<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                   For the Fiscal Year Ended DECEMBER 31, 1997

                             Commission File Number
                                     2-82765
                              REAL EQUITY PARTNERS
                        A CALIFORNIA LIMITED PARTNERSHIP
                  I.R.S. Employer Identification No. 95-3784125
         9090 WILSHIRE BLVD., SUITE 201, BEVERLY HILLS, CALIFORNIA 90211
        Registrant's Telephone Number, Including Area Code (310) 278-2191
      Securities Registered Pursuant to Section 12(b) or 12(g) of the Act:

                                      NONE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed with the Commission by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

                                    Yes X   No

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


<PAGE>   2

PART I.

ITEM 1.BUSINESS

Real-Equity Partners ("REP" or the "Partnership") is a limited partnership which
was formed under the laws of the State of California on September 9, 1981. The
Partnership was formed to invest in residential rental properties either
directly or through investment in joint ventures and other partnerships which
will invest in such real estate. Commencing on September 27, 1983, REP offered
30,000 units of the limited partnership interest (the "Units") through a public
offering managed by E.F. Hutton. REP's public offering was completed within a
year of its commencement.

The general partners of REP are National Partnership Investments Corp.
("NAPICO"), a California corporation (the "Corporate General Partner"), and
National Partnership Investments Associates II, a California limited partnership
("NAPIA II"). NAPIA II consists of Charles H. Boxenbaum and an unrelated
individual as limited partners and NAPICO as general partner. The business of
REP is conducted primarily by NAPICO as REP has no employees of its own.

NAPICO is a wholly owned subsidiary of Casden Investment Corporation ("CIC"),
which is wholly owned by Alan I. Casden. The current members of NAPICO's Board
of Directors are Charles H. Boxenbaum, Bruce E. Nelson, Alan I. Casden and Henry
C. Casden.

As of December 31, 1997, the Partnership remains invested in five apartment
projects. One property was foreclosed upon in 1996. Substantially all of the
buildings are leased on a month-to-month basis. The management of the
Partnership's properties is the responsibility of an affiliate of NAPICO (the
"Property Manager"). The principal business of the Property Manager is
residential property management.

The Partnership is subject to all of the risks incident to ownership of real
estate and interests therein, many of which relate to the lack of liquidity of
this type of investment. These risks include changes in general economic
conditions, adverse local market conditions due to over-building or a decrease
in employment or neighborhood values, changes in supply or demand of competing
properties in an area, changes in interest rates and the availability and terms
of permanent mortgage funds which may render the sale or refinancing of a
property difficult or unattractive, changes in real estate and zoning laws,
increases in real property tax rates, the potential imposition of rent controls,
and the occurrence of uninsured losses, such as earthquakes, floods or other
factors beyond the control of the General Partners. The illiquidity of real
estate investments generally will impair the ability of the Partnership to
respond promptly to changed circumstances.

Under recent adopted law and policy, HUD has determined not to renew HAP
contracts on a long term basis on the existing terms. In connection with
renewals of the HAP Contracts under such new law and policy, the amount of
rental assistance payments under renewed HAP Contracts will be based on market
rentals instead of above market rentals, which was generally the case under
existing HAP Contracts. As a result, existing HAP Contracts that are renewed in
the future on projects insured by the FHA will not provide sufficient cash flow
to permit owners of properties to meet the debt service requirements of these
existing FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family Assisted
Housing Reform and Affordability Act of 1997 (the "MAHRAA"), which was adopted
in October 1997, provides for the restructuring of mortgage loans insured by
the FHA with respect to properties subject to HAP Contracts that have been
renewed under the new policy. The restructured loans will be held by the
current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan
can be restructured to reduce the annual debt service on such loan. There can be
no assurance that the Partnership will be permitted to restructure its mortgage
indebtedness pursuant to the new HUD rules implementing MAHRAA or that the
Partnership would choose to restructure such mortgage indebtedness if it were
eligible to participate in the MAHRAA program. It should be noted that there
are uncertainties as to the economic impact on the Partnership of the
combination of the reduced payments under the HAP Contracts and the
restructuring of the existing FHA-insured mortgage loans under MAHRAA.
Accordingly, the General Partners are unable to predict with certainty their
impact on the Partnership's future cash flow.


<PAGE>   3

During 1997, the projects in which REP had invested were substantially rented.

The following is a schedule of the occupancy status, as of December 31, 1997, of
the projects in which REP has invested:


               SCHEDULE OF PROJECTS IN WHICH REP HAS AN INVESTMENT
                                DECEMBER 31, 1997



<TABLE>
<CAPTION>
                                 No. of    Units    Percentage of
Name & Location                  Units    Occupied  Total Units
---------------                  -----    --------  -----------
<S>                              <C>      <C>       <C>
Arbor Glen
         West Covina, CA          208       195         94%

Park Creek
         Canoga Park, CA          123       112         91%

Warner Willows I
         Woodland Hills, CA        74        74        100%

Warner Willows II
         Woodland Hills, CA        73        70         96%

Willowbrook Apartments
         Reno, NV                 183       175         96%
                                  ---       ---        ---

                                  661       626         95%
                                  ===       ===        ===
</TABLE>


<PAGE>   4

ITEM 2. PROPERTIES

Through acquisition, REP holds interests in real estate properties. See Item 1
and Schedule XI for information pertaining to these properties.


ITEM 3. LEGAL PROCEEDINGS

As of December 31, 1997, the Partnership's Corporate General Partner was a
plaintiff or defendant in several lawsuits. Additionally, certain slip and fall
lawsuits, each of which is covered by insurance, are pending against the
Partnership although none are expected to result in any exposure to the
Partnership.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED
        SECURITY HOLDER MATTERS

The Limited Partnership Interests are not traded on a public exchange but were
sold through a public offering managed by Lehman Brothers Inc. It is not
anticipated that any public market will develop for the purchase and sale of any
partnership interest. Limited Partnership Interests may be transferred only if
certain requirements are satisfied. At December 31, 1997, there were 3,115
registered holders of units in REP. It was intended that distributions of Net
Cash From Operations will be made to the limited partners of record on a
quarterly basis during the months of February, May, August, and November pro
rata in proportion to the number of units held. From November 1994 through May
1996, distributions to the limited partners were not made due to the Partnership
setting aside funds for losses incurred by REP as a result of the January 17,
1994 Northridge Earthquake. The Partnership made distributions of $600,000 and
$300,000 to the limited partners in 1997 and 1996, respectively. In addition,
distributions of $900,856 were made to the Corporate General Partner in 1997.


<PAGE>   5

ITEM 6.       SELECTED FINANCIAL DATA:


<TABLE>
<CAPTION>
                                              Year Ended December 31,
                         -----------------------------------------------------------------------
                             1997           1996          1995           1994          1993
                         ------------   ------------  ------------   ------------   ------------
<S>                      <C>            <C>           <C>            <C>            <C>         
Rental Revenues          $  4,925,227   $  4,935,895  $  5,486,329   $  5,678,656   $  5,463,671

Interest Income               105,777         89,711        49,476         37,710         12,779
                         ------------   ------------  ------------   ------------   ------------

   Total Revenues        $  5,031,004   $  5,025,606  $  5,535,805   $  5,716,366   $  5,476,450
                         ============   ============  ============   ============   ============

Net Income (Loss)        $   (245,972)  $    184,074  $   (324,850)  $ (1,024,765)  $   (279,385)
                         ============   ============  ============   ============   ============

Net Income (Loss)
   Per Limited
   Partnership Interest  $         (8)  $          6  $        (11)  $        (34)  $         (9)
                         ============   ============  ============   ============   ============

Rental Property
   Owned at Cost
   Less Accumulated
   Depreciation          $ 18,531,185   $ 19,269,597  $ 23,563,382   $ 24,473,838   $ 25,384,299
                         ============   ============  ============   ============   ============


Total Assets             $ 20,791,123   $ 22,049,995  $ 26,365,792   $ 26,668,029   $ 27,182,103
                         ============   ============  ============   ============   ============


Mortgage Notes Payable   $ 14,443,323   $ 14,064,914  $ 17,747,363   $ 17,959,940   $ 15,517,461
                         ============   ============  ============   ============   ============


Accrued Fees Due
   General Partner       $    735,685   $    693,560  $    651,320   $    609,195   $  2,836,956
                         ============   ============  ============   ============   ============

Cash Distributions
   Declared Per Limited
   Partnership Interest  $      50.03   $      10.00  $         --   $      15.00   $      10.00
                         ============   ============  ============   ============   ============

</TABLE>


<PAGE>   6

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS:

LIQUIDITY

The Partnership's primary source of funds include cash flow from rental
operations and interest income on certificates of deposit and money market
accounts.

