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REPORT OF INDEPENDENT AUDITORS



Board of Directors and Stockholders
Intervest Corporation of New York
New York, New York


We have audited the accompanying consolidated balance sheets of
Intervest Corporation of New York and subsidiaries as at December 31, 1996 and
December 31, 1995, and the related consolidated statements of operations and
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1996 and Schedule IV. These financial statements and related
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and related 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 and related schedule
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 enumerated above present
fairly, in all material respects, the consolidated financial position of
Intervest Corporation of New York and subsidiaries at December 31, 1996 and
December 31, 1995, and the consolidated results of their operations and their
consolidated cash flows for each of the years in the three-year period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Further, it is our opinion that the schedule referred to above presents fairly,
in all material respects, the information set forth therein in compliance with
the applicable accounting regulation of the Securities and Exchange Commission.



Richard A. Eisner & Company, LLP

New York, New York
January 22, 1997

- 14 -





INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS





December 31,
A S S E T S 1996 1995
----------- ------ -----



Cash and cash equivalents . . . . . . . . . . . . . . . . . $16,911,000 $17,670,000
Mortgages receivable, including due from affiliates of
$6,250,000 in 1996 and 1995 (Notes 2, 4 and 5) . . . . . 69,699,000 55,146,000
Deferred debenture offering costs, net of accumulated
amortization of $2,262,000 and $2,343,000 (Note 2) . . . 4,475,000 3,865,000
Other assets (Note 7) . . . . . . . . . . . . . . . . . . . 1,138,000 898,000
----------- -----------


T O T A L . . . . . . . . . . . . . . . . . . . . $92,223,000 $77,579,000
=========== ===========


L I A B I L I T I E S

Accounts payable and accrued expenses . . . . . . . . . . . $ 406,000 $ 64,000
Mortgage escrow deposits . . . . . . . . . . . . . . . . . 2,356,000 1,021,000
Mortgage payable . . . . . . . . . . . . . . . . . . . . . 18,000
Subordinated debentures payable (Note 3) . . . . . . . . . 75,500,000 64,700,000
Debenture interest payable at maturity (Note 3) . . . . . . 3,506,000 2,132,000
Deferred mortgage interest and fees . . . . . . . . . . . . 380,000 266,000
----------- -----------

Total liabilities . . . . . . . . . . . . . . . . 82,148,000 68,201,000
----------- -----------


Commitments and other matters (Note 6)


STOCKHOLDERS' EQUITY

Common stock, no par value; authorized 200 shares; issued
and outstanding 32 shares . . . . . . . . . . . . . . . 2,000,000 2,000,000
Additional paid-in capital . . . . . . . . . . . . . . . . 3,509,000 3,509,000
=========== ===========
Retained earnings . . . . . . . . . . . . . . . . . . . . . 4,566,000 3,869,000
----------- -----------

Total stockholders' equity . . . . . . . . . . . 10,075,000 9,378,000
----------- -----------


T O T A L . . . . . . . . . . . . . . . . . . . . $92,223,000 $77,579,000
=========== ===========








See notes to financial
statements.

- 15 -





INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS






Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Revenue:
Interest income:

Affiliates . . . . . . . . . . . . . . . $ 693,000 $ 985,000 $ 1,262,000
Others . . . . . . . . . . . . . . . . . 8,804,000 6,999,000 5,106,000
----------- ----------- -----------

T o t a l . . . . . . . . . . . . . 9,497,000 7,984,000 6,368,000

Other income (Note 5) . . . . . . . . . . . 372,000 332,000 283,000
Gain on early repayment of discounted
mortgages receivable (Note 4) . . . . . . 282,000 82,000 17,000
----------- ----------- -----------

10,151,000 8,398,000 6,668,000
----------- ----------- -----------

Expenses:
Interest . . . . . . . . . . . . . . . . . 7,053,000 6,227,000 4,591,000
General and administrative (Note 5) . . . . 948,000 657,000 483,000
Amortization of deferred debenture
offering costs (Note 2) . . . . . . . . . 869,000 748,000 655,000
----------- ----------- -----------

