United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549


                                    FORM 10-Q

[X]     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the Quarterly Period Ended March 31, 1998

                                       or

 [ ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934, for the Transition Period From to
                             ----------- -----------

             Commission file number                 333-50139
                                           ----------------------

                               PRIME RETAIL, L.P.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Delaware                                            52-1844882
------------------------------------          ----------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
  incorporation or organization)


               100 East Pratt Street
               Nineteenth Floor
               Baltimore, Maryland                            21202
-----------------------------------------          -----------------------------
(Address of principal executive offices)                     (Zip Code)


                                 (410) 234-0782
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
--------------------------------------------------------------------------------
(Former name, former address, or former fiscal year, if changed since last
 report)

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  periods that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes   X           No
     ----            ------

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

As of June 22, 1998, the issuer had outstanding 53,929,494, Common Units.


<PAGE>


                               Prime Retail, L.P.
                                    Form 10-Q


                                      INDEX





PART I:  FINANCIAL INFORMATION                                              PAGE


Item 1.  Financial Statements (Unaudited)

     Consolidated Balance Sheets as of March 31, 1998 and December 31,1997     1

     Consolidated Statements of Operations for the three months ended 
     March 31, 1998 and 1997                                                   2

     Consolidated Statements of Cash Flows for the three months ended 
     March 31, 1998 and 1997                                                   3

     Notes to the Consolidated Financial Statements                            4

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                 7


PART II:  OTHER INFORMATION
Item 1.  Legal Proceedings                                                    18
Item 2.  Changes in Securities                                                18
Item 3.  Defaults Upon Senior Securities                                      18
Item 4.  Submission of Matters to a Vote of Security Holders                  18
Item 5.  Other Information                                                    18
Item 6.  Exhibits or Reports on Form 8-K                                      18

Signatures                                                                    19





                                       
<PAGE>

PART I:  FINANCIAL INFORMATION
Item 1.    Financial Statements (Unaudited)
<TABLE>
                               Prime Retail, L.P.
                           Consolidated Balance Sheets
                     (in thousands, except unit information)

<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                           March 31, 1998       December 31, 1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                   <C>    
Assets
Investment in rental property:
      Land                                                                       $  66,277             $   66,277
      Buildings and improvements                                                   781,583                779,191
      Property under development                                                    76,403                 53,139
      Furniture and equipment                                                        6,101                  5,911
                                                                                  ---------               -------
                                                                                   930,364                904,518
      Accumulated depreciation                                                     (89,425)               (82,016)
                                                                                  ---------               ------- 
                                                                                   840,939                822,502
Cash and cash equivalents                                                              126                  6,277
Restricted cash                                                                     27,936                 41,736
Accounts receivable, net                                                             9,328                  9,745
Deferred charges, net                                                               13,670                 16,206
Due from affiliates, net                                                            11,010                  9,982
Investment in partnerships                                                           3,921                  3,278
Other assets                                                                         3,081                  2,108
                                                                                  ---------               -------
              Total assets                                                        $910,011               $911,834
                                                                                  =========               =======

Liabilities, Minority Interests, Redeemable Equity
    and Partners' Capital (Deficit)
Bonds payable                                                                    $  32,900               $132,900
Notes payable                                                                      492,874                482,365
Accrued interest payable                                                             3,884                  3,767
Real estate taxes payable                                                            5,996                  4,639
Construction costs payable                                                           5,958                  5,849
Accrued distributions payable                                                       14,942                      -
Accounts payable and other liabilities                                              11,710                 19,022
                                                                                 ---------                -------
       Total liabilities                                                           568,264                548,542

Minority interests                                                                   3,878                  3,911

Redeemable equity:
       Series A Senior Cumulative Preferred Units,
         2,300,000 units issued and outstanding                                     59,216                 60,525
       Series B Cumulative Participating Convertible Preferred Units,
         2,981,800 units issued and outstanding                                     77,751                 78,949
       Series C Cumulative Participating Convertible Redeemable
         Preferred Units, 4,363,636 units issued and outstanding                    59,432                 60,000
                                                                                 ---------                -------
     Total redeemable equity                                                       196,399                199,474
                                                                                 ---------                -------
Partners' capital (deficit):
       General partner                                                             252,050                269,239
       Limited partners                                                           (110,580)              (109,332)
                                                                                 ---------               -------- 
     Total  partners' capital (deficit)                                            141,470                159,907
                                                                                 ---------               --------
     Total liabilities, minority interests, redeemable equity and
         partners' capital (deficit)                                              $910,011               $911,834
                                                                                 =========               ========
====================================================================================================================================

See accompanying notes to financial statements.
</TABLE>
                                       

<PAGE>
<TABLE>

                               Prime Retail, L.P.
                      Consolidated Statements of Operations
                  (in thousands, except per share information)


<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31,                                                                1998                      1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                     <C>    
Revenues
Base rents                                                                             $ 23,104                   $18,066
Percentage rents                                                                            865                       669
Tenant reimbursements                                                                    10,743                     8,949
Interest and other                                                                        2,704                     2,478
                                                                                       --------                    ------
    Total revenues                                                                       37,416                    30,162
Expenses
Property operating                                                                        8,353                     6,633
Real estate taxes                                                                         2,856                     2,390
Depreciation and amortization                                                             7,791                     6,326
Corporate general and administrative                                                      1,423                     1,114
Interest                                                                                  8,374                     9,169
Other charges                                                                               582                       799
                                                                                       --------                    ------
    Total expenses                                                                       29,379                    26,431
                                                                                       --------                    ------
Income before minority interests                                                          8,037                     3,731
Income allocated to minority interests                                                       47                        30
                                                                                       --------                    ------
Net income                                                                                7,990                     3,701
Income allocated to preferred unitholders                                                 4,381                     3,093
Adjustment to reflect redeemable equity at redemption value                                 586                       576
                                                                                       --------                    ------
Net income applicable to common units                                                  $  3,023                    $   32
                                                                                       =========                   ======
Earnings per common unit:
       General partner                                                                 $   0.08                    $ 0.00
                                                                                       =========                   ======
       Limited partners                                                                $   0.08                    $ 0.00
                                                                                       =========                   ======
Net income applicable to common units:
       General partner                                                                 $  2,305                    $   20
       Limited partners                                                                     718                        12
                                                                                       ---------                   ------
          Total                                                                        $  3,023                    $   32
                                                                                       ========                    ======
Weighted average common units outstanding:
       General partner                                                                   27,295                    14,344
       Limited partners                                                                   8,505                     8,505
                                                                                       --------                    ------
          Total                                                                          35,800                    22,849
                                                                                       ========                    ======
Distributions declared per common unit:
       General partner                                                                 $  0.295                    $0.295
                                                                                       ========                    ======
       Limited partners                                                                $  0.295                    $0.295
                                                                                       ========                    ======
====================================================================================================================================
See accompanying notes to financial statements.

