Realization of
                                                              Merger of SCA                Change in      other-than-
                                                               Tax Exempt                 market value    temporary
                                                                Fund Into     Purchase    of mortgage    impairment on
                         Balance,              Distributions   Municipal         of      revenue bonds  mortgage revenue  Balance,
                       December 31,    Net          to        Mortgage and    Treasury   available for  bonds available   Sept 30,
                           1995       Income   Shareholders   Equity, L.L.C.   Stock       sale, net     for sale, net      1996
                       ------------ ---------- ------------   ------------- ------------ -------------- --------------- ------------
General partners             ($477)       $36         ($75)           $516           $0             $0              $0           $0

Limited partners:
Series I beneficial
  assignee certificates    141,111      1,065       (5,250)       (136,926)           -              -               -            -
Series II beneficial
  assignee certificates     76,629      2,508       (2,647)        (76,490)           -              -               -            -

Preferred shares:
   Series I                      -        166            -          11,310            -              -               -       11,476
   Series II                     -         85          (52) (1)      6,164            -              -               -        6,197

Preferred capital
  distribution shares:
   Series I                      -         78       (1,582) (1)      6,165            -              -               -        4,661
   Series II                     -         34         (959) (1)      3,052            -              -               -        2,127

Term growth shares               -         64            -               -            -              -               -           64

Growth shares                    -      2,753            -         186,209            -              -               -      188,962

Treasury shares                  -          -            -               -         (538)             -               -         (538)

Unrealized gain(loss) on
  mortgage revenue bonds
  available for sale, net     (981)         -            -               -            -          8,193           3,990       11,202
                       ------------ ---------- ------------   ------------- ------------ -------------- --------------- ------------
Total                     $216,282     $6,789     ($10,565)             $0        ($538)        $8,193          $3,990     $224,151
                       ============ ========== ============   ============= ============ ============== =============== ============

(1) August 15, 1996 distribution paid in accordance with the Company's Prospectus (see Note 2).


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

MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
NOTES TO THE FINANCIAL STATEMENTS  (Unaudited)


NOTE 1 - BASIS OF PRESENTATION

  As a result of the merger transaction discussed in Note 2 below, on
August 1, 1996, Municipal Mortgage and Equity, L.L.C. (the "Company"
or the "LLC") succeeded to the business of the SCA Tax Exempt Fund
Limited Partnership (the "Partnership") and became the Registrant.
Accordingly, the accompanying financial statements represent the financial
position of the Partnership at December 31, 1995 and that of the Company
at September 30, 1996; results of operations include those of the
Partnership through July 31, 1996 and those of the Company from August
1 through September 30, 1996.  The accompanying unaudited financial
statements have been prepared in accordance with  the rules and regulations
of the Securities and Exchange Commission (the "SEC") and in the opinion
of management contain all adjustments (consisting of only normal recurring
accruals) necessary to present a fair statement of the results for the periods
presented.  These results have been determined on the basis of accounting
principles and policies discussed in Note 2 to the Financial Statements
appearing  in the Partnership's 1995 Annual Report on Form 10-K, as
amended (the "Form 10-K").

  Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted.  It is suggested that
the accompanying financial statements be read in conjunction with the
financial statements and notes thereto included in the Partnership's 1995
Form 10-K.

NOTE 2 - THE MERGER

  Beginning on June 18, 1996, beneficial assignee certificate ("BAC")
Holders were asked to vote on a proposed transaction (the "Transaction")
involving the Partnership, SCA Realty I, Inc., the managing general partner
of the Partnership (the "Managing General Partner"), SCA Associates 86
Limited Partnership, the associate general partner of the Partnership (the
"Associate General Partner," and together with the Managing General
Partner, the "General Partners") and their affiliates, and the Company, a
newly formed Delaware limited liability company.  The Holders of the
outstanding Series I BACs and the Holders of the outstanding Series II
BACs, each series voting as a separate class, were asked to approve the
Transaction in the form of a merger between the Partnership and the
Company.

  The consent solicitation period for the Transaction was closed on
August 1, 1996.  Effective August 1, 1996, the Partnership merged into the
Company as a result of the approval of the Transaction by a majority of the
outstanding BACs with each series voting as a separate class.  Specifically,
113,988 Series I BACs (56.99% of all Series I BACs) and 54,117 Series II
BACs (56.22% of all Series II BACs) voted to approve the proposed
Transaction.  Of those BACs which voted in the Transaction, in excess of
88% in each Series voted to approve the Transaction.