8,870,000 7,632,000 5,729,000
----------- ----------- -----------

Income before income taxes . . . . . . . . . . 1,281,000 766,000 939,000

Provision for income taxes (Note 7) . . . . . 584,000 324,000 403,000
----------- ----------- -----------


NET INCOME . . . . . . . . . . . . . . . . . . 697,000 442,000 536,000


Retained earnings - beginning of year . . . . 3,869,000 3,427,000 2,891,000
----------- ----------- -----------



RETAINED EARNINGS - END OF YEAR . . . . . . . $ 4,566,000 $ 3,869,000 $ 3,427,000
=========== =========== ===========






See notes to financial
statements.

- 16 -





INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS





Year Ended December 31,
------------------------
1996 1995 1994
------ ------ -----
Cash flows from operating activities:

Net income . . . . . . . . . . . . . . $ 697,000 $ 442,000 $ 536,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization of discount on
mortgages receivable . . . . . . (421,000) (255,000) (210,000)
Amortization of deferred debenture
offering costs . . . . . . . . . 869,000 748,000 655,000
Amortization of premium on
municipal bonds . . . . . . . . 13,000
Gain on early repayment of
discounted mortgages . . . . . . (282,000) (82,000) (17,000)
Changes in operating assets and
liabilities:
(Increase) in other assets . . (240,000) (109,000) (167,000)
Increase (decrease) in
accounts payable and accrued
expenses . . . . . . . . . . 342,000 4,000 (171,000)
Increase in mortgage escrow
deposits . . . . . . . . . . 1,335,000 11,000 544,000
Increase (decrease) in
debenture interest payable
at maturity . . . . . . . . 1,374,000 (1,356,000) 1,004,000
Increase (decrease) in
deferred mortgage
interest and fees . . . . . 114,000 (46,000) (2,000)
------------ ------------ ------------
Net cash provided by (used
in) operating activities . 3,788,000 (643,000) 2,185,000
------------ ------------ ------------

Cash flows from investing activities:
Collection of mortgages receivable . . 20,924,000 18,981,000 3,762,000
Mortgages receivable acquired:
Properties owned by affiliates . . . (2,500,000)
Properties owned by others . . . . . (34,774,000) (17,124,000) (16,180,000)
Collection of loans to stockholders . 3,500,000
Principal payments of mortgages
payable . . . . . . . . . . . . . . (18,000) (21,000) (16,000)
Redemption of governmental obligations 985,000 2,655,000
Purchase of governmental obligations . (985,000)
------------ ------------ ------------
Net cash (used in) provided
by investing activities . (13,868,000) 2,821,000 (9,764,000)
------------ ------------ ------------

Cash flows from financing activities:
Proceeds from subordinated debenture
offerings . . . . . . . . . . . . . 17,000,000 20,000,000 10,000,000
Payment of debenture offering costs . (1,479,000) (1,784,000) (946,000)
Redemption of subordinated debentures (6,200,000) (6,200,000) (1,800,000)
------------ ------------ ------------
Net cash provided by
financing activities . . . 9,321,000 12,016,000 7,254,000
------------ ------------ ------------

(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . (759,000) 14,194,000 (325,000)

Cash and cash equivalents at beginning of
year . . . . . . . . . . . . . . . . . 17,670,000 3,476,000 3,801,000
------------ ------------ ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 16,911,000 $ 17,670,000 $ 3,476,000
============ ============ ============




See notes to financial
statements.

- 17 -




INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS


(NOTE 1) - The Company:

Intervest Corporation of New York (the "Company") was formed by Lowell
S. Dansker, Lawrence G. Bergman and Helene D. Bergman for the purpose of
engaging in the real estate business, including the acquisition and purchase of
real estate mortgage loans.


(NOTE 2) - Significant Accounting Policies:

[a] Consolidation policy:

The financial statements include the accounts of all
subsidiaries. Material intercompany items are eliminated in consolidation.

[b] Unearned discount:

Unearned discount is amortized over the life of the related
receivables using the constant interest method.

