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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K

(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
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1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934.

COMMISSION FILE NUMBER: 0-16601 (FORMERLY 33-16164-LA)

FMG RITA RANCH LIMITED PARTNERSHIP
(Name of issuer in its charter)

Delaware 23-2466343
(State of incorporation or (IRS Employer Identification
organization) Number)

250 King of Prussia Road, Radnor, Pennsylvania 19087
(Address of principal executive offices) (Zip Code)

Issuer's telephone no., including area code: (610) 964-7234

Securities registered pursuant to Section 12(b) of the Act.

Name of each exchange
Title of each Class on which registered
------------------- -------------------

None Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

Limited Partnership Units $1,000 Per Unit

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past (90) days.

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

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained in this form, and no disclosure will 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
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FMG RITA RANCH LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS

ITEM

PART I

Item 1. Business

Background .......................................................... 4
Material Recent Developments ........................................ 4
Competition ......................................................... 4
Employees ........................................................... 5
Trademarks and Patents .............................................. 5

Item 2. Property .................................................................. 5

Item 3. Legal Proceedings ......................................................... 6

Item 4. Submission of Matters to a Vote of Security Holders ....................... 6

PART II

Item 5. Market for the Partnership's Units of Limited Partnership Interest and
Related Security Holder Matters ........................................... 6

Item 6. Selected Financial Data ................................................... 7

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background .......................................................... 8
Results of Operations ............................................... 8
Liquidity and Capital Resources ..................................... 8
Impact of Year 2000 ................................................. 9

Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................ 9

Item 8. Financial Statements and Supplementary Data ............................... 10

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 10

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PART III

Item 10. Directors and Executive Officers of the Partnership ....................... 10

Item 11. Executive Compensation .................................................... 11

Item 12. Security Ownership of Certain Beneficial Owners and Management

(a) Security Ownership of Certain Beneficial owners ................. 11
(b) Security Ownership of Management ................................ 12
(c) Changes in Control .............................................. 12

Item 13. Certain Relationships and Related Transactions ............................ 12

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... 13

SIGNATURES ......................................................................... 16

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PART I

ITEM 1. BUSINESS

Background

FMG Rita Ranch Limited Partnership (the "Partnership") was
formed on January 30, 1987, as a Delaware limited partnership with FMG Western
Region Acquisitions, Inc. (the "General Partner") as its sole general partner.
On March 19, 1987, the Partnership acquired 118 acres of unimproved land (the
"Property") in Tucson, Arizona. The Partnership's primary business objectives is
to realize appreciation in the value of the Property by holding the Property for
investment and eventual sale, although there is no assurance that this will be
attained.

The Partnership's public offering of 6,707 Units of limited
partnership interest ("Units") commenced on October 29, 1987 and continued until
June 10, 1988. On June 10, 1988, 6,707 Units had been sold for $6,281,295 to 105
investors, including an affiliate of the General Partner that acquired 5,008.3
Units.

The General Partner has no plans to develop the Property,
except for activities including land planning, market surveys and other
activities necessary to prepare the Property for sale. There can be no assurance
that necessary funds would be available should it be desirable for the
Partnership to improve the Property to facilitate its sale.

Because of the lack of demand for industrial and commercial
land in the Tucson area and the resulting decline in the Property's value, the
Partnership was required to reduce its carrying value on the Property in 1990
and again in 1992. Class "A" Business Park lots dominate the industrial land
sales market. Sale prices range from $15,000 to $30,000 per developed acre and
undeveloped raw land (little of which is being sold) is selling for less than
$5,000 an acre. There have been few bulk sale transactions since the RTC was
disposing of it's properties. The General Partner believes that it would be
necessary for the Partnership to hold the property for several years, possibly
decades, before the Partnership may be able to sell the Property at a price
significantly higher than the current market value. Thus, it is extremely
unlikely that the Property will be sold for a price which approximates the
original price paid by the Partnership for the Property.

Material Recent Developments

None

Competition

Rita Ranch is a 2,700 acre master planned development of which
approximately 1,200 acres are designated for industrial use. Properties within
Rita Ranch are subject to

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conditions, covenants, restrictions and a master-planned layout which affects
zoning and land use patterns. To date, there are only four improved industrial
properties utilizing approximately 50 acres situated within the Rita Ranch
community. While Rita Ranch contains predominately residential land uses with
areas designated for commercial and industrial development, the majority of the
neighborhood is either in use or designated for industrial related purposes, and
is largely unoccupied.