  As is outlined below, the Transaction provided BAC Holders with
a choice regarding the future of their investment to best match their
individual investment objectives.  In addition to the preservation of the pass
through tax status of the primarily tax exempt income generated by the
Company's bonds, the Transaction also provides for self-management
through a Board of Directors, whose members will be elected by the
shareholders, and the alignment of the financial interests of the former
General Partners with the shareholders of the Company.

  The Holders of each Series I BAC were entitled to elect whether to
convert each Series I BAC into 38.10 LLC growth shares ("Growth
Shares"), one LLC preferred share ("Preferred Shares") (Series I) or one
LLC preferred capital distribution share ("Preferred CD Shares") (Series I)
and the Holders of each Series II BAC were entitled to elect whether to
convert each Series II BAC into 43.95 Growth Shares, one Series II
Preferred Share or one Series II Preferred CD Share; or, to the extend
multiple BACs were held, a combination of Growth Shares and either
Preferred Shares or Preferred CD Shares.  To the extent no election was
made, BACs were exchanged for Growth Shares.

  The Preferred Shares allow its holders to retain an investment
comparable to his or her investment in BACs assuming that the
Partnership's financing transaction (the "Financing," which occurred in
February 1995 and is described in Note 3 to the Partnership's 1995 Form
10-K) had not occurred.  The Preferred CD Shares allow its holders to
retain an investment substantially equivalent to his or her investment in
BACs recognizing that such Financing transaction did occur and that a
special capital distribution (the "Special Distribution") of  the net Financing
proceeds would be made.  On August 15, 1996, the Company paid the
Special Distribution of $170.91 and $235.30 per share to the Series I
Preferred CD Shareholders and the Series II Preferred CD Shareholders,
respectively.  The Growth Shares, which are listed on the American Stock
Exchange and offer the liquidity of a publicly traded security, allow the
shareholder to participate in the risks and rewards of the Company's future
plans for growth.  BAC Holders who received Growth Shares have
fundamentally changed the nature of their investment, and their rights are
different from their rights as BAC Holders of the Partnership.

  The allocation of income and cash distributions as well as the rights
afforded to each class of shares in the Company are outlined in the
Company's Prospectus/Consent Solicitation (the "Prospectus") and
Amended and Restated Certificate of Formation and Operating Agreement
(the "Operating Agreement") and are summarized below.  Specifically, the
Preferred and Preferred CD Shareholders, which retained their respective
BAC Series distinction and voting rights, each have priority claims on the
Company's income and assets over the other shares of the Company.  While
the amount of income and cash distributions allocable to the Preferred
Shareholders will vary in accordance with the terms of their respective class
of shares (see below), the Preferred and Preferred CD Shareholders have
an equal pro rata claim on the Company's income and assets until their
respective claims are fully satisfied.  The performance attributable to the
respective classes of preferred shares will be tracked in accordance the
Company's Operating Agreement.

  Taking into account their respective Series distinction, the Preferred
Shareholders are allocated their proportionate share of income generated
by the original 23 bonds and working capital loans (collectively "original
bonds") of the Partnership as well as their share of the Company's expenses.
While the performance attributable to the Preferred Shares will take into
account the Refunding (as described in Note 3 to the Partnership's 1995
Form 10-K) and any future refundings of the original bonds, the Preferred
Shares will not be allocated any income or expense generated from the
Financing, any future financings or the merger.

  Similar to the Preferred Shareholders, the Preferred CD
Shareholders retain their Series distinction and are allocated their
proportionate share of  income generated by the Refunded original bonds
as well as their share of the Company's expenses.  However, taking into
account the Special Distributions generated by the Financing (and any
future financings of the original bonds), the Preferred CD Shareholders are
allocated their proportionate share of the annual costs of the Financing (and
any future financings).  Similar to Preferred Shareholders, the Preferred CD
Shareholders are not allocated any income or expense generated as a result
of the merger.