Distributions of net cash from operations were normally intended to be made to
the Limited Partners of record on a quarterly basis during the months of
February, May, August, and November pro rata in proportion to the number of
Units held. From November 1994 through May 1996, distributions to the limited
partners were not made due to the Partnership setting aside funds for losses
incurred by REP as a result of the January 17, 1994 Northridge Earthquake. The
Partnership made quarterly distributions, each in the amount of $150,000, to the
limited partners, starting with August 1996.

Currently, it is anticipated that the Partnership will continue to meet its
current and long-term obligations as they become due.

CAPITAL RESOURCES

As of December 31, 1984, REP received proceeds of $30,000,000 from the sale of
limited partnership interests, pursuant to a registration statement on Form
S-11.

RESULTS OF OPERATIONS

REP was formed to invest in residential rental properties either directly or
through investments in joint ventures and other partnerships which will invest
in such real estate, as discussed in Item 1. The seven rental properties
originally owned by REP were acquired at various times during 1984 and 1985. The
Partnership remains invested in five rental properties as of December 31, 1997.

Rental operations consist primarily of rental income and depreciation expense,
debt service, and normal operating expenses to maintain the properties.
Depreciation is provided on the straight-line method over the estimated useful
lives of the buildings and equipment. Substantially all of the rental units in
the apartment projects are leased on a month-to-month basis.

An annual property management fee, which shall in any event not exceed 5 percent
of gross revenues from each property under management, is payable by the
properties to an affiliate of NAPICO.

The Parkside Apartments rental property was operating at a deficit and NAPICO
was unsuccessful in its attempt to negotiate a mortgage modification with the
lender to improve the situation. In March 1995, the Parkside Apartments rental
property ceased making payments to the mortgage lender. The mortgage lender
filed a notice of default on January 17, 1996, and foreclosed on the property on
May 23, 1996. The foreclosure resulted in a gain of $259,088 because the
Partnership was relieved of nonrecourse liabilities which were in excess of the
net book value of the property. The foreclosure of this property in 1996
accounts primarily for the decrease in rental revenues and expenses in 1997 and
1996 as compared to 1995. Included in revenues and expenses for 1996 is $127,000
and $179,000, respectively, related to Parkside Apartments, as compared to
$589,000 and $1,014,000, respectively, for 1995.

Occupancy at the Warner Willows I and II properties averaged 98%, 94% and 95% in
1997, 1996 and 1995, respectively. Both properties operated with positive cash
earnings in 1997, 1996 and 1995 (excluding earthquake repair costs, depreciation
and principal payments on the mortgage loans). Positive cash earnings for 1997
were approximately $71,000 and $28,000 for Warner Willows I and II,
respectively, for 1996 they were approximately $96,000 and $38,000 for Warner
Willows I and II, respectively, and for 1995 approximately $86,000 and $44,000
for Warner Willows I and II, respectively. See below for estimated costs related
to the Northridge Earthquake, which are not included in these amounts.



<PAGE>   7

Occupancy at the Arbor Glen property averaged 94%, 96% and 95% in 1997, 1996 and
1995, respectively. The property operated positively in 1997, 1996 and 1995, and
produced cash flows of approximately $288,000, $189,000 and $161,000,
respectively, (excluding depreciation and principal payments on the mortgage
loan).

Occupancy at the Park Creek property averaged 92%, 81% and 83% in 1997, 1996 and
1995, respectively. The property operated positively during 1997, 1996 and 1995,
producing cash earnings of approximately $119,000, $97,000 and $78,000,
respectively, (excluding earthquake repair costs, depreciation and principal
payments on the mortgage loan). See below for estimated costs related to the
Northridge Earthquake, which are not included in these amounts.

Occupancy at the Willowbrook property averaged 97%, 94% and 96%, in 1997, 1996
and 1995, respectively. The property operated positively during 1997, 1996 and
1995, producing cash flows of approximately $353,000, $364,000 and $257,000,
respectively, (excluding depreciation and principal payments on the mortgage
loan).

On January 17, 1994, the Park Creek and Warner Willows I and II rental
properties sustained damage, estimated at approximately $1,454,000, due to the
Northridge Earthquake in January 1994. Insurance proceeds of approximately
$630,000 have been allocated to the Partnership in 1994, as the estimated full
settlement under a master umbrella insurance policy covering earthquake damage
for these and other properties managed by a related party. The total estimated
expenditures needed to repair the properties, net of the insurance recoveries,
is approximately $824,000, and has been expensed in 1994 since they do not
extend the useful life of the properties. Included in liabilities is
approximately $506,000 and $516,000 at December 31, 1997 and 1996, respectively,
related to the Northridge Earthquake damages. Through December 31, 1997,
approximately $948,000 has been paid for earthquake repairs and of this amount
approximately $859,000 was paid to an affiliate of NAPICO. Included in payments
to the affiliate of NAPICO was approximately $122,000 paid under a contract for
$123,456 entered into by the Partnership on February 22, 1996, after receiving
competitive bids. The remaining earthquake repair work will be competitively
bid.

In March 1996, the Partnership received from the insurance company a final
settlement payment of $334,591 related to the earthquake loss. This was accrued
in income in 1995.

The Partnership operations consist primarily of interest income earned on
certificates of deposit and other temporary investments of funds not required
for investment in projects. The amount of interest income varies with market
rates available on certificates of deposit and with the amount of funds
available for investment.

Under recent adopted law and policy, the U.S. Department of Housing and Urban
Development ("HUD") has determined not to renew HAP contracts on a long term
basis on the existing terms. In connection with renewals of the HAP Contracts
under such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above market
rentals, which was generally the case under existing HAP Contracts. As a result,
existing HAP Contracts that are renewed in the future on projects insured by the
FHA will not provide sufficient cash flow to permit owners of properties to meet
the debt service requirements of these existing FHA-insured mortgages. In order
to address the reduction in payments under HAP Contracts as a result of this new
policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997
(the "MAHRAA"), which was adopted in October 1997, provides for the
restructuring of mortgage loans insured by the FHA with respect to properties
subject to HAP Contracts that have been renewed under the new policy. The
restructured loans will be held by the current lender or another lender. Under
MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual
debt service on such loan. There can be no assurance that the Partnership will
be permitted to restructure its mortgage indebtedness pursuant to the new HUD
rules implementing MAHRAA or that the Partnership would choose to restructure
such mortgage indebtedness if it were eligible to participate in the MAHRAA
program. It should be noted that there are uncertainties as to the economic
impact on the Partnership of the combination of the reduced payments under the
HAP Contracts and the restructuring of the existing FHA-incurred mortgage loans
under MAHRAA. Accordingly, the General Partners are unable to predict with
certainty their impact on the Partnership's future cash flow.