[c] Allowance for possible losses:

Mortgages receivable are valued at the lower of cost or net
realizable value on an individual basis. The Company will recognize an
impairment loss if it determines that the net realizable value of the mortgage
receivable is below cost. This determination is made based upon the mortgagor's
continuing compliance with the terms of the mortgage and management's ability to
assess the operation of the underlying properties and the rental housing market
where such properties are located. For financial reporting purposes mortgages
are deemed to be delinquent when payment of either principal or interest is more
than 90 days past due.

[d] Deferred debenture offering costs:

Costs relating to offerings of debentures are amortized over the
terms of the debentures based on serial maturities. Deferred debenture offering
costs consist primarily of underwriters' commissions.

[e] Statement of cash flows:

For purposes of the statement of cash flows, the Company
considers all highly liquid instruments purchased with an original maturity of
three months or less to be cash equivalents. Interest and income taxes were paid
as follows:

Year Ended
December 31, Interest Income Taxes
------------ -------- ------------

1996 . . . . . . . . $5,679,000 $196,000
1995 . . . . . . . . 7,584,000 331,000
1994 . . . . . . . . 3,586,000 318,000

[f] Estimated fair value of financial instruments:

The Company considers the carrying amounts presented for
mortgages receivable and subordinated debentures payable on the consolidated
balance sheets to be reasonable approximations of fair value. The Company's
variable or floating interest rates on large portions of its receivables and
payables approximate those which would prevail in current market transactions.
Considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value, and accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market transaction.

(continued)


- 18 -




INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS


(NOTE 2) - Significant Accounting Policies: (continued)

[g] 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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

[h] Concentration of credit risk:

[1] The Company places its temporary cash investments with
higher credit-quality financial institutions and in governmental obligations.
Such investments are generally in excess of the FDIC insurance limit. The
Company has not experienced any losses from such investments.

[2] The Company's mortgage portfolio is composed predominantly
of mortgages on multi-family residential properties in the New York City area,
most of which are subject to applicable rent control and rent stabilization
statutes and regulations. In both cases, any increases in rent are subject to
specific limitations. As such, properties of the nature of those constituting
the most significant portion of the Company's mortgage portfolio are not
affected by the general movement of real estate values in the same manner as
other income-producing properties. The rental housing market in New York City
remains stable and the Company expects that such properties will continue to
appreciate in value with little or no reduction in occupancy rates.

(continued)


- 19 -




INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS


(NOTE 3) - Subordinated Debentures Payable:

The Company's Registered Floating Rate Redeemable Debentures consist of
the following:

December 31,
------------
1996 1995
---- ----

Series 1989, interest at 2% above prime . . $ 1,200,000
Series 10/4/89, interest at 1% above prime. $ 2,000,000 4,000,000
Series 3/28/90, interest at 1% above prime. 2,000,000 4,000,000
Series 5/13/91, interest at 2% above prime. 6,000,000 6,000,000
Series 2/20/92, interest at 2% above prime. 4,500,000 4,500,000
Series 6/29/92, interest at 2% above prime. 7,000,000 7,000,000
Series 9/13/93, interest at 2% above prime. 8,000,000 8,000,000
Series 1/28/94, interest at 1% above prime. 500,000
Series 1/28/94, interest at 2% above prime. 4,500,000 4,500,000
Series 10/28/94, interest at 1% above prime 500,000
Series 10/28/94, interest at 2% above prime 4,500,000 4,500,000
Series 5/12/95, interest at 1% above prime. 1,000,000 1,000,000
Series 5/12/95, interest at 2% above prime. 9,000,000 9,000,000
Series 10/19/95, interest at 1% above prime 1,000,000 1,000,000
Series 10/19/95, interest at 2% above prime 9,000,000 9,000,000
Series 5/10/96, interest at 1% above prime. 1,000,000
Series 5/10/96, interest at 2% above prime. 10,000,000
Series 10/15/96, interest at 1% above prime 500,000
Series 10/15/96, interest at 2% above prime 5,500,000
-----------

$75,500,000 $64,700,000
=========== ===========

"Prime" refers to the prime rate of Chase Manhattan Bank.

