UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                       ----------------------------------

                                    FORM 10-K

            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                      FOR FISCAL YEAR ENDED MARCH 31, 1998

                                       OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

               For the transition period from ______ to _______ .


Commission File Number: 0-14857


               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
              -----------------------------------------------------
             (Exact name of registrant as specified in its charter)


            Virginia                                           04-2866287
            --------                                           ----------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                              Identification No.)


265 Franklin Street, Boston, Massachusetts                         02110
------------------------------------------                         -----
(Address of principal executive offices)                           (Zip Code)


Registrant's telephone number, including area code  (617) 439-8118
                                                    --------------

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

                                                     Name of each exchange on
Title of each class                                     which registered
-------------------                                  ------------------------
      None                                                    None

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

                      UNITS OF LIMITED PARTNERSHIP INTEREST
                                (Title of class)

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  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 |_|.

State the aggregate market value of the voting stock held by  non-affiliates  of
the registrant. Not applicable.

                       DOCUMENTS INCORPORATED BY REFERENCE

Documents                                                   Form 10-K Reference
---------                                                   -------------------
Prospectus of registrant dated                              Parts II and IV
July 18, 1985, as supplemented

<PAGE>
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                                 1998 FORM 10-K

                                TABLE OF CONTENTS


Part   I                                                                Page

Item  1     Business                                                    I-1

Item  2     Properties                                                  I-3

Item  3     Legal Proceedings                                           I-4

Item  4     Submission of Matters to a Vote of Security Holders         I-5


Part  II

Item  5     Market for the Partnership's Limited Partnership
              Interests and   Related Security Holder Matters           II-1

Item  6     Selected Financial Data                                     II-1

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

Item  8     Financial Statements and Supplementary Data                 II-9

Item  9     Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure                      II-9


Part III

Item  10    Directors and Executive Officers of the Partnership         III-1

Item  11    Executive Compensation                                      III-2

Item  12    Security Ownership of Certain Beneficial Owners
               and Management                                           III-3

Item  13    Certain Relationships and Related Transactions              III-3


Part  IV

Item  14    Exhibits, Financial Statement Schedules and
              Reports on Form 8-K                                       IV-1

Signatures                                                              IV-2

Index to Exhibits                                                       IV-3

Financial Statements and Supplementary Data                       F-1 to F-51

<PAGE>


                                
      This Form 10-K contains  forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The  Partnership's  actual results could differ materially
from those set forth in the  forward-looking  statements.  Certain  factors that
might cause such a difference  are  discussed in Item 7 in the section  entitled
"Certain Factors Affecting Future Operating  Results"  beginning on page II-8 of
this Form 10-K.
                                    PART I

Item 1.  Business

      PaineWebber Equity Partners One Limited Partnership (the "Partnership") is
a limited  partnership  formed  on April 17,  1985,  under the  Uniform  Limited
Partnership Act of the State of Virginia to invest in a diversified portfolio of
existing, newly constructed or to-be-built income-producing real properties such
as shopping centers,  office buildings,  apartment  complexes,  hotels and other
commercial  income-producing  properties.  The Partnership authorized and issued
the  maximum of  2,000,000  Partnership  Units (the  "Units"),  at $50 per Unit,
offered to the public  pursuant to a  Registration  Statement on Form S-11 filed
under the Securities Act of 1933  (Registration No. 2-97158).  Gross proceeds of
$100,000,000  were  contributed  to the  capital of the  Partnership  during the
offering  period  which ended on July 17,  1986.  Limited  Partners  will not be
required to make any additional contributions.

      As of March 31, 1998,  the  Partnership  owned  directly or through  joint
venture  partnerships the properties or interests in the properties set forth in
the following table, which consist of four office/R&D  buildings,  two apartment
complexes and one mixed-use retail/office property.

<TABLE>
<CAPTION>

Name of Joint Venture                                  Date of
Name and Type of Property                              Acquisition      Type of
Location                                Size           of Interest      Ownership (1)
--------                                -----          -----------      ----------------
<S>                                     <C>              <C>              <C> 

Crystal Tree Commerce Center          74,923 square      10/23/85       Fee ownership of land and
North Palm Beach, FL                  feet of retail                    improvements
                                      space and
                                      40,115 square
                                      feet of office
                                      space

Warner/Red Hill Associates            93,895             12/18/85       Fee ownership of land and
Warner/Red Hill Business Center       net rentable                      improvements (through
Tustin, CA                            square feet of                    joint venture)
                                      office space

Crow PaineWebber LaJolla, Ltd.        180 units          7/1/86         Fee ownership of land and
Monterra Apartments                                                     improvements (through
LaJolla, CA                                                             joint venture)

Sunol Center Associates               116,680 net        8/15/86        Fee ownership of land and
Sunol Center Office Buildings         rentable                          improvements (through
Pleasanton, CA                        square feet of                    joint venture)
                                      office space (2)

Lake Sammamish Limited                166 units          10/1/86        Fee ownership of land and
  Partnership                                                           improvements (through
Chandler's Reach Apartments                                             joint venture)
Redmond, WA

Framingham - 1881 Associates          64,189 net         12/12/86       Fee ownership of land and
1881 Worcester Road                   rentable                          improvements (through
    Office Building                   square feet of                    joint venture
Framingham, MA                        office space

Chicago-625 Partnership               324,829 net        12/16/86       Fee ownership of land and
625 North Michigan Avenue             rentable                          improvements (through
Office Building                       square feet                       joint venture)
Chicago, IL
</TABLE>


(1)   See Notes to the Financial  Statements filed with this Annual Report for a
      description of agreements through which the Partnership has acquired these
      real  property  investments  and  for a  description  of the  indebtedness
      secured by the Partnership's real property investments.

(2)   On February  28, 1990,  one of the three  buildings  comprising  the Sunol
      Center  investment  was sold for  $8,150,000.  The building  that was sold
      consisted of approximately  53,400 net rentable square feet, or 31% of the
      original total net rentable square feet.

      The Partnership's  investment objectives are to invest the proceeds raised
from the offering of limited  partnership  units in a  diversified  portfolio of
income-producing properties in order to:

(i)   preserve and protect the original capital invested in the Partnership; 
(ii)  provide the Limited Partners with quarterly cash distributions, a
      portion of which  will be  sheltered  from  current  federal  income tax
      liability; and
(iii) achieve long-term capital appreciation  through potential  appreciation in
      the values of the Partnership's investment properties.

      Through March 31, 1998, the Limited Partners had received  cumulative cash
distributions totalling approximately  $39,782,000,  or $448 per original $1,000
investment for the Partnership's  earliest  investors.  Quarterly  distributions
were paid at the rate of 9% per annum on invested capital from inception through
the quarter ended  December 31, 1988. The  distributions  were reduced to 6% per
annum  effective for the quarter ended March 31, 1989 and were paid at that rate
through the quarter ended March 31, 1990, at which point they were reduced to 2%
per annum.  Effective for the quarter ended December 31, 1992,  the  Partnership
suspended the payment of quarterly  distributions as part of an overall strategy
aimed at accelerating the timetable for repaying the  Partnership's  zero coupon
loans, the refinancings of which were completed during fiscal 1995. As a result,
distributions  were  reinstated  at a rate of 1% per annum on  invested  capital
effective for the quarter  ended March 31, 1995. As a result of the  improvement
in operations of the properties in the Partnership's portfolio,  particularly at
Sunol Center,  the  Partnership  increased the  quarterly  distribution  to a 2%
annualized  return,  effective for the distribution paid on May 15, 1997 for the
quarter ended March 31, 1997. A substantial portion of the distributions paid to
date has been sheltered from current federal income tax liability.  In addition,
the  Partnership  retains an  ownership  interest  in all seven of its  original
investment properties,  although, as noted above, the Sunol Center joint venture
has  sold  one  of its  three  office  buildings.  The  proceeds  of  this  sale
transaction  were  used to  retire  an  outstanding  zero  coupon  loan  and for
reinvestment in certain of the existing joint ventures.

      The Partnership's  success in meeting its capital  appreciation  objective
will  depend  upon the  proceeds  received  from the  final  liquidation  of the
investments.  The amount of such proceeds will ultimately  depend upon the value
of the underlying investment properties at the time of their liquidation,  which
cannot  presently be  determined.  While  market  values for  commercial  office
buildings  continued  to  recover  during  fiscal  1998 after  several  years of
depressed  conditions,  such values,  for the most part, remain below the levels
which existed in the mid-1980's, which is when the Partnership's properties were
acquired.  Such  conditions  are due, in part,  to the  residual  effects of the
overbuilding  which  occurred in the late 1980's and the trend toward  corporate
downsizing  and  restructurings  which occurred in the wake of the last national
recession.  In  addition,  at the  present  time real  estate  values for retail
shopping centers in certain markets are being adversely  impacted by the effects
of  overbuilding  and  consolidations  among retailers which have resulted in an
oversupply of space. The market for multi-family  residential properties in most
markets  throughout  the country  remained  strong  during  fiscal 1998 although
estimated  market values in some markets appear to have plateaued as a result of
the increase in development activity referred to below.  Management is currently
focusing  on  potential  disposition  strategies  for  the  investments  in  its
portfolio.  Although no assurances  can be given,  it is currently  contemplated
that sales of the  Partnership's  remaining assets could be completed within the
next 2- to- 3 years.

      All of the Partnership's  investment properties are located in real estate
markets  in which  they  face  significant  competition  for the  revenues  they
generate. The apartment complexes compete with numerous projects of similar type
generally  on the  basis of price and  amenities.  Apartment  properties  in all
markets also compete  with the local single  family home market for  prospective
tenants. The continued availability of low interest rates on home mortgage loans
has increased the level of this  competition  over the past few years.  However,
the impact of the competition from the  single-family  home market has generally
been  offset by a  significant  increase in the funds  available  in the capital
markets  for  investment  in real  estate  and by the  lack of  significant  new
construction  activity in the  multi-family  apartment  market over most of this
period.  Over  the  past  two  years,   development  activity  for  multi-family
properties  in many  markets  has  escalated  significantly.  The  Partnership's
shopping  center and office  buildings  also  compete for  long-term  commercial
tenants with numerous  projects of similar type generally on the basis of price,
location and tenant improvement allowances.

      The  Partnership  has no real  property  investments  located  outside the
United States.  The Partnership is engaged solely in the business of real estate
investment, therefore presentation of information about industry segments is not
applicable.

      The  Partnership  has no  employees;  it  has,  however,  entered  into an
advisory  agreement with PaineWebber  Properties  Incorporated  (the "Adviser"),
which is  responsible  for the  day-to-day  operations of the  Partnership.  The
Adviser is a wholly-owned  subsidiary of  PaineWebber  Incorporated  ("PWI"),  a
wholly-owned subsidiary of PaineWebber Group Inc. ("PaineWebber").

      The general  partners of the  Partnership  (the "General  Partners") are
First Equity  Partners,  Inc.  and  Properties  Associates  1985,  L.P.  First
Equity  Partners,  Inc.  (the  "Managing  General  Partner"),  a  wholly-owned
subsidiary  of   PaineWebber,   is  the  managing   general   partner  of  the
Partnership.  The associate  general  partner of the Partnership is Properties
Associates 1985, L.P. (the "Associate  General  Partner"),  a Virginia limited
partnership,  certain  limited  partners  of which  are also  officers  of the
Adviser and the Managing General Partner.

      The terms of  transactions  between the  Partnership and affiliates of the
Managing  General  Partner of the  Partnership  are set forth in Items 11 and 13
below to which  reference  is hereby  made for a  description  of such terms and
transactions.

Item 2.  Properties

      At March 31,  1998,  the  Partnership  had  interests  in seven  operating
properties  through  direct  ownership  and  joint  venture  partnerships.   The
properties and the related joint venture partnerships are referred to under Item
1 above to which  reference is made for the name,  location and  description  of
each property. Occupancy figures for each fiscal quarter during 1998, along with
an average for the year, are presented below for each property:

                                        Percent Occupied At
                              -------------------------------------------------
                                                                     Fiscal
                                                                     1998
                              6/30/97    9/30/97   12/31/97 3/31/98  Average
                              -------    -------   -------- -------  -------
Crystal Tree                   95%         96%       100%   100%        98%

Warner/Red Hill                97%         91%        86%    74%        87%

Monterra Apartments            97%         96%        96%    96%        96%

Sunol Center                  100%        100%       100%   100%       100%

Chandler's Reach Apartments    94%         95%        95%    91%        94%

1881 Worcester Road            51%        100%       100%   100%        88%

625 North Michigan Avenue      87%         89%        89%    88%        88%

Item 3.  Legal Proceedings

      In November  1994,  a series of  purported  class  actions  (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments,  including those offered
by the Partnership.  The lawsuits were brought against PaineWebber  Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied  partnership  investors.  In March  1995,  after the  actions  were
consolidated under the title In re PaineWebber Limited  Partnership  Litigation,
the  plaintiffs  amended their  complaint to assert claims  against a variety of
other  defendants,   including  First  Equity  Partners,   Inc.  and  Properties
Associates  1985,  L.P.  ("PA1985"),  which  are  the  General  Partners  of the
Partnership and affiliates of PaineWebber.  On May 30, 1995, the court certified
class action treatment of the claims asserted in the litigation.

      The amended complaint in the New York Limited  Partnership Actions alleged
that, in connection  with the sale of interests in PaineWebber  Equity  Partners
One Limited Partnership, PaineWebber, First Equity Partners, Inc. and PA1985 (1)
failed to provide adequate disclosure of the risks involved;  (2) made false and
misleading   representations  about  the  safety  of  the  investments  and  the
Partnership's  anticipated  performance;  and (3)  marketed the  Partnership  to
investors for whom such  investments  were not  suitable.  The  plaintiffs,  who
purported  to be suing on behalf of all  persons  who  invested  in  PaineWebber
Equity Partners One Limited Partnership, also alleged that following the sale of
the partnership interests,  PaineWebber,  First Equity Partners, Inc. and PA1985
misrepresented   financial   information  about  the  Partnership's   value  and
performance.  The amended  complaint  alleges  that  PaineWebber,  First  Equity
Partners,  Inc.  and  PA1985  violated  the  Racketeer  Influenced  and  Corrupt
Organizations  Act  ("RICO") and the federal  securities  laws.  The  plaintiffs
sought  unspecified  damages,  including  reimbursement for all sums invested by
them in the  partnerships,  as well as disgorgement of all fees and other income
derived  by  PaineWebber  from  the  limited  partnerships.   In  addition,  the
plaintiffs also sought treble damages under RICO.