</TABLE>



                                       


<PAGE>
<TABLE>

                               Prime Retail, L.P.
                      Consolidated Statements of Cash Flows
                                 (in thousands)
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31,                                                                     1998                1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                <C>    

Operating Activities
Net income                                                                                    $ 7,990             $ 3,701
Adjustments to reconcile net income to
   net cash provided by operating activities:
       Income allocated to minority interests                                                      47                  30
       Depreciation                                                                             7,479               5,912
       Amortization of deferred financing costs and
         interest rate protection contracts                                                       509                 944
       Amortization of leasing commissions                                                        312                 414
       Provision for uncollectible accounts receivable                                            306                 253
Changes in operating assets and liabilities:
       (Increase) decrease in accounts receivable                                                 111              (1,200)
         Increase in due from affiliates, net                                                  (1,028)                (59)
       (Increase) decrease in all other assets                                                 13,469              (1,756)
         Increase in accrued interest                                                             117                 308
         Decrease in accounts payable and other liabilities                                    (4,155)               (940)
                                                                                              -------             -------
         Net cash provided by operating activities                                             25,157               7,607

Investing Activities
Purchase of buildings and improvements                                                         (3,937)             (4,770)
Increase in property under development                                                        (23,155)             (5,107)
Acquisition of outlet centers                                                                      -              (37,658)
                                                                                              -------             -------
         Cash used in investing activities                                                    (27,092)            (47,535)

Financing Activities Contributions from general partner:
   Common units                                                                                     -              28,130
   Series B preferred units                                                                         -               3,800
Proceeds from notes payable                                                                    32,611              58,215
Principal repayments on notes payable                                                         (22,102)            (23,329)
Deferred financing fees                                                                           (85)               (522)
Distributions paid                                                                            (14,560)            (10,126)
Distributions to minority interests                                                               (80)                (82)
                                                                                              -------            --------
         Net cash provided by (used in) financing activities                                   (4,216)             56,086
                                                                                              -------            --------
Increase (decrease) in cash and cash equivalents                                               (6,151)             16,158
Cash and cash equivalents at beginning of period                                                6,277               3,924
                                                                                              -------            --------
Cash and cash equivalents at end of period                                                    $   126             $20,082
                                                                                              =======             =======

Supplemental disclosure of noncash financing activity:
    Adjustment to reflect redeemable equity at
       redemption value                                                                       $   586             $   576
                                                                                              =======             =======  

===================================================================================================================================
See accompanying notes to financial statements.
                                                            
</TABLE>

                                      

<PAGE>


                               Prime Retail, L.P.
                   Notes to Consolidated Financial Statements
            (Amounts in thousands, except share and unit information)


Note 1 -- Interim Financial Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial  information  and 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 GAAP for complete financial statements.  In the opinion of
management,  all adjustments  consisting only of recurring  accruals  considered
necessary for a fair presentation have been included. Operating results for such
interim  periods are not  necessarily  indicative  of the  results  which may be
expected  for a  full  fiscal  year.  For  further  information,  refer  to  the
consolidated  financial statements and footnotes included in Prime Retail L.P.'s
(the "Partnership")  Registration Statement on Form S-4 (File No. 333-50139) for
the year ended December 31, 1997.

Unless the context requires otherwise,  all references to the Partnership herein
mean Prime Retail,  L.P. and those entities owned or controlled by Prime Retail,
L.P.  The  consolidated   financial  statements  include  the  accounts  of  the
Partnership,  the  Operating  Partnership  and the  partnerships  in  which  the
Partnership  has  operational  control.  Profits  and  losses are  allocated  in
accordance  with the  terms  of the  agreement  of  limited  partnership  of the
Operating Partnership. Investments in partnerships in which the Partnership does
not have  operational  control  are  accounted  for under the  equity  method of
accounting.  Income (loss) applicable to minority  interests and common units as
presented in the  consolidated  statements of  operations is allocated  based on
income  (loss) before  minority  interests  after income  allocated to preferred
unitholders.

The  preparation  of  financial  statements  in  conformity  with GAAP  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.   Significant   intercompany  accounts  and  transactions  have  been
eliminated in consolidation.  Certain prior year financial statement amounts and
related footnote  information have been reclassified to conform with the current
year presentation.

Note 2 -- Merger Agreement

On  November  12, 1997 and as amended on  February  1, 1998,  the  Partnership's
General  Partner  entered into a definitive  merger  agreement (as amended,  the
"Merger  Agreement")  with  Horizon  Group,  Inc.  ("Horizon")  for an aggregate
consideration of approximately $945,200, including the assumption of $556,900 of
Horizon debt and transaction  costs.  The merger was completed on June 15, 1998.
As of June 15,  1998,  the  Partnership  owned and  operated  49 outlet  centers
totaling approximately 13,700,000 square feet of gross leasable area ("GLA").

Under  the terms of the  Merger  Agreement,  the  General  Partner  paid a fixed
exchange  ratio of 0.20 of a share of 8.5%  Series  B  Cumulative  Participating
Convertible  Preferred Stock ("Series B Convertible  Preferred Stock") and 0.597
of a share of  Common  Stock  for each  share of  common  stock of  Horizon.  In
addition, each common unit in Horizon Partnership entitled the holder to receive
0.9193 of a Common Unit of the Partnership  that will be exchangeable for a like
number of shares of Common Stock of the General Partner.
                                      
<PAGE>

Immediately prior to the merger,  Horizon's operating partnership,  Horizon Glen
Outlet Centers Limited Partnership  ("Horizon  Partnership"),  contributed 13 of
its 35  centers  to  Horizon  Group  Properties,  L.P.  of which  Horizon  Group
Properties,  Inc. ("HGP"), a subsidiary of Horizon, is the sole general partner.
Immediately after the merger, all of the common equity of HGP was distributed to
the convertible preferred and common shareholders and unitholders of the General
Partner of the Partnership and the  shareholders and limited partners of Horizon
based on their ownership in the General  Partner of the Partnership  immediately
following the merger. One share of common stock of HGP was distributed for every
20  shares  of  Common  Stock or  Common  Units of the  General  Partner  of the
Partnership,  and that  approximately  1.196  shares of common  stock of HGP was
distributed for every 20 shares of Series B Convertible  Preferred Stock held in
the General Partner of the  Partnership.  Upon  consummation of the merger,  the
General Partner of the Partnership paid a special cash distribution of $0.60 per
share of Series B Convertible Preferred Stock and $0.50 per share/unit of Common
Stock,  Series  C  Cumulative  Participating  Convertible  Redeemable  Preferred
Stock/Unit  ("Series C Preferred  Security")  and Common  Unit,  as  applicable.
Shareholders  and  limited  partners  in  Horizon  did not  participate  in this
distribution. HGP owns and operates 15 outlet centers (including Indiana Factory
Shops and Nebraska Crossing Factory Stores,  collectively the "Prime Transferred
Properties",  which  was  acquired  from the  Partnership  as  discussed  below)
totaling approximately 3,100,000 square feet of GLA.