The subject property is located in Tucson's southeastern
outskirts. Development in virtually all market sectors can be expected to
increase as Tucson expands. The residential market continues to show marked
signs of improvement, including Rita Ranch. Limited commercial growth serving
residents staple needs is anticipated for the Rita Ranch area but significant
retail or office demand will likely continue to be served from eastside commerce
centers until the residential population reaches levels to support pre-leased
development. Additionally, the remote location of Rita Ranch, restrictive
conditions, covenants, and vast amounts of available and affordable industrially
zoned land throughout metropolitan Tucson discourages an optimistic prediction
of demand for industrial uses at the present time.

Employees

The Partnership has no employees. The General Partner manages
and controls the affairs of the Partnership. (See Part III, Item 10, Directors
and Executive Officers of the Partnership).

Trademarks and Patents

The Partnership has no trademarks or patents.

ITEM 2. PROPERTY

The Partnership owns 118 acres of undeveloped land situated at
the southwest corner of Old Vail and Houghton Roads in the Rita Ranch
subdivision of Tucson, Arizona. It is comprised of two contiguous parcels, one
of which is 110 acres and is zoned industrial (the "Industrial Parcel") and the
other of which is eight acres and is zoned commercial (the "Commercial Parcel").

In October 1996, an appraisal was ordered on the subject
property. A summary of the site data indicates that the visibility of the site
from Houghton Road and the location near an entrance to Rita Ranch are both
positive. In addition, the fact that eight acres are zoned commercial at the
corner of Old Vail and Houghton Road could be an advantage in the future. The
property provides rail access, but the topography of the site would require an
estimated 15 foot ballast height and substantial engineering/grading to make
this a reality. The presence of the gas pipeline easement and the below grade
nature along Houghton Road are negative characteristics for future development.
Also, all future site development is subject to restrictions which could lead to
significant screening and landscaping costs relevant to most industrial and
commercial uses. Properties have been marketed for a year to several years in
the area before a

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transaction closes. Due to the lack of demand for large vacant land parcels in
this submarket of Tucson, the appraiser has estimated the "As Is" value to be
$475,000 or approximately $4,000 per acre.

In 1997, marketing proposals were solicited from area brokerage firms.
A brokerage firm was selected and the property was listed in 1998. A potential
purchaser made an offer during 1998 for approximately $5,000 an acre but
subsequently withdrew it upon further investigation.

ITEM 3. LEGAL PROCEEDINGS

The Partnership is not a direct party to, nor is the Partnership's
property directly the subject of, any material legal proceedings. However, on
November 6, 1992, the Commonwealth Court of Pennsylvania issued an order placing
Fidelity, the indirect parent of the General Partner, into rehabilitation under
the control and authority of the Pennsylvania Insurance Commissioner pursuant to
the provisions of the Pennsylvania Insurance Department Act, 40 P.S. Sections
221.1 et seq. The Partnership is not a direct party to the order, but ownership
of the stock of the General Partner and the stock of the majority Limited
Partner is vested in the Insurance Commissioner pursuant to the order.

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

No matters were submitted to a vote of security holders during the
fiscal year ended December 31, 1998.

PART II

ITEM 5. MARKET FOR THE PARTNERSHIP'S UNITS OF LIMITED PARTNERSHIP INTEREST AND
RELATED SECURITY HOLDER MATTERS

There is no established public trading market for the Units
and it is not anticipated that any will develop in the future. The Partnership
commenced an offering to the public on October 29, 1987 of 6,707 Units of
limited partnership interests. The offering continued until June 10, 1988 when
all 6,707 Units had been sold to 105 investors, including an affiliate of the
General Partner which acquired 5,008.3 Units.

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ITEM 6. SELECTED FINANCIAL DATA

For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
December 31 December 31 December 31 December 31 December 31
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------

Operating
Revenues $ 25 $ 303 $ 182 $ 33 $ 258

Net Income
(Loss) $(46,568) $(29,852) $(33,130) $(32,560) $(19,621)

Net Income
(Loss) per
Unit of
Limited
Interest $ (6.94) $ (4.45) $ (4.94) $ (4.85) $ (2.93)

December 31 December 31 December 31 December 31 December 31
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------

Total Assets $350,544 $350,519 $350,267 $350,205 $350,292

Long Term
Obligations -0- -0- -0- -0- -0-

Cash Distributions
Declared per Unit
of Limited
Partnership
Interest None None None None None

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

Background

The Partnership was formed to acquire and realize appreciation
in the Property by holding it for investment and eventual sale. However, there
can be no assurance that the Partnership's objectives will be realized.