      In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the  parties  agreed to settle the case.  Pursuant to that  memorandum  of
understanding,  PaineWebber  irrevocably  deposited  $125 million into an escrow
fund under the  supervision of the United States District Court for the Southern
District of New York to be used to resolve the  litigation in accordance  with a
definitive  settlement  agreement  and plan of  allocation.  On July  17,  1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which  provides for the  complete  resolution  of the class  action  litigation,
including  releases in favor of the  Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs at issue in the case. As part of the settlement,  PaineWebber  also agreed
to provide class members with certain financial  guarantees  relating to some of
the  partnerships  and REITs.  The details of the  settlement are described in a
notice mailed  directly to class members at the direction of the court.  A final
hearing on the fairness of the proposed  settlement  was held in December  1996,
and in March 1997 the court announced its final approval of the settlement.  The
release of the $125 million of settlement  proceeds had been delayed pending the
resolution  of an appeal of the  settlement  agreement  by two of the  plaintiff
class  members.  In July 1997, the United States Court of Appeals for the Second
Circuit upheld the settlement  over the objections of the two class members.  As
part  of  the  settlement   agreement,   PaineWebber  has  agreed  not  to  seek
indemnification  from the related partnerships and real estate investment trusts
at issue in the litigation  (including the  Partnership) for any amounts that it
is required to pay under the settlement.

      In February 1996,  approximately  150 plaintiffs  filed an action entitled
Abbate v.  PaineWebber  Inc. in  Sacramento,  California  Superior Court against
PaineWebber   Incorporated  and  various  affiliated   entities  concerning  the
plaintiffs' purchases of various limited partnership interests,  including those
offered by the  Partnership.  The complaint  alleged,  among other things,  that
PaineWebber and its related entities committed fraud and  misrepresentation  and
breached  fiduciary  duties  allegedly  owed to the  plaintiffs  by  selling  or
promoting  limited   partnership   investments  that  were  unsuitable  for  the
plaintiffs and by overstating the benefits,  understating  the risks and failing
to state  material  facts  concerning  the  investments.  The  complaint  sought
compensatory  damages of $15 million plus punitive damages against  PaineWebber.
In June 1996, approximately 50 plaintiffs filed an action entitled Bandrowski v.
PaineWebber Inc. in Sacramento,  California  Superior Court against  PaineWebber
Incorporated  and  various  affiliated   entities   concerning  the  plaintiffs'
purchases of various limited partnership  interests,  including those offered by
the  Partnership.  The complaint was very similar to the Abbate action described
above and sought  compensatory  damages of $3.4  million plus  punitive  damages
against  PaineWebber.  In  September  1996,  the  court  dismissed  many  of the
plaintiffs'  claims  in both the  Abbate  and  Bandrowski  actions  as barred by
applicable  securities  arbitration  regulations.  Mediation with respect to the
Abbate and  Bandrowski  actions was held in December  1996.  As a result of such
mediation, a settlement between PaineWebber and the plaintiffs was reached which
provided  for the  complete  resolution  of both  actions.  Final  releases  and
dismissals with regard to these actions were received during fiscal 1998.

      Based on the  settlement  agreements  discussed  above covering all of the
outstanding  unitholder  litigation,  management believes that the resolution of
these  matters will not have a material  impact on the  Partnership's  financial
statements, taken as a whole.

      The  Partnership  is not  subject  to any  other  material  pending  legal
proceedings.

Item 4  Submission of Matters to a Vote of Security Holders

      None.


<PAGE>
                                   PART II


Item 5.  Market  for the  Partnership's  Limited  Partnership  Interests  and
Related Security Holder Matters

      At  March  31,  1998  there  were  7,627  record  holders  of Units in the
Partnership.  There is no public market for the Units, and it is not anticipated
that a public market for Units will develop.  Upon request, the Managing General
Partner will endeavor to assist a Unitholder  desiring to transfer his Units and
may utilize the  services  of PWI in this  regard.  The price to be paid for the
Units will be subject to negotiation  by the  Unitholder.  The Managing  General
Partner will not redeem or repurchase Units.

      The  Partnership had a Distribution  Reinvestment  Plan designed to enable
Unitholders  to have  their  distributions  from  the  Partnership  invested  in
additional Units of the  Partnership.  The  Distribution  Reinvestment  Plan was
discontinued during fiscal 1998. The terms of the Plan are outlined in detail in
the Prospectus,  a copy of which  Prospectus,  as supplemented,  is incorporated
herein by reference.

      Reference is made to Item 6 below for a discussion  of cash  distributions
made to the Limited Partners during fiscal 1998.

Item 6. Selected Financial Data

               PaineWebber Equity Partners One Limited Partnership
          For the years ended March 31, 1998, 1997, 1997, 1996 and 1995
                    (in thousands, except for per Unit data)

                          1998      1997        1996        1995        1994
                          ----      ----        ----        ----        ----

Revenues              $ 4,308    $  3,173   $   2,726    $  2,346   $   1,971

Operating loss        $  (878)   $ (1,099)  $  (1,739)   $ (1,637)  $  (2,196)

Interest income
 on notes
 receivable from
 unconsolidated
 ventures             $   800    $    800   $     800    $    800   $     800

Partnership's share
  of unconsolidated
  ventures' losses    $  (178)   $   (107)  $    (324)   $   (715)  $  (1,072)

Partnership's share
  of losses due to
  impairment
  of operating
  investment properties     -           -           -    $ (8,703)          -

Net loss              $  (256)   $   (406)  $  (1,263)   $(10,255)  $  (2,468)

Net loss per
  Limited 
  Partnership Unit    $ (0.13)   $  (0.20)  $   (0.62)   $  (5.07)  $   (1.22)

Cash distributions per
  Limited Partnership
  Unit                $  1.00    $   0.50   $    0.50            -          -

Total assets          $52,242    $ 49,736   $  51,255    $  53,572  $  64,370

Long-term debt        $16,140    $ 11,152   $  11,356    $  11,548  $  12,148

      The above selected  financial data should be read in conjunction  with the
consolidated  financial statements and related notes appearing elsewhere in this
Annual Report.

      The above net loss and cash  distributions  per Limited  Partnership  Unit
amounts  are based upon the  2,000,000  Limited  Partnership  Units  outstanding
during each year.

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

Information Relating to Forward-Looking Statements
--------------------------------------------------

      The following  discussion of financial condition includes  forward-looking
statements  which  reflect  management's  current  views with  respect to future
events and  financial  performance  of the  Partnership.  These  forward-looking
statements  are  subject to certain  risks and  uncertainties,  including  those
identified below under the heading  "Certain Factors  Affecting Future Operating
Results" which could cause actual results to differ  materially  from historical
results or those anticipated.  The words "believe," "expect,"  "anticipate," and
similar expressions identify forward-looking  statements.  Readers are cautioned
not to place undue reliance on these forward-looking statements, which were made
based on facts and conditions as they existed as of the date of this report. The
Partnership   undertakes  no  obligation  to  publicly   update  or  revise  any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.

Liquidity and Capital Resources
-------------------------------

      The Partnership offered limited  partnership  interests to the public from
July 18, 1985 to July 17, 1986 pursuant to a Registration  Statement filed under
the Securities Act of 1933. Gross proceeds of $100,000,000  were received by the
Partnership  from the sale of Partnership  Units.  The Partnership also received
proceeds of  $17,000,000  from the issuance of four zero coupon loans during the
initial  acquisition  period. The proceeds of such borrowings,  net of financing
expenses  of  approximately   $275,000,  were  used  to  pay  the  offering  and
organizational  expenses,  acquisition fees and acquisition-related  expenses of
the Partnership  and to fund the  Partnership's  cash reserves.  The Partnership
initially  invested  approximately  $97,472,000  (excluding  acquisition fees of
$2,830,000) in seven operating properties through joint venture investments.  In
fiscal 1990, the Partnership received approximately $7,479,000 from the proceeds
of a sale of a part of one of the operating properties. The Partnership used the
proceeds  from  this sale to repay a zero  coupon  loan and  replenish  its cash
reserves.  As of March 31, 1998, the Partnership  retained an ownership interest
in seven  operating  investment  properties,  which  consist of four  office/R&D
complexes,  two multi-family apartment complexes and one mixed-use retail/office
property.   The  Partnership  does  not  have  any  commitments  for  additional
investments but may be called upon to fund its portion of operating  deficits or
capital  improvements  of the joint  ventures in accordance  with the respective
joint venture agreements.

      As previously reported, in light of the continued strength in the national
real estate market with respect to  multi-family  apartment  properties  and the
improvements in the office/R&D  property markets,  management believes that this
may be the opportune time to sell the Partnership's portfolio of properties.  As
a result,  management is currently focusing on potential disposition  strategies
for the remaining investments in the Partnership's portfolio. Although there are
no  assurances,  it is currently  contemplated  that sales of the  Partnership's
remaining  assets  could be  completed  within the next  2-to-3  years.  The two
multi-family  apartment  properties  in which the  Partnership  has an  interest
continue to experience  strong occupancy levels and increasing  rental rates. As
discussed further below,  marketing efforts for the sale of the Chandler's Reach
and  Monterra  apartment  properties  commenced  subsequent  to  year-end.   The
operations  of  the  five  commercial   office  and  retail  properties  in  the
Partnership's  portfolio are either stable or  improving.  As discussed  further
below,  management  plans to market  the Sunol  Center and 1881  Worcester  Road
properties for sale during the second half of calendar 1998.  With regard to the
three remaining properties,  management believes that higher net sale prices can
be achieved for the 625 North  Michigan and Crystal  Tree  properties,  and most
likely for the Warner/Red Hill Business Center, by holding these assets over the
near term  while the local  markets  improve  and space is  re-leased  at higher
effective  rental  rates.  As a result of the  improvement  in operations of the
properties in the  Partnership's  portfolio,  particularly at Sunol Center,  the
Partnership  increased the quarterly  distribution  to $5.00 per original $1,000
investment,  which is equivalent to a 2%  annualized  return,  effective for the
distribution paid on May 15, 1997 for the quarter ended March 31, 1997.

      The  occupancy  level  at the  Chandler's  Reach  Apartments  in  Redmond,
Washington,  averaged  94% for the year ended  March 31,  1998,  unchanged  from
fiscal 1997. This healthy occupancy level is a direct result of continued strong
employment  growth at the major  area  employers,  Microsoft  and  Boeing.  As a
result, the property's leasing team raised rental rates by a total of 10% during
calendar 1997.  Rental rate increases  totalling 7% are expected during calendar
1998.  The Redmond Town Center Mall,  located  approximately  two miles from the
property,  opened during August 1997, and occupancy of the Mall had exceeded 90%
by March 31,  1998.  This new mall  consists  of 400,000  square  feet of retail
space, a 44-acre park and bike trails covering 120 acres. These nearby amenities
add to the  appeal of the  Chandler's  Reach  Apartments.  Capital  improvements
completed during fiscal 1998 included a water/sewer  sub-metering  project. This
sub-metering  project is expected to lower the property owner's costs by passing
water/sewer  expenses through to the tenants.  Given the positive performance of
the  Chandler's  Reach  property and the current  strength of the national  real
estate market for the sale of apartment  properties,  management intends to test
the market by exploring potential sale opportunities for Chandler's Reach during
fiscal 1999.  During the fourth quarter of fiscal 1998, the  Partnership and its
co-venture partner held extensive  discussions  concerning  marketing strategies
and  requested  broker  proposals  from national real estate firms with a strong
background in selling  properties like Chandler's Reach. The Partnership and its
co-venture  partner reviewed  proposals from the broker finalist  candidates and
completed interviews with them. Subsequent to year-end,  the Partnership and its
co-venture  partner selected a national  brokerage firm that is a leading seller
of  apartment  properties  in the Seattle  area.  A  marketing  package has been
prepared, and comprehensive sales efforts began in late May 1998.

      The occupancy  level at the Monterra  Apartments in La Jolla,  California,
averaged 96% for the year ended March 31, 1998,  down  slightly from the average
of 98% achieved during fiscal 1997. The property's occupancy level is consistent
with competitive  properties within the local market. The local apartment rental
market is strong,  and  Monterra's  leasing  team  continues to raise the rental
rates on leases being  signed by new  tenants.  Rental rates for new leases were
raised  by a total of 7%  during  calendar  year  1997.  Rental  rate  increases
totalling 10% are expected during calendar 1998. A 1,250 unit apartment  project
is beginning  construction on one of the few land parcels available in the local
market and is expected  to be  completed  in phases  over the next three  years.
Monterra will not compete directly with this property, which is expected to have
the highest rental rates in the market.  A capital project to repair and replace
water-damaged  stair towers and landings at the Monterra  property was completed
during the fourth  quarter of fiscal 1998.  The  Partnership  and its co-venture
partner have been exploring potential opportunities for the sale of the Monterra
Apartments.  As part of that plan, the Partnership  initiated discussions during
the fourth  quarter  with  national  real estate  brokerage  firms with a strong
background in selling apartment properties.  The Partnership solicited marketing
proposals from several of these firms.  Subsequent to year-end,  after reviewing
their respective  proposals and conducting  interviews,  the Partnership and its
co-venture partner selected a national brokerage firm. Sales materials have been
prepared, and an extensive marketing campaign began in late May 1998.