As a result of the foregoing, the Partnership is undergoing an extensive review
of disposition, refinancing or re-engineering alternatives for the properties
in which the limited partnerships have invested and are subject to HUD mortgage
and rental 

<PAGE>   8
subsidy programs. The Partnership has incurred expenses in connection with this
review by various third party professionals, including accounting, legal,
valuation, structural and engineering costs, which amounted to $136,815 for the
year ended December 31, 1997.

A real estate investment trust ("REIT") organized by an affiliate of NAPICO has
advised the Partnership that it intends to make a proposal to purchase from the
Partnership certain of the limited partnership interests held for investment by
the Partnership.

The REIT proposes to purchase such limited partner interests for cash, which it
plans to raise in connection with a private placement of its equity securities.
The purchase is subject to, among other things, (i) consummation of such
private placement by the REIT; (ii) the purchase of the general partner
interests in the local limited partnerships by the REIT; (iii) the approval of
HUD and certain state housing finance agencies; (iv) the consent of the limited
partners to the sale of the local limited partnership interests held for
investment by REP and (v) the consummation of a minimum number of purchase
transactions with other Casden affiliated partnerships. As of March 31, 1998,
the REIT had completed buy-out negotiations with a majority of the general
partners of the local limited partnerships.

A proxy is contemplated to be sent to the limited partners setting forth the
terms and conditions of the purchase of the limited partners' interests held
for investment by the Partnership, together with certain amendments to the
Partnership Agreement and other disclosures of various conflicts of interest in
connection with the transaction.

Operating expenses of the Partnership consist substantially of recurring general
and administrative expenses and professional fees for services rendered to the
Partnership and interest on the deferred acquisition fee due the General
Partners. Included in partnership general and administrative expenses for 1997
is $136,815 in expenses, approximately $61,000 of which is included in accounts
payable at December 31, 1997, related to the aforementioned third party review
of the properties owned by the local partnerships.

The Partnership is incurring interest expense at a rate of 8% per annum on the
unpaid fees due the corporate general partner. Under the terms of the Amended
and Restated Certificate and Agreement of Limited Partnership, the Partnership
is obligated to the corporate general partner for a deferred acquisition fee for
services rendered in connection with the selection, purchase, development, and
management of the Partnership and monitoring the operations of the properties,
in an amount which, when calculated on a present value basis (using a discount
factor of 8% for this purpose) from the date of payment to the general partners
to September 27, 1984 equals 10% of the gross proceeds of the offering
($3,000,000). Distribution of any part of this fee from net cash from operations
shall be subordinate to receipt by each limited partner of an amount equal to a
cumulative noncompounded 6% distribution. The acquisition fee distributed in any
year from net cash from operations shall not exceed an amount equal to 3% of
investment in properties (approximately $600,000) plus any proceeds from sale or
refinancing of the properties. An annual property management fee, which shall
not in any event exceed 5% of gross revenues from each property under
management, is also payable to an affiliate of the corporate general partner. As
of December 31, 1997 and 1996, approximately $736,000 and $694,000,
respectively, was outstanding. Interest expense to the corporate general partner
was approximately $42,000 in each of the years in the three year period ended
December 31, 1997.

The Partnership has assessed the potential impact of the Year 2000 computer
systems issue on its operations. The Partnership believes that no significant
actions are required to be taken by the Partnership to address the issue and
that the impact of the Year 2000 computer systems issue will not materially
affect the Partnership's future operating results or financial condition.
<PAGE>   9


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements and Supplementary Data are listed under Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not applicable.

<PAGE>   10

                              REAL-EQUITY PARTNERS
                       (A California limited partnership)

                              FINANCIAL STATEMENTS,
                          FINANCIAL STATEMENT SCHEDULE
                   AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
                                DECEMBER 31, 1997



<PAGE>   11

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Partners of
Real-Equity Partners
(A California limited partnership)

We have audited the accompanying balance sheets of Real-Equity Partners (a
California limited partnership) as of December 31, 1997 and 1996, and the
related statements of operations, partners' equity (deficiency) and cash flows
for each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedule listed in the index on item 14.
These financial statements and financial statement schedule are the
responsibility of the management of the Partnership. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Real-Equity Partners as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


DELOITTE & TOUCHE LLP

Los Angeles, California
April 6, 1998

<PAGE>   12

                              REAL-EQUITY PARTNERS
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                     ASSETS
                                                            1997           1996
                                                        ------------   ------------
<S>                                                     <C>            <C>         
RENTAL PROPERTY, at cost (Notes 1 and 2)
   Land                                                 $  6,553,357   $  6,553,357
   Buildings                                              22,096,723     22,096,723
   Furniture and equipment                                 3,720,901      3,720,901
                                                        ------------   ------------
                                                          32,370,981     32,370,981
   Less accumulated depreciation                         (13,839,796)   (13,101,384)
                                                        ------------   ------------

                                                          18,531,185     19,269,597
                                                        ------------   ------------

CASH AND CASH EQUIVALENTS                                  1,354,289      1,884,218
                                                        ------------   ------------

OTHER  ASSETS:
   Due from affiliated rental agent, including
     restricted cash held for security deposits
     of $37,845 and $36,876 at December 31, 1997
     and 1996, respectively (Note 5)                         645,785        652,923
   Other receivables and prepaid expenses                    259,864        243,257
                                                        ------------   ------------
                                                             905,649        896,180
                                                        ------------   ------------

     TOTAL ASSETS                                       $ 20,791,123   $ 22,049,995
                                                        ============   ============


             LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
  Mortgage notes payable (Notes 2 and 8)                $ 14,443,323   $ 14,064,914
  Accrued fees and expenses due general partner
    (Notes 6 and 8)                                          735,685        693,560
  Accrued interest payable (Note 2)                           56,383         56,541
  Accounts payable and accrued expenses (Note 1)             270,019        179,681
  Liability for earthquake loss (Note 1)                     506,016        516,150
  Tenant security deposits                                   217,066        229,690
                                                        ------------   ------------
                                                          16,228,492     15,740,536
                                                        ------------   ------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 6 and 7)

PARTNERS' EQUITY                                           4,562,631      6,309,459
                                                        ------------   ------------

TOTAL LIABILITIES AND PARTNERS' EQUITY                  $ 20,791,123   $ 22,049,995
                                                        ============   ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.


<PAGE>   13

                              REAL-EQUITY PARTNERS
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                           1997         1996          1995
                                                       -----------   -----------   -----------
<S>                                                    <C>           <C>           <C>        
RENTAL OPERATIONS:
     Revenues
         Rental income                                 $ 4,738,515   $ 4,764,778   $ 5,195,601
         Other income                                      186,712       171,117       290,728
                                                       -----------   -----------   -----------
                                                         4,925,227     4,935,895     5,486,329
                                                       -----------   -----------   -----------
     Expenses
         Operating expenses                              2,355,167     2,201,513     2,803,364
         Management fees - affiliate (Note 5)              241,877       243,445       301,998
         Depreciation (Note 1)                             738,412       824,434       910,456
         General and administrative expenses               210,821       265,435       254,768
         Interest expense (Note 2)                       1,375,450     1,407,333     1,739,076
         Benefit from earthquake loss (Note 1)                  --            --      (334,591)
                                                       -----------   -----------   -----------

                                                         4,921,727     4,942,160     5,675,071
                                                       -----------   -----------   -----------

         Income (loss) from rental operations                3,500        (6,265)     (188,742)
                                                       -----------   -----------   -----------

PARTNERSHIP OPERATIONS:
     Interest income                                       105,777        89,711        49,476
                                                       -----------   -----------   -----------

     Expenses
         General and administrative expenses (Note 6)      250,248        77,939        93,076
         Professional fees                                  62,876        38,281        50,383
         Interest expense - general partner (Note 6)        42,125        42,240        42,125
                                                       -----------   -----------   -----------

                                                           355,249       158,460       185,584
                                                       -----------   -----------   -----------

         Loss from partnership operations                 (249,472)      (68,749)     (136,108)
                                                       -----------   -----------   -----------

GAIN ON FORECLOSURE OF RENTAL PROPERTY
     (Note 1)                                                   --       259,088            --
                                                       -----------   -----------   -----------

NET (LOSS) INCOME                                      $  (245,972)  $   184,074   $  (324,850)
                                                       ===========   ===========   ===========

NET (LOSS) INCOME PER LIMITED PARTNERSHIP
     INTEREST (Note 4)                                 $        (8)  $         6   $       (11)
                                                       ===========   ===========   ===========

</TABLE>


   The accompanying notes are an integral part of these financial statements.