Results of operations

The Partnership's revenues for fiscal year 1998 consisted of
partnership transfer fees of $25. Expenses for 1998 consisted primarily of
general and administrative costs of $22,034, insurance of $126, real estate
taxes of $9,433 and management fees of $15,000.

The Partnership's revenues for fiscal year 1997 consisted of
interest income of $3 and partnership transfer fees of $300. Expenses for 1997
consisted primarily of general and administrative costs of $6,090, insurance of
$111, real estate taxes of $8,954 and management fees of $15,000.

The Partnership's revenues for fiscal year 1996 consisted of
interest income of $7 and partnership transfer fees of $175. Expenses for 1996
consisted primarily of general and administrative costs of $8,715, insurance of
$131, real estate taxes of $9,466 and management fees of $15,000.

The current real estate forecast for Rita Ranch is that there
will continue to be an absorption of vacant land in other Tucson submarkets, and
improvements in the immediate area, in particular the residential sector which
is one of the fastest growing in Tucson, Arizona. Unfortunately, the commercial
and industrial market growth continues to be very week.

Liquidity and Capital Resources

The Partnership has no cash reserve remaining at December 31, 1998. As
shown in the accompanying financial statements, the Partnership has incurred
substantial operating losses in each of the past three years. Such losses will
continue until the Partnership begins to sell land parcels. In the partnership
agreement, the General Partner has committed to contribute up to $600,000 to the
capital of the Partnership as the need for additional working capital arises.
Cumulative amounts funded by the General Partner amounted to $339,537 at
December 31, 1998. Realization of the Partnership's assets is dependent upon the
continued funding of operating deficits by the General Partner and its
affiliate. There can be no assurance, however, that the General Partner or its
affiliate will continue to fund operating deficits.

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During 1992 and 1990, the Partnership recorded writedowns of
$830,000 and $6,261,041 respectively.

Impact of Year 2000

The Partnership has assessed and is continuing to assess its operating
systems, computer software applications, computer equipment and other equipment
with embedded electronic circuits ("Programs") that it currently uses to
identify whether they are Year 2000 compliant and, if not, what steps are needed
to bring them into compliance. The Partnership expects that almost all Programs
will be Year 2000 compliant by the end of the second quarter of 1999. For those
Programs that will not be compliant by then, the Partnership is reviewing the
potential impact on the Partnership and the alternatives that are available to
it if the Programs cannot be brought into compliance by December 31, 1999. The
Partnership believes that the required changes to its Programs will be made on a
timely basis without causing material operational issues or having a material
impact on its results of operations or its financial position.

The Partnership believes that its core business of owning improved land
is not heavily dependent on the Year 2000 compliance of its Programs and that,
should a reasonably likely worst case Year 2000 situation occur, the
Partnership, because of the basic nature of its systems, many of which can be
executed manually, would not likely suffer material loss or disruption in
remedying the situation.

The costs incurred and expected to be incurred in the future regarding
Year 2000 compliance have been and are expected to be immaterial to the results
of operations and financial position of the Partnership. Costs related to Year
2000 compliance are expensed as incurred.

The Partnership has been reviewing whether its significant third party
service providers including financial institutions ("Providers") are Year 2000
compliant. The Company is not aware of any Providers that do not expect to be
compliant; however, the Company has no means of ensuring that its Providers will
be Year 2000 ready. The inability of Providers to be Year 2000 ready in a timely
fashion could have an adverse impact on the Company. The Company plans to
respond to any such contingency involving any of its Providers by seeking to
utilize alternative sources for such goods and services, where practicable. In
addition, widespread disruptions in the national or international economy,
including, for example, disruptions affecting financial markets, and commercial
and investment banks, could also have an adverse impact on the Company. The
likelihood and effects of such disruptions are not determinable at this time.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership's primary market risk exposure relates to
general economic trends effecting the overall real estate market as it relates
to the holding of land for investment purposes (see Item 2).

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Partnership's financial statements for the years ended
December 31, 1998 and 1997 together with the report of the Partnership's
independent auditors, Ernst & Young LLP, is included in this Form 10-K.