Prime was 8 1/4% on December 31, 1996. Minimum interest is 9 1/2% and
maximum interest is 15% on Series 10/4/89, 3/28/90 and 5/13/91. Series 2/20/92
has minimum interest of 8% and maximum interest of 14%, Series 6/29/92 has
maximum interest of 14% and Series 9/13/93, 1/28/94, 10/28/94, 5/12/95,
10/19/95, 5/10/96 and 10/15/96 have maximum interest of 12%.

Payment of interest on an aggregate of $14,930,000 of debentures is
deferred until maturity and earns interest at prime. Any debenture holder who
has deferred receipt of interest may at any time elect to receive the deferred
interest and subsequently receive regular payments of interest.

The debentures may be redeemed, in whole or in part, at any time at the
option of the Company. For debentures issued after 1994, redemption would
generally be at a premium of 1% or 2% if the redemption is prior to 1998.



(continued)


- 20 -




INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS


(NOTE 3) - Subordinated Debentures Payable: (continued)

The debentures are unsecured and subordinate to all present and future
senior indebtedness, as defined.

Maturities of debentures are summarized as follows:

Year Ending
December 31,
------------

1997. . . . . . . . . . . . . . . . . . . $ 3,000,000
1998. . . . . . . . . . . . . . . . . . . 4,000,000
1999. . . . . . . . . . . . . . . . . . . 11,000,000
2000. . . . . . . . . . . . . . . . . . . 7,000,000
2001. . . . . . . . . . . . . . . . . . . 8,000,000
Thereafter until 2005 . . . . . . . . . . 42,500,000
-----------

T o t a l . . . . . . . . . . . $75,500,000
===========


(NOTE 4) - Mortgages Receivable:

Information as to mortgages receivable is summarized as follows:

December 31,
------------
1996 1995
---- ----

First mortgages . . . . . . . . $62,914,000 $48,685,000
Junior mortgages. . . . . . . . 7,687,000 6,906,000
Wraparound mortgage . . . . . . 329,000
------------ -----------

70,601,000 55,920,000
Less unearned discount. . . . . 902,000 774,000
------------ -----------

T o t a l . . . . . . . $69,699,000 $55,146,000
============ ===========

Interest rates on mortgages range from 6% to 24%. Certain mortgages have
been discounted utilizing rates ranging from 12% to 18%.

During 1994, 1995 and 1996 certain mortgages were paid in full prior to
their maturity date. This resulted in the recognition of a gain, which
represents the balance of the unamortized discount applicable to these
mortgages.

Maturities of mortgages receivable are summarized as follows:

Year Ending
December 31,
------------

1997. . . . . . . . . . . . . . . . . $22,472,000
1998. . . . . . . . . . . . . . . . . 9,144,000
1999. . . . . . . . . . . . . . . . . 14,292,000
2000. . . . . . . . . . . . . . . . . 2,767,000
2001. . . . . . . . . . . . . . . . . 766,000
Thereafter until 2015 . . . . . . . . 21,160,000
-----------

T o t a l . . . . . . . . . $70,601,000
===========

The Company evaluates its portfolio of mortgage loans on an individual
basis, comparing the amount at which the investment is carried to its estimated
net realizable value. At the respective balance sheet dates, no allowances were
required.

(continued)


- 21 -




INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS


(NOTE 5) - Related Party Transactions:

During 1995 and 1994 affiliates sold, to unrelated third parties,
properties subject to mortgages held by the Company. In connection with those
sales, the Company's mortgages in the original aggregate amounts of $6,958,000
and $4,000,000, respectively, were refinanced and the Company received new first
mortgages totaling $9,670,000 and $5,610,000, respectively.

During 1994 a mortgage of $100,000, representing a lien on property
owned by an affiliated company was acquired from a third party. This mortgage
was recorded at cost. In addition, during 1994 the Company made mortgage loans
of $2,400,000 on properties owned by affiliated companies.

Interest income - others includes $120,000 earned on notes receivable
from stockholders in 1994.