<PAGE>   14

                              REAL-EQUITY PARTNERS
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                   STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                             General       Limited
                                             Partners      Partners        Total
                                            -----------   -----------   -----------
<S>                                         <C>           <C>           <C>        
EQUITY (DEFICIENCY),
    January 1, 1995                         $  (717,075)  $ 7,467,310   $ 6,750,235

    Net loss for 1995                            (3,249)     (321,601)     (324,850)
                                            -----------   -----------   -----------

EQUITY (DEFICIENCY),
    December 31, 1995                          (720,324)    7,145,709     6,425,385

    Net income for 1996                           1,840       182,234       184,074
    Cash distributions ($10.00 per limited
    partner unit) for 1996 (Note 1)                  --      (300,000)     (300,000)
                                            -----------   -----------   -----------

EQUITY (DEFICIENCY),
    December 31, 1996                          (718,484)    7,027,943     6,309,459

    Net loss for 1997                            (2,460)     (243,512)     (245,972)
    Cash distributions ($50.03 per limited
    partner unit) for 1997 (Note 1)            (900,856)     (600,000)   (1,500,856)
                                            -----------   -----------   -----------

EQUITY (DEFICIENCY),
    December 31, 1997                       $(1,621,800)  $ 6,184,431   $ 4,562,631
                                            ===========   ===========   ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

<PAGE>   15

                              REAL-EQUITY PARTNERS
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                            1997         1996          1995
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net (loss) income                                   $  (245,972)  $   184,074   $  (324,850)
    Adjustments to reconcile net (loss) income  to net
      cash provided by operating activities:
        Depreciation                                        738,412       824,434       910,456
        Gain on foreclosure of rental property                   --      (259,088)
        Benefit from earthquake loss                             --            --      (334,591)
    Changes in operating assets and liabilities:
      Decrease (increase) in:
        Due from affiliated rental agent                      7,138      (287,141)      254,491
        Other receivables and prepaid expenses              (16,607)      (38,579)       69,985
        Receivable for earthquake loss                           --       334,591            --
    Increase (decrease) in:
        Accrued fees and expenses due general partner        42,125        42,240        42,125
        Accounts payable and accrued expenses                90,338       (13,866)       43,642
        Accrued interest payable                               (158)      (50,548)      202,000
        Liability for earthquake loss                       (10,134)     (111,588)      (28,990)
        Tenant security deposits                            (12,624)       (5,388)      (23,587)
                                                        -----------   -----------   -----------

    Net cash provided by operating activities               592,518       619,141       839,671
                                                        -----------   -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Distributions to partners                            (1,500,856)     (300,000)           --
    Principal payments on mortgage notes payable           (229,684)     (228,964)     (212,577)
    Proceeds from mortgage notes payable                  5,600,000            --            --
    Payment of mortgage notes payable                    (4,991,907)           --            --
                                                        -----------   -----------   -----------

          Net cash (used in) provided by
            financing activities                         (1,122,447)      528,964      (241,567)
                                                        -----------   -----------   -----------

NET INCREASE IN CASH AND CASH
     EQUIVALENTS                                           (529,929)       90,177       598,104

CASH AND CASH EQUIVALENTS,
    beginning of year                                     1,884,218     1,794,041     1,195,937
                                                        -----------   -----------   -----------

CASH AND CASH EQUIVALENTS,
     end of year                                        $ 1,354,289   $ 1,884,218   $ 1,794,041
                                                        ===========   ===========   ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
    Interest Paid                                       $ 1,375,608   $ 1,356,785   $ 1,537,075
                                                        ===========   ===========   ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


<PAGE>   16

                              REAL-EQUITY PARTNERS
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995



<TABLE>
<CAPTION>
                                                                     1997        1996        1995
                                                                   --------  -----------   --------
<S>                                                                <C>       <C>           <C> 
NON CASH INVESTING AND FINANCING ACTIVITIES
       During 1996, the Partnership was relieved of a nonrecourse
         mortgage note payable and related accrued interest upon
         foreclosure of a rental property, summarized as follows:
           Mortgage note payable                                   $     --  $ 3,453,485   $     --
           Accrued interest payable                                      --      281,462         --
           Write off of rental property                                  --   (3,469,351)        --
           Write off of other assets and liabilities                     --       (6,508)        --
                                                                   --------  -----------   --------

       Gain on foreclosure of rental property                      $     --  $   259,088   $     --
                                                                   ========  ===========   ========

</TABLE>


   The accompanying notes are an integral part of these financial statements.


<PAGE>   17

                              REAL-EQUITY PARTNERS
                       (a California limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a.    Organization

               Real-Equity Partners (the "Partnership") was formed under the
               California Limited Partnership Act on September 9, 1981. The
               Partnership was formed to invest in residential rental projects.
               The Partnership invested in seven residential apartment projects;
               one of these properties was foreclosed in March 1993. The general
               partners of the Partnership are National Partnership Investments
               Corp. (NAPICO), the corporate general partner, and National
               Partnership Investments Associates II (NAPIA II), a California
               limited partnership. Casden Investment Corporation owns 100
               percent of NAPICO's stock. The business of REP is conducted
               primarily by NAPICO.

               The Partnership offered and issued 30,000 units of limited
               partnership interests through a public offering. The terms of the
               Amended and Restated Certificate and Agreement of Limited
               Partnership (the "Partnership Agreement") provide, among other
               things, for allocation to the partners of profits, losses and any
               special allocations with respect thereto. Under the terms of the
               Partnership Agreement, cash available for distribution is to be
               allocated 90 percent to the limited partners as a group and 10
               percent to the general partners. Based on cash distributions made
               to the limited partners as of December 31, 1996, $834,188 was due
               to the general partners as their 10% percent share of cash
               available for distribution. This amount was paid to the general
               partners in February 1997.

               In the case of the sale or refinancing of a property, the general
               partners shall first receive out of the net proceeds from sale or
               refinancing any unpaid portion of the deferred acquisition fee
               (see Note 6). Thereafter, the general partners shall receive 1
               percent of the net proceeds from the sale or refinancing until
               the limited partners have received an amount equal to their
               adjusted capital value (as defined in the Partnership Agreement)
               plus cumulative distributions (including net cash from
               operations) equal to a non-compounded 6 percent annual
               distribution with respect to their adjusted capital value, and
               then the general partners shall receive 15 percent of the balance
               of any net proceeds from sale or refinancing.