      Sunol  Center in  Pleasanton,  California,  remained  100% leased to three
tenants  throughout fiscal 1998. The BART (Bay Area Rapid Transit) station which
serves the Hacienda Business Park in which Sunol Center is located, opened ahead
of schedule in early May 1997. None of the current leases at Sunol Center expire
before October 2001. The overall  market remains strong with  increasing  rental
rates and a low vacancy level.  Selective  development in the area is continuing
as a result  of this  low  vacancy  level.  Construction  of two new  Pleasanton
build-to-suit office developments,  totalling 410,000 square feet, was completed
during the fourth  quarter of fiscal 1998. Two other office  projects  totalling
435,000  square  feet  are  under  construction  in this  market.  One of  these
properties  is 100%  pre-leased  and the other is 95%  pre-leased.  In addition,
Peoplesoft Corporation, a major employer in the local market, purchased 17 acres
in Hacienda  Business Park and has begun  construction  of an owner/user  campus
totalling  350,000 square feet.  The project is expected to be completed  within
the next several months. The existing rental rates on the leases at Sunol Center
are significantly  below current market rates.  Provided there is not a dramatic
increase in either planned speculative development or build-to-suit  development
with current tenants in the local market,  the Partnership  would be expected to
achieve a  materially  higher  sale price for the Sunol  Center  property as the
existing leases with below-market  rental rates approach their expiration dates.
The  Partnership  had been  planning to hold the Sunol Center  property over the
near term in order to capture this expected increase in value.  However,  during
the third quarter of fiscal 1998  management  learned that the largest tenant at
Sunol Center, which occupies 52% of the property's leasable area, is considering
vacating in order to consolidate its operations at another building in the local
market and is  interested in  negotiating  an early  termination  of their lease
agreement.  This potential lease termination may provide the Partnership with an
opportunity to capture the expected increase in the value of Sunol Center sooner
than had been anticipated.  Lease termination  negotiations  commenced with this
tenant subsequent to year-end. In light of this situation, and given the current
strength of the local market conditions,  management is currently  reviewing the
Pleasanton  office market and has  interviewed  potential real estate brokers in
preparation for a possible  marketing  effort during the second half of calendar
1998.

     The 64,000 square foot 1881 Worcester Road Office  Building was 100% leased
for the last three  quarters of fiscal 1998.  As previously  reported,  a tenant
which had occupied 19% of the net leasable area moved out of the building during
the second quarter of fiscal 1997,  although its lease  obligation was scheduled
to continue  until  December  1998.  During the third  quarter of fiscal 1997, a
settlement  payment in the amount of $100,000 was  received  from this tenant in
return for a release from its remaining lease obligation. Also, during the third
quarter of fiscal 1997, a lease  expansion  and  extension  agreement was signed
with the building's sole remaining tenant.  This tenant,  which agreed to extend
its lease term from three to six years,  currently  occupies  the entire  second
floor of this  two-story  building.  During  August 1997, a new tenant  signed a
lease for the entire first floor, comprising 31,400 square feet. Construction of
the  improvements to this space was completed during the third quarter of fiscal
1998,  and the tenant took  occupancy in December  1997.  With the property 100%
leased to two financially  strong tenants and no lease  expirations  until 2002,
management  had been  developing  potential  sale  strategies  for  this  asset.
However,  subsequent  to year-end the tenant  leasing the entire second floor of
the property  informed the Partnership that it is  consolidating  its operations
and requested a lease  termination which would be effective in the third quarter
of calendar year 1998.  This tenant's  lease does not expire until  February 28,
2003. Negotiations with this tenant concerning a lease termination agreement are
currently  underway.  If a lease  termination  agreement  with  this  tenant  is
reached,  the  property's  leasing  team  expects  to  re-lease  this space at a
significantly  higher rental rate, which could result in a higher sale price for
the  property.  Also during  fiscal 1998,  the former  operator of a gas station
abutting the 1881 Worcester Road property  notified the Partnership of a leak in
an  underground  storage  tank on the gas  station  property  and of the risk of
potential  contamination  of the  Partnership's  property.  Subsequent  to  this
notification,  the Partnership has received an  indemnification  from the former
operator of the gas  station  against any loss,  cost or damage  resulting  from
failure to remediate the contamination.  The extent of the contamination and any
resulting impact on the future operations and market value of the 1881 Worcester
Road property cannot be determined at the present time. Nonetheless,  management
believes that the uncertainty  regarding the lease  termination  request and the
contamination issue could depress the sale price for the property.  As a result,
the marketing efforts for this property have been delayed.  After the re-leasing
of the second floor and resolution of the potential  ground water  contamination
issue,  this property is expected to be marketed for sale later in calendar year
1998.

     The 625 North Michigan Office Building in Chicago, Illinois, was 88% leased
on average for the year ended March 31,  1998,  up slightly  from the average of
87% achieved for fiscal 1997. As previously  reported,  the  property's  leasing
team had been  negotiating  a lease with a  prospective  new tenant  which would
occupy  approximately  22,000 square feet of space.  Subsequent  to year-end,  a
lease was signed with this prospective  tenant for 24,276 square feet. The space
is now being  renovated in preparation  for the tenant's  expected  occupancy in
September  1998.  Once this  tenant  moves  into the  building,  the  property's
occupancy level will increase by 7%. Over the next year, ten leases representing
a total of 22,024 square feet will expire.  The property's  leasing team expects
that eight of these tenants  occupying a total of 17,262 square feet will renew,
and that the remaining space will be leased to new tenants. The downtown Chicago
real estate market continues to display an improving trend. A competitive office
property within the local market has recently obtained  approvals to convert its
lower floors into a hotel.  This should result in the removal of 290,000  square
feet of office  space from the market.  In  addition,  an office  tenant at that
property has recently completed a 62,000 square foot expansion, which brings the
occupancy level in the building's  office portion to 100%. In this local market,
where  there is no current or planned new  construction  of office  space,  this
reduction  in vacant  office  space has  resulted in a  reduction  in the market
vacancy level at March 31, 1998 to 12% and places more upward pressure on rental
rates. The higher effective rents currently being achieved at 625 North Michigan
are  expected  to increase  cash flow and value as new  tenants  sign leases and
existing  tenants sign lease  renewals in calendar  year 1998.  Retail and hotel
development  in  the  local  market  continues,  as  evidenced  by  plans  for a
Nordstrom's-anchored  95,000  square  foot  retail  development  which  recently
received  preliminary approval from the city. This proposed  development,  which
will be located  two blocks  from 625 North  Michigan,  is part of a master plan
that  includes  several  new  hotels,   entertainment  and  parking   facilities
encompassing  five city  blocks.  Management  continues  to analyze a  potential
project for the property which includes an upgrade to the building lobby and the
addition of a major retail  component to the building's  North  Michigan  Avenue
frontage.  Rental rates paid by high-end  retailers on North Michigan Avenue are
substantially greater than those paid by office tenants. While the costs of such
a project would be substantial,  it could have a significant  positive effect on
the  market  value  of  the  625  North  Michigan   property.   A  comprehensive
cost-benefit analysis of this potential project is expected to be completed over
the next several months.

      The Crystal  Tree  Commerce  Center in North Palm  Beach,  Florida was 98%
leased on average for the year ended  March 31,  1998,  a 3%  increase  from the
prior year.  During the next twelve months,  leases for twelve tenants occupying
14,048  square feet will  expire.  All twelve of these  tenants are  expected to
renew their leases.  Rental rates and  occupancy  levels in the local market are
continuing to increase gradually.  However,  rents are not expected to rise to a
level over the near term that would  justify  new  construction.  Management  is
continuing to position  Crystal Tree Commerce Center for a future sale by having
the property's management and leasing team negotiate rental rates for new leases
on a triple-net  basis. This requires each tenant to be 100% responsible for its
share of operating expenses. Currently, 52% of the leases at the property are on
a triple-net basis. Consequently, at this time the property owner is responsible
for the tenant's  portion of operating  expenses above a base amount for a total
of 48% of the leases.  By the year 2000, the leasing plan for Crystal Tree calls
for 84% of the leases to have been converted to a triple-net basis. Because most
new leases in the local market are on a triple-net  basis,  this  conversion  is
expected to increase  interest  from  prospective  buyers and result in a higher
sale price for the Crystal Tree property.

     The Warner/Red  Hill Business Center had an average leased level of 87% for
the year ended March 31, 1998, up from 83% for the prior year.  However,  during
the  fourth  quarter of fiscal  1998,  a tenant  occupying  13,160  square  feet
declared bankruptcy and moved from the building, reducing the occupancy level to
74%  as of  year-end.  Subsequent  to  year-end,  the  property's  leasing  team
completed  negotiations with a prospective  tenant which will occupy this entire
13,160  square foot  space.  Over the next 12 months,  leases with five  tenants
occupying  27,863 square feet will expire.  The property's  leasing team expects
that four of these  tenants  occupying  26,396  square feet will renew at higher
rental rates and that the remaining  space will be leased to new tenants.  Local
rental rates for office space in Warner/Red Hill's local sub-market  continue to
experience modest increases due to the lack of speculative  office  construction
and the  continued  demand for office  space.  The  property's  leasing  team is
cautiously  optimistic  that the  general  market  conditions  will  continue to
improve throughout fiscal 1999. Effective August 1, 1997, the co-venture partner
in  Warner/Red  Hill  Associates  assigned its interest in the joint  venture to
First Equity Partners, Inc., the Managing General Partner of the Partnership, in
return for a release from any further  obligations  under the terms of the joint
venture  agreement.  As a result,  the  Partnership  has assumed  control of the
operations of the  Warner/Red  Hill joint venture.  Accordingly,  the venture is
presented on a  consolidated  basis in the  Partnership's  financial  statements
beginning in fiscal 1998. Prior to fiscal 1998, the venture was accounted for on
the equity method.

      At March 31, 1998, the Partnership and its consolidated  joint venture had
available cash and cash  equivalents of approximately  $3,268,000.  These funds,
along with the future cash flow  distributions  from the  operating  properties,
will be  utilized  for the  working  capital  requirements  of the  Partnership,
monthly loan payments, the funding of capital enhancements and potential leasing
costs for its commercial  property  investments,  and for  distributions  to the
partners.  The source of future  liquidity and  distributions to the partners is
expected  to be from  the  sales  or  refinancing  of the  operating  investment
properties.  Such sources of liquidity are expected to be sufficient to meet the
Partnership's  needs on both a short-term  and  long-term  basis.  The source of
future  liquidity and  distributions  to the partners is expected to be from the
sales or refinancings of the operating investment properties.

      As noted above, the Partnership  expects to be liquidated  within the next
2- to -3 years.  Notwithstanding this, the Partnership believes that it has made
all  necessary  modifications  to its  existing  systems  to make them year 2000
compliant and does not expect that  additional  costs  associated with year 2000
compliance,  if any, will be material to the Partnership's results of operations
or financial position.

Results of Operations
1998 Compared to 1997
---------------------

      The  Partnership's  net loss  decreased by $150,000 in fiscal  1998,  when
compared  to the prior  year.  This  decrease  in net loss was due to a $221,000
decrease in the  Partnership's  operating loss,  which was partially offset by a
$71,000 increase in the Partnership's share of unconsolidated  ventures' losses.
The  Partnership's  operating loss, which includes the operating  results of the
wholly-owned  Crystal Tree Commerce Center,  the consolidated Sunol Center joint
venture and,  beginning in fiscal 1998, the  consolidated  Warner/Red Hill joint
venture, decreased largely due to increases in rental income at Sunol Center and
Crystal  Tree of $137,000  and  $99,000,  respectively,  due to increases in the
average  occupancy levels at both properties.  In addition,  the Warner/Red Hill
joint  venture had net income of $55,000 for the current  year.  As noted above,
Warner/Red  Hill's operating  results were accounted for under the equity method
during  fiscal 1997.  The increases in rental income at Sunol Center and Crystal
Tree and the net income at Warner/Red Hill were partially  offset by an increase
in general and  administrative  expenses of $70,000.  General and administrative
expenses increased  primarily due to increases in certain  professional fees and
administrative  costs  related  to  the  pursuit  of  management's   disposition
strategies, as discussed further above.

     The  Partnership's  share of  unconsolidated  ventures' losses increased by
$71,000 largely due to unfavorable  changes in the net operating  results of the
1881 Worcester Road and 625 North Michigan joint ventures. An unfavorable change
of $112,000 in the Partnership's  share of the net operating results of the 1881
Worcester  Road joint  venture  was mainly due to a $150,000  decrease in rental
revenue.  Rental revenue decreased  primarily due to a $100,000  termination fee
received from a tenant that vacated  prior to its lease  expiration in the prior
year. The unfavorable  change in net operating results at 625 North Michigan was
primarily due to a $149,000  increase in repairs and maintenance  expenses and a
$147,000  increase  in real  estate  taxes  in the  current  year.  Repairs  and
maintenance  costs increased  mainly due to the  modernization of the building's
elevator controls.  The unfavorable changes in net operating results of the 1881
Worcester Road and 625 North Michigan joint ventures were partially  offset by a
favorable  change of $35,000 in the net operating  results of the Monterra joint
venture. The favorable change in the net operating results of the Monterra joint
venture was mainly due to an increase in average rental rates during the current
year as a result of the strong local  apartment  market,  as  discussed  further
above.  The  resulting  increase in rental  revenues at Monterra  was  partially
offset by an increase in the  venture's  repairs and  maintenance  expenses as a
result of certain  projects  completed  to prepare the  property for a potential
sale transaction.  At the Chandler's Reach joint venture, a substantial increase
in  rental  income  was  offset  by the costs of  certain  maintenance  projects
completed  during  the  current  year,  the most  significant  of which  was the
painting of the building exteriors.

1997 Compared to 1996
---------------------

      The  Partnership's  net loss  decreased by $857,000 in fiscal  1997,  when
compared to the prior year.  This decrease in net loss was largely  attributable
to a decrease in the Partnership's operating loss of $640,000. The Partnership's
operating loss, which includes the operating results of the wholly-owned Crystal
Tree Commerce Center and the consolidated Sunol Center joint venture,  decreased
mainly  due to an  increase  in rental  income  and  decreases  in  general  and
administrative expenses and property operating expenses. Rental income increased
by  $433,000 as a result of an increase  in  occupancy  at Sunol  Center from an
average  of 89%  during  fiscal  1996 to  100%  for  fiscal  1997.  General  and
administrative  expenses  decreased  by  $127,000  mainly due to a  decrease  in
certain required professional services. Property operating expenses decreased by
$126,000 as a result of declines in repairs and maintenance costs at the Crystal
Tree Commerce Center and certain  administrative  expenses at Sunol Center.  The
increase  in rental  income  and the  decreases  in general  and  administrative
expenses and property  operating  expenses were partially offset by increases in
depreciation  charges and real estate tax expense in fiscal  1997.  Depreciation
expense  increased by $77,000 mainly due to the substantial  tenant  improvement
work  which  occurred  at Sunol  Center  during  fiscal  1997 as a result of the
leasing activity at the property.  Real estate tax expense  increased by $54,000
primarily due to the receipt of a refund at Sunol Center during fiscal 1996.