In connection  with the closing of the merger,  the  Partnership  sold the Prime
Transferred  Properties to HGP for an aggregate  consideration  of approximately
$26,000 resulting in a loss of approximately $15,000.

The merger was  accounted  for as a purchase.  The exchange of shares of Horizon
for shares of the General Partner of the Partnership was made on a tax-free
basis.

On December 10, 1997, a shareholder  of Horizon  filed a purported  class action
lawsuit in the Circuit Court for Muskegon County, Michigan (the "Court") against
Horizon,  the General  Partner of the  Partnership,  and certain  directors  and
former directors of Horizon.  The substantive  allegations  claim that Horizon's
directors breached their fiduciary duties to Horizon's shareholders in approving
the merger of Horizon and the General  Partner of the  Partnership  and that the
consideration to be paid to Horizon's shareholders in connection with the merger
is unfair and inadequate.  The lawsuit requests that such merger be enjoined or,
in the event that the purported transaction is consummated, that it be rescinded
or damages be awarded to the class members.  On January 16, 1998, the defendants
answered the  complaint,  denying that the Horizon  board of directors  breached
their  fiduciary  duties  and  denying  that  such  consideration  is  unfair or
inadequate.  On May 4, 1998,  counsel for the parties  appeared before the Court
for the purpose of  reporting  that a  settlement  of the case had been  reached
subject to the  satisfaction of several  conditions  including the completion of
the merger.

                                      
<PAGE>

The  general  terms  of  the   settlement  are  contained  in  a  Memorandum  of
Understanding  ("Memorandum")  among  counsel for the parties dated as of May 7,
1998.  Under  the  Memorandum,  subject  to  the  terms  of the  Stipulation  of
Settlement,  the  defendants  will  pay to  class  counsel  for  their  fees and
expenses,  subject to approval by the Court.  The Partnership  believes that the
amount  of the  settlement  will  not  have a  material  adverse  effect  on the
consolidated financials statements of the Partnership.


On June 15, 1998,  the  Partnership  completed a $292,000  debt  financing  with
Nomura Asset Capital Corporation ("Nomura").

The  financing  consisted  of (i) a  $180,000  nonrecourse  permanent  loan (the
"Permanent  Loan") and (ii) a $112,000  full  recourse  bridge loan (the "Bridge
Loan").  The Permanent  Loan is (i)  collateralized  by first  mortgages on four
factory outlet centers,  (ii) bears a fixed rate of interest of 6.99%, and (iii)
requires  monthly  principal and interest  payments  pursuant to an  approximate
26-year  amortization  schedule.  The Bridge Loan is (i) collateralized by first
mortgages on six factory outlet centers,  (ii) bears a variable rate of interest
equal to 30-day  LIBOR  plus  1.35%,  (iii)  matures  in three  years,  and (iv)
requires monthly interest-only payments.

Following the spin-off of HGP, the Partnership  will be a guarantor or otherwise
obligated with respect to approximately $42,000 of HGP's indebtedness, including
$12,200 of obligations under HGP's $108,200  three-year  secured credit facility
with Nomura and $11,800 of mortgage  debt that is scheduled to mature August 14,
1998.  The  Partnership  and HGP are  continuing  to seek the consent of certain
parties to the assumption by HGP or its affiliates of $14,300 of indebtedness in
connection with the spin-off.















                                     


<PAGE>



Item 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations

     (Amounts in thousands, except share, unit and square foot information)


Introduction

The following  discussion and analysis of the consolidated  financial  condition
and results of operations of Prime Retail,  L.P. (the  "Partnership")  should be
read in  conjunction  with  the  Consolidated  Financial  Statements  and  Notes
thereto.  Historical  results and percentage  relationships set forth herein are
not necessarily indicative of future operations.

Cautionary Statements

The following  discussion in "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect  management's  current views with respect to future events and financial
performance.  Such  forward-looking  statements are subject to certain risks and
uncertainties;  including,  but not limited to, the effects of future  events on
the Partnership's  financial  performance;  the risk that the Partnership may be
unable to finance its planned  acquisition  and  development  activities;  risks
related  to the  retail  industry  in which  the  Partnership's  outlet  centers
compete,  including the potential  adverse impact of external  factors,  such as
inflation,  consumer  confidence,  unemployment  rates and  consumer  tastes and
preferences; risks associated with the Partnership's property acquisitions, such
as  the  lack  of  predictability  with  respect  to  financial  returns;  risks
associated with the Partnership's property development  activities,  such as the
potential for cost overruns,  delays and the lack of predictability with respect
to the financial returns associated with these development activities;  the risk
of potential  increase in market interest rates from current  levels;  and risks
associated with real estate  ownership,  such as the potential adverse impact of
changes  in  local  economic  climate  on the  revenues  and  the  value  of the
Partnership's properties.

Results of Operations

General

The Partnership has grown by developing and acquiring factory outlet centers and
expanding certain of its existing factory outlet centers. As summarized in TABLE
1, the Partnership's  factory outlet portfolio consisted of 28 operating factory
outlet centers totaling  7,237,000 square feet of gross leasable area ("GLA") at
March 31,  1998,  compared  to 24  operating  factory  outlet  centers  totaling
6,138,000 square feet of GLA at March 31, 1997.

During  the three  months  ending  March 31,  1998,  the  Partnership  opened an
expansion to an existing  factory outlet center  totaling  20,000 square feet of
GLA.  During 1997,  the  Partnership  purchased  seven  factory  outlet  centers
totaling  1,221,000 square feet of GLA and opened expansions to existing factory
outlet  centers  totaling  224,000  square  feet  of  GLA.   Additionally,   the
Partnership  acquired its joint  venture  partner's  25%  ownership  interest in
Buckeye Factory Shops Limited Partnership  ("Buckeye") on September 2, 1997, and
now owns 100% of this factory outlet center with 205,000 square feet of GLA. The
significant increase in the number of the Partnership's operating properties and
total GLA since March 31, 1997 are  collectively  referred to as the  "Portfolio
Expansion".