               Losses are allocated 99% to the limited partners and 1% to the
               general partners.

         b.    Use of Estimates

               The preparation of financial statements in conformity with
               generally accepted accounting principles 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 reported
               amounts of revenues and expenses during the reporting period.
               Actual results could differ from those estimates.

         c.    Rental Property and Depreciation

               Rental property is stated at cost. Depreciation is provided on
               the straight-line method over the estimated useful lives of the
               buildings and equipment as follows:


                                        5

<PAGE>   18


                              REAL-EQUITY PARTNERS
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

<TABLE>
<CAPTION>
                     Asset                               Estimated Useful Lives
                     -----                               ----------------------
<S>                                                      <C>     
                     Buildings                                30 years
                     Furniture and equipment                   5 years
</TABLE>

               The Parkside Apartments rental property was operating at a
               deficit and NAPICO was unsuccessful in its attempt to negotiate a
               mortgage modification with the lender to improve the situation.
               In March 1995, the Parkside Apartments rental property ceased
               making payments to the mortgage lender. The mortgage lender filed
               a notice of default on January 17, 1996, and foreclosed on the
               property on May 23, 1996. The foreclosure resulted in a gain of
               $259,088 because the Partnership was relieved of nonrecourse
               liabilities which were in excess of the net book value of the
               property. The gain was classified as an ordinary gain because the
               fair value of the property approximated the liabilities that were
               relieved.

               On January 17, 1994, the Park Creek and Warner Willows I and II
               rental properties sustained damage, estimated at approximately
               $1,454,000, due to the Northridge Earthquake in the Los Angeles
               area. Insurance proceeds of approximately $630,000 have been
               allocated to the Partnership in 1994, as the estimated full
               settlement under a master umbrella insurance policy covering
               earthquake damage for these and other properties managed by a
               related party. The total estimated expenditures needed to repair
               the properties, net of the insurance recoveries, which nets to
               approximately $824,000, have been expensed in 1994 since they do
               not extend the useful life of the properties.

               In March 1996, the Partnership received from the insurance
               company a final settlement payment of $334,591 related to the
               earthquake loss. This was accrued in income in 1995.

               Substantially all of the apartments are leased on a
               month-to-month basis.

               Under recent adopted law and policy, the U.S. Department of
               Housing and Urban Development ("HUD") has determined not to renew
               HAP contracts on a long term basis on the existing terms. In
               connection with renewals of the HAP Contracts under such new law
               and policy, the amount of rental assistance payments under
               renewed HAP Contracts will be based on market rentals instead of
               above market rentals, which was generally the case under existing
               HAP Contracts. As a result, existing HAP Contracts that are
               renewed in the future on projects insured by the FHA will not
               provide sufficient cash flow to permit owners of properties to
               meet the debt service requirements of these existing FHA-insured
               mortgages. In order to address the reduction in payments under
               HAP Contracts as a result of this new policy, the Multi-family
               Assisted Housing Reform and Affordability Act of 1997 (the
               "MAHRAA"), which was adopted in October 1997, provides for the
               restructuring of mortgage loans insured by the FHA with respect
               to properties subject to HAP Contracts that have been renewed
               under the new policy. The restructured loans will be held by the
               current lender or another lender. Under MAHRAA, an FHA-insured
               mortgage loan can be restructured to reduce the annual debt
               service on such loan. There can be no




                                        6

<PAGE>   19

                              REAL-EQUITY PARTNERS
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

               assurance that the Partnership will be permitted to restructure
               its mortgage indebtedness pursuant to the new HUG rules
               implementing MAHRAA or that the Partnership would choose to
               restructure such mortgage indebtedness if it were eligible to
               participate in the MAHRAA program. It should be noted that there
               are uncertainties as to the economic impact on the Partnership of
               the combination of the reduced payments under the HAP Contracts
               and the restructuring of the existing FHA-insured mortgage loans
               under MAHRAA. Accordingly, the General Partners are unable to
               predict with certainty their impact on the Partnership's future
               cash flow.

               As a result of the foregoing, the Partnership is undergoing an
               extensive review of disposition, refinancing or re-engineering
               alternatives for the properties in which the limited partnerships
               have invested and are subject to HUD mortgage and rental subsidy
               programs. The Partnership has incurred expenses in connection
               with this review by various third party professionals, including
               accounting, legal, valuation, structural and engineering costs,
               which amounted to $136,815 for the year ended December 31, 1997.

               A real estate investment trust ("REIT") organized by an affiliate
               of NAPICO has advised the Partnership that it intends to make a
               proposal to purchase from the Partnership certain of the limited
               partnership interests held for investment by the Partnership.

               The REIT proposes to purchase such limited partner interests for
               cash, which it plans to raise in connection with a private
               placement of its equity securities. The purchase is subject to,
               among other things, (i) consummation of such private placement by
               the REIT; (ii) the purchase of the general partner interests in
               the local limited partnerships by the REIT; (iii) the approval of
               HUD and certain state housing finance agencies; (iv) the consent
               of the limited partners to the sale of the local limited
               partnership interests held for investment by REP; and (v) the
               consummation of a minimum number of purchase transactions with
               other Casden affiliated partnerships. As of march 31, 1998, the
               REIT had completed buy-out negotiations with a majority of the
               general partners of the local limited partnerships.

               A proxy is contemplated to be sent to the limited partners
               setting forth the terms and conditions of the purchase of the
               limited partners' interests held for investment by the
               Partnership, together with certain amendments to the Partnership
               Agreement and other disclosures of various conflicts of interest
               in connection with the transaction.

<TABLE>
<CAPTION>
<S>            <C>
          d.   Cash and Cash Equivalents

               Cash and cash equivalents consist of unrestricted cash and bank
               certificates of deposits with an original maturity of three 
               months or less.

</TABLE>


                                       7

<PAGE>   20

                              REAL-EQUITY PARTNERS
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

<TABLE>
<CAPTION>

          e.   Impairment of Long-Lived Assets

               The Partnership reviews long-lived assets to determine if there 
               has been any permanent impairment whenever events or changes in
               circumstances indicate that the carrying amount of the asset may
               not be recoverable. If the sum of the expected future cash flows
               is less than the carrying amount of the assets, the Partnership 
               recognizes an impairment loss.

2.   MORTGAGE NOTES PAYABLE

     Mortgage notes payable consists of the following:

                                                                                     1997               1996
                                                                                  -----------       ------------
<S>                                                                               <C>               <C>

          a.   Mortgage note bearing interest at the rate of 9.125 percent
               per annum  (10.375 percent per annum in 1996), payable in
               monthly installments of $45,563 including interest through
               May 2007, at which time the then outstanding principal
               balance is due and payable.  Secured by land and buildings
               with a net book value of $5,368,051 at December 31, 1997.
               On May 21, 1997 the note was refinanced with another lender.
                                                                                  $5,574,398        $4,991,907
 
          b.   Mortgage note bearing interest at the rate of
               prime plus two percent per annum, adjusted
               semi-annually; payable in monthly install-
               ments including interest through September
               22, 1998, at which time the then outstanding
               principal balance is due and payable.
               Secured by land and buildings with a net
               book value of $3,185,013 at December 31,
               1997.  The interest rate at December 31,
               1997 was 10.50 percent per annum.
                                                                                   1,280,984         1,311,730
          c.   Mortgage note bearing interest at the rate of
               prime plus two percent per annum, adjusted
               semi-annually; payable in monthly install-
               ments including interest through March 1,
               2001, at which time the then outstanding
               principal balance is due and payable.
               Secured by land and buildings with a net
               book value of $3,316,625 at December 31,
               1997.  The interest rate at December 31,
               1997 was 10.50 percent per annum.
                                                                                   2,715,447         2,764,546