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

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP

The Partnership does not have any directors or officers. The
General Partner manages and controls the affairs of the Partnership and has
responsibility for all aspects of the Partnership's operations. The current
executive officers and directors of the General Partner are identified and
described below. Officers and directors serve until their successors have been
elected.

Arthur W. Mullin is a Director, President and Treasurer of the
General Partner. Mr. Mullin is also an officer and director of various other
subsidiaries of Fidelity Mutual. Mr. Mullin was appointed senior vice President
and Director of Real Estate for Fidelity Mutual in June 1993 and served in that
capacity until January 31, 1995. He is currently President of KMR Management,
Inc., a management advisory firm that provides advice to corporations and
institutions regarding corporate, financial and real estate matters. Before
joining Fidelity Mutual, Mr. Mullin served as President of KMR Management, Inc.
Mr. Mullin received a B.S. in Political Science and a M.S. in Education from St.
Joseph's University, Philadelphia, Pennsylvania.

William S. Taylor is Director and Vice President of the
General Partner. Mr. Taylor is also an officer and director of various other
subsidiaries of Fidelity Mutual. Mr. Taylor is the Deputy Insurance Commissioner
for Liquidation's, Rehabilitation's and Special Funds for the Commonwealth of
Pennsylvania. Mr. Taylor has a bachelor's degree in Economics from Elizabethtown
College and a masters degree in Governmental Administration from the University
of Pennsylvania.

James W. Kelican, Jr., CPM, is a Director and Vice President
of the General Partner. Mr. Kelican is also an officer and director of various
other subsidiaries of Fidelity

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Mutual. Mr. Kelican was appointed Vice President - Real Estate for Fidelity
Mutual in July, 1993 and Senior Vice President and Director of Real Estate in
October 1994. Mr. Kelican has a B.S. in Business Administration from Drexel
University, Philadelphia, Pennsylvania and has the title of Certified Property
Manager from the Institute of Real Estate Management of the National Association
of Realtors.

Robert Bixler is Secretary of the General Partner. Mr. Bixler
is also the Secretary of various other subsidiaries of Fidelity Mutual. Mr.
Bixler is a Vice President and Associate Counsel of Fidelity Mutual. Mr. Bixler
received his A.B. degree in Economics from Temple University, and his J.D.
degree from Temple University Law School, Philadelphia, PA. He is a member of
the American Bar Association and the Philadelphia Bar Association.

Margaret Tamasitis is Assistant Secretary of the General
Partner. Ms. Tamasitis is also Assistant Secretary of various other
subsidiaries. Ms. Tamasitis is a Second Vice President of Fidelity Mutual in the
Controller's office and has been with Fidelity Mutual for 28 years. Ms.
Tamasitis received her B.S. degree in Accounting from Temple University,
Philadelphia, PA.

ITEM 11. EXECUTIVE COMPENSATION

As of December 31, 1998 the Partnership did not pay
remuneration to any officers of the General Partner. Fees which have been paid
or are payable to the General Partner and affiliates are set forth in Item 13 of
this report, "Certain Relationships and Related Transactions".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) Security Ownership of Certain Beneficial Owners

Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Title of Class Owner Ownership of Class
-------------- ----- --------- --------

(1) Units of Limited Equity 5,008.3 74.67
Partnership Products Units
Interest Corp.
250 King
of Prussia
Road,
Radnor, PA
19087

Equity Products Corp., an affiliate of the General
Partner, purchased 5,008.3 General Partnership Units for $4,582,560. The General
Partnership Units are more fully described in the Partnership Agreement. Equity
Products Corp. purchased these units for $915 per Unit, which amount is net of
selling commissions.

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As of December 31, 1998, no other person or "group"
(as that term is used in Section 13(d) (3) of the Securities Exchange Act of
1934) was known by the Partnership to beneficially own more than five percent of
the units of the Partnership.

- ----------

(1) Units of limited partnership interest owned by Equity Products Corp.
are designated in the Partnership Agreement as General Partnership
Units.

(b) Security Ownership of Management

The General Partner does not own any of the Partnership's
outstanding limited partnership interests.

No individual director or officer of the General Partner nor
such directors or officers as a group, owns any of the Partnership's outstanding
securities. The General Partner owns a general partnership interest which
enables it to receive 1% of cash distributions until the Limited Partners have
received a return of their Capital Contributions plus cumulative distributions
equal to 9% non-compounded Cumulative Annual Return of their Adjusted Capital
Contributions as those terms are defined in the Partnership Agreement.
Thereafter, the General Partner will receive a 9% return on any portion of its
$600,000 capital contribution and the balance, 80% to the limited partners and
20% to the General Partner. The General Partner will share in taxable income to
reflect cash distributions, or to the extent there are losses, 1% of such
losses.