<PAGE>
<TABLE>
                             Portfolio of Properties
                                 March 31, 1998
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Grand            GLA        Percentage
Factory Outlet Centers                                                    Phase         Opening Date      (Sq. Ft.)       Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>               <C>            <C>   
Niagara International Factory Outlets (2)--Niagara Falls, New York......      I             July 1982        300,000             95%
                                                                             II           August 1985        234,000             78
                                                                                                             -------            ---
                                                                                                             534,000             88

Prime Retail Outlets of Kittery (3)--Kittery Maine......................      I            April 1984         25,000            100
                                                                             II              May 1984         78,000            100
                                                                            III           August 1989         18,000            100
                                                                                                              ------            ---
                                                                                                             121,000            100

Latham Factory Outlets (3)--Latham, New York............................      I           August 1987         43,000            100

Warehouse Row Factory Shops (4)--Chattanooga, Tennessee.................      I         November 1989         95,000             96
                                                                             II           August 1993         26,000             74
                                                                                                             -------            ---
                                                                                                                                 91

Oak Creek Factory Stores (5)--Sedona, Arizona ..........................      I           August 1990         82,000            100

San Marcos Factory Shops--San Marcos, Texas.............................      I           August 1990        177,000            100
                                                                             II           August 1991         70,000            100
                                                                            III           August 1993        117,000            100
                                                                           IIIB         November 1994         20,000             91
                                                                           IIIC         November 1995         35,000            100
                                                                                                             -------            ---
                                                                                                             419,000            100

Shasta Factory Stores (2)--Anderson, California.........................      I           August 1990        165,000             94

Factory Outlets at Post Falls (5)--Post Falls, Idaho ...................      I             July 1991        111,000             94
                                                                             II             July 1992         68,000             81
                                                                                                              ------            ---
                                                                                                             179,000             89

Gulf Coast Factory Shops--Ellenton, Florida.............................      I          October 1991        187,000             96
                                                                             II           August 1993        123,000            100
                                                                            III          October 1996         30,000            100
                                                                                                             -------            ---
                                                                                                             340,000             98

Triangle Factory Shops--Raleigh-Durham, North Carolina..................      I          October 1991        181,000            100
                                                                             II             July 1996          6,000            100
                                                                                                             -------            ---
                                                                                                             187,000            100
 

Coral Isle Factory Shops--Naples/Marco Island, Florida..................      I         December 1991         94,000            100
                                                                             II         December 1992         32,000            100
                                                                            III            March 1998         20,000             60
                                                                                                              ------            ---
                                                                                                             146,000             95

Castle Rock Factory Shops--Castle Rock, Colorado........................      I         November 1992        181,000             97
                                                                             II           August 1993         94,000             98
                                                                            III         November 1993         95,000             93
                                                                             IV           August 1997        110,000            100
                                                                                                             -------            ---
                                                                                                             480,000             97

Bend Factory Outlets (5)--Bend, Oregon..................................      I         December 1992         97,000             97

Ohio Factory Shops--Jeffersonville, Ohio................................      I             July 1993        186,000             93
                                                                             II         November 1993        100,000            100
                                                                            IIB         November 1994         13,000             75
                                                                           IIIA           August 1996         35,000            100
                                                                           IIIB            March 1997         73,000             72
                                                                                                             -------            ---
                                                                                                             407,000             91
</TABLE>
                                       
<TABLE>

                       Portfolio of Properties (continued)
                                 March 31, 1998
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Grand            GLA        Percentage
Factory Outlet Centers                                                    Phase          Opening Date      (Sq. Ft.)       Leased(1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>           <C>                <C>            <C>    
Gainesville Factory Shops--Gainesville, Texas...........................       I           August 1993        210,000            82%
                                                                              II         November 1994        106,000            81
                                                                                                              -------           ---
                                                                                                              316,000            81

Nebraska Crossing Factory Stores (6)--Gretna, Nebraska..................       I          October 1993        192,000            83

Rocky Mountain Factory Stores--Loveland, Colorado.......................       I              May 1994        139,000           100
                                                                              II         November 1994         50,000           100
                                                                             III              May 1995        114,000           100
                                                                              IV              May 1996         25,000           100
                                                                                                            ---------           ---
                                                                                                              328,000           100

Oxnard Factory Outlet (7)--Oxnard, California...........................       I             June 1994        148,000            88

Grove City Factory Shops--Grove City, Pennsylvania......................       I           August 1994        235,000           100
                                                                              II         November 1994         95,000           100
                                                                             III         November 1995         85,000            97
                                                                              IV         November 1996        118,000            99
                                                                                                             --------           ---
                                                                                                              533,000            99

Huntley Factory Shops--Huntley, Illinois................................       I           August 1994        192,000            97
                                                                              II         November 1995         90,000            83
                                                                                                             --------           ---
                                                                                                              282,000            92


Florida Keys Factory Shops--Florida City, Florida.......................       I        September 1994        208,000            91

Indiana Factory Shops (6)--Daleville, Indiana...........................       I         November 1994        208,000            88
                                                                             IIA         November 1996         26,000            35
                                                                                                             --------           ---
                                                                                                              234,000            82

Kansas City Factory Outlets--Odessa, Missouri...........................       I             July 1995        191,000            97
                                                                              II         November 1996        105,000            53
                                                                                                             --------           ---
                                                                                                              296,000            81

Magnolia Bluff Factory Shops (8)--Darien, Georgia.......................       I             July 1995        238,000            88
                                                                             IIA         November 1995         49,000            99
                                                                             IIB             July 1996         20,000           100
                                                                                                             --------           ---
                                                                                                              307,000            91

Arizona Factory Shops (9)--Phoenix, Arizona.............................       I        September 1995        217,000            97
                                                                              II        September 1996        109,000            92
                                                                                                             --------           ---
                                                                                                              326,000            95

Gulfport Factory Shops (10)--Gulfport, Mississippi......................       I         November 1995        228,000            97
                                                                             IIA         November 1996         40,000           100
                                                                             IIB         November 1997         38,000            38
                                                                                                             --------           ---
                                                                                                              306,000            90

Buckeye Factory Shops (11)--Burbank, Ohio...............................       I         November 1996        205,000            94

Carolina Factory Shops--Gaffney, South Carolina.........................       I         November 1996        235,000            96
                                                                                                            ---------           ---
Total Factory Outlet Centers (12)                                                                           7,237,000            93%
                                                                                                            =========           ===
====================================================================================================================================
</TABLE>
                                      