</TABLE>
   



                                        8

<PAGE>   21

                              REAL-EQUITY PARTNERS
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

2.      MORTGAGE NOTES PAYABLE (CONTINUED)

<TABLE>
<CAPTION>
                                                                                  1997                1996
                                                                              -----------          ----------
<S>                                                                           <C>                  <C>      

        d.    Mortgage note bearing interest at the rate of
              prime plus two percent per annum, adjusted
              semi-annually; payable in monthly install-
              ments including interest through March 1,
              2001, at which time the then outstanding 
              principal balance is due and payable.
              Secured by land and buildings with a net
              book value of $3,018,333 at December 31,
              1997. The interest rate at December 31,
              1997 was 10.50 percent per annum.
                                                                                2,654,098           2,702,119
        e.    Mortgage note insured by the Department of
              Housing and Urban Development (HUD)
              under the Section 221(d)(4) program,
              bearing interest at the rate of 7 percent per
              annum, payable in monthly installments of
              $19,570 including interest through 2013, at
              which time the then outstanding principal
              balance is due and payable.  Secured by land
              and buildings with a net book value of
              $3,643,163 at December 31, 1997. The
              project is regulated by HUD as to rent
              charges, operating methods and annual
              distributions.
                                                                                2,218,396           2,294,612
                                                                              -----------         -----------

                                                                              $14,443,323         $14,064,914
                                                                              ===========         ===========

</TABLE>




                                        9

<PAGE>   22

                              REAL-EQUITY PARTNERS
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

2.     MORTGAGE NOTES PAYABLE (CONTINUED)

       Maturities on the mortgage notes payable, are as follows:

<TABLE>
<CAPTION>
             Years Ended December 31,
             ------------------------

<S>             <C>                          <C>        
                1998                         $ 2,079,632
                1999                             808,306
                2000                             818,746
                2001                           3,489,918
                2002                             164,824
              Thereafter                       7,081,897
                                             -----------
                                             $14,443,323
                                             ===========
</TABLE>


3.     INCOME TAXES

       No provision has been made for income taxes in the accompanying financial
       statements as such taxes, if any, are the liability of the individual
       partners. The major differences in tax and financial reporting result
       from the use of different bases and depreciation methods for rental
       property held by the Partnership.

4.     NET LOSS PER LIMITED PARTNERSHIP INTEREST

       Net loss per limited partnership interest was computed by dividing the
       limited partners' share of net loss by 30,000, the number of limited
       partnership interests outstanding during each year.

5.     RELATED PARTY TRANSACTIONS

       The Partnership has entered into agreements with an affiliate of NAPICO
       to manage the operations of the rental properties. The agreements are on
       a month-to-month basis and provide, among other things, for a management
       fee equal to 5% of gross rentals and other collections plus reimbursement
       of certain expenses. The affiliate received property management fees of
       $241,877 and $243,445 and $301,998 in 1997, 1996 and 1995, respectively.

       An affiliate of NAPICO performed certain of the earthquake repairs at the
       Park Creek and Warner Willows I and II rental properties. The payments to
       this affiliate for these repairs was approximately $859,000 as of
       December 31, 1997 (Note 1). Included in payments to the affiliate of
       NAPICO was approximately $122,000 paid under a contract for $123,456
       entered into by the Partnership on February 22, 1996, after receiving
       competitive bids. The remaining earthquake repair work will be
       competitively bid.



                                       10


<PAGE>   23

                              REAL-EQUITY PARTNERS
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

5.     RELATED PARTY TRANSACTIONS (CONTINUED)

       The Partnership reimburses NAPICO for certain expenses. The reimbursement
       to NAPICO was $12,606, $12,426 and $10,704 in 1997, 1996 and 1995,
       respectively, and is included in partnership general and administrative
       expenses.

6.     ACCRUED FEES DUE GENERAL PARTNER

       Under the terms of the Partnership Agreement, the Partnership is
       obligated to NAPICO for a deferred acquisition fee. This fee is for
       services rendered in connection with the management of the Partnership,
       and the selection, purchase, acquisition, development and monitoring the
       operations of its properties.

       Distribution of any part of this fee from net cash from operations shall
       be subordinated to receipt by each limited partner of an amount equal to
       a cumulative, non-compounded 6 percent annual distribution with respect
       to his adjusted capital value (as defined in the Partnership Agreement).
       The aggregate amount of the deferred acquisition fee distributed in any
       year from net cash from operations shall not exceed an amount equal to 3
       percent of the investment in properties plus any proceeds from sale or
       refinancing of the properties. The deferred acquisition fee shall be an
       amount which, when present valued at 8 percent from certain dates, as
       defined in the partnership agreement, equals 10 percent of the gross
       proceeds of the offering ($3,000,000). Distribution of the deferred
       acquisition fee will be made from net cash from operations and net
       proceeds from sale or refinancing for a maximum of 15 years, or until the
       above limit is met.

       The present value of the deferred acquisition fee of $1,783,767 has been
       reflected in the accompanying financial statements and has been
       capitalized as part of the cost of rental property acquired. The amount
       outstanding as of December 31, 1997 and 1996 was $735,685 and $693,560,
       respectively, which is not currently payable based on the terms of the
       Partnership Agreement.

7.     CONTINGENCIES

       a)   Litigation

            The corporate general partner of the Partnership is a plaintiff in
            various lawsuits and has also been named as defendant in other
            lawsuits arising from transactions in the ordinary course of
            business. In the opinion of management and the corporate general
            partner, these claims will not result in any material liability to
            the Partnership.

       b)   Year 2000 Information

            The Partnership has assessed the potential impact of the Year 2000
            computer systems issue on its operations. The Partnership believes
            that no significant actions are required to be taken by the
            Partnership to address the issue and that the impact of the Year
            2000 computer systems issue will not materially affect the
            Partnership's future operating results or financial condition.

                                       11

<PAGE>   24
                              REAL-EQUITY PARTNERS
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1997


8.     FAIR VALUE OF FINANCIAL INSTRUMENTS

       Statement of Financial Accounting Standards No. 107, "Disclosure about
       Fair Value of Financial Instruments," requires disclosure of fair value
       information about financial instruments, when it is practicable to
       estimate that value. One of the mortgage notes payable is insured by HUD
       and is secured by a rental property. The operations generated by the
       property are subject to various government rules, regulations and
       restrictions which make it impracticable to estimate the fair value of
       this mortgage note payable. The book values of all other debt instruments
       approximate their fair values because the interest rates of these
       instruments are comparable to rates currently offered to the Partnership.
       The carrying amount of other assets and liabilities reported on the
       balance sheets that require such disclosure approximates fair value due
       to their short-term maturity.




                                       12
<PAGE>   25


                                                                    SCHEDULE III

                              REAL-EQUITY PARTNERS
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                              Total Land,
                                                                              Buildings       Buildings,
 Partnership                  Number of       Outstanding                  Furnishings and  Furnishings and  Accumulated
  Location                      Units          Mortgage         Land          Equipment       Equipment      Depreciation
-------------                -----------     -----------     -----------     -----------     -----------     -----------
<S>                          <C>             <C>             <C>             <C>             <C>             <C>        
Arbor Glen -
  West Covina, CA                    208     $ 5,574,398     $ 1,253,592     $ 8,874,255     $10,127,847     $ 4,759,796

Park Creek -
  Canoga Park, CA                    123       1,280,984       1,403,251       4,213,772       5,617,023       2,432,010

Warner Willows I -
   Woodlands Hills, CA                74       2,715,447       1,609,206       3,871,310       5,480,516       2,163,891

Warner Willows II -
  Woodland Hills, CA                  73       2,654,098       1,419,077       3,531,025       4,950,102       1,931,769

Willowbrook Apartments -
  Reno, NV                           183       2,218,396         868,231       5,327,262       6,195,493       2,552,330
                             -----------     -----------     -----------     -----------     -----------     -----------

                                     661     $14,443,323     $ 6,553,357     $25,817,624     $32,370,981     $13,839,796
                             ===========     ===========     ===========     ===========     ===========     ===========

</TABLE>


<PAGE>   26

                                                                    SCHEDULE III
                                                                     (Continued)

                              REAL-EQUITY PARTNERS
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31, 1997



NOTES:   1.       Rental property is stated at cost. Depreciation is provided 
                  for on the straight-line method over the estimated useful
                  lives of the buildings and equipment. Substantially all of the
                  apartments are leased on a month-to-month basis.

