filed motions to (i) be installed as receiver for the Partnership and
(ii) disband the Oversight Committee. As of November 4, 1997, a hearing on the
motions had not been set.

Other. The Partnership is involved in various lawsuits arising in the ordinary
course of business. Management of the Partnership is of the opinion that the
outcome of these lawsuits would have no material impact on the Partnership's
financial condition.

NOTE 10. SUBSEQUENT EVENTS

In October 1997, the Partnership funded a $1.7 million loan to Preston/Lomo
Alto, L.L.C. The loan is secured by a pledge of the partnership interests in two
partnerships which own two office buildings in Dallas and Plano, Texas. The
owner of the borrower personally guaranteed the loan. The loan bears interest at
12.0% per annum, requires monthly payments of interest only and matures in
November 1999.

Also in October 1997, the Partnership refinanced the mortgage debt secured by
the Brookview Apartments in Smyrna, Georgia in the amount of $4.0 million. The
Partnership received net cash of $837,000 after the payoff of $2.9 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs associated with the refinancing. The new mortgage bears interest
at 7.50% per annum, requires monthly payments of principal and interest of
$27,969 and matures in November 2007. The Partnership paid BCM a mortgage
brokerage and equity refinancing fee of $40,000 based on the new $4.0 million
mortgage.

Further in October 1997, the Partnership funded a $400,000 loan to Stratford &
Graham Developers, L.L.C. The loan is secured by an assignment of a contract to
purchase 1,485 acres of undeveloped land in Riverside County, California. The
parent company of the borrower is guaranteeing the loan. The loan bears interest
at 15.0% per annum and matures in November 1996. At maturity, the Partnership
has committed to advance the borrower a total of $3.8 million including
principal and accrued but unpaid interest on the original loan. Terms on the
second loan are still in negotiation.




                     [THIS SPACE INTENTIONALLY LEFT BLANK.]



                                       15

<PAGE>   16



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

Introduction

National Realty, L.P. ("National Realty") is a Delaware limited partnership
formed on January 29, 1987, the business of which consists primarily of owning
and operating through National Operating, L.P., also a Delaware limited
partnership (the "Operating Partnership"), a portfolio of real estate. 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. National Realty and the Operating Partnership operate as an
economic unit and, unless the context otherwise requires, all references herein
to the "Partnership" shall constitute references to National Realty and the
Operating Partnership as a unit.

In November 1992, the Operating Partnership, in conjunction with a refinancing
of 52 of its apartment properties and a wraparound note receivable, transferred
such assets to Garden Capital, L.P. ("GCLP"), a Delaware limited partnership in
which the Operating Partnership holds a 99.3% limited partner interest.

Liquidity and Capital Resources

Cash and cash equivalents aggregated $18.5 million at September 30, 1997
compared to $5.9 million at December 31, 1996. The principal reasons for this
increase in cash are discussed in the paragraphs below.

The Managing General Partner of the Partnership's 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, 1997, the aggregate
loan-to-value ratio of the Partnership's real estate portfolio was 47.2%,
computed on the basis of the ratio of total property-related debt to aggregate
appraised values as of September 30, 1997, as compared with a loan-to-value
ratio of 44.6% at December 31, 1996.

The Partnership's principal sources of cash flow have been and will continue to
be from property operations and externally generated funds. Externally generated
funds include borrowings, proceeds from the sale of Partnership properties and
other assets and proceeds from the issuance of debt secured by Partnership
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 in 1997,
including, but not limited to the payment of distributions, debt service
obligations coming due and property maintenance and improvements, as more fully
discussed in the paragraphs below.

In November 1992, in conjunction with the transfer of the net assets of
52 apartment complexes and a wraparound note receivable to GCLP, such
assets were refinanced under a $223 million blanket mortgage loan.  The




                                       16

<PAGE>   17



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


Liquidity and Capital Resources (Continued)

blanket mortgage loan requires that cash flow from the GCLP properties be used
to fund various escrow and reserve accounts and limits the payment of
distributions to the Partnership. During the three and nine months ended
September 30, 1997, the Partnership received distributions from GCLP totaling
$940,000 and $2.9 million (excluding proceeds from the released credit
enhancement escrow, as described below), compared to distributions totaling
$250,000 and $800,000 received during the three and nine months ended September
30, 1996.