<PAGE>

Notes: 
(1)  Percentage reflects fully executed leases as of March 31, 1998 as a percent
     of square feet of GLA.
(2)  The  Partnership  acquired  this factory  outlet center on December 2, 1997
     from an unrelated third party.  
(3)  The  Partnership  acquired  this factory  outlet center on October 29, 1997
     from an unrelated third party.
(4)  The Partnership owns a 2% partnership  interest as the sole general partner
     in  Phase I of  this  property  but is  entitled  to 99% of the  property's
     operating  cash  flow  and  net  proceeds  from a sale or  refinancing.  An
     unrelated  third  party holds a 35% limited  partnership  interest  and the
     Partnership  holds a 65% general  partnership  interest in the  partnership
     that owns Phase II of this property.  Phase I of this mixed-use development
     includes  154,000  square feet of office space and Phase II includes  5,000
     square feet of office space.  The total office space of 159,000 square feet
     is not included in this table and such space was 64% leased as of March 31,
     1998.
(5)  The  Partnership  acquired this factory  outlet center on February 13, 1997
     from an unrelated third party.
(6)  Upon consummation of the Merger Agreement,  the Partnership intends to sell
     this factory outlet cente (see Note 2 - "Merger  Agreement" of the Notes to
     Consolidated Financial Statements). 
(7)  On February 7, 1997, the  Partnership  purchased an additional 20% interest
     from  a  joint  venture  partner,  increasing  the  Partnership'  ownership
     interest in this property to 50%.
(8)  The Partnership operates this property pursuant to a long-term ground lease
     under  which  the  Partnership  receives  the  economic  benefit  of a 100%
     ownership interest.
(9)  The  Partnership  owns 50% of this factory  outlet center in a join venture
     partnership with an unrelated third party.
(10) The real  property on which this  outlet  center is located is subject to a
     long-term ground lease. The Partnership  receives the economic benefit of a
     100% ownership interest.
(11) On September 2, 1997, the Partnership purchased its joint venture partner's
     25% partnership  interest in Buckeye Factory Shops Limited  Partnership and
     now owns 100% of this factory outlet center.
(12) The  Partnership  also owns three  community  centers not  included in this
     table containing  424,000 square feet of GLA in the aggregate that were 90%
     leased as of March 31, 1998.

Comparison of the three months ended March 31, 1998 to the three months ended
March 31, 1997. 

Summary

The  Partnership  reported  net income of $7,990 and $3,701 for the three months
ended March 31, 1998 and 1997,  respectively.  For the three  months ended March
31, 1998, the net income  applicable to common  unitholders was $3,023, or $0.08
per common  unit.  For the three  months  ended March 31,  1997,  the net income
applicable to common unitholders was $32, or $0.00 per common unit.

Revenues

Total  revenues  were $37,416 for the three months ended March 31, 1998 compared
to $30,162 for the three months ended March 31, 1997, an increase of $7,254,  or
24.1%.  Base  rents  increased  $5,038,  or  27.9%,  in 1998  compared  to 1997.
Straight-line  rents  (included in base rents) were $(26) and $125 for the three
months  ended  March  31,  1998 and  1997,  respectively.  These  increases  are
primarily due to the Portfolio Expansion.

Percentage  rents,  which  represent rents based on a percentage of sales volume
above a specified  threshold,  increased $196, or 29.3%, during the three months
ended March 31, 1998  compared to the same  period in 1997.  This  increase  was
attributable  to the Portfolio  Expansion.  For the three months ended March 31,
1998, same-space sales in centers owned by the Partnership were flat compared to
the same period in 1997.  "Same-space  sales" is defined as the weighted average
sales per square foot  reported  by  merchants  for space open since  January 1,
1997. The  Partnership's  same-space  sales for the year ended December 31, 1997
were  $231.89  per square  foot.  For the three  months  ended  March 31,  1998,
same-store  sales  decreased  by 2.4%  compared to the same period in 1997.  The
decrease  in  same-store  sales is  primarily  due to the  shift  of the  Easter
shopping  period  from  March in 1997 to April in 1998.  "Same-store  sales"  is
defined as the weighted  average sales per square foot reported by merchants for
stores opened since January 1, 1997. Tenant reimbursements,  which represent the
contractual  recovery from tenants of certain operating  expenses,  increased by
$1,794,  or 20.0%,  during the three  months  ended March 31, 1998 over the same
period in 1997. These increases were primarily due to the Portfolio Expansion.
<PAGE>
Interest and other income increased by $226, or 9.1%, to $2,704 during the three
months  ended March 31, 1998 as  compared to $2,478 for the three  months  ended
March 31, 1997. The increase  reflects higher  temporary  tenant income of $490,
lease  termination  income of $92 and other ancillary  income of $47,  partially
offset by a decrease  in  interest  income of $403.  The  reduction  in interest
income was  primarily  the  result of the use of a portion of the  Partnership's
expansion  loan escrow  account to fund  certain of its  development  activities
during  1997 and  1998.  The  expansion  loan  escrow  account  is  included  in
restricted cash in the Consolidated Balance Sheets.

Expenses

Property  operating  expenses  increased by $1,720,  or 25.9%, to $8,353 for the
three  months  ended  March 31,  1998  compared to $6,633 for the same period in
1997.  Real estate taxes  increased by $466,  or 19.5%,  to $2,856 for the three
months  ended  March 31,  1998,  from  $2,390 in the same  period for 1997.  The
increases in property operating expenses and real estate taxes are primarily due
to the Portfolio  Expansion.  As shown in TABLE 2, depreciation and amortization
expense  increased  by $1,465,  or 23.2%,  to $7,791 for the three  months ended
March 31,  1998,  compared to $6,326 for 1997.  This  increase  results from the
depreciation and amortization of assets associated with the Portfolio Expansion.

TABLE 2 -- Components of Depreciation and Amortization Expense

The  components  of  depreciation  and  amortization  expense are  summarized as
follows:

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

Three months ended March 31,
                                                   1998               1997
-------------------------------------------------------------------------------
Building and improvements                          $4,324             $3,258
Land improvements                                     830                627
Tenant improvements                                 2,075              1,827
Furniture and fixtures                                250                200
Leasing commissions(1)                                312                414
                                                   ------             ------
Total                                              $7,791             $6,326
                                                   ======             ======

================================================================================
Note:
(1)  In accordance  with  generally  accepted  accounting  principles  ("GAAP"),
     leasing  commissions are classified as intangible  assets.  Therefore,  the
     amortization  of  leasing   commissions  is  reported  as  a  component  of
     depreciation and amortization expense.


TABLE 3 -- Components of Interest Expense

The components of interest expense are summarized as follows:

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

Three months ended March 31,                                1998           1997
--------------------------------------------------------------------------------
Interest incurred                                            $9,276      $9,109
Interest capitalized                                         (1,388)       (845)
Interest earned on interest rate protection contracts           (23)        (39)
Amortization of deferred financing costs                        167         608
Amortization of interest rate protection contracts              342         336
                                                              -----      ------
Total                                                        $8,374      $9,169
                                                             ======      ======

================================================================================

                                      
<PAGE>

As shown in TABLE 3, interest  expense for the three months ended March 31, 1998
decreased by $795, or 8.7%, to $8,374  compared to $9,169 for the same period in
1997.  This  decrease  reflects  (i) an  increase  in  the  amount  of  interest
capitalized in connection with development projects of $543 and, (ii) a decrease
in amortization of deferred financing costs of $441.  Partially offsetting these
items were (i) higher  interest  incurred of $167,  (ii) a reduction in interest
earned on interest  rate  protection  contracts of $16, and (iii) an increase in
amortization of interest rate protection contracts of $6.