         2.       The total cost of land, buildings, and equipment for federal
                  income tax purposes at December 31, 1997 is approximately
                  $38,896,531.

         3.       Investments in property and equipment are as follows:


<TABLE>
<CAPTION>
                                                    Buildings
                                                   Furnishings,
                                                       And
                                    Land            Equipment          Total
                                 ------------      ------------      ------------
<S>                              <C>               <C>               <C>         
Balance at January 1, 1995       $  7,077,565      $ 30,983,361      $ 38,060,926

Net additions, 1995                        --                --                --
                                 ------------      ------------      ------------

Balance of December 31, 1995        7,077,565        30,983,361        38,060,926

Net additions, 1996                        --                --                --

Less Parkside foreclosure            (524,208)       (5,165,737)       (5,689,945)
                                 ------------      ------------      ------------

Balance at December 31, 1996        6,553,357        25,817,624        32,370,981

Net additions, 1997                        --                --                --
                                 ------------      ------------      ------------

Balance at December 31, 1997     $  6,553,357      $ 25,817,624      $ 32,370,981
                                 ============      ============      ============

</TABLE>


<PAGE>   27

                                                                    SCHEDULE III
                                                                     (Continued)


                              REAL-EQUITY PARTNERS
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                  Buildings,
                                                                 Furnishings,
                                                                     And
                                                                   Equipment
                                                                 -------------
<S>                                                              <C>            
Accumulated Depreciation:

Balance at January 1, 1995                                       $ 13,587,088

Net additions 1995                                                    910,456
                                                                 ------------

Balance at December 31, 1995                                       14,497,544

Net additions 1996                                                    824,434

Less Parkside foreclosure                                          (2,220,594)
                                                                 ------------

Balance at December 31, 1996                                       13,101,384

Net additions 1997                                                    738,412
                                                                 ------------

Balance at December 31, 1997                                     $ 13,839,796
                                                                 ============

</TABLE>


<PAGE>   28

PART III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

REAL-EQUITY PARTNERS (the "Partnership") has no directors or executive officers
of its own.

National Partnership Investment Corporation ("NAPICO" or "the Managing General
Partner") is a wholly owned subsidiary of Casden Investment Corporation, an
affiliate of The Casden Company. The following biographical information is
presented for the directors and executive officers of NAPICO with principal
responsibility for the Partnership's affairs.

CHARLES H. BOXENBAUM, 68, Chairman of the Board of Directors and Chief Executive
Officer of NAPICO.

Mr. Boxenbaum has been associated with NAPICO since its inception. He has been
active in the real estate industry since 1960, and prior to joining NAPICO was a
real estate broker with the Beverly Hills firm of Carl Rhodes Company.

Mr. Boxenbaum has been a guest lecturer at national and state realty
conventions, certified properties exchanger's seminars, Los Angeles Town Hall,
National Association of Home Builders, International Council of Shopping
Centers, Society of Conventional Appraisers, California Real Estate Association,
National Institute of Real Estate Brokers, Appraisal Institute, various mortgage
banking seminars, and the North American Property Forum held in London, England.
In 1963, he was the winner of the Snyder Award, the highest annual award offered
by the National Association of Real Estate Boards for Best Exchange. He is one
of the founders and a past director of the First Los Angeles Bank, organized in
November 1974. Mr. Boxenbaum was a member of the Board of Directors of the
National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree
from the University of Chicago.

BRUCE E. NELSON, 46, President and a director of NAPICO.

Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is
responsible for the operations of all NAPICO sponsored limited partnerships.
Prior to that he was primarily responsible for the securities aspects of the
publicly offered real estate investment programs. Mr. Nelson is also involved in
the identification, analysis and negotiation of real estate investments.

From February 1979 to October 1980, Mr. Nelson held the position of Associate
General Counsel at Western Consulting Group, Inc., private residential and
commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged
in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor
of Arts degree from the University of Wisconsin and is a graduate of the
University of Colorado School of Law. He is a member of the State Bar of
California and is a licensed real estate broker in California and Texas.

ALAN I. CASDEN, 52, Chairman of The Casden Company, an affiliate of Casden
Properties (formerly CoastFed Properties), a director and member of the audit
committee of NAPICO, and chairman of the Executive Committee of NAPICO.

Mr. Casden is Chairman of the Board, Chief Executive Officer and a principal
shareholder of The Casden Company and Casden Investment Company. Prior to that,
he was the president and chairman of Mayer Group, Inc., which he joined in 1975.
He is also president of Mayer Management, Inc., a real estate management firm.
Mr. Casden has been involved in approximately $3 billion of real estate
financings and sales and has been responsible for the development and
construction of more than 12,000 apartment units and 5,000 single-family homes
and condominiums.



<PAGE>   29

Mr. Casden is a member of the American Institute of Certified Public Accountants
and of the California Society of Certified Public Accountants. Mr. Casden is a
member of the advisory board of the National Multi-Family Housing Conference,
the Multi-Family Housing Council, and the President's Council of the California
Building Industry Association. He also serves on the advisory board to the
School of Accounting of the University of Southern California. He holds a
Bachelor of Science degree from the University of Southern California.

HENRY C. CASDEN, 54, President, Chief Operating Officer and Secretary of The
Casden Company and a director and secretary of NAPICO.

Mr. Casden has been President and Chief Operating Officer of The Casden Company,
as well as a director of NAPICO since February 1988. He became secretary of both
companies in late 1994. From 1982 to 1988, Mr. Casden was of counsel and a
partner in the Los Angeles law firm of Troy, Casden & Gould. From 1978 to 1981,
he was of counsel and a partner in the Los Angeles law firm of Loeb & Loeb. From
1972 to 1978, Mr. Casden was a member of the Beverly Hills law firm of Fink &
Casden, Professional Corporation.

Mr. Casden received his Bachelor of Arts degree from the University of
California at Los Angeles, and is a graduate of the University of San Diego Law
School. Mr. Casden is a member of the State Bar of California and has numerous
professional affiliations.

BOB SCHAFER, 56, Senior Vice President of Finance.

Mr. Schafer joined NAPICO in 1984 and is the Corporate Controller responsible
for the financial reporting function of the Company. Prior to this, he was a
Group and Division Controller at Bergen Brunswig for over eight years,
Controller at a Flintkote subsidiary for over four years, and Assistant
Controller at an electronics subsidiary of General Electric for two years. Mr.
Schafer is a member of the California Society of Certified Public Accountants.
He holds a Bachelor of Science degree in accounting from Woodbury University,
Los Angeles.

PATRICIA W. TOY, 68, Senior Vice President - Communications and Assistant
Secretary.

Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the
Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a
U.S. Naval Officer in communications and personnel assignments. She holds a
Bachelor of Arts degree from the University of Nebraska.

MARK L. WALTHER, 37, Executive Vice President, General Counsel and Assistant
Secretary.

Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of
the NAPICO sponsored limited partnerships. Prior to joining NAPICO, Mr. Walther
worked in the San Francisco law firm of Browne and Kahn which specialized in
construction litigation. Mr. Walther received his Bachelor of Arts degree in
Political Science from the University of California, Santa Barbara and is a
graduate of the University of California, Davis, School of Law. He is a member
of the State Bar of Hawaii.

NAPICO and several of its officers, directors and affiliates, including Charles
H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on
June 25, 1997, of an administrative cease and desist order by the U.S.
Securities and Exchange Commission (the "Commission"), without admitting or
denying any of the findings made by the Commission. The Commission found that
NAPICO and others had violated certain federal securities laws in connection
with transactions unrelated to the Partnership. The Commission's order did not
impose any cost, burden or penalty on any partnership managed by NAPICO and
does not impact NAPICO's ability to serve as the Partnership's Managing General
Partner.
<PAGE>   30

ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS

The Partnership has no officers, directors, or employees of its own. All of its
affairs are managed by the Corporate General Partner, NAPICO. The transactions
with NAPICO and its affiliates are primarily in the form of fees paid by the
Partnership to NAPICO for services rendered to the Partnership, as follows.

Under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to NAPICO for a deferred acquisition
fee for services rendered in connection with the management of the Partnership
and the selection, purchase, development, and monitoring the operations of the
properties, in an amount approximately equal to 10 percent (on a present value
basis) of the gross proceeds of the offering. Distribution of any part of this
fee shall be subordinated to receipt by each limited partner of an amount equal
to a cumulative noncompounded 6 percent annual distribution with respect to his
adjusted Adjusted Capital Value. The aggregate amount of the deferred
acquisition fee distributed in any year from net cash from operations shall not
exceed an amount equal to 3 percent of investment in properties (approximately
$600,000).

The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $12,606, $12,426 and $10,704 in 1997, 1996 and 1995, respectively,
and is included in operating expenses.

An annual property management fee is also payable to an affiliate of NAPICO
which shall in any event not exceed 5 percent of gross revenues from each
property under management. Management fees charged to rental operations were
approximately $242,000, $243,000 and $302,000 for 1997, 1996 and 1995,
respectively.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT

(a)      Security Ownership of Certain Beneficial Owners

         The general partners own all of the outstanding general partnership
         interests of REP; no person is known to own beneficially in excess of 5
         percent of the outstanding limited partnership interests.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Real-Equity Partners has no officers, employees, or directors. However, under
the terms of the Restated Certificate and Agreement of Limited Partnership, the
Partnership is obligated to the corporate general partner for a deferred
acquisition fee for services rendered in connection with the management of the
Partnership and the selection, purchase, development, and monitoring the
operations of the properties, in an amount approximately equal to 10 percent (on
a present value basis) of the gross proceeds of the offering. Distribution of
any part of this fee shall be subordinated to receipt by each limited partner of
an amount equal to a cumulative noncompounded 6 percent annual distribution with
respect to his Adjusted Capital Value. The aggregate amount of the deferred
acquisition fee distributed in any year from net cash from operations shall not
exceed an amount equal to 3 percent of investment in properties (approximately
$600,000). The Partnership is incurring interest expense at a rate of 8% per
annum on the unpaid fees due the corporate general partner. Interest expense to
the corporate general partner was $42,215, $42,240 and $42,125 for the years
ended December 31, 1997, 1996 and 1995, respectively. On March 21, 1994, excess
proceeds received from the Park Creek and the Warner Willows I and II
refinancings of approximately $2,300,000 were used to partially pay the deferred
acquisition fees due the corporate general partner, resulting in lower interest
expense to the corporate general partner in 1996 and 1995.

An annual property management fee is also payable to an affiliate of the NAPICO
which shall in any event not exceed 5 percent of gross revenues from each
property under management. Management fees charged to rental operations were
approximately $242,000, $243,000 and $302,000 for 1997, 1996 and 1995,
respectively.


<PAGE>   31

An affiliate of the corporate general partner performed earthquake repairs at
the Park Creek and Warner Willows I and II rental properties. The payments to
this affiliate for these repairs was approximately $737,000 as of December 31,
1996.

The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $12,606, $12,426 and $10,704 in 1997, 1996 and 1995, respectively,
and is included in operating expenses.

A real estate investment trust organized by an affiliate of NAPICO has advised
the Partnership that it intends to make a proposal to purchase from the
Partnership certain of the real estate assets of the Partnership.

The REIT proposes to purchase such limited partner interests for cash, which
it plans to raise in connection with a private placement of its equity
securities. The purchase is subject to, among other things, (i) consummation of
such private placement by the REIT; (ii) the purchase of the general partner
interests in the local limited partnerships by the REIT; (iii) the approval of
HUD and certain state housing finance agencies; (iv) the consent of the limited
partners to the sale of the local limited partnership interests held for
investment by REP; and (v) the consummation of a minimum number of purchase
transactions with other Casden affiliated partnerships. As of March 31, 1998,
the REIT had completed buy-out negotiations with a majority of the general
partners of the local limited partnerships.

A proxy is contemplated to be sent to the limited partners setting forth the
terms and conditions of the purchase of the limited partners' interests held
for investment by the Partnership, together with certain amendments to the
Partnership Agreement and other disclosures of various conflicts of interest in
connection with the transaction.


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:

FINANCIAL STATEMENTS

Report of Independent Public Accountants.

Balance Sheets as of December 31, 1997 and 1996.

Statements of Operations for the years ended December 31, 1997, 1996 and 1995.

Statements of Partners' Equity (Deficiency) for the years ended December 31,
1997, 1996 and 1995.

Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.

Notes to Financial Statements as of December 31, 1997.

FINANCIAL STATEMENT SCHEDULE

Schedule III - Real Estate and Accumulated Depreciation, December 31, 1997.

The remaining schedules are omitted because the required information is included
in the financial statements and notes thereto or they are not applicable or not
required.

EXHIBITS

(3)      Articles of incorporation and bylaws: The registrant is not
         incorporated. The Partnership Agreement was filed with Form S-11
         Registration No. 2-82765 incorporated herein by reference.

(10)     Material contracts: The registrant is not party to any material
         contracts, other than the Amended and Restated Certificate and
         Agreement of Limited Partnership dated September 9, 1981, and the seven
         apartment projects located in California and Nevada as previously filed
         at the Securities Exchange Commission, File No. 2-82765 which is hereby
         incorporated by reference.


REPORTS ON FORM 8-K

A report on Form 8-K dated November 26, 1996, was filed with the Securities and
Exchange Commission. This Form 8-K disclosed that the registrant became aware of
an entity conducting a tender offer for units in the registrant. The General
Partners on behalf of the registrant, responded to the offer in registrant's
Semi-Annual Report mailed to the limited partners on or about November 18, 1996.
The Corporate General Partner advised the limited partners that it does not
believe that this reported offer appears to reflect the full value of the
limited partnership interests, and that each investor must consult with his or
her tax advisor regarding the amount and character of any tax gain or loss.


<PAGE>   32

                                   SIGNATURES


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


REAL-EQUITY PARTNERS

By:  NATIONAL PARTNERSHIP INVESTMENTS CORP.
     General Partner


/s/ CHARLES H. BOXENBAUM
------------------------------------
Charles H. Boxenbaum
Chairman of the Board of Directors
and Chief Executive Officer


/s/ BRUCE E. NELSON
------------------------------------
Bruce E. Nelson
Director and President



/s/ ALAN I. CASDEN
------------------------------------
Alan I. Casden
Director



/s/ HENRY C. CASDEN
------------------------------------
Henry C. Casden
Director



/s/ BOB E. SCHAFER
------------------------------------
Bob E. Schafer
Senior Vice President of Finance