      A decrease in the Partnership's  share of unconsolidated  ventures' losses
of $217,000  also  contributed  to the decline in net loss for fiscal 1997.  The
improvement in the Partnership's  share of unconsolidated  ventures'  operations
was  primarily  attributable  to a decrease in the net losses of the  Warner/Red
Hill and Monterra  joint  ventures.  Net loss at  Warner/Red  Hill  decreased by
$113,000  during  fiscal  1997  mainly due to the  receipt of a real  estate tax
refund and a small increase in rental income.  Net loss at Monterra decreased by
$163,000  during  fiscal  1997  largely  due to an  increase  in  rental  income
resulting  from rental  rate  increases.  The  increase in the net income of the
Warner/Red  Hill joint  venture and the decrease in the net loss of the Monterra
joint venture were partially  offset by small decreases in net income at the 625
North Michigan and 1881 Worcester Road joint ventures.  Net income  decreased by
$33,000 at 625 North  Michigan  due to an  increase in real  estate  taxes.  Net
income  decreased at 1881  Worcester Road by $56,000 mainly due to the write-off
of certain  leasehold  improvements  and deferred  leasing costs  resulting from
former tenants vacating the property.

1996 Compared to 1995
---------------------

      The  Partnership's  net loss  decreased by  $8,992,000 in fiscal 1996 when
compared to the prior year mainly due to the impairment  losses  recognized with
respect to the  Warner/Red  Hill and 1881  Worcester  Road  properties in fiscal
1995,  as  discussed  further  in  the  notes  to  the  accompanying   financial
statements.  This favorable  change in net loss was also partly  attributed to a
decrease of  $391,000 in the  Partnership's  share of  unconsolidated  ventures'
losses.  The decrease in the  Partnership's  share of  unconsolidated  ventures'
losses was primarily due to an increase in net income at the 1881 Worcester Road
and 625 North Michigan joint ventures. A decrease in net loss of $280,000 at the
Monterra  Apartments  joint  venture  also  contributed  to the  decrease in the
Partnership's  share of  unconsolidated  ventures'  losses in fiscal  1996.  Net
income at 1881  Worcester  Road  increased  mainly due to an  increase in rental
revenue of $171,000 as a result of an increase in occupancy from 79% at December
31, 1994 to 100% at December 31, 1995. In addition,  the venture's  depreciation
expense decreased during fiscal 1996 as a result of the impairment loss recorded
in calendar  1995.  Net income at 625 North  Michigan  improved  mostly due to a
decrease  in real estate tax expense of  $289,000  due to the  property's  lower
value  assessment  in fiscal 1996.  In addition,  the  venture's  rental  income
increased by almost  $200,000 in calendar  1995 mainly due to an increase in the
property's  average occupancy level from 83% in calendar 1994 to 88% in calendar
1995.  The effect on the  venture's  net income of the  decrease  in real estate
taxes and the  increase  in rental  income  was  partially  offset by a $350,000
increase in  depreciation  expense.  The favorable  change in the Monterra joint
venture's net operating results was mainly due to a decrease in interest expense
of $268,000  resulting  from the  refinancing of the zero coupon loan secured by
Monterra in calendar 1994. The refinancing  transaction  changed Monterra's debt
from a  compounding  zero  coupon  loan with a balance  of  $8,645,000,  bearing
interest at 9.36% at the time of the refinancing, to a current pay mortgage loan
with an  outstanding  balance of  $4,849,000,  bearing  interest  at 8.45% as of
September 27, 1994.  The favorable  changes in the net operating  results of the
1881  Worcester  Road,  625 North  Michigan and  Monterra  joint  ventures  were
partially  offset by  unfavorable  changes in the net  operating  results of the
Warner/Red  Hill and Chandler's  Reach joint  ventures.  At Warner/Red  Hill, an
increase  in  interest  expense  and a decline  in rental  revenues,  which were
partially  offset by a  decrease  in  depreciation  expense,  contributed  to an
increase in the venture's net loss for calendar 1995. The unfavorable  change in
the net operating  results of the  Chandler's  Reach joint venture was primarily
attributed to an increase in interest expense  resulting from the September 1994
refinancing  transaction  in which  the debt  secured  by  Chandler's  Reach was
transferred from the Partnership's books to the joint venture's books.

      The decrease in the Partnership's share of unconsolidated ventures' losses
was  partially  offset by an increase  in the  Partnership's  operating  loss of
$102,000.  This increase was primarily due to an increase in property  operating
expenses of $297,000 and an increase in depreciation and amortization expense of
$296,000. The increase in property operating expenses was mainly attributable to
increases in repairs and maintenance and administrative  expenses at both of the
consolidated  operating  properties,  Sunol  Center and  Crystal  Tree  Commerce
Center. Depreciation and amortization expense increased at Sunol Center due to a
significant  amount of  capital  expenditures  for tenant  improvement  work and
leasing commissions in calendar 1995 which resulted from the leasing activity at
the  property.  Depreciation  expense  increased  at  Crystal  Tree  due  to the
reassessment of the Partnership's depreciation policy. In addition, interest and
other  income  decreased  by $233,000 in fiscal 1996 when  compared to the prior
year.  Interest income  decreased due to a decrease in average  outstanding cash
balances  mainly as a result  of the use of  reserves  to pay for  Sunol  Center
leasing costs. The increases in property operating expenses and depreciation and
amortization  expense  and the  decrease  in  interest  and  other  income  were
partially  offset by an increase in rental  income of  $613,000.  Rental  income
increased primarily due to the significant increase in occupancy at Sunol Center
during calendar 1995.

Certain Factors Affecting Future Operating Results
--------------------------------------------------

      The following factors could cause actual results to differ materially from
historical results or those anticipated:

      Real Estate  Investment  Risks.  Real property  investments are subject to
varying degrees of risk.  Revenues and property values may be adversely affected
by the  general  economic  climate,  the local  economic  climate and local real
estate conditions,  including (i) the perceptions of prospective  tenants of the
attractiveness of the property; (ii) the ability to retain qualified individuals
to provide  adequate  management  and  maintenance  of the  property;  (iii) the
inability  to  collect  rent due to  bankruptcy  or  insolvency  of  tenants  or
otherwise;  and (iv) increased  operating costs.  Real estate values may also be
adversely  affected by such  factors as  applicable  laws,  including  tax laws,
interest rate levels and the availability of financing.

      Effect of Uninsured Loss. The Partnership carries comprehensive liability,
fire,  flood,  extended  coverage and rental loss  insurance with respect to its
properties  with  insured  limits  and  policy  specifications  that  management
believes are customary for similar properties. There are, however, certain types
of  losses  (generally  of  a  catastrophic  nature  such  as  wars,  floods  or
earthquakes) which may be either uninsurable,  or, in management's judgment, not
economically  insurable.  Should an uninsured loss occur, the Partnership  could
lose both its  invested  capital in and  anticipated  profits  from the affected
property.

      Possible Environmental Liabilities. Under various federal, state and local
environmental laws,  ordinances and regulations,  a current or previous owner or
operator of real property may become liable for the costs of the  investigation,
removal and  remediation  of  hazardous or toxic  substances  on,  under,  in or
migrating from such property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was  responsible  for, the presence of
such hazardous or toxic substances.

     The  Partnership is not aware of any  notification  by any private party or
governmental  authority  of any  non-compliance,  liability  or  other  claim in
connection  with  environmental  conditions  at any of its  properties  that  it
believes  will  involve  any   expenditure   which  would  be  material  to  the
Partnership,  nor is the Partnership aware of any  environmental  condition with
respect to any of its properties that it believes will involve any such material
expenditure.  However,  there  can  be no  assurance  that  any  non-compliance,
liability,  claim or  expenditure  will not arise in the  future.  As  discussed
further  above,   during  fiscal  1998  the  Partnership  became  aware  of  the
possibility of contamination at the 1881 Worcester Road property  resulting from
a  leak  in  an  underground  storage  tank  at an  adjacent  gas  station.  The
Partnership has received an indemnification  from the former operator of the gas
station against any loss,  cost or damage  resulting from a failure to remediate
the contamination.  There are no assurances, however, that the stigma associated
with any known  environmental  problems will not restrict the  marketability  of
this property  over the near term,  particularly  in light of the  Partnership's
plan to liquidate its remaining investments over the next 2- to-3 years.

      Competition. The financial performance of the Partnership's remaining real
estate  investments  will be  significantly  impacted  by the  competition  from
comparable  properties  in their local market areas.  The  occupancy  levels and
rental rates  achievable at the  properties are largely a function of supply and
demand in the markets.  In many markets  across the country,  development of new
multi-family  properties  has increased  significantly  over the past two years.
Existing  apartment  properties  in such markets could be expected to experience
increased vacancy levels, declines in effective rental rates and, in some cases,
declines in estimated  market values as a result of the  increased  competition.
The commercial  office segment has begun to experience  limited new  development
activity in selected  areas after several years of virtually no new supply being
added to the market.  The retail  segment of the real estate market is currently
suffering   from  an  oversupply  of  space  in  many  markets   resulting  from
overbuilding in recent years and the trend of  consolidations  and  bankruptcies
among retailers  prompted by the generally flat rate of growth in overall retail
sales.  There  are no  assurances  that  these  competitive  pressures  will not
adversely  affect  the  operations  and/or  market  values of the  Partnership's
investment properties in the future.

      Impact  of Joint  Venture  Structure.  The  ownership  of  certain  of the
remaining  investments through joint venture partnerships could adversely impact
the timing of the Partnership's planned dispositions of its remaining assets and
the amount of proceeds received from such dispositions.  It is possible that the
Partnership's  co-venture  partners  could have  economic or business  interests
which are  inconsistent  with those of the  Partnership.  Given the rights which
both parties have under the terms of the joint venture agreements,  any conflict
between the partners  could result in delays in completing a sale of the related
operating  property and could lead to an impairment in the  marketability of the
property to third  parties for purposes of achieving  the highest  possible sale
price.

      Availability of a Pool of Qualified Buyers.  The availability of a pool of
qualified  and  interested  buyers  for the  Partnership's  remaining  assets is
critical  to the  Partnership's  ability to realize  the  estimated  fair market
values of such  properties  at the time of their final  dispositions.  Demand by
buyers of multi-family  apartment,  office and retail  properties is affected by
many factors,  including the size,  quality,  age, condition and location of the
subject property,  the quality and stability of the tenant roster,  the terms of
any long-term  leases,  the existing  debt  structure,  potential  environmental
liability  concerns,  the  liquidity  in the debt and equity  markets  for asset
acquisitions,  the general  level of market  interest  rates and the general and
local economic climates.

Inflation
---------

      The  Partnership  commenced  operations  in 1985 and completed its twelfth
full year of operations in the current fiscal year. The effects of inflation and
changes in prices on the  Partnership's  operating results to date have not been
significant.

      Inflation  in future  periods may  increase  revenues as well as operating
expenses  at the  Partnership's  operating  investment  properties.  Most of the
existing  leases with tenants at the  Partnership's  shopping  center and office
buildings contain rental escalation and/or expense  reimbursement  clauses based
on  increases  in tenant sales or property  operating  expenses.  Tenants at the
Partnership's apartment properties have short-term leases, generally of one year
or less in duration.  Rental rates at these  properties can be adjusted,  to the
extent market  conditions  allow,  to keep pace with inflation as the leases are
renewed or turned over.  Such increases in rental income would be expected to at
least partially offset the  corresponding  increases in Partnership and property
operating expenses resulting from inflation. As noted above, the Warner/Red Hill
and 625 North Michigan office buildings  presently have a significant  amount of
unleased space.  During a period of significant  inflation,  increased operating
expenses attributable to space which remained unleased at such time would not be
recoverable and would adversely affect the Partnership's net cash flow.

Item 8.  Financial Statements and Supplementary Data

      The financial statements and supplementary data are included under Item 14
of this Annual Report.

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

      None.


<PAGE>

                                   PART III

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

      The Managing  General Partner of the Partnership is First Equity Partners,
Inc., a Virginia corporation,  which is a wholly-owned subsidiary of PaineWebber
Group,  Inc. The  Associate  General  Partner of the  Partnership  is Properties
Associates 1985, L.P., a Virginia limited partnership,  certain limited partners
of which are also officers of the Adviser and the Managing General Partner.  The
Managing  General  Partner  has overall  authority  and  responsibility  for the
Partnership's operations, however, the day-to-day business of the Partnership is
managed by the Adviser pursuant to an advisory contract.

      (a) and (b) The names and ages of the directors  and  principal  executive
officers of the Managing General Partner of the Partnership are as follows:

                                                                    Date
                                                                    elected
  Name                        Office                     Age        to Office
  ----                        ------                     ---        ---------

Bruce J. Rubin         President and Director            39         8/22/96
Terrence E. Fancher    Director                          45         10/10/96
Walter V. Arnold       Senior Vice President and
                         Chief Financial Officer         50         10/29/85
David F. Brooks        First Vice President and
                         Assistant Treasurer             56         4/17/85*
Timothy J. Medlock     Vice President and Treasurer      37         6/1/88
Thomas W. Boland       Vice President                    35         12/1/91

*  The date of incorporation of the Managing General Partner.

      (c) There are no other significant  employees in addition to the directors
and executive officers mentioned above.

      (d) There is no family  relationship among any of the foregoing  directors
or executive officers of the Managing General Partner of the Partnership. All of
the foregoing  directors and executive officers have been elected to serve until
the annual meeting of the Managing General Partner.