The increase in interest  incurred is primarily  attributable  to an increase of
approximately  $3,342 in the Partnership's  average debt outstanding  during the
three months ended March 31, 1998  compared to the same period in 1997 offset by
a slight  decrease in the weighted  average  interest  rate for the three months
ended March 31, 1998 compared to the same period in 1997.  The weighted  average
interest rates were 7.10% and 7.12% for the 1998 and 1997 periods, respectively.

In connection with re-leasing space to new merchants,  the Partnership  incurred
$195 and $235 in capital  expenditures  during the three  months ended March 31,
1998 and 1997, respectively.

Liquidity and Capital Resources

Sources and Uses of Cash

For the three  months  ended March 31,  1998,  net cash  provided  by  operating
activities was $25,157,  cash used in investing  activities was $27,092, and net
cash used in financing activities was $6,151.

The primary uses of cash for investing  activities during the three months ended
March  31,  1998  included:  (i)  costs  associated  with  the  development  and
construction  of two new  factory  outlet  centers  and  expansions  to existing
factory outlet centers aggregating 751,000 square feet of GLA which are expected
to open during 1998 (20,000  square feet of GLA opened  during the first quarter
of 1998),  (ii) costs  associated  with the completion of expansions to existing
factory  outlet  centers  aggregating  224,000  square feet of GLA which  opened
during 1997,  and (iii) costs for  pre-development  activities  associated  with
future developments.

The primary uses of cash for financing  activities during the three months ended
March 31,  1998 were  principal  repayments  on notes  payable of  $22,102,  and
preferred and common unit  distributions  of $14,560.  Such uses were  partially
offset by proceeds from new borrowings of $32,611 during the period.

Property Acquisitions

During 1998, the Partnership will explore acquisitions of factory outlet centers
in the  United  States  and  Europe  as  well  as  consider  possible  strategic
acquisitions of other assets in the retail sector. The Partnership has evaluated
and is evaluating  such  opportunities  and prospects and will continue to do so
throughout  1998.  The  Partnership  cannot predict if any  transaction  will be
consummated, nor the terms or form of consideration required.









                                      

<PAGE>


Merger Agreement

On  November  12, 1997 and as amended on  February  1, 1998,  the  Partnership's
General  Partner  entered into a definitive  merger  agreement (as amended,  the
"Merger  Agreement")  with  Horizon  Group,  Inc.  ("Horizon")  for an aggregate
consideration of approximately $945,200, including the assumption of $556,900 of
Horizon debt and transaction  costs.  The merger was completed on June 15, 1998.
As of June 15,  1998,  the  Partnership  owned and  operated  49 outlet  centers
totaling approximately 13,700,000 square feet of gross leasable area ("GLA").

Under  the terms of the  Merger  Agreement,  the  General  Partner  paid a fixed
exchange  ratio of 0.20 of a share of 8.5%  Series  B  Cumulative  Participating
Convertible  Preferred Stock ("Series B Convertible  Preferred Stock") and 0.597
of a share of  Common  Stock  for each  share of  common  stock of  Horizon.  In
addition, each common unit in Horizon Partnership entitled the holder to receive
0.9193 of a Common Unit of the Partnership  that will be exchangeable for a like
number of shares of Common Stock of the General Partner.

Immediately prior to the merger,  Horizon's operating partnership,  Horizon Glen
Outlet Centers Limited Partnership  ("Horizon  Partnership"),  contributed 13 of
its 35  centers  to  Horizon  Group  Properties,  L.P.  of which  Horizon  Group
Properties,  Inc. ("HGP"), a subsidiary of Horizon, is the sole general partner.
Immediately after the merger, all of the common equity of HGP was distributed to
the convertible preferred and common shareholders and unitholders of the General
Partner of the Partnership and the  shareholders and limited partners of Horizon
based on their ownership in the General  Partner of the Partnership  immediately
following the merger. One share of common stock of HGP was distributed for every
20  shares  of  Common  Stock or  Common  Units of the  General  Partner  of the
Partnership,  and that  approximately  1.196  shares of common  stock of HGP was
distributed for every 20 shares of Series B Convertible  Preferred Stock held in
the General Partner of the  Partnership.  Upon  consummation of the merger,  the
General Partner of the Partnership paid a special cash distribution of $0.60 per
share of Series B Convertible Preferred Stock and $0.50 per share/unit of Common
Stock,  Series  C  Cumulative  Participating  Convertible  Redeemable  Preferred
Stock/Unit  ("Series C Preferred  Security")  and Common  Unit,  as  applicable.
Shareholders  and  limited  partners  in  Horizon  did not  participate  in this
distribution. HGP owns and operates 15 outlet centers (including Indiana Factory
Shops and Nebraska Crossing Factory Stores,  collectively the "Prime Transferred
Properties",  which  was  acquired  from the  Partnership  as  discussed  below)
totaling approximately 3,100,000 square feet of GLA.

In connection with the closing of the merger,  the  Partnership  sold the  Prime
Transferred  Properties  to HGP for an  aggregate  consideration  of
approximately $26,000 resulting in a loss of approximately $15,000.
<PAGE>

The merger was  accounted  for as a purchase.  The exchange of shares of Horizon
for shares of the General Partner of the Partnership  was made on a tax-free
basis.

On December 10, 1997, a shareholder  of Horizon  filed a purported  class action
lawsuit in the Circuit Court for Muskegon County, Michigan (the "Court") against
Horizon,  the General  Partner of the  Partnership,  and certain  directors  and
former directors of Horizon.  The substantive  allegations  claim that Horizon's
directors breached their fiduciary duties to Horizon's shareholders in approving
the merger of Horizon and the General  Partner of the  Partnership  and that the
consideration to be paid to Horizon's shareholders in connection with the merger
is unfair and inadequate.  The lawsuit requests that such merger be enjoined or,
in the event that the purported transaction is consummated, that it be rescinded
or damages be awarded to the class members.  On January 16, 1998, the defendants
answered the  complaint,  denying that the Horizon  board of directors  breached
their  fiduciary  duties  and  denying  that  such  consideration  is  unfair or
inadequate.  On May 4, 1998,  counsel for the parties  appeared before the Court
for the purpose of  reporting  that a  settlement  of the case had been  reached
subject to the  satisfaction of several  conditions  including the completion of
the merger.