There are no arrangements known to the Partnership that would
at any subsequent date result in a change in control of the Partnership. The
impact of Fidelity's rehabilitation and rehabilitation order (as described in
Part I, Item 3, Legal Proceedings) on the Partnership or the General Partner
cannot be determined at this time.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 1998, a management fee of $15,000 was paid to the
General Partner. This fee is computed as .2% of the cost of the land. The
cumulative amount of such fee may not exceed $128,000, and cumulative fees
charged since inception amounted to $120,000 at December 31, 1998. However, if
the Partnership's reserves are exhausted, the unpaid portion of this fee will be
paid, without interest from the proceeds of the sale of the Property after the
Limited Partners have received distributions equal to their Capital
Contributions and Unpaid Cumulative Return.

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The General Partner will also receive 1% of cash distributions
until the Limited Partners have received (i) a return of their Capital
Contributions plus (ii) cumulative distributions equal to a 9% Annual Return on
their Adjusted Capital Contributions (as those terms are defined in the Limited
Partnership Agreement). Thereafter, the General Partner will receive a 9% return
on any portion of its $600,000 capital contribution and the balance, 80% to the
limited partners and 20% to the General Partner. During 1998, 1997 and 1996, the
General Partner received no cash distributions.

PART IV

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

(a) Index to Financial Statements Page
----------------------------- ----

Report of Independent Auditors 1
Balance Sheet at December 31, 1998 and 1997 2
Statements of Operations 3
Statements of Partners' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6

Schedules have been omitted because they are inappropriate, not required, or the
information is included elsewhere in the financial statements or notes thereto.

(b) Reports on Form 8-K

1. None

Exhibit Numbers Description
- --------------- -----------

3.1 Certificate of Limited Partnership and First Amended Limited
Partnership Certificate.(2)

3.2 & 4 Amended and Restated Limited Partnership Agreement.(3)

9 not applicable

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10.1(a) First Deed of Trust and Assignment of Rents dated December
31, 1985, from South Rita Associates to Pima Service
Corporation, as amended, March 16, 1987, securing a
$3,088,680 obligation.(2)

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(2) Incorporated by reference to Exhibits 3.1, 10.1(a) and (b), and 10.2(a)
and (b) respectively filed as part of the Exhibits to the Partnership's
Registration Statement on Form S-18, Registration No. 33-16164-LA.

(3) Incorporated by reference to Exhibit 3.2 filed as part of the
Partnership's Registration Statement on Form S-18, Registration No.
33-16164-LA.

Exhibit Numbers Description
- --------------- -----------

10.1(b) $3,088,680 Promissory Note, dated July 24, 1987, from South
Rita Associates to Pima Service Corporation.(2)

10.2(a) First Deed of Trust and Assignment of Rents dated December
31, 1985, from South Rita Associates to Pima Service
Corporation, as amended, March 16, 1987, securing a $221,200
obligation.(2)

10.2(b) $221,200 Promissory Note, dated July 24, 1987, from South
Rita Associates to Pima service Corporation.(2)

11 not applicable

12 not applicable

13 not applicable

16 not applicable

18 not applicable

19 not applicable

22 not applicable

23 not applicable

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24 not applicable

25 not applicable

29 not applicable

- ----------

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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.

FMG RITA RANCH LIMITED PARTNERSHIP, a Delaware limited
partnership

By: FMG WESTERN REGION ACQUISITIONS, INC., General
Partner

Dated: 3/25/99 By: /s/ Arthur W. Mullin
--------------- ----------------------
Arthur W. Mullin
President

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.

SIGNATURE TITLE DATE
- --------- ----- ----

/s/ Arthur W. Mullin President, 3/25, 1999
- ------------------------ Treasurer,
Arthur W. Mullin Director of
FMG Western
Region
Acquisitions, Inc.

/s/ William S. Taylor Vice President, 3/25, 1999
- ------------------------ Director of
William S. Taylor FMG Western
Region
Acquisitions, Inc.

/s/ James W. Kelican Jr. Vice President, 3/25, 1999
- ------------------------ Director of
James W. Kelican Jr. FMG Western
Region
Acquisitions, Inc.