      (e) All of the directors and officers of the Managing General Partner hold
similar  positions in affiliates of the Managing General Partner,  which are the
corporate general partners of other real estate limited  partnerships  sponsored
by PWI, and for which PaineWebber Properties Incorporated ("PWPI") serves as the
investment  adviser.  The  business  experience  of  each of the  directors  and
principal executive officers of the Managing General Partner is as follows:

      Bruce  J.  Rubin is  President  and  Director  of the  Managing  General
Partner.  Mr. Rubin was named  President and Chief  Executive  Officer of PWPI
in August 1996. Mr. Rubin joined  PaineWebber Real Estate  Investment  Banking
in November  1995 as a Senior Vice  President.  Prior to joining  PaineWebber,
Mr.  Rubin was  employed  by Kidder,  Peabody and served as  President  for KP
Realty Advisers,  Inc. Prior to his association  with Kidder,  Mr. Rubin was a
Senior Vice  President  and  Director of Direct  Investments  at Smith  Barney
Shearson.  Prior  thereto,  Mr.  Rubin was a First Vice  President  and a real
estate  workout  specialist  at  Shearson  Lehman  Brothers.  Prior to joining
Shearson  Lehman  Brothers in 1989, Mr. Rubin practiced law in the Real Estate
Group at  Willkie  Farr &  Gallagher.  Mr.  Rubin is a  graduate  of  Stanford
University and Stanford Law School.

      Terrence E.  Fancher was  appointed a Director of the  Managing  General
Partner in October  1996.  Mr.  Fancher is the Managing  Director in charge of
PaineWebber's  Real Estate Investment  Banking Group. He joined PaineWebber as
a result  of the  firm's  acquisition  of  Kidder,  Peabody.  Mr.  Fancher  is
responsible  for the origination  and execution of all of  PaineWebber's  REIT
transactions,  advisory assignments for real estate clients and certain of the
firm's real estate debt and principal  activities.  He joined Kidder,  Peabody
in 1985 and,  beginning in 1989, was one of the senior executives  responsible
for  building   Kidder,   Peabody's  real  estate   department.   Mr.  Fancher
previously  worked for a major law firm in New York City.  He has a J.D.  from
Harvard  Law  School,  an M.B.A.  from  Harvard  Graduate  School of  Business
Administration and an A.B. from Harvard College.

      Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the  Managing  General  Partner and Senior Vice  President  and Chief  Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in
1983 with the  acquisition  of Rotan  Mosle,  Inc.  where he had been First Vice
President and Controller  since 1978,  and where he continued  until joining the
Adviser.  Mr. Arnold is a Certified Public  Accountant  licensed in the state of
Texas.

      David F. Brooks is a First Vice  President and Assistant  Treasurer of the
Managing  General Partner and a First Vice President and Assistant  Treasurer of
the Adviser which he joined in March 1980.  From 1972 to 1980, Mr. Brooks was an
Assistant Treasurer of Property Capital Advisors, Inc. and also, from March 1974
to February  1980,  the  Assistant  Treasurer of Capital for Real Estate,  which
provided real estate investment, asset management and consulting services.

      Timothy J.  Medlock is a Vice  President  and  Treasurer  of the  Managing
General  Partner and Vice President and Treasurer of the Adviser which he joined
in 1986.  From June 1988 to August 1989, Mr. Medlock served as the Controller of
the Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated  with Deloitte  Haskins & Sells.  Mr. Medlock  graduated from Colgate
University  in 1983  and  received  his  Masters  in  Accounting  from  New York
University in 1985.

      Thomas W. Boland is a Vice  President  and  Controller  of the  Managing
General  Partner and a Vice  President and  Controller of the Adviser which he
joined in 1988.  From 1984 to 1987,  Mr.  Boland was  associated  with  Arthur
Young & Company.  Mr. Boland is a Certified Public Accountant  licensed in the
state of  Massachusetts.  He holds a B.S. in Accounting from Merrimack College
and an M.B.A. from Boston University.

      (f) None of the directors  and officers was involved in legal  proceedings
which are  material to an  evaluation  of his or her ability or  integrity  as a
director or officer.

      (g)  Compliance  With  Exchange Act Filing  Requirements:  The  Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's  limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial  holders are required by SEC  regulations to furnish the  Partnership
with copies of all Section 16(a) forms they file.

      Based solely on its review of the copies of such forms received by it, the
Partnership  believes  that,  during the year ended March 31,  1998,  all filing
requirements  applicable to the officers and  directors of the Managing  General
Partner and ten-percent beneficial holders were complied with.

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

      The directors and officers of the  Partnership's  Managing General Partner
receive no current or proposed remuneration from the Partnership.

      The General  Partners are entitled to receive a share of Partnership  cash
distributions  and a share of profits and losses.  These items are  described in
Item 13.

      Effective for the quarter ended  December 31, 1992,  distributions  to the
Limited  Partners were  suspended in order to accumulate  cash required to repay
and refinance the  Partnership's  zero coupon loans. The last of the refinancing
transactions was completed during fiscal 1995.  Distributions were reinstated at
a rate of 1% per annum on invested capital effective for the quarter ended March
31,  1995 and were  increased  to a rate of 2% per  annum  on  invested  capital
effective  for the quarter  ended March 31,  1997.  However,  the  Partnership's
Limited Partnership Units are not actively traded on any organized exchange, and
no efficient secondary market exists. Accordingly, no accurate price information
is available for these Units. Therefore, a presentation of historical unitholder
total returns would not be meaningful.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

      (a) The  Partnership  is a limited  partnership  issuing  Units of limited
partnership  interest,  not voting securities.  All the outstanding stock of the
Managing General Partner,  First Equity Partners,  Inc. is owned by PaineWebber.
Properties  Associates 1985, L.P., the Associate General Partner,  is a Virginia
limited partnership,  certain limited partners of which are also officers of the
Adviser and the Managing  General  Partner.  No limited  partner is known by the
Partnership to own beneficially more than 5% of the outstanding interests of the
Partnership.

      (b) The  directors  and  officers of the Managing  General  Partner do not
directly own any Units of limited  partnership  interest of the Partnership.  No
director or officer of the Managing General Partner,  nor any limited partner of
the Associate General Partner, possesses a right to acquire beneficial ownership
of Units of limited partnership interest of the Partnership.

      (c) There exists no arrangement,  known to the Partnership,  the operation
of which  may,  at a  subsequent  date,  result  in a change in  control  of the
Partnership.

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

      All  distributable  cash,  as  defined,  for  each  fiscal  year  shall be
distributed  quarterly in the ratio of 99% to the Limited Partners and 1% to the
General  Partners until the Limited  Partners have received an amount equal to a
6%  noncumulative  annual return on their adjusted  capital  contributions.  The
General  Partners  and PWPI  will then  receive  distributions  until  they have
received concurrently an amount equal to 1.01% and 3.99%,  respectively,  of all
distributions  to all  partners.  The  balance  will be  distributed  95% to the
Limited Partners,  1.01% to the General Partners, and 3.99% to PWPI. Payments to
PWPI  represent  asset  management  fees for PWPI's  services  in  managing  the
business of the Partnership.  No management fees were earned for the fiscal year
ended March 31, 1997. All sale or  refinancing  proceeds shall be distributed in
varying  proportions  to the Limited and General  Partners,  as specified in the
Partnership Agreement.

      Taxable  income  (other than from a Capital  Transaction)  in each taxable
year will be  allocated to the Limited  Partners and the General  Partners in an
amount equal to the  distributable  cash (excluding the asset management fee) to
be  distributed  to  the  partners  for  such  year  and in the  same  ratio  as
distributable cash has been distributed.  Any remaining taxable income, or if no
distributable  cash has been  distributed for a taxable year, shall be allocated
98.94802625% to the Limited  Partners and  1.05197375% to the General  Partners.
Tax  losses  (other  than  from  a  Capital   Transaction)   will  be  allocated
98.94802625% to the Limited  Partners and  1.05197375% to the General  Partners.
Allocations of the Partnership's operations between the General Partners and the
Limited Partners for financial  accounting purposes have been made in conformity
with the allocations of taxable income or tax loss.

      Selling  commissions  incurred by the Partnership and paid to an affiliate
of the Managing  General Partner for the sale of Limited  Partnership  interests
aggregated $8,416,000 through the conclusion of the offering period.

      In connection  with the  acquisition of  properties,  PWPI was entitled to
receive  acquisition fees in an amount not greater than 3% of the gross proceeds
from the sale of Partnership  Units.  Total  acquisition fees of $2,830,000 were
incurred and paid by the  Partnership in connection  with the acquisition of its
operating property investments. In addition, PWPI received an acquisition fee of
$170,000 from Sunol Center Associates in 1986.

      The Managing  General  Partner and its affiliates are reimbursed for their
direct expenses  relating to the offering of Units,  the  administration  of the
Partnership  and  the  acquisition  and  operations  of the  Partnership's  real
property investments.

      An affiliate of the Managing General Partner performs certain  accounting,
tax  preparation,  securities  law compliance  and investor  communications  and
relations  services  for the  Partnership.  The  total  costs  incurred  by this
affiliate in providing  such  services are  allocated  among  several  entities,
including the Partnership.  Included in general and administrative  expenses for
the year ended March 31, 1998 is $181,000,  representing  reimbursements to this
affiliate of the Managing  General  Partner for  providing  such services to the
Partnership.

      The  Partnership  uses the  services  of Mitchell  Hutchins  Institutional
Investors,  Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a  subsidiary  of  Mitchell  Hutchins  Asset  Management,  Inc.,  an
independently operated subsidiary of PaineWebber.  Mitchell Hutchins earned fees
of $14,000  (included in general and  administrative  expenses) for managing the
Partnership's  cash assets during fiscal 1998. Fees charged by Mitchell Hutchins
are based on a percentage of invested  cash  reserves  which varies based on the
total amount of invested cash which Mitchell Hutchins manages on behalf of PWPI.

      At March 31, 1998 accounts  receivable - affiliates  includes $126,000 due
from a certain  unconsolidated  joint venture for interest earned on a permanent
loan and $167,000 of investor servicing fees due from several joint ventures for
reimbursement of certain expenses incurred in reporting  Partnership  operations
to the Limited Partners of the Partnership.  Accounts receivable - affiliates at
March 31, 1998 also  includes  $15,000 of expenses  paid by the  Partnership  on
behalf of certain of the joint ventures during fiscal 1993.



<PAGE>



                                   PART IV




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

   (a) The following documents are filed as part of this report:

   (1) and (2)    Financial Statements and Schedules:

             The  response to this portion of Item 14 is submitted as a separate
             section  of this  Report.  See Index to  Financial  Statements  and
             Financial Statement Schedules at page F-1.

        (3)  Exhibits:

             The exhibits on the accompanying index to exhibits at page IV-3 are
             filed as part of this Report.

   (b)  No  reports on Form 8-K were  filed  during  the last  quarter of fiscal
        1998.

   (c)  Exhibits

             See (a)(3) above.

   (d)  Financial Statement Schedules

        The  response  to this  portion  of Item 14 is  submitted  as a separate
        section of this Report. See Index to Financial  Statements and Financial
        Statement Schedules at page F-1.


















<PAGE>



                                    SIGNATURES


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

                                 PAINEWEBBER EQUITY PARTNERS
                                    ONE LIMITED PARTNERSHIP


                                    By:  First Equity Partners, Inc.
                                         ---------------------------
                                         Managing General Partner

                                    By: /s/ Bruce J. Rubin
                                        ------------------
                                        Bruce J. Rubin
                                        President and
                                        Chief Executive Officer


                                    By: /s/ Walter V. Arnold
                                        --------------------
                                        Walter V. Arnold
                                        Senior Vice President and
                                        Chief Financial Officer


                                    By: /s/ Thomas W. Boland
                                        --------------------
                                        Thomas W. Boland
                                        Vice President and Controller


Dated:  June 26, 1998

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 Partnership and
in the capacities and on the dates indicated.



By:/s/ Bruce J. Rubin                 Date: June 26, 1998
   ---------------------------              -------------
   Bruce J. Rubin
   Director




By:/s/ Terrence E. Fancher            Date: June 26, 1998
   ---------------------------              -------------
   Terrence E. Fancher
   Director





                                     


<PAGE>

                           ANNUAL REPORT ON FORM 10-K
                                  Item 14(a)(3)

               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP

                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>

                                                            Page Number in the Report
      Exhibit No.    Description of Document                Or Other Reference
      -----------    -----------------------                -------------------------
      <S>            <C>                                    <C>  

      (3) and (4)    Prospectus of the Partnership          Filed with the Commission
                     dated  July 18, 1985,  as              pursuant to Rule 424(c) and
                     supplemented, with particular          incorporated herein by reference.
                     reference to the Amended and
                     Restated Certificate and
                     Agreement of Limited Partnership


      (10)           Material contracts previously          Filed with the Commission pursuant
                     filed as exhibits to registration      to Section 13 or 15(d) of the
                     statements and amendments thereto      Securities Act of 1934 and
                     of the registrant together with        incorporated herein by reference.
                     all such  contracts  filed as
                     exhibits of previously  filed
                     Forms 8-K and Forms 10-K are 
                     hereby incorporated herein by
                     reference.


      (13)           Annual Report to Limited Partners      No Annual Report for fiscal year
                                                            1998 has been sent to the Limited
                                                            Partners.  An Annual Report will be
                                                            sent to the Limited Partners
                                                            subsequent to this filing.


      (22)           List of subsidiaries                   Included in Item I of Part 1 of
                                                            this Report Page I-1, to which
                                                            reference is hereby made.