  Growth Shareholders, unlike the holders of Preferred Shares and
Preferred CD Shares, did not retain their Series distinction.  As the Growth
Shares are subordinate to the claims of the preferred shares, the Growth
Shareholders are essentially entitled to the balance of the Company's income
and cash distributions after satisfying the preferred claims.  Consequently,
the Growth Shareholders will be allocated the balance of the Company's net
income and net cash generated from the original bonds, the Financing and
any future financings (after taking into consideration the Special
Distributions) and the merger.  The value produced from the merger
consists of the additional income generated by the mortgage servicing fees
that were contributed by affiliates of the Managing General Partner in
exchange for 883,033 Growth Shares, discussed below.  It should be noted
that the Growth Shares are subject to a payout ratio which is initially set at
95% of the total cash generated for the Growth Shareholders.

  Through June 30, 1996, the MLP structure, as previously discussed
in the Partnership's 1995 Form 10-K, included MLP III Investment Limited
Partnership, ("MLP III"),  MLP II Acquisition Limited Partnership ("MLP
II"), and MLP I LLC ("MLP I").  MLP III was owned by the Partnership
through a 99% general partner interest and SCA Limited Partner
Corporation ("SCALPC"), an affiliate of the Managing General Partner,
through a 1% limited partner interest.  MLP II was owned by MLP III
through a 98.99% limited partner capital interest (39.996% annual profits
and annual distributions interest), SCALPC through a .01% limited partner
capital interest (.004% annual profits and annual  distributions interest) and
MLP I through a 1% general partner capital interest (60% annual profits
and annual distributions interest).  MLP I's members comprise the operating
partnerships that are the ultimate debtors in the bonds involved in the
Financing.

  Effective July 1, 1996, MLP I's general partner profits interest in
MLP II was reduced to one percent (1%) in exchange for the assumption
by MLP II of certain MLP I obligations.  Accordingly, the profits interest
of MLP III increased to 98.996%.  Also, effective July 1, 1996,  the
members of MLP I entered into a Cross-Equity Agreement which
effectively cross-collateralizes the operating partnerships' (included in the
Financing) B Bond obligations.

  In anticipation of the merger and in order to reduce administrative
burden and complexity, effective July 31, 1996 the partners of MLP II
elected to dissolve MLP II and to terminate MLP II effective immediately.
Upon dissolution, all of the assets of MLP II were distributed to  its
partners in accordance with their capital accounts.  Also on July 31, 1996,
the partners of MLP III elected to dissolve and immediately terminate MLP
III and distribute all the assets of MLP III to its partners in accordance with
their capital accounts.  Finally, on July 31, 1996 the members of MLP I
elected to dissolve and immediately terminate MLP I and distribute all of
the assets of MLP I to its members in accordance with their capital
accounts.

  As a result of the above transactions, at the close of business on July
31, 1996, the Partnership was the owner of substantially all of the net assets
of MLP II and MLP III.  Accordingly, MLP II's assets, liabilities and results
of operations are included directly in the financial statements of the
Company rather than being accounted for on the equity method as they
were in the Partnership's financial statements.  On a pro forma basis, these
MLP transactions had an insignificant impact on the net assets of the
Partnership as of July 31, 1996 and on net income of the Partnership for the
nineteen months then ended.  The primary pro forma income statement
impact would be the following approximate reclassifications (millions):

                                       Year ended           Nine months
                                      December 31,        ended September 30,
                                          1995                  1996
                                      ------------        -------------------

Interest on mortgage revenue bonds        ( $2.3)              ( $1.4)
Equity in income of MLP II                (  3.2)              (  2.1)
Interest on short-term investments
   and demand notes                          5.5                  3.5

  In connection with the merger, the Company  authorized the
issuance of up to 200,000 Series I and 96,256 Series II Preferred Shares,
up to 200,000 Series I and 96,256 Series II Preferred CD Shares and up to
11,770,000 Growth Shares as merger consideration to the Partnership's
BAC Holders in exchange for their BAC's.  The Company also authorized
the issuance of merger consideration in the form of 1,000 shares of a special
class of Growth Shares ("Term Growth Shares") to the General Partners,
in exchange for the relinquishment of their general partnership interests in
the Partnership, and 1,000 Term Growth Shares to a Merrill Lynch affiliate
in exchange for their subordinated BACs.  Term Growth Shares are entitled
to an aggregate 2% interest in cash distributions from the Company
(subordinated to the rights of the Preferred and Preferred CD Shares, and
before distributions to Growth Shareholders).