The  general  terms  of  the   settlement  are  contained  in  a  Memorandum  of
Understanding  ("Memorandum")  among  counsel for the parties dated as of May 7,
1998.  Under  the  Memorandum,  subject  to  the  terms  of the  Stipulation  of
Settlement,  the  defendants  will  pay to  class  counsel  for  their  fees and
expenses,  subject to approval by the Court.  The Partnership  believes that the
amount  of the  settlement  will  not  have a  material  adverse  effect  on the
consolidated financials statements of the Partnership.

On June 15, 1998,  the  Partnership  completed a $292,000  debt  financing  with
Nomura Asset Capital Corporation ("Nomura").

The  financing  consisted  of (i) a  $180,000  nonrecourse  permanent  loan (the
"Permanent  Loan" and (ii) a $112,000  full  recourse  bridge loan (the  "Bridge
Loan").  The Permanent  Loan is (i)  collateralized  by first  mortgages on four
factory outlet centers,  (ii) bears a fixed rate of interest of 6.99%, and (iii)
requires  monthly  principal and interest  payments  pursuant to an  approximate
26-year  amortization  schedule.  The Bridge Loan is (i) collateralized by first
mortgages on six factory outlet centers,  (ii) bears a variable rate of interest
equal to 30-day  LIBOR  plus  1.35%,  (iii)  matures  in three  years,  and (iv)
requires monthly interest-only payments. 
<PAGE>

Following the spin-off of HGP, the Partnership  will be a guarantor or otherwise
obligated with respect to approximately $42,000 of HGP's indebtedness, including
$12,200 of obligations under HGP's $108,200  three-year  secured credit facility
with Nomura and $11,800 of mortgage  debt that is scheduled to mature August 14,
1998.  The  Partnership  and HGP are  continuing  to seek the consent of certain
parties to the assumption by HGP or its affiliates of $14,300 of indebtedness in
connection with the spin-off.

Planned Development

Management believes that there is sufficient demand for continued development of
new factory  outlet centers and  expansions of certain  existing  factory outlet
centers.  The Partnership  expects to open approximately  751,000 square feet of
GLA during 1998  including  the Outlet  Village of Lebanon which opened on April
17, 1998 and another new factory outlet center currently under construction (the
Outlet  Village  of  Hagerstown).  The  Outlet  Village of Lebanon is located in
Lebanon,  Tennessee,  approximately  25 miles east of  Nashville,  and  contains
208,000 square feet of GLA and features  approximately 50 designer and specialty
outlet stores.  The Outlet Village of Lebanon was  approximately 86% occupied on
its  grand  opening.   At  March  31,  1998,  the  remaining   budgeted  capital
expenditures for 1998 planned  developments  aggregated  approximately  $59,637,
while anticipated capital  expenditures  related to the completion of expansions
of existing  factory  outlet  centers  opened during 1997  (aggregating  224,000
square feet of GLA) approximated $4,106.

Management  believes that the  Partnership  has  sufficient  capital and capital
commitments to fund the remaining capital expenditures  associated with its 1997
and 1998 development  activities.  These funding requirements are expected to be
met, in large part, with the proceeds from various loan facilities including the
financing of certain  unencumbered  properties.  If adequate  financing for such
development  and expansion is not available,  the Partnership may not be able to
develop new centers or expand existing centers at currently planned levels.

The  Partnership  currently  plans to open one new  factory  outlet  center  and
several  expansions in 1999 that are expected to contain  approximately  400,000
square feet of GLA, in the aggregate, and have a total expected development cost
of approximately  $56,000.  The Partnership expects to fund the development cost
of these projects from (i) certain line of credit facilities, (ii) joint venture
partners, (iii) retained cash flow from operations, (iv) construction loans, and
(v) the  potential  sale of common or preferred  equity in the public or private
capital markets.  As of March 31, 1998, there were no material  commitments with
regard to the  construction  of the new  factory  outlet  center and  expansions
scheduled to open in 1999.  There can be no assurance that the Partnership  will
be  successful  in  obtaining  the  required  amount of equity  capital  or debt
financing  for the  1999  planned  openings  or that the  terms of such  capital
raising  activities  will be as favorable as the  Partnership has experienced in
prior periods.





                                     

<PAGE>


Debt Repayments and Preferred Unit Distributions

The Partnership's  aggregate indebtedness was $525,774 and $515,265 at March 31,
1998 and December 31, 1997,  respectively.  At March 31, 1998, such indebtedness
had a weighted  average  maturity  of 6.1 years and bore  interest at a weighted
average interest rate of 7.10% per annum. At March 31, 1998,  $74,452, or 14.2%,
of such  indebtedness  bore interest at fixed rates and $451,322,  or 85.8%,  of
such  indebtedness,  including  $28,250 of  tax-exempt  bonds,  bore interest at
variable-rates. Of the variable rate indebtedness outstanding at March 31, 1998,
$355,178 is scheduled to convert to a fixed rate of 7.782% in November  1998 for
the remaining five-year term of such indebtedness.

At March 31, 1998, the Partnership  held interest rate  protection  contracts on
all $28,250 of its floating rate  tax-exempt  indebtedness  which expire in 1999
and approximately  $355,178 of other floating rate indebtedness  which expire in
November 1998 (or approximately  85.0% of its total floating rate indebtedness).
In addition,  the Partnership held additional interest rate protection contracts
on $43,900 (of which $22,000  expires in July 1998 and $21,900  expires in April
1999)  of  the  $355,178  floating  rate  indebtedness  to  further  reduce  the
Partnership's exposure to increases in interest rates.

The Partnership's ratio of debt to total market capitalization at March 31, 1998
(defined as total debt divided by the sum of: (a) the aggregate  market value of
the  outstanding  Partnership  Common  Units,  assuming  the  full  exchange  of
Partnership  Series C Preferred  Units into  Partnership  Common Units;  (b) the
aggregate  market  value of the  outstanding  shares  of  Series  B  Convertible
Preferred Units; (c) the aggregate liquidation  preference of the 10.5% Series A
Senior Cumulative Preferred Units ("Senior Preferred Units") at $25.00 per unit;
and (d) the total debt of the Partnership) was 41.9%.

The  Partnership is obligated to repay $10,851 of mortgage  indebtedness  during
the remainder of 1998 and $63,790 in 1999. Annualized  cumulative  distributions
on the  Partnership's  Senior  Preferred Units,  Series B Convertible  Preferred
Units and  Series C  Preferred  Units  outstanding  March 31,  1998 are  $6,038,
$6,336, and $5,149, respectively.  These distributions are payable quarterly, in
arrears.

The Partnership  anticipates that cash flow from operations,  together with cash
available from  borrowings and other sources,  will be sufficient to satisfy its
debt service obligations,  expected distribution requirements and operating cash
needs for the next year.