In January 1997, GCLP replaced the credit enhancement escrow with a $18.5
million letter of credit provided by a financial institution. The letter of
credit is for a term of not less than two years and may be drawn upon to pay
operating shortfalls of GCLP's properties. The available amount under the letter
of credit will be reduced by the amount of each draw on the letter of credit.
The Partnership received net cash of $11.3 million from the released credit
enhancement escrow, after the payment of various costs associated with the
letter of credit.

In January 1997, the Partnership funded a $1.2 million loan to Bordeaux
Investments Two, L.L.C. ("Bordeaux"). The loan is secured by (i) a 100% limited
partnership interest in Bordeaux, which owns a shopping center in Oklahoma City,
Oklahoma; (ii) 100% of the stock of Bordeaux Investments One, Inc., which owns
approximately 6.5 acres of undeveloped land in Oklahoma City, Oklahoma; and
(iii) the personal guarantees of the Bordeaux partners. In July, September and
October 1997, an additional $80,000 was funded and the loan was modified,
increasing the principal balance to $1.3 million. The Partnership has committed
to fund an additional $185,000.

In February 1997, the Partnership funded a third loan to JNC Enterprises, Ltd.
("JNC") in the amount of $2.5 million. This loan was secured by a 70.87% limited
partner interest in a limited partnership which owns 250 acres of undeveloped
land in Fort Worth, Texas. In March 1997, the Partnership funded an additional
$1.5 million increasing the loan's principal balance to $4.0 million. At its
October 1997 maturity, the loan was paid in full. In June 1997, the Partnership
funded a fourth loan to JNC in the amount of $2.5 million. The loan is secured
by 81.99 acres of undeveloped land in Frisco, Texas. In July 1997, an additional
$1.0 million was funded and the loan was modified increasing the principal
balance to $3.5 million.

In June 1997, the Partnership received $1.5 million from JNC, of which $1.0
million was applied to payoff the first loan to JNC funded in June 1996, at
maturity, $416,000 was applied as a principal reduction payment on the third
loan, discussed above, and the remaining $84,000 was applied to accrued
interest. In July 1997, the Partnership received $2.0 million from JNC, which
was applied to the third loan as a principal reduction payment. In October 1997,
the Partnership received $2.0 million from JNC as payment in full of the second
loan to JNC funded in November 1996.




                                       17

<PAGE>   18



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


Liquidity and Capital Resources (Continued)

In April 1997, the Partnership funded a $1.5 million loan to Highway 544
Partners, L.P. ("Highway Partners"). The loan is secured by a first lien on
approximately 49 acres of undeveloped land in Plano, Texas, 100% of the
partnership interests in Highway Partners and the personal guarantee of the
owner of the general partner of Highway Partners.

In April 1997, the Partnership modified and extended the mortgage secured by the
Cross County Mall in Mattoon, Illinois. In conjunction with the modification,
the Partnership made a principal reduction payment of $137,500.

Also in April 1997, the Partnership sold Tollhill East, an office building in
Dallas, Texas, for $7.0 million in cash. The Partnership received net cash of
$4.6 million after the payoff of $2.4 million in existing mortgage debt and the
payment of various closing costs associated with the sale.

Also in June 1997, the Partnership sold the Fondren Building, an office building
in Houston, Texas. The office building was sold for $661,000 in cash, the
Partnership receiving net cash of $610,000 after the payment of various closing
costs associated with the sale of the property.

Also in June 1997, the Partnership refinanced the mortgage debt secured by the
Pheasant Ridge Apartments in Bellevue, Nebraska in the amount of $5.7 million.
The Partnership received net cash of $804,000 after the payoff of $4.6 million
in existing mortgage debt, the funding of escrows, and the payment of various
closing costs associated with the financing.