      (27)           Financial data schedule                Filed as the last  page of EDGAR
                                                            submission following  the Financial
                                                            Statements and Financial Statement
                                                            Schedule required  by Item 14.
</TABLE>
                             


<PAGE>


                          ANNUAL REPORT ON FORM 10-K
                     Item 14(a)(1) and (2) and Item 14(d)

                       PAINEWEBBER EQUITY PARTNERS ONE
                             LIMITED PARTNERSHIP

       INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>

                                                                                    Reference
                                                                                    ---------
<S>                                                                                  <C>    
                                                        

PaineWebber Equity Partners One Limited Partnership:

   Report of independent auditors                                                    F-3

   Consolidated balance sheets as of March 31, 1998 and 1997                         F-4

   Consolidated statements of operations for the years ended March 31, 1998,
     1997 and 1996                                                                   F-5

   Consolidated statements of changes in partners' capital (deficit) for the
     years ended March 31, 1998, 1997 and 1996                                       F-6

   Consolidated statements of cash flows for the years ended March 31, 1998,
     1997 and 1996                                                                   F-7

   Notes to consolidated financial statements                                        F-8

   Schedule III - Real Estate and Accumulated Depreciation                           F-28

1997  Combined  Joint  Ventures of  PaineWebber  Equity  Partners  One Limited Partnership:

   Report of independent auditors                                                    F-29

   Combined balance sheet as of December 31, 1997                                    F-30

   Combined  statement of operations and changes in venturers' capital for the
     year ended December 31, 1997                                                    F-31

   Combined statement of cash flows for the year ended December 31, 1997             F-32

   Notes to combined financial statements                                            F-33

   Schedule III - Real Estate and Accumulated Depreciation                           F-38

1996 and 1995  Combined  Joint  Ventures of  PaineWebber  Equity  Partners One Limited Partnership:

   Reports of independent auditors                                                   F-40

   Combined balance sheets as of December 31, 1997 and 1996                          F-42

   Combined  statements  of operations  and changes in venturers'  capital for
     the years  ended December 31, 1997, 1996 and 1995                               F-43


<PAGE>


                          ANNUAL REPORT ON FORM 10-K
                     Item 14(a)(1) and (2) and Item 14(d)

                       PAINEWEBBER EQUITY PARTNERS ONE
                             LIMITED PARTNERSHIP

       INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                                                                                    Reference
                                                                                    ---------
<S>                                                                                  <C>    

   Combined statements of cash flows for the years ended December 31, 1997,
     1996 and 1995                                                                   F-44

   Notes to combined financial statements                                            F-45

   Schedule III - Real Estate and Accumulated Depreciation                           F-51

   Other  financial  statement  schedules  have been omitted  since the required
information  is not  present or not  present in  amounts  sufficient  to require
submission of the schedule,  or because the information  required is included in
the financial statements, including the notes thereto.


</TABLE>


<PAGE>


                        REPORT OF INDEPENDENT AUDITORS



The Partners
PaineWebber Equity Partners One Limited Partnership:

      We  have  audited  the   accompanying   consolidated   balance  sheets  of
PaineWebber  Equity  Partners One Limited  Partnership  as of March 31, 1998 and
1997,  and  the  related  consolidated  statements  of  operations,  changes  in
partners' capital  (deficit),  and cash flows for each of the three years in the
period ended March 31, 1998.  Our audits also included the  financial  statement
schedule  listed in the Index at Item  14(a).  These  financial  statements  and
schedule  are  the   responsibility   of  the  Partnership's   management.   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

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

      In our opinion,  the consolidated  financial  statements referred to above
present fairly, in all material respects, the consolidated financial position of
PaineWebber Equity Partners One Limited  Partnership at March 31, 1998 and 1997,
and the  consolidated  results of its  operations and its cash flows for each of
the three years in the period ended March 31, 1998, in conformity with generally
accepted  accounting  principles.  Also, in our opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.




                               /S/ ERNST & YOUNG LLP
                               ---------------------
                               ERNST & YOUNG LLP

Boston, Massachusetts
June 12, 1998



<PAGE>


                       PAINEWEBBER EQUITY PARTNERS ONE
                             LIMITED PARTNERSHIP

                         CONSOLIDATED BALANCE SHEETS
                           March 31, 1998 and 1997
                   (In thousands, except for per Unit data)

                                    ASSETS
                                                        1998            1997
                                                        ----            ----
Operating investment properties:
   Land                                          $     5,218      $     3,962
   Building and improvements                          32,691           28,322
                                                 -----------      -----------
                                                      37,909           32,284
   Less accumulated depreciation                     (15,131)         (10,823)
                                                 -----------       ----------
                                                      22,778           21,461

Investments in and notes receivable 
  from unconsolidated joint ventures, 
  at equity                                           24,369           22,525
Cash and cash equivalents                              3,268            4,325
Prepaid expenses                                          13               13
Accounts receivable                                       69              139
Accounts receivable - affiliates                         308              260
Deferred rent receivable                                 415              353
Deferred expenses, net                                   732              660
Other assets                                             290                -
                                                 -----------      -----------
                                                 $    52,242      $    49,736
                                                 ===========      ===========

                      LIABILITIES AND PARTNERS' CAPITAL

Net advances from consolidated ventures          $        32      $         -
Accounts payable and accrued expenses                    412              474
Interest payable                                          71               60
Bonds payable                                          1,420            1,503
Mortgage notes payable                                14,720            9,649
                                                 -----------      -----------
      Total liabilities                               16,655           11,686

Co-venturer's share of net assets of
  consolidated joint venture                               -              187

Partners' capital:
   General Partners:
     Capital contributions                                 1                1
     Cumulative net income (loss)                         44               47
     Cumulative cash distributions                    (1,018)            (998)

   Limited Partners ($50 per unit; 2,000,000
      Units outstanding):
     Capital contributions, net of offering costs     90,055           90,055
     Cumulative net income (loss)                    (13,713)         (13,460)
     Cumulative cash distributions                   (39,782)         (37,782)
                                                 -----------      -----------
      Total partners' capital                         35,587           37,863
                                                 -----------      -----------
                                                 $    52,242      $    49,736
                                                 ===========      ===========



                            See accompanying notes.


<PAGE>


                         PAINEWEBBER EQUITY PARTNERS ONE
                               LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS
               For the years ended March 31, 1998, 1997 and 1996
                    (In thousands, except for per Unit data)


                                                1998        1997       1996
                                                ----        ----       ----

Revenues:
   Rental income and expense 
     reimbursements                         $   4,000  $    2,882  $    2,449
   Interest and other income                      308         291         277
                                            ---------  ----------  ----------
                                                4,308       3,173       2,726

Expenses:
   Interest expense                             1,137         995       1,027
   Depreciation expense                         1,464       1,324       1,277
   Property operating expenses                  1,593       1,153       1,279
   Real estate taxes                              351         271         217
   General and administrative                     482         412         539
   Amortization expense                           143         117          87
   Bad debt expense                                16           -          39
                                            ---------  ----------  ----------
                                                5,186       4,272       4,465
                                            ---------  ----------  ----------
Operating loss                                   (878)     (1,099)     (1,739)

Investment income:
   Interest income on notes receivable
      from unconsolidated ventures                800         800         800
   Partnership's share of
      unconsolidated ventures' losses            (178)       (107)      (324)
                                            ---------  ----------  ----------

Net loss                                    $    (256) $     (406) $  (1,263)
                                            =========  ==========  =========

Net loss per Limited Partnership Unit          $(0.13)    $ (0.20)   $ (0.62)
                                               ======     =======    =======

Cash distributions per Limited
   Partnership Unit                            $ 1.00     $  0.50    $  0.50
                                               ======     =======    =======


   The above net loss and cash  distributions  per Limited  Partnership Unit are
based upon the 2,000,000 Limited Partnership Units outstanding for each year.








                           See accompanying notes.


<PAGE>


                         PAINEWEBBER EQUITY PARTNERS ONE
                               LIMITED PARTNERSHIP

        CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
                For the years ended March 31, 1998, 1997 and 1996
                                 (In thousands)


                                        General      Limited
                                        Partners     Partners       Total
                                        --------     --------       -----

Balance at March 31, 1995             $  (912)       $42,464       $41,552

Cash distributions                        (10)        (1,000)       (1,010)

Net loss                                  (14)        (1,249)       (1,263)
                                      -------        -------       -------

Balance at March 31, 1996                (936)        40,215        39,279

Cash distributions                        (10)        (1,000)       (1,010)

Net loss                                   (4)          (402)         (406)
                                      -------        -------       -------


Balance at March 31, 1997                (950)        38,813        37,863

Cash distributions                        (20)        (2,000)       (2,020)

Net loss                                   (3)          (253)         (256)
                                      -------        -------       -------

Balance at March 31, 1998             $  (973)      $ 36,560       $35,587
                                      =======       ========       =======






















                           See accompanying notes.


<PAGE>
                         PAINEWEBBER EQUITY PARTNERS ONE
                               LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the years ended March 31, 1998, 1997 and 1996
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)
<TABLE>
<CAPTION>

                                                               1998         1997       1996
                                                               ----         ----       ----
<S>                                                         <C>          <C>         <C>  
Cash flows from operating activities:
  Net loss                                                  $    (256)   $   (406)  $  (1,263)
  Adjustments to reconcile net loss
    to net cash provided by operating activities:
   Partnership's share of unconsolidated ventures' losses         178         107         324
   Depreciation and amortization                                1,607       1,441       1,364
   Amortization of deferred financing costs                        23          20          20
   Bad debt expense                                                16         (21)         39
   Changes in assets and liabilities:
     Prepaid expenses                                               -           -          (1)
     Accounts receivable                                           54         (37)        (43)
     Accounts receivable - affiliates                             (48)         (5)        (40)
     Deferred rent receivable                                      91        (168)       (156)
     Deferred expenses                                              -         (80)        (33)
     Accounts payable and accrued expenses                       (138)        101         149
     Interest payable                                              (2)          -          (1)
     Net advances from consolidated ventures                      (41)          -           -
                                                            ---------    --------   ---------
        Total adjustments                                       1,740       1,358       1,622
                                                            ---------    --------   ---------
        Net cash provided by operating activities               1,484         952         359
                                                            ---------    --------   ---------

Cash flows from investing activities:
  Additions to operating investment properties                   (216)       (551)     (2,002)
  Payment of leasing commissions                                 (128)          -        (557)
  Distributions from unconsolidated joint ventures               1,052      2,150       1,332
  Additional investments in unconsolidated
   joint ventures                                               (1,160)    (1,054)       (348)
                                                             ---------    --------   ---------
        Net cash (used in) provided by investing activities       (452)       545      (1,575)
                                                             ---------    --------   ---------

Cash flows from financing activities:
  Repayment of principal
   on long-term debt                                              (278)       (131)       (120)
  Payments on district bond assessments                            (83)        (73)        (72)
  Distributions to partners                                     (2,020)      (1,010)    (1,010)
                                                             ---------    --------   ---------
        Net cash used in financing activities                   (2,381)     (1,214)    (1,202)
                                                             ---------    --------   ---------

Net (decrease) increase in cash and cash equivalents            (1,349)        283      (2,418)

Cash and cash equivalents, beginning of year                     4,325       4,042       6,460

Cash and cash equivalents, Warner/Red Hill,
  beginning of year                                                292           -           -
                                                             ---------    --------   ---------

Cash and cash equivalents, end of year                       $   3,268    $  4,325   $   4,042
                                                             =========    ========   =========

Cash paid during the year for interest                       $   1,116    $    975   $   1,008
                                                             =========    ========   =========
</TABLE>


                           See accompanying notes.


<PAGE>


                       PAINEWEBBER EQUITY PARTNERS ONE
                             LIMITED PARTNERSHIP
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  Organization and Nature of Operations
-----------------------------------------

      PaineWebber Equity Partners One Limited Partnership (the "Partnership") is
a limited partnership organized pursuant to the laws of the State of Virginia on
April 17,  1985 for the  purpose of  investing  in a  diversified  portfolio  of
existing newly constructed or to-be-built  income-producing real properties. The
Partnership  authorized  the issuance of units (the "Units") of Limited  Partner
interests  (at $50 per  Unit) of which  2,000,000  were  subscribed  and  issued
between July 18, 1985 and July 17, 1986. The Partnership also received  proceeds
of  $17,000,000  from the  issuance of four zero coupon loans during the initial
acquisition  period. The proceeds of such borrowings,  net of financing expenses
of  approximately  $275,000,  were used to pay the offering  and  organizational
expenses,  acquisition fees and acquisition-related  expenses of the Partnership
and to fund the Partnership's cash reserves.

      The Partnership initially invested  approximately  $97,472,000  (excluding
acquisition  fees of $2,830,000)  in seven  operating  properties  through joint
venture  investments.  In fiscal 1990, the  Partnership  received  approximately
$7,479,000  from  the  proceeds  of a  sale  of a part  of one of the  operating
properties.  The  Partnership  used the proceeds  from this sale to repay a zero
coupon  loan  and  replenish  its  cash  reserves.  As of March  31,  1998,  the
Partnership  retained  an  ownership  interest  in  seven  operating  investment
properties,  which  consist  of  four  office/R&D  complexes,  two  multi-family
apartment complexes and one mixed-use retail/office property. The Partnership is
currently  focusing on potential  disposition  strategies for the investments in
its portfolio. Although no assurances can be given, it is currently contemplated
that sales of the  Partnership's  remaining assets could be completed within the
next 2- to- 3 years.

2.  Use of Estimates and Summary of Significant Accounting Policies
-------------------------------------------------------------------

      The  accompanying  financial  statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting  principles
which  requires  management to make  estimates and  assumptions  that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and liabilities as of March 31, 1998 and 1997 and revenues and expenses for each
of the three years in the period  ended March 31,  1998.  Actual  results  could
differ from the estimates and assumptions used.

      The accompanying financial statements include the Partnership's investment
in six joint venture partnerships which own operating  properties.  In addition,
the  Partnership  owns one property  directly,  as further  described in Note 4.
Except as described below, the Partnership accounts for its investments in joint
venture  partnerships  using the equity method because the Partnership  does not
have  majority  voting  control in the  ventures.  Under the  equity  method the
ventures  are  carried  at cost  adjusted  for the  Partnership's  share  of the
ventures'  earnings  and  losses  and  distributions.  All of the joint  venture
partnerships  are required to maintain  their  accounting  records on a calendar
year basis for income  tax  reporting  purposes.  As a result,  the  Partnership
records  its  share of joint  ventures'  income  or  losses  based on  financial
information  of the  ventures  which is three  months in  arrears to that of the
Partnership.  See Note 5 for a description of the  unconsolidated  joint venture
partnerships.

      As further  discussed in Note 4, the Partnership  acquired  control of the
Sunol Center joint  venture in fiscal 1992.  Accordingly,  the joint  venture is
presented on a  consolidated  basis in the  accompanying  financial  statements.
Effective  August 1, 1997, the co-venture  partner in Warner/Red Hill Associates
assigned its interest in the joint venture to First Equity  Partners,  Inc., the
Managing  General Partner of the  Partnership,  in return for a release from any
further obligations under the terms of the joint venture agreement. As a result,
the  Partnership  has assumed  control of the operations of the Warner/Red  Hill
joint venture.  Accordingly, the venture is presented on a consolidated basis in
the Partnership's financial statements beginning in fiscal 1998. Prior to fiscal
1998,  the  venture  was  accounted  for on the equity  method  (see Note 5). As
discussed above, the Sunol Center and Warner/Red Hill joint ventures both have a
December 31 year-end and operations of the ventures continue to be reported on a
three-month  lag.  All material  transactions  between the  Partnership  and its
consolidated  joint ventures,  except for lag-period  cash transfers,  have been
eliminated in consolidation. Such lag-period cash transfers are accounted for as
advances to or from consolidated ventures.