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Financial Statements

FMG Rita Ranch Limited Partnership

Years ended December 31, 1998 and 1997
with Report of Independent Auditors

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Financial Statements

FMG Rita Ranch Limited Partnership

Years ended December 31, 1998 and 1997

CONTENTS

Report of Independent Auditors......................................... 1

Audited Financial Statements

Balance Sheets......................................................... 3
Statements of Operations............................................... 4
Statements of Partners' Equity......................................... 5
Statements of Cash Flows............................................... 6
Notes to Financial Statements.......................................... 7

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[ERNST & YOUNG LLP Letterhead]

Report of Independent Auditors

To the Partners of
FMG Rita Ranch Limited Partnership

We have audited the accompanying balance sheets of FMG Rita Ranch Limited
Partnership (a Delaware Limited Partnership) as of December 31, 1998 and 1997,
and the related statements of operations, partners' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements 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 FMG Rita Ranch Limited
Partnership as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that FMG Rita
Ranch Limited Partnership will continue as a going concern. As more fully
discussed in Note 1, the Partnership lacks adequate working capital to meet its
future obligations as they become due and must continue to rely on the General
Partner and its ultimate parent to provide these funds. On November 6, 1992, due
to continuing significant operating

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difficulties, the Commonwealth Court of Pennsylvania placed Fidelity Mutual Life
Insurance Company, the ultimate parent of the General Partner, into
Rehabilitation. Because of this Rehabilitation, there is no assurance that
continued financing of the Partnership will be permitted. These conditions raise
substantial doubt about the Partnership's ability to continue as a going
concern. The financial statements of the Partnership do not include any
adjustments to reflect the possible future effects on the recoverability of
assets or the amounts of liabilities that may result from the possible inability
of FMG Rita Ranch Limited Partnership to continue as a going concern.

/s/ ERNST & YOUNG LLP
---------------------

Philadelphia, Pennsylvania
February 18, 1999

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FMG Rita Ranch Limited Partnership

Balance Sheets

DECEMBER 31
1998 1997
---- ----

ASSETS
Land held for sale, net $350,000 $350,000
Cash 544 519
-------- --------
$350,544 $350,519
======== ========

LIABILITIES AND PARTNERS' EQUITY
Accrued expenses $ 20,002 $ 9,906
Due to affiliates 3,750 3,750
Partners' equity:
General partner 177,845 141,814
Limited partners (6,707 units authorized, issued,
and outstanding) 148,947 195,049
-------- --------
$350,544 $350,519
======== ========

See accompanying notes.

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FMG Rita Ranch Limited Partnership

Statements of Operations

YEAR ENDED DECEMBER 31
1998 1997 1996
---- ---- ----

Revenues $ 25 $ 303 $ 182

Expenses:
Real estate taxes 9,433 8,954 9,466
General and administrative 22,034 6,090 8,715
Management fee 15,000 15,000 15,000
Insurance 126 111 131
-------- -------- --------
46,593 30,155 33,312
-------- -------- --------
Net loss:
Allocated to General Partner (466) (299) (331)
Allocated to Limited Partners (46,102) (29,553) (32,799)
-------- -------- --------
$(46,568) $(29,852) $(33,130)
======== ======== ========

Net loss per limited partnership unit $ (6.94) $ (4.45) $ (4.94)
======== ======== ========

See accompanying notes.

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FMG Rita Ranch Limited Partnership

Statements of Partners' Equity

GENERAL LIMITED
PARTNER PARTNERS TOTAL

Balance, January 1, 1996 $ 79,212 $ 257,401 $ 336,613
Capital contributions 33,373 -- 33,373
Net loss (331) (32,799) (33,130)
--------- --------- ---------
Balance, December 31, 1996 112,254 224,602 336,856
Capital contributions 29,859 -- 29,859
Net loss (299) (29,553) (29,852)
--------- --------- ---------
Balance, December 31, 1997 141,814 195,049 336,863
Capital contributions 36,497 -- 36,497
Net loss (466) (46,102) (46,568)
--------- --------- ---------
Balance, December 31, 1998 $ 177,845 $ 148,947 $ 326,792
========= ========= =========

See accompanying notes.