Economic Conditions

Substantially  all of the  merchants'  leases contain  provisions  that somewhat
mitigate the impact of inflation.  Such provisions include clauses providing for
increases  in  base  rent  and  clauses  enabling  the  Partnership  to  receive
percentage  rentals based on merchants'  gross sales.  Substantially  all leases
require merchants to pay their  proportionate  share of all operating  expenses,
including  common area  maintenance,  real estate taxes and  promotion,  thereby
reducing the  Partnership's  exposure to increased costs and operating  expenses
resulting from inflation.

At March 31, 1998, the Partnership maintained interest rate protection contracts
to protect against  significant  increases in interest rates on certain floating
rate  indebtedness  (see "Debt Repayments and Preferred Stock  Distributions and
Dividends").

The  Partnership  intends to reduce  operating and leasing risks by managing its
existing  portfolio of  properties  with the goal of  improving  its tenant mix,
rental rates and lease terms and attracting high fashion,  upscale manufacturers
and national brand-name manufacturers as merchants.







                                      
<PAGE>

Year 2000

Recognizing  the need to ensure that the  Partnership's  operations  will not be
adversely impacted by year 2000 software  failures,  management has assessed the
potential  impact  of  the  year  2000  on  the  processing  of   date-sensitive
information by the Partnership's computerized information systems. Based on this
assessment,  management  believes that the  Partnership's  primary  computerized
information  systems are year 2000  compliant and the  Partnership's  operations
will not be adversely impacted by year 2000 software failures.

Funds from Operations

Management   believes   that  to  facilitate  a  clear   understanding   of  the
Partnership's  consolidated  operating  results,  Funds from Operations  ("FFO")
should  be  considered  in  conjunction  with net  income  (loss)  presented  in
accordance  with GAAP.  Management  believes that FFO is an important and widely
used measure of the  operating  performance  of REITs which  provides a relevant
basis for  comparison  to other  REITs.  Therefore,  FFO is  presented to assist
investors in analyzing the  performance of the  Partnership.  FFO represents net
income (loss)  (computed in accordance  with GAAP)  excluding  gains (or losses)
from  debt   restructuring   and  sales  of  property,   plus  depreciation  and
amortization  after  adjustments  for  unconsolidated   partnerships  and  joint
ventures.

The Partnership has adopted the National  Association of Real Estate  Investment
Trusts'  definition  of  FFO.  However,   the  Partnership   cautions  that  the
calculation  of FFO may vary from entity to entity and as such the  presentation
of FFO by the  Partnership  may not be  comparable  to  other  similarly  titled
measures of other  reporting  companies.  FFO does not represent  cash flow from
operating  activities  in  accordance  with GAAP and is not  indicative  of cash
available  to fund  all of the  Partnership's  cash  needs.  FFO  should  not be
considered  as an  alternative  to net  income or any other  GAAP  measure as an
indicator of performance  and should not be considered as an alternative to cash
flows as a  measure  of  liquidity  or the  ability  to  service  debt or to pay
dividends and distributions.

TABLE 4 provides a  reconciliation  of income  before  allocations  to  minority
interests and preferred  unitholders to FFO for the three months ended March 31,
1998 and 1997.  FFO increased  $5,552,  or 52.9% to $16,041 for the three months
ended March 31, 1998 from  $10,489 for the three  months  ended March 31,  1997.
This increase was primarily due to the Portfolio Expansion.

TABLE 4 -- Funds from Operations

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

Three months ended March 31,                               1998           1997
--------------------------------------------------------------------------------

Income before allocations to minority interests and
  preferred unitholders                                 $  8,037        $3,731
FFO adjustments:
Real estate depreciation and amortization                  7,702         6,273
Unconsolidated joint venture adjustments                     302           485
                                                        --------       -------
FFO before allocations to minority interests and
  preferred unitholders                                  $16,041       $10,489
                                                        ========       =======

================================================================================







                                      

<PAGE>

PART II:  OTHER INFORMATION

Item 1.           Legal Proceedings


On December 10, 1997, a shareholder  of Horizon  filed a purported  class action
lawsuit in the Circuit Court for Muskegon County, Michigan (the "Court") against
Horizon,  the General  Partner of the  Partnership,  and certain  directors  and
former directors of Horizon.  The substantive  allegations  claim that Horizon's
directors breached their fiduciary duties to Horizon's shareholders in approving
the merger of Horizon and the General  Partner of the  Partnership  and that the
consideration to be paid to Horizon's shareholders in connection with the merger
is unfair and inadequate.  The lawsuit requests that such merger be enjoined or,
in the event that the purported transaction is consummated, that it be rescinded
or damages be awarded to the class members.  On January 16, 1998, the defendants
answered the  complaint,  denying that the Horizon  board of directors  breached
their  fiduciary  duties  and  denying  that  such  consideration  is  unfair or
inadequate.  On May 4, 1998,  counsel for the parties  appeared before the Court
for the purpose of  reporting  that a  settlement  of the case had been  reached
subject to the  satisfaction of several  conditions  including the completion of
the merger. The general terms of the settlement are contained in a Memorandum of
Understanding  ("Memorandum")  among  counsel for the parties dated as of May 7,
1998.  Under  the  Memorandum,  subject  to  the  terms  of the  Stipulation  of
Settlement,  the  defendants  will  pay to  class  counsel  for  their  fees and
expenses,  subject to approval by the Court.  The Partnership  believes that the
amount  of the  settlement  will  not  have a  material  adverse  effect  on the
consolidated financials statements of the Partnership.

Item 2.           Changes in Securities

                  None

Item 3.           Defaults Upon Senior Securities

                  None

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

                  None

Item 5.           Other Information

                  None

Item 6.           Exhibits or Reports on Form 8-K

                  (a)     The following exhibits are included in this Form 10-Q:
                          
                          Exhibit 12.1 -- Ratio of Earnings to Fixed Charges
                          and Preferred Stock Distributions

                          Exhibit 27.1 Financial Data Schedule 
                          (Edgar filing only)

                  (b)      Reports on Form 8-K:
                           None


                                      


<PAGE>



                                   SIGNATURES



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.



                                               PRIME RETAIL, L.P.
                                               Registrant

                                          By: Prime Retail, Inc.,
                                          its general partner



Date: June 25, 1998                       By:  /s/ Abraham Rosenthal
-------------------                            ----------------------
                                                   Abraham Rosenthal
                                                   Chief Executive Officer



Date: June 25, 1998                       By: /s/ Robert P. Mulreaney
-------------------                           ------------------------
                                                  Robert P. Mulreaney
                                                  Executive Vice President,
                                                  Chief Financial Officer and
                                                  Treasurer