Also in June 1997, the Partnership refinanced the mortgage debt secured by the
Regency Apartments in Lincoln, Nebraska in the amount of $3.4 million. The
Partnership received net cash of $374,000 after the payoff of $2.5 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs associated with the financing.

In July 1997, the Partnership funded a $700,000 loan to an individual. The loan
is secured by a first lien on an oil, gas and mineral lease in Anderson County,
Texas and by a second lien on a ranch in Henderson County, Texas.

Also in July 1997, the Partnership funded a $1.4 million loan to Avex Fund III,
Inc. The loan was secured by a first lien on 14.5 acres of undeveloped land in
Las Colinas, Texas. The loan was paid in full in August 1997.

In August 1997, the Partnership received payment in full of a note receivable
which had matured. The Partnership received $4.4 million in net cash after the
payment of the underlying note payable.




                                       18

<PAGE>   19



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

Liquidity and Capital Resources (Continued)

Also in August 1997, the Partnership funded an $800,000 loan to Frisco Eldorado
Partners, L.L.C. The loan is secured by a first lien on 45 acres of undeveloped
land in Frisco, Texas.

Also in August 1997, the Partnership funded a $2.8 million loan to Dallas
Parkway Properties, Inc. The loan is secured by an office building in Addison,
Texas. In conjunction with this funding, the Partnership obtained $2.0 million
of financing secured by the loan.

In September 1997, the Pension Notes matured. The Partnership obtained a $15.0
million loan and paid the Pension Notes in full. The loan is secured by four
office buildings in Oklahoma, Tennessee and Texas and a security interest in
NOLP's limited partnership interest in GCLP, bears interest at a variable rate,
requires payments of interest only and matures in September 1998.

In October 1997, the Partnership funded a $1.7 million loan to Preston/Lomo
Alto, L.L.C. The loan is secured by a pledge of the partnership interests in two
partnerships which own two office buildings in Dallas and Plano, Texas. The
owner of the borrower personally guaranteed the loan.

Also in October 1997, the Partnership refinanced the mortgage debt secured by
the Brookview Apartments in Smyrna, Georgia in the amount of $4.0 million. The
Partnership received net cash of $837,000 after the payoff of $2.9 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs associated with the refinancing.

Further in October 1997, the Partnership funded a $400,000 loan to Stratford
Graham Developers, L.L.C. The loan is secured by an assignment of a contract to
purchase 1,485 acres of undeveloped land in Riverside County, California. The
parent company of the borrower is guaranteeing the loan. At maturity, the
Partnership has committed to advance the borrower a total of $3.8 million
including principal and accrued but unpaid interest on the original loan.

In the first nine months of 1997, the Partnership declared and paid quarterly
distributions aggregating $.30 per unit, or a total of $1.9 million.

The Partnership's net cash flow from property operations (rents collected less
payments for property operating expenses) increased from $9.8 million and $30.9
million for the three and nine months ended September 30, 1996 to $11.0 million
and $34.9 million for the three and nine months ended September 30, 1997. This
increase is primarily due to increased rental rates at the Partnership's
apartment and commercial properties.

As discussed in NOTE 9. "LEGAL PROCEEDINGS," the Moorman litigation
settlement agreement (the "Moorman Settlement Agreement") sets forth




                                       19

<PAGE>   20



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

Liquidity and Capital Resources (Continued)

certain aggressive, annually increasing targets relating to the price of the
Partnership's units of limited partner interest which were not met, resulting
in, among other things, the required withdrawal of the General Partner upon
election of a successor and the resulting required purchase of the Redeemable
General Partner Interest, as defined below.