      The  operating   investment   properties   carried  on  the  Partnership's
consolidated   balance  sheets  are  stated  at  cost,  reduced  by  accumulated
depreciation,  or an amount  less  than cost if  indicators  or  impairment  are
present in accordance with statement of Financial  Accounting  Standards  (SFAS)
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be  Disposed  Of,"  which was  adopted  in fiscal  1995.  SFAS No. 121
requires  impairment  losses  to  be  recorded  on  long-lived  assets  used  in
operations when indicators of impairment are present and the  undiscounted  cash
flows  estimated  to be  generated  by those  assets  are less  than the  assets
carrying amount. The Partnership  generally assesses indicators of impairment by
a review of independent appraisal reports on each operating investment property.
Such  appraisals  make  use  of a  combination  of  certain  generally  accepted
valuation techniques, including direct capitalization, discounted cash flows and
comparable  sales  analysis.  SFAS No. 121 also  addresses  the  accounting  for
long-lived  assets that are expected to be disposed of. In conjunction  with the
application  of  SFAS  121,  impairment  losses  on  the  operating   investment
properties  owned by certain  unconsolidated  joint ventures were  recognized in
fiscal 1995. Such losses are described in more detail in Note 5.

      Through March 31, 1995,  depreciation  expense on the operating investment
properties carried on the Partnership's  consolidated balance sheet was computed
using the straight-line  method over the estimated useful lives of the operating
investment  properties,  generally  five years for  furniture  and  fixtures and
thirty years for the buildings. During fiscal 1996, circumstances indicated that
the wholly owned  Crystal Tree Commerce  Center  operating  investment  property
might be  impaired.  The  Partnership's  estimate  of  undiscounted  cash  flows
indicated that the property's carrying amount was expected to be recovered,  but
that the reversion  value could be less than the carrying  amount at the time of
disposition.  As a result of such  assessment,  the  Partnership  reassessed its
depreciation  policy and  commenced  recording an  additional  annual  charge to
depreciation  expense of $65,000 in fiscal 1996 to adjust the carrying  value of
the Crystal Tree property such that it will match the expected  reversion  value
at the time of  disposition.  Such an annual  charge was also recorded in fiscal
1997 and will  continue  to be recorded in future  periods.  Interest  and taxes
incurred during the  construction  period,  along with  acquisition fees paid to
PaineWebber Properties Incorporated and costs of identifiable improvements, have
been  capitalized  and are  included  in the  cost of the  operating  investment
properties. Maintenance and repairs are charged to expense when incurred.

      Rental revenues for the operating investment  properties are recognized on
a straight-line basis over the life of the related lease agreements.

      For purposes of reporting cash flows, the Partnership considers all highly
liquid  investments  with original  maturities of 90 days or less to be cash and
cash equivalents.

      Deferred expenses  generally  consist of deferred leasing  commissions and
costs associated with the loans described in Note 6. The leasing commissions are
being  amortized  using the  straight-line  method  over the term of the related
lease,  and the loan costs are being amortized on a straight-line  basis,  which
approximates  the effective  interest  method,  over the terms of the respective
loans.  The  amortization  of loan costs is included in interest  expense on the
accompanying statements of operations.

      No  provision  for income  taxes has been made as the  liability  for such
taxes is that of the partners rather than the Partnership.

      The cash and cash  equivalents,  bonds payable and mortgage  notes payable
appearing on the accompanying  consolidated  balance sheets represent  financial
instruments for purposes of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial  Instruments." The carrying amount of
cash and cash equivalents approximates their fair value as of March 31, 1998 and
1997  due  to  the  short-term  maturities  of  these  instruments.  It  is  not
practicable  for  management  to  estimate  the fair value of the bonds  payable
without incurring  excessive costs due to the unique nature of such obligations.
The fair value of mortgage notes payable is estimated using discounted cash flow
analysis,  based on the  current  market  rates for similar  types of  borrowing
arrangements  (see Note 6). It is not practicable for management to estimate the
fair value of the notes  receivable  from the joint ventures  without  incurring
excessive costs because the loans were provided in non-arm's length transactions
without  regard  to  collateral  issues  or  other  traditional  conditions  and
covenants (see Note 5).

      Certain fiscal 1997 and 1996 amounts have been  reclassified to conform to
the fiscal 1998 presentation.

3.  The Partnership Agreement and Related Party Transactions
------------------------------------------------------------

      The General  Partners of the Partnership are First Equity  Partners,  Inc.
(the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber Group
Inc.  ("PaineWebber")  and  Properties  Associates  1985,  L.P. (the  "Associate
General Partner"),  a Virginia limited partnership,  certain limited partners of
which are also officers of PaineWebber Properties  Incorporated ("PWPI") and the
Managing General  Partner.  Subject to the Managing  General  Partner's  overall
authority,  the business of the  Partnership  is managed by PWPI  pursuant to an
advisory and asset  management  contract.  PWPI is a wholly-owned  subsidiary of
PaineWebber.  The  General  Partners  and PWPI  receive  fees and  compensation,
determined  on an  agreed-upon  basis,  in  consideration  of  various  services
performed  in  connection  with the sale of the  Units,  the  management  of the
Partnership  and the  acquisition,  management,  financing  and  disposition  of
Partnership investments.

      All  distributable  cash,  as  defined,  for  each  fiscal  year  shall be
distributed  quarterly in the ratio of 99% to the Limited Partners and 1% to the
General  Partners until the Limited  Partners have received an amount equal to a
6%  noncumulative  annual return on their adjusted  capital  contributions.  The
General  Partners  and PWPI  will then  receive  distributions  until  they have
received concurrently an amount equal to 1.01% and 3.99%,  respectively,  of all
distributions  to all  partners.  The  balance  will be  distributed  95% to the
Limited Partners,  1.01% to the General Partners, and 3.99% to PWPI. Payments to
PWPI  represent  asset  management  fees for PWPI's  services  in  managing  the
business of the Partnership.  During fiscal 1993, the Partnership  suspended all
distributions to Limited Partners.  Quarterly  distributions to Limited Partners
were reinstated beginning with the quarter ended March 31, 1995 at a rate of 1%.
As a result no management  fees were earned for the fiscal years ended March 31,
1998,  1997 and 1996. All sale or  refinancing  proceeds shall be distributed in
varying  proportions  to the Limited and General  Partners,  as specified in the
Partnership Agreement.

      Taxable  income  (other than from a Capital  Transaction)  in each taxable
year will be  allocated to the Limited  Partners and the General  Partners in an
amount equal to the  distributable  cash (excluding the asset management fee) to
be  distributed  to  the  partners  for  such  year  and in the  same  ratio  as
distributable cash has been distributed.  Any remaining taxable income, or if no
distributable  cash has been  distributed for a taxable year, shall be allocated
98.94802625% to the Limited  Partners and  1.05197375% to the General  Partners.
Tax  losses  (other  than  from  a  Capital   Transaction)   will  be  allocated
98.94802625% to the Limited  Partners and  1.05197375% to the General  Partners.
Allocations of the Partnership's operations between the General Partners and the
Limited Partners for financial  accounting purposes have been made in conformity
with the allocations of taxable income or tax loss.

      Selling  commissions  incurred by the Partnership and paid to an affiliate
of the Managing  General Partner for the sale of Limited  Partnership  interests
aggregated $8,416,000 through the conclusion of the offering period.

      In connection  with the  acquisition of  properties,  PWPI was entitled to
receive  acquisition fees in an amount not greater than 3% of the gross proceeds
from the sale of Partnership  Units.  Total  acquisition fees of $2,830,000 were
incurred and paid by the  Partnership in connection  with the acquisition of its
operating property investments.  In addition PWPI received an acquisition fee of
$170,000 from Sunol Center Associates in 1986.

      The Managing  General  Partner and its affiliates are reimbursed for their
direct expenses  relating to the offering of Units,  the  administration  of the
Partnership  and  the  acquisition  and  operations  of the  Partnership's  real
property investments.

      Included in general and administrative  expenses for the years ended March
31,  1998,  1997 and 1996 is  $181,000,  $179,000  and  $203,000,  respectively,
representing  reimbursements to an affiliate of the Managing General Partner for
providing certain financial,  accounting and investor  communication services to
the Partnership.

      The  Partnership  uses the  services  of Mitchell  Hutchins  Institutional
Investors,  Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a  subsidiary  of  Mitchell  Hutchins  Asset  Management,  Inc.,  an
independently operated subsidiary of PaineWebber.  Mitchell Hutchins earned fees
of $14,000, $9,000 and $11,000 (included in general and administrative expenses)
for managing the  Partnership's  cash assets during fiscal 1998,  1997 and 1996,
respectively.

      At March 31, 1998 and 1997,  accounts  receivable  -  affiliates  includes
$126,000 and $100,000,  respectively, due from two unconsolidated joint ventures
for interest earned on permanent loans and $167,000 and $145,000,  respectively,
of investor  servicing fees due from several joint ventures for reimbursement of
certain  expenses  incurred in reporting  Partnership  operations to the Limited
Partners of the Partnership.  Accounts  receivable  affiliates at both March 31,
1998 and 1997 also  includes  $15,000 of  expenses  paid by the  Partnership  on
behalf of the joint ventures during fiscal 1993.

4.  Operating Investment Properties
-----------------------------------

      At  March  31,  1998,  the  Partnership's  balance  sheet  includes  three
operating  investment  properties (two at March 31, 1997):  (1) the wholly-owned
Crystal Tree Commerce Center;  (2) the Sunol Center Office  Buildings,  owned by
Sunol Center  Associates,  a majority owned and controlled joint venture and (3)
Warner/Red Hill Business Center, owned by Warner/Red Hill Associates, a majority
owned and  controlled  joint  venture.  The  Partnership  acquired a controlling
interest in Sunol Center  Associates  during fiscal 1992 and in Warner/Red  Hill
Associates  during  fiscal  1998.   Accordingly,   the  accompanying   financial
statements  present the  financial  position and results of  operations of these
joint  ventures on a consolidated  basis  beginning in the year in which control
was  obtained.  Descriptions  of the  operating  investment  properties  and the
agreements  through  which  the  Partnership   acquired  its  interests  in  the
properties are provided below.

      Crystal Tree Commerce Center
      ----------------------------

      The Partnership acquired an interest in North Palm Crystal Associates (the
"joint venture"), a Florida general partnership organized on October 23, 1985 in
accordance with a joint venture  agreement  between the Partnership and Caruscan
of Palm Beach Inc., a Florida corporation (the "co-venturer") to own and operate
the Crystal Tree  Commerce  Center (the  "property").  The property  consists of
three one-story  retail plazas  containing an aggregate of 74,923 square feet of
leasable space and one  four-story  office  building  containing an aggregate of
40,115  square feet of leasable  office  space,  each of which was  completed in
1983. The property,  which was 100% occupied as of March 31, 1998, is located in
North Palm Beach, Florida.

      The aggregate  cash  investment  made by the  Partnership  for its initial
interest was  $19,367,000  (including a $200,000  consulting  fee and a $540,000
acquisition fee paid to PaineWebber Properties Inc.).

      Effective  February 1, 1988, the venture  partners  restructured the joint
venture  agreement  to transfer  full  ownership  and  control of the  operating
property  to the  Partnership.  Additionally,  all  shortfall  loans made by the
co-venturer  prior  to  the  restructuring,  which  were  to be  refunded  (plus
interest) from sales  proceeds,  were  cancelled.  To complete the  transaction,
during fiscal 1989 the co-venturer paid the Partnership  approximately  $884,000
as a settlement  of amounts owed  through the date of the  restructuring  and in
exchange for a release from further obligations for tenant improvements, as well
as a  release  of a letter of  credit  which was to be drawn  down over the next
eight  years.  The cash  received  was used at the  property  to finance  tenant
improvements required to re-lease vacant space.

      The Sunol Center Office Buildings
      ---------------------------------

      Sunol Center  Associates,  a California  general  partnership  (the "joint
venture"),  was  formed  by  the  Partnership  and  Callahan  Pentz  Properties,
Pleasanton-Site  Thirty-four A, a California general partnership ("co-venturer")
on August 15, 1986 to acquire and  operate  the Sunol  Center (the  "Property"),
which originally consisted of three office buildings on an 11.6-acre site in the
Hacienda Business Park located in Pleasanton, California. Prior to the formation
of the Partnership,  the Property was owned and operated by the co-venturer. The
initial  aggregate cash  investment made by the Partnership for its interest was
$15,610,000  (including a $445,000  acquisition  fee paid to the  Adviser).  The
joint venture assumed  liability for public bonds of $2,141,000 upon acquisition
of the property (see Note 7). The Partnership paid the co-venturer an additional
$1,945,000  toward the purchase  price of its interest  upon the  occurrence  of
certain events which were defined in the joint venture agreement, as amended.

      On  February  28,  1990,  one of the three  office  buildings,  comprising
approximately  31%  of  the  total  net  rentable  square  feet,  was  sold  for
$8,150,000.  After  payment  of  transaction  costs  and  the  deduction  of the
co-venturer's  share  of the  net  proceeds,  a  distribution  of  approximately
$7,479,000  was made to the  Partnership.  A portion of these  proceeds,  in the
amount  of  approximately  $4,246,000,  was  used to repay a zero  coupon  loan,
including accrued interest, that was secured by all three office buildings.  The
remainder of the net proceeds were added to the Partnership's cash reserves.  As
of March 31, 1998, the two remaining  office buildings were 100% leased to three
tenants.