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FMG Rita Ranch Limited Partnership

Statements of Cash Flows

YEAR ENDED DECEMBER 31
1998 1997 1996
---- ---- ----

OPERATING ACTIVITIES
Net loss $(46,568) $(29,852) $(33,130)
Adjustments to reconcile net loss to
net cash used in operating activities:
Changes in operating assets
and liabilities:
Accrued expenses 10,096 245 (181)
-------- -------- --------
Net cash used in operating activities (36,472) (29,607) (33,311)

FINANCING ACTIVITIES
Cash contributions from general partner 36,497 29,859 33,373
-------- -------- --------
Net cash provided by financing activities 36,497 29,859 33,373
-------- -------- --------

Net increase in cash 25 252 62

Cash, beginning of year 519 267 205
-------- -------- --------
Cash, end of year $ 544 $ 519 $ 267
======== ======== ========

See accompanying notes.

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FMG Rita Ranch Limited Partnership

Notes to Financial Statements

December 31, 1998

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

FMG Rita Ranch Limited Partnership is a Delaware Limited Partnership. The
General Partner (FMG Western Region Acquisitions, Inc.) is an indirect wholly
owned subsidiary of The Fidelity Mutual Life Insurance Company (in
Rehabilitation). There are 6,707 limited partnership units outstanding at
December 31, 1998. Per the Partnership Agreement, the Partnership shall exist
for a term ending December 31, 2026, at which time it shall be dissolved.

The Partnership owns approximately 118 acres of unimproved land in Tucson,
Arizona. The Property is being marketed for sale and will be sold as conditions
warrant.

As the Partnership lacks working capital it has been and is dependent upon the
General Partner honoring its agreement to fund operating needs up to $600,000.
As the General Partner does not have the necessary funds to meet this obligation
it has been dependent upon its ultimate parent, Fidelity Mutual Life Insurance
Company, to provide such funds.

On November 6, 1992, the Commonwealth Court of Pennsylvania (the Court) placed
Fidelity Mutual Life Insurance Company (the Company) into Rehabilitation. The
Rehabilitator was granted immediate exclusive possession and control of, and
title to, the business and assets of the Company. The Rehabilitator has been
directed to conduct the business of the Company and to begin taking such steps
as deemed appropriate toward removing the cause and conditions that have made
the rehabilitation necessary. The Company filed its Rehabilitation Plan in June
1994 and subsequently amended it in January 1995 and again in June 1996. A third
amended Rehabilitation Plan was filed with the Court during the second quarter
of 1998. While the General Partner at this time does not expect the
Rehabilitation of the Company to negatively impact the operation of either the
General Partner or the Partnership, the ultimate impact of the Rehabilitation of
the Company on the Partnership cannot be determined at this time.

The Partnership's financial statements are presented on the basis of a going
concern and do not include any adjustments relating to the possible future
effects on the recoverability of assets or amount of liabilities that may result
from the possible inability of the Partnership to continue as a going concern.

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FMG Rita Ranch Limited Partnership

Notes to Financial Statements (continued)

2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING

The Partnership maintains its accounting records on the accrual basis of
accounting.

LAND HELD FOR SALE

Land is carried at the lower of cost or fair value. The carrying value of land,
as disclosed on the balance sheet, is shown net of write-downs of $7,091,041
taken in prior years.

INCOME TAXES

In conformity with the Internal Revenue Code and applicable state and local tax
statutes, taxable income or loss of the Partnership is required to be reported
in the tax returns of the partners in accordance with the terms of the
Partnership Agreement. Accordingly, no provision has been made in the
accompanying financial statements for any federal, state, or local income taxes.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect various amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

3. RELATED PARTY TRANSACTIONS

In 1998, 1997, and 1996, the Partnership was charged an annual management fee of
$15,000 by the General Partner. The cumulative amount of such fee may not exceed
$128,000, and cumulative fees charged since inception amounted to $120,000 at
December 31, 1998.

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27
FMG Rita Ranch Limited Partnership

Notes to Financial Statements (continued)

4. PARTNERS' EQUITY

In prior years, the Partnership received cash equity contributions totaling
$6,281,294 through the sale of limited partnership units, of which $4,583,560
was contributed by an affiliate of the General Partner.

The General Partner has agreed to contribute up to $600,000 to the capital of
the Partnership if the need for additional funding arises (see Note 1).
Cumulative amounts funded by the General Partner amounted to $339,537 at
December 31, 1998.