The withdrawal of the General Partner requires the Partnership to acquire the
General Partner's interest in the Partnership (the "Redeemable General Partner
Interest") at its then fair value, and to pay certain fees and other
compensation, as provided in the Partnership Agreement and the Moorman
Settlement Agreement. The Moorman Settlement Agreement provides that any payment
for such Redeemable General Partner Interest, fees and other compensation during
the pendency of the Moorman Settlement Agreement may, at the option of the
Oversight Committee (also established under the Moorman Settlement Agreement),
be made over three years pursuant to a secured promissory note bearing interest
at a financial institution's prime rate. The Managing General Partner has
calculated the fair value of the Redeemable General Partner Interest at December
31, 1996 to be $42.0 million, and believes that there has been no material
change in such value since that date. The Partnership would be entitled to
offset against such payment the then outstanding principal balance of the note
receivable ($4.2 million at September 30, 1997) plus all accrued and unpaid
interest ($6.9 million at September 30, 1997) on the note receivable from the
General Partner representing its capital contribution to the Partnership. When
Syntek Asset Management, L.P. ("SAMLP") withdraws as General Partner of the
Partnership, the fair value of the Redeemable General Partner Interest would
depend on the value of the Partnership's assets at the time of calculation and
there can be no assurance that the Redeemable General Partner Interest, fees and
other compensation payable on any such withdrawal will not be substantially
higher or lower than any current estimate or calculation.

In the accompanying Consolidated Balance Sheets, the Redeemable General Partner
Interest is shown as a reduction in Partners' Equity and the note receivable
from the General Partner has been offset against the Redeemable General Partner
Interest.

On January 27, 1995, National Realty, SAMLP, the Oversight Committee and William
H. Elliott executed an Implementation Agreement which provided for the
nomination of a successor general partner and for the resolution of all related
matters under the Moorman Settlement. On February 20, 1996, the parties to the
Implementation Agreement executed an Amended and Restated Implementation
Agreement.

On September 23, 1996, the Supervising Judge entered an order granting tentative
approval of the Amended and Restated Implementation Agreement and the form of
notice to be sent to the original class members. On April 7, 1997, the
Supervising Judge entered an order amending the September 23, 1996 order,
approving the formal notice and setting a hearing on the Implementation
Agreement for June 27, 1997. A notice was




                                       20

<PAGE>   21



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


Liquidity and Capital Resources (Continued)

sent to all class members and unitholders in April 1997 and the hearing was held
on June 27, 1997. On September 8, 1997, the Supervising Judge rendered a
Statement of Decision in which he declined to approve the Implementation
Agreement.

If the successor general partner had been elected pursuant to the terms of the
Amended and Restated Implementation Agreement, SAMLP would have received
$12,471,500 from the Partnership. This amount represents a compromise settlement
of the net amounts owed by the Partnership to SAMLP upon SAMLP's withdrawal as
General Partner and any amounts which SAMLP and its affiliates may owe to the
Partnership. This amount would have been paid to SAMLP pursuant to a promissory
note in accordance with the terms set forth in the Amended and Restated
Implementation Agreement.

As a result of the Statement of Decision, the existing Moorman Settlement
Agreement shall remain in full force and effect and all of the provisions of the
Amended and Restated Implementation Agreement have been voided. SAMLP and the
Oversight Committee are considering alternative methods to implement the
election of a successor general partner required under the Moorman Settlement
Agreement.

On September 26, 1997, one of the original Moorman litigation defendants, Robert
A. McNeil, filed motions to (i) be installed as receiver for the Partnership and
(ii) disband the Oversight Committee. As of November 4, 1997, a hearing on the
motions had not been set.

The outcome of this matter cannot presently be determined and the consolidated
financial statements do not include any adjustments that might result from the
outcome of this matter.

Results of Operations

The Partnership reported net income of $2.2 million and $5.3 million including
gains on sale of real estate of $2.1 million and $5.7 million for the three and
nine months ended September 30, 1997 as compared to a net loss of $673,000 and
$1.5 million for the three and nine months ended September 30, 1996. The primary
factors contributing to the Partnership's improvement in operating results are
discussed in the following paragraphs.

Rents increased to $28.3 million and $83.9 million for the three and nine months
ended September 30, 1997 from $27.6 million and $81.8 million for the three and
nine months ended September 30, 1996. This increase is primarily due to
increased rental and occupancy rates at the Partnership's apartments and
commercial properties. This is partially offset by decreases of $246,000 and
$484,000 due to the sale of two commercial properties in 1997. Rents are
expected to continue to increase during the remainder of 1997.