  Upon the consummation of the Transaction, the General Partners
and their affiliates  contributed their rights to the acquisition and servicing
of mortgages in exchange for 883,033 Growth Shares.  The Partnership
retained Robert A. Stanger & Co., Inc., an independent third party, to
render a fairness opinion that the allocation of Growth Shares and Term
Growth Shares was fair to the Series I and Series II BAC Holders, from a
financial point of view.  As a result of the contribution of the acquisition
and servicing activities by the General Partners and their affiliates, the
Company, and more specifically, the Growth Shareholders, will receive
additional tax-exempt income.

  The capitalization of the Company in accordance with the terms of
the Transaction  is reflected in the accompanying financial statements.
Because the interests of a significant majority of the former Series I and
Series II BAC Holders have now been merged via their election of Growth
Shares, separate financial statements for Series I and Series II are no longer
presented as supplementary information.  Results of operations are still
maintained by series, however, as required for those former Series I and
Series II BAC Holders electing either Preferred Shares or Preferred CD
Shares, and appropriate allocations of net income are reflected in the
accompanying financial statements.

NOTE 3 -  INVESTMENT IN MORTGAGE REVENUE BONDS

  The Partnership had invested in various mortgage revenue bonds,
the proceeds from which were used to make nonrecourse participating first
mortgage loans on multifamily housing developments.  The Partnership's
rights and the specific terms of the bonds are defined by the various loan
documents which were negotiated at the time of settlement.  The basic
terms and structure of each bond which had not been refunded were
described in Note 4 to the Partnership's 1995 Form 10-K.  On February 14,
1995, the Partnership refunded 11 of the original mortgage revenue bonds
into 11 Series A Bonds and 11 Series B Bonds.  As part of the Financing
consummated on February 14, 1995, custody receipts in the Series A Bonds
were sold to third party investors.  A complete description of the Financing
and the bond terms is set forth in Note 3 to the Partnership's 1995 Form 10-K.

  As of September 30, 1996, the Company held 26 mortgage revenue
bonds; of these, 12 are the original mortgage revenue bonds, 11 are Series
B Bonds and three bonds are new acquisitions discussed below.  Five
original bonds and three Series B Bonds are delinquent on their debt service
obligations.  Descriptions of the various mortgage revenue bonds owned by
the Company at September 30, 1996 are as follows:

                                                                 September 30, 1996                  December 31, 1995
                                                          ----------------------------------  ----------------------------------
                              Base                Face    Amortized   Unrealized    Fair      Amortized   Unrealized    Fair
Investment in Mortgage      Interest  Maturity   Amount      Cost     Gain (Loss)   Value        Cost     Gain (Loss)   Value
Revenue Bonds (Note 3)        Rate      Date     (000's)   (000's)     (000's)     (000's)     (000's)     (000's)     (000's)
- -------------------------  ---------- --------- --------- ----------  ----------  ----------  ----------  ----------  ----------
Whole Bonds:
Alban Place                    7.875  Oct. 2008  $10,065    $10,065       ($356)     $9,709     $10,065       ($336)     $9,729
Creekside Village              7.500  Nov. 2009   11,760      7,396        -          7,396       8,635        -          8,635
Emerald Hills                  7.750  Apr. 2008    6,725      6,725         473       7,198       6,725         626       7,351
Lakeview Garden                7.750  Aug. 2007    9,003      5,674        -          5,674       6,988        -          6,988
Newport-on-Seven               8.125  Aug. 2008   10,125      7,898         581       8,479       7,898        -          7,898
North Pointe                   7.875  Aug. 2006   25,185     12,738       2,036      14,774      12,739       1,170      13,909
Northridge Park                7.500  June 2012    8,815      8,815      (2,207)      6,608       8,815      (1,625)      7,190
Riverset- Series I             7.875  Nov. 1999    6,475      6,475          48       6,523       6,475        (778)      5,697
Riverset - Series II           7.875  Nov. 1999   12,525     12,525         137      12,662      12,525      (1,477)     11,048
Riverset II             (1)    9.500  Oct. 2019    7,610      6,749         (11)      6,738        -           -           -
Southfork Village              7.875  Jan. 2009   10,375     10,375       1,578      11,953      10,375         492      10,867
Villa Hialeah                  7.875  Oct. 2009   10,250     10,250      (2,214)      8,036      10,250        (725)      9,525
Willowgreen                    8.000  Dec. 2010    9,275      6,770        -          6,770       7,901        -          7,901
                                                --------- ----------  ----------  ----------  ----------  ----------  ----------
Subtotal Whole Bonds                             138,188    112,455          65     112,520     109,391      (2,653)    106,738
                                                --------- ----------  ----------  ----------  ----------  ----------  ----------
B Bonds:
Barkley Place                 16.000  Jan. 2030    3,480      2,445          81       2,526       2,445        -          2,445
Gilman Meadows          (3)    3.000  Jan. 2030    2,875      2,530         549       3,079       2,530         176       2,706
Hamilton Chase          (3)    3.000  Jan. 2030    6,250      4,140         344       4,484       4,140        -          4,140
Independence Ridge      (2)   12.500  Dec. 2015    1,045      1,045        -          1,045        -           -           -
Locarno                 (2)   12.500  Dec. 2015      675        675        -            675        -           -           -
Mallard Cove I          (3)    3.000  Jan. 2030    1,670        798          74         872         942          80       1,022
Mallard Cove II         (3)    3.000  Jan. 2030    3,750      2,429         179       2,608       2,590         284       2,874
Meadows                       16.000  Jan. 2030    3,635      3,716       1,680       5,396       3,716         103       3,819
Montclair               (3)    3.000  Jan. 2030    6,840      1,691       2,539       4,230       1,691        -          1,691
Newport Village         (3)    3.000  Jan. 2030    4,175      2,973       2,128       5,101       2,973         287       3,260
Nicollet Ridge          (3)    3.000  Jan. 2030   12,415      6,075         554       6,629       6,075         475       6,550
Riverset II             (1)   10.000  Oct. 2019    1,489        500        -            500        -           -           -
Steeplechase Falls            16.000  Jan. 2030    5,300      5,852       1,879       7,731       5,851         267       6,118
Whispering Lake         (3)    3.000  Jan. 2030    8,500      4,779       1,130       5,909       4,779        -          4,779
                                                --------- ----------  ----------  ----------  ----------  ----------  ----------
Subtotal B Bonds                                  62,099     39,648      11,137      50,785      37,732       1,672      39,404
                                                --------- ----------  ----------  ----------  ----------  ----------  ----------
Total Investment in Mortgage
  Revenue Bonds                                 $200,287   $152,103     $11,202    $163,305    $147,123       ($981)   $146,142
                                                ========= ==========  ==========  ==========  ==========  ==========  ==========

(1)  Riverset II Bond was purchased on January 19, 1996.

(2)  Locarno and Independence Ridge Bonds were purchased on August 30, 1996.

(3) These bonds also contain additional interest features contingent on
available cash flow. For more detail, see Note 3 to the Partnerships' 1995 Form 10-K.

                                           For the Three        For the Three         For the Nine       For the Nine
                                            Months Ended         Months Ended         Months Ended       Months Ended
(Unaudited)                              September 30, 1996   September 30, 1995   September 30, 1996 September 30, 1995
                                         ------------------   ------------------   ------------------ ------------------
                                                                                (in 000's)
Charged to Series I prior to August 1, 1996:
  Salaries of noncontrolling persons &
     related expenses                                  $83                 $113                 $321               $307
  Other administrative expenses                          2                   31                   51                 65
                                         ------------------   ------------------   ------------------ ------------------
         Expenses reimbursed                           $85                 $144                 $372               $372
                                         ==================   ==================   ================== ==================

Charged to Series II prior to August 1, 1996:
  Salaries of noncontrolling persons &
     related expenses                                  $40                  $54                 $154               $148
  Other administrative expenses                          1                   15                   25                 31
                                         ------------------   ------------------   ------------------ ------------------
         Expenses reimbursed                           $41                  $69                 $179               $179
                                         ==================   ==================   ================== ==================

Charged to Municipal Mortgage and
  Equity, L.L.C. subseqent to July 31, 1996:
  Other administrative expenses                        $21                   $0                  $21                 $0
                                         ==================   ==================   ================== ==================

Total:
  Salaries of noncontrolling persons &
     related expenses                                 $123                 $167                 $475               $455
  Other administrative expenses                         24                   46                   97                 96
                                         ------------------   ------------------   ------------------ ------------------
         Expenses reimbursed                          $147                 $213                 $572               $551
                                         ==================   ==================   ================== ==================