Other income includes the following amounts from affiliates:


Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----

Real estate sales commissions . . . . $135,000
Mortgage modification fees . . . . . $ 8,000 $ 42,000 121,000
-------- -------- --------

T o t a l . . . . . . . . . $ 8,000 $ 42,000 $256,000
======== ======== ========

The Company utilizes personnel and other facilities of affiliated
entities and is charged service fees for general and administrative expenses for
placing mortgages, servicing mortgages and distributing debenture interest
checks. Such fees amounted to $367,000, $342,000 and $354,000 in 1996, 1995 and
1994, respectively. Management believes these service fees are reasonable.


(NOTE 6) - Commitments:

[a] Office lease:

The Company occupies its office space under a lease which
commenced October 1, 1994 and terminates on September 30, 2004. In addition to
minimum rents the Company is required to pay its proportionate share of
increases in the building's real estate taxes and costs of operation and
maintenance as additional rent. Rent expense amounted to $180,000, $177,000 and
$44,000 for 1996, 1995 and 1994, respectively.

Future minimum rents under the lease are as follows:

1997. . . . . . . . . . . . . . . . . . . $ 157,976
1998. . . . . . . . . . . . . . . . . . . 174,902
1999. . . . . . . . . . . . . . . . . . . 174,902
2000. . . . . . . . . . . . . . . . . . . 179,133
2001. . . . . . . . . . . . . . . . . . . 191,828
Thereafter. . . . . . . . . . . . . . . . 527,527
----------

T o t a l . . . . . . . . . . . $1,406,268
==========

The Company shares this space with affiliates who were charged
rent of $63,000, $77,000 and $12,000 in 1996, 1995 and 1994, respectively.



(continued)


- 22 -




INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS


(NOTE 6) - Commitments: (continued)

[b] Employment agreement:

Effective as of July 1, 1995, the Company entered into an
employment agreement with its Executive Vice President, who is related to the
stockholders, for a term of ten years at an annual salary of $125,000, which is
subject to increase annually by six percent or by the percentage increase in the
consumer price index, if higher. In the event of the executive's death or
disability, one-half of this amount will continue to be paid for a term as
defined in the agreement.


(NOTE 7) - Income Taxes:

The Company has provided for income taxes in the periods presented based
on the federal, state and city tax rates in effect for these periods.

The provision for income taxes consists of the following components:

Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Current taxes:
Federal . . . . . . . . . . . . . $324,000 $143,000 $202,000
State and local . . . . . . . . . 216,000 102,000 164,000

Deferred taxes:
Federal . . . . . . . . . . . . . 26,000 46,000 22,000
State and local . . . . . . . . . 18,000 33,000 15,000
-------- -------- --------

Total tax provision . . . $584,000 $324,000 $403,000
======== ======== ========

Temporary differences exist between financial accounting and tax
reporting which result in a net deferred tax asset, included in other assets, as
follows:

Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----

Debenture underwriting commissions . . . $ 19,000 $ 32,000 $ 51,000

Deferred fees and interest . . . . . . . 58,000 68,000 110,000

Discount on mortgages receivable . . . . (70,000) (49,000) (31,000)
--------- --------- ---------


T o t a l . . . . . $ 7,000 $ 51,000 $ 130,000
========= ========= =========



(continued)


- 23 -




INTERVEST CORPORATION OF NEW YORK
AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

(NOTE 7) - Income Taxes: (continued)

The amounts of income taxes provided varied from the amounts which would
be "expected" to be provided at the statutory federal income tax rates in effect
for the following reasons:

December 31,
1996 1995 1994

Tax computed based upon the
statutory federal tax rate . . . . . . $ 435,000 $ 260,000 $ 319,000

State and local income tax,
net of federal income tax
benefit . . . . . . . . . . . . . . . 158,000 98,000 118,000

Nontaxable income . . . . . . . . . . (9,000) (10,000) (23,000)

Other . . . . . . . . . . . . . . . . (24,000) (11,000)
--------- --------- ---------

T o t a l . . . . . . . . . $ 584,000 $ 324,000 $ 403,000
========= ========= =========


- 24 -