CASH DISTRIBUTIONS

Except for distributable proceeds from capital transactions and refinancings, as
defined in the partnership agreement, and upon liquidation of the Partnership,
cash distributions, if any, will be made 99% to the limited partners and 1% to
the General Partner. Distributable proceeds from capital transactions involving
less than all or substantially all of the Partnership's assets and distributable
proceeds from refinancings will be distributed in the following order of
priority: (i) to limited partners with positive balances in their capital
accounts as maintained for federal tax purposes ("Capital Accounts") in
proportion to and to the extent of such positive balances but not to exceed the
amount required to compensate the limited partners for federal taxes incurred as
a result of the capital transaction, (ii) to all partners with positive balances
in their Capital Accounts after the capital transaction, in proportion to and to
the extent of such positive balances; (iii) to the partners until they have
received a return of their capital contributions ($6,480,113 at December 31,
1998); (iv) to the limited partners until they have received their unpaid
cumulative (i.e., a 9% (noncompounded)) annual return on their adjusted capital
contributions ($6,148,872 at December 31, 1998), and to the General Partner
until it has received a 9% return on any portion of its $600,000 capital
contribution that it has made; and (vi) the balance, 80% to the limited partners
and 20% to the General Partner. Distributions in connection with the sale of all
or substantially all of the Partnership's assets or the Partnership's
liquidation will be made in accordance with the positive balances in the
partners' Capital Accounts.

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FMG Rita Ranch Limited Partnership

Notes to Financial Statements (continued)

4. PARTNERS' EQUITY (CONTINUED)

Although all cash flow from operations will be distributed (and not reinvested),
the General Partner does not anticipate that cash distributions will be made
other than from capital transactions and as a result of refinancings prior to
liquidation of the Partnership.

PROFITS AND LOSSES

Profits from capital transactions will be allocated in the following order: (i)
to those partners having negative capital accounts, pro rata, to the extent of
their negative capital accounts; and (ii) the balance in those proportions as
will produce capital account balances, which would result in distributions of
distributable proceeds from capital transactions as described above. Profits
which arise other than from capital transactions will, to the extent of cash
distributions (other than those which represent proceeds from capital
transactions), be allocated to reflect cash distributions and to the extent
those profits exceed those cash distributions, the excess will be allocated as
if it was profit from a capital transaction. Generally, losses will be allocated
99% to the limited partners in proportion to their units and 1% to the General
Partner to reduce any positive balances in the partners' capital accounts. In no
event will the General Partner be allocated less than 1% of profit or loss for
any year.

5. IMPACT OF YEAR 2000 (UNAUDITED)

The Partnership has assessed and is continuing to assess its operating systems,
computer software applications, computer equipment and other equipment with
embedded electronic circuits ("Programs") that it currently uses to identify
whether they are Year 2000 compliant and, if not, what steps are needed to bring
them into compliance. The Partnership expects that almost all Programs will be
Year 2000 compliant by the end of the second quarter of 1999. For those Programs
that will not be compliant by then, the Partnership is reviewing the potential
impact on the Partnership and the alternatives that are available to it if the
Programs cannot be brought into compliance by December 31, 1999. The Partnership
believes that the required changes to its Programs will be made on a timely
basis without causing material operational issues or having a material impact on
its results of operations or its financial position.

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FMG Rita Ranch Limited Partnership

Notes to Financial Statements (continued)

5. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)

The Partnership believes that its core business of owning unimproved land is not
heavily dependent on the Year 2000 compliance of its Programs and that, should a
reasonably likely worst case Year 2000 situation occur, the Partnership, because
of the basic nature of its systems, many of which can be executed manually,
would not likely suffer material loss or disruption in remedying the situation.

The costs incurred and expected to be incurred in the future regarding Year 2000
compliance have been and are expected to be immaterial to the results of
operations and financial position of the Partnership. Costs related to Year 2000
compliance are expensed as incurred.

The Partnership has been reviewing whether its significant third-party service
providers, including financial institutions ("Providers") are Year 2000
compliant. The Partnership is not aware of any Providers that do not expect to
be compliant; however, the Partnership has no means of ensuring that its
Providers will be Year 2000 ready. The inability of the Providers to be Year
2000 ready in a timely fashion could have an adverse impact on the Partnership.
The Partnership plans to respond to any such contingency involving any of its
Providers by seeking to utilize alternative sources for such goods and services,
where practicable. In addition, widespread disruptions in the national or
international economy, including, for example, disruptions affecting financial
market and commercial and investment banks, could also have an adverse impact on
the Partnership. The likelihood and effects of such disruptions are not
determinable at this time.