                                       21

<PAGE>   22



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

Results of Operations (Continued)

Interest income increased to $1.5 million and $3.3 million for the three and
nine months ended September 30, 1997 from $840,000 and $2.4 million for the
three and nine months ended September 30, 1996. This increase is attributable to
loans funded in 1996 and 1997. Interest income for the remainder of 1997 is
expected to be comparable to that of the third quarter.

Interest expense, depreciation, property taxes and insurance, utilities,
property level payroll, repairs and maintenance, other property operation
expenses, property management fees and general and administrative expenses for
1997 all approximated those for 1996.

For the three and nine months ended September 30, 1997, the Partnership
recognized a previously deferred gain on the sale of the Nellis Bonanza Shopping
Center of $2.1 million on the payoff of a note receivable secured by the
property. See NOTE 3. "NOTES RECEIVABLE." For the nine months ended September
30, 1997, the Partnership also recognized an additional gain on the sale of real
estate of $3.6 million from the April 1997 sale of the Tollhill East Office
Building. See NOTE 4. "REAL ESTATE." No such gains were recognized in 1996.

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. In December 1987, Congress passed
legislation requiring certain publicly traded partnerships to be taxed as
corporations. National Realty qualifies for "grandfather" treatment and will be
treated as a partnership until at least 1997, unless the Partnership adds a
substantial new line of business, which would require approval of the Oversight
Committee, and will continue to be so treated thereafter if 90% or more of its
gross income consists of qualifying income from real estate activities. As
presently operated, the Partnership meets these requirements. 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 property operations generally 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,
correspondingly, the ultimate gains to be realized by the Partnership from
property sales. To the extent that inflation affects interest rates, the
Partnership's earnings from short-term investments and the cost of new
borrowings as well as the cost of its variable rate borrowings will be affected.




                                       22

<PAGE>   23



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

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.


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

                           PART II - OTHER INFORMATION


ITEM 1.        LEGAL PROCEEDINGS


See NOTE 9. "LEGAL PROCEEDINGS - Moorman Settlement," of NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS in PART I for information relating to legal proceedings.


ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K


(a)     Exhibits:


Exhibit
Number                Description
-------            -----------------
 11.0         Computation of Earnings Per Unit

 27.0         Financial Data Schedule


(b)     Reports on Form 8-K:

        None.




                                       23

<PAGE>   24



                              NATIONAL REALTY, L.P.


                                 Signature Page




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.


                                                NATIONAL REALTY, L.P.

                                                By its General Partner:

                                                SYNTEK ASSET MANAGEMENT, L.P.

                                                By its General Partners:

                                                SYNTEK ASSET MANAGEMENT, INC.






Date:    November 7, 1997                     By:  /s/ Randall M. Paulson
     ------------------------                    ------------------------------
                                                 Randall M. Paulson
                                                 Director and President







Date:    November 7, 1997                     By:  /s/ Thomas A. Holland
     ------------------------                    ------------------------------
                                                 Thomas A. Holland
                                                 Executive Vice President and
                                                 Chief Financial Officer
                                                 (Principal Financial and
                                                  Accounting Officer)






Date:    November 7, 1997                     By:  /s/ Gene E. Phillips
     ------------------------                    ------------------------------
                                                 Gene E. Phillips
                                                 General Partner
                                                 Syntek Asset Management, L.P.




                                       24

<PAGE>   25



                              NATIONAL REALTY, L.P.

                                   EXHIBITS TO

                          QUARTERLY REPORT ON FORM 10-Q

                    For the Quarter ended September 30, 1997



<TABLE>
<CAPTION>
Exhibit                                                    
Number                      Description                    
-------                     -----------                    

   <S>             <C>                                     
   11.0            Computation of Earnings Per Unit        
                                                     
   27.0            Financial Data Schedule                 
</TABLE>