      The joint venture  agreement  provided that for the period from August 15,
1986 to July 31, 1989 for two buildings  (one of these two buildings was sold on
February 28, 1990) and August 15, 1986 to July 31, 1990 for one building, to the
extent that the  Partnership  required funds to cover  operating  deficits or to
fund  shortfalls  in  the  Partnership's  Preference  Return,  as  defined,  the
co-venturer  was required to  contribute  such amounts to the  Partnership.  For
financial  reporting  purposes,   certain  of  the  contributions  made  by  the
co-venturer to cover such deficits and shortfalls were treated as a reduction of
the purchase price of the Property.  The  co-venturer  defaulted on the guaranty
obligation  in fiscal  1990 and  negotiations  between the  Partnership  and the
co-venturer  to reach a resolution of the default were ongoing until fiscal 1992
when the  venturers  reached a settlement  agreement.  During  fiscal 1992,  the
co-venturer  assigned  its  remaining  joint  venture  interest to the  Managing
General  Partner  of the  Partnership.  Concurrent  with  the  execution  of the
settlement  agreement,  the property's  management contract with an affiliate of
the  co-venturer  was  terminated.  The  co-venturer  also executed a three-year
non-interest bearing promissory note payable to the Partnership in the amount of
$126,000.  In exchange,  it was agreed that the  co-venturer  or its  affiliates
would have no further liability to the Partnership for any guaranteed preference
payments.   Due  to  the  uncertainty  regarding  the  collection  of  the  note
receivable,  such  compensation  will be  recognized  as payments are  received.
Subsequent to the execution of the note, the maturity date was extended to March
31, 1996.  Through March 31, 1998,  payments totalling $56,726 had been received
on the note and recorded as a reduction to the carrying  value of the  operating
investment  properties.  The  balance  due on this note of $69,274  had not been
received  as of  March  31,  1998.  The  Partnership  will  continue  to  pursue
collection of this balance in fiscal 1999.

      The joint  venture  agreement  provides for the  allocation of profits and
losses, cash  distributions,  and a preference return, as defined to the venture
partners.  Generally,  until  the  preference  return  provisions  are met,  all
profits,  losses  and  cash  distributions  are  allocated  to the  Partnership.
Allocations of income or loss for financial reporting purposes have been made in
accordance with the allocations of taxable income or tax loss.
<PAGE>

      Warner/Red Hill Business Center
      -------------------------------

      The  Partnership  acquired an interest in Warner/Red  Hill Associates (the
"joint  venture"),  a California  general  partnership,  on December 18, 1985 in
accordance  with a joint  venture  agreement  between  the  Partnership  and Los
Angeles Warner Red Hill Company Ltd., (the co-venturer),  to own and operate the
Warner/Red  Hill  Business  Center  (the  "Property").  The  co-venturer  is  an
affiliate of The Paragon Group. The Property  consists of three two-story office
buildings  totalling 93,895 net rentable square feet on approximately 4.76 acres
of land.  The Property,  which was 74% leased as of March 31, 1998, is part of a
4,200 acre business complex in Tustin, California.

      Effective  August 1,  1997,  the  co-venture  partner in  Warner/Red  Hill
Associates  assigned its interest in the joint venture to First Equity Partners,
Inc., the Managing General Partner of the  Partnership,  in return for a release
from any further obligations under the terms of the joint venture agreement.  As
a  result,  the  Partnership  has  assumed  control  of  the  operations  of the
Warner/Red  Hill joint  venture.  Accordingly,  the  venture is  presented  on a
consolidated basis in the Partnership's financial statements beginning in fiscal
1998.  Prior to fiscal 1998,  the venture was accounted for on the equity method
(see Note 5).

     In connection with the consolidation of Warner/Red Hill Associates into the
Partnership's  financial  statements, the following  assets and  liabilities (in
thousands)  of the  joint  venture  at  January  1, 1997  were  recorded  in the
Partnership's balance sheet at April 1, 1997 (see Note 2).

     Cash                                         $    292
     Operating investment property, net              2,565
     Deferred rent receivable                          153
     Deferred expenses, net                            110
     Accounts payable and accrued liabilities          (76)
     Interest payable                                  (13)
     Mortgage note payable                          (5,349)
     Distribution paid to PWEP1 subsequent 
       to 12/31/96, net                                (73)
     Minority interest in net liabilities of
       consolidated joint venture                      477
                                                  --------
          Investment in Warner/Red Hill
            Associates, at equity, 
            at April 1, 1997                      $ (1,914)
                                                  ========
                    
      As discussed in Note 2, the Partnership  elected early application of SFAS
121  effective  for  fiscal  1995.  The  effect  of  such  application  was  the
recognition of an impairment loss on the operating  investment property owned by
Warner/Red Hill Associates.  Warner/Red Hill Associates recognized an impairment
loss of  $6,784,000  to write  down the  operating  investment  property  to its
estimated  fair value of  $3,600,000  as of December  31,  1994.  Fair value was
estimated  using  an  independent  appraisal  of the  operating  property.  Such
appraisals  make use of a combination of certain  generally  accepted  valuation
techniques,   including  direct   capitalization,   discounted  cash  flows  and
comparable sales analysis.

      The aggregate cash  investment in the joint venture by the Partnership was
$12,658,000  (including  acquisition  fees of  $367,000  paid to the Adviser and
closing costs of $6,000).  The property was  encumbered by a  construction  loan
payable to a bank and a note payable to the co-venturer totalling $11,200,000 at
the time of  purchase.  The  construction  loan was repaid  during 1986 from the
proceeds of the Partnership's  capital  contribution.  At December 31, 1997, the
property was  encumbered by a loan with a principal  balance of $5,215,000  (see
Note 6).

      If the joint venture requires  additional funds subsequent to December 31,
1989, such funds are to be provided in the form of loans, 85% by the Partnership
and 15% by the co-venturer.  In the event that a partner does not contribute its
share of additional funds (Defaulting Partner), the other partner may contribute
such  funds to the joint  venture  in the form of loans  (Default  Loans).  Such
Default Loans bear interest at twice the rate of regular notes to partners up to
the maximum rate legally allowed. In addition, the Defaulting Partner's share of
net cash  flow and cash  flow from the sale or  refinancing  proceeds  are to be
reduced,  with  a  corresponding  increase  in the  other  partner's  share,  in
accordance with a formula defined in the partnership agreement.

      The joint venture agreement  provides that net cash flow (as defined),  to
the extent  available,  will be distributed as follows:  First,  the Partnership
will receive a cumulative  preference  return,  payable  quarterly until paid in
full, of $1,225,000  per year (or, if less,  10% per annum of the  Partnership's
investment).  Second,  remaining  available  net cash flow shall be used to make
payments  to the  partners at a  percentage  equal to the prime rate of interest
plus 1% on  additional  loans made by the  partners to the  Partnership.  Third,
remaining  available  net  cash  flow  shall  be used to make a  payment  to the
co-venturer  at a  percentage  equal  to the  prime  rate of  interest  plus 1%,
compounded  annually,  of capital  contributions  which,  in accordance with the
joint venture agreement, were required to be made by the co-venturer during 1988
and 1989 if net cash flow was insufficient to fund the Partnership's  preference
return.  Fourth,  any remaining net cash flow shall be used to make a payment to
the  Partnership at a percentage  equal to the prime rate of interest plus 1% of
any accumulated but unpaid Partnership  preference return.  Fifth, any remaining
net cash flow shall be distributed on an annual basis in the ratio of 93% to the
Partnership and 7% to the co-venturer (including adjustments for Default Loans).
The cumulative  unpaid  preference return due to the Partnership at December 31,
1997 was $8,805,000, including accrued interest of $2,685,000.

      Net income is allocated  in a manner  similar to the  distribution  of net
cash flows. Net losses will be allocated in proportion to the partners' positive
capital accounts,  provided that any deductions attributable to any fees paid to
the  Partnership  pursuant to the joint  venture  agreement  shall be  allocated
solely to the Partnership,  and further  provided that the co-venturer  shall be
allocated any  additional  losses in an amount equal to the lesser of the amount
of additional capital contributed by it or 15% of such losses.

      Proceeds from sale or refinancing  shall be distributed as follows:  1) to
the  Partnership  in an amount equal to the  Partnership's  original  investment
(including the additional  contributions  discussed above; 2) to the co-venturer
in an amount equal to any required additional capital  contributions made by it;
3)  to  the  Partnership  in an  amount  equal  to  the  cumulative  Partnership
preference return not yet paid; 4) to each partner pro rata to the extent of any
other  additional  contributions  of  capital  made by that  partner  and 5) the
remaining  balance 90% to the Partnership and 10% to the co-venturer  (including
adjustments for Default Loans).

      Gains  resulting  from the sale or  refinancing  of the property  shall be
allocated  as follows:  capital  gains shall first be used to bring any negative
balances of the capital accounts to zero. The remaining capital profits shall be
allocated  in a manner  similar  to the  allocation  of  proceeds  from  sale or
refinancing.  Capital  losses shall be allocated to the partners in an amount up
to and in proportion to their positive capital  balances.  If additional  losses
exist,  then the  losses  shall be  allocated  to the  Partnership  to bring its
capital account to zero, then to the co-venturer to bring its capital account to
zero and finally,  all  remaining  capital  losses shall be allocated 80% to the
Partnership and 20% to the co-venturer.

      The joint  venture  entered into a property  management  contract  with an
affiliate of the co-venturer  cancelable at the joint venture's  option upon the
occurrence of certain events.  The management fee is equal to 4% of gross rents,
as defined.

      The following is a combined summary of property operating expenses for the
Crystal Tree Commerce  Center,  Sunol Center Office  Building and the Warner/Red
Hill Business  Center as reported in the  Partnership's  statement of operations
for the year ended March 31, 1998 and for the Crystal Tree  Commerce  Center and
Sunol Center  Office  Building as reported in the  Partnership's  statements  of
operations for the years ended March 31, 1997 and 1996 (in thousands):

                                             1998        1997        1996
                                             ----        ----        ----
      Property operating expenses:
         Repairs and maintenance         $      393   $     221   $     299
         Utilities                              346         202         170
         Insurance                               82          61          58
         Administrative and other               703         641         726
         Management fees                         69          28          26
                                          ---------    --------    --------
                                          $   1,593    $  1,153    $  1,279
                                          =========    ========    ========

5.  Investments in Unconsolidated Joint Ventures
------------------------------------------------

      As  of  March  31,  1998,  the   Partnership   had   investments  in  four
unconsolidated joint ventures which own operating investment properties (five at
March  31,  1997).  As  discussed  further  in Note 4,  during  fiscal  1998 the
Partnership  obtained  control  over the  affairs of the  Warner/Red  Hill joint
venture.  Accordingly,  this venture is presented on a consolidated basis in the
fiscal  1998  financial  statements.   The  unconsolidated  joint  ventures  are
accounted for on the equity method in the Partnership's financial statements. As
discussed in Note 2, these joint ventures report their  operations on a calendar
year basis.

      Condensed  combined  financial  statements  of  the  unconsolidated  joint
ventures, for the periods indicated, are as follows:
<PAGE>

                      Condensed Combined Balance Sheets
                          December 31, 1997 and 1996
                                (in thousands)
                                    Assets
                                                          1997        1996
                                                          ----        ----

    Current assets                                    $   1,104   $   1,645
    Operating investment properties, net                 51,956      55,760
    Other assets                                          3,913       4,006
                                                      ---------   ---------
                                                      $  56,973   $  61,411
                                                      =========   =========
                           Liabilities and Capital

    Current liabilities                               $   2,952   $   5,399
    Other liabilities                                       295         310
    Long-term debt and notes payable to venturers        16,020      21,371
    Partnership's share of combined capital              15,507      12,167
    Co-venturers' share of combined capital              22,199      22,164
                                                      ---------   ---------
                                                      $  56,973   $  61,411
                                                      =========   =========

                    Condensed Combined Summary of Operations
              For the years ended December 31, 1997, 1996 and 1995
                                 (in thousands)

                                              1997        1996        1995
                                              ----        ----        ----
   Revenues:
     Rental income and expense recoveries  $ 10,194   $  10,910   $  10,691
     Interest and other income                  517         361         246
                                           --------   ---------   ---------
        Total revenues                       10,711      11,271      10,937

   Expenses:
     Property operating expenses              3,991       4,000       3,928
     Real estate taxes                        2,290       2,139       1,980
     Mortgage interest expense                  730       1,068       1,089
     Interest expense payable to partner        800         800         800
     Depreciation and amortization            2,953       3,163       3,180
                                           --------   ---------   ---------
                                             10,764      11,170      10,977
                                           --------   ---------   ---------
    Net income (loss)                      $    (53)  $     101   $     (40)
                                           =========  =========   =========

    Net income (loss):
     Partnership's share of
      combined net income (loss)           $   (132)  $     (61)  $    (278)
     Co-venturers' share of
      combined net income (loss)                 79         162         238
                                           --------   ---------   ---------
                                           $    (53)  $     101   $     (40)
                                           ========   =========   =========

                  Reconciliation of Partnership's Investment
                           March 31, 1998 and 1997
                                (in thousands)
                                                           1998       1997
                                                           ----       ----
    Partnership's share of capital at
      December 31, as shown above                     $  15,507    $ 12,167
    Excess basis due to investment in joint 
       ventures, net (1)                                    873        919
    Partnership's share of ventures' current
       liabilities and long-term debt                     8,039       9,631
    Timing differences due to distributions received
      from and contributions sent to joint ventures
      subsequent to December 31 (see Note 2)                (50)       (192)
                                                      ---------    --------
         Investments in unconsolidated joint ventures,
         at equity at March 31                        $  24,369    $ 22,525
                                                      =========    ========

(1) The  Partnership's  investments in joint  ventures  exceeds its share of the
    combined joint  ventures'  capital  accounts by  approximately  $873,000 and
    $919,000  at March  31,  1998 and 1997,  respectively.  This  amount,  which
    represents  acquisition fees and other expenses  incurred by the Partnership
    in connection with the  acquisition of its joint venture  interests is being
    amortized  over  the  estimated  useful  lives  of  the  related   operating
    properties  (generally  30 years).  Excess basis related to  investments  in
    joint ventures which have  recognized  impairment  losses on their operating
    investment  properties during calendar 1994 were fully written off in fiscal
    1995. See the further discussion below.

             Reconciliation of Partnership's Share of Operations
                        March 31, 1998, 1997 and 1996
                                (in thousands)

                                                 1998        1997       1996
                                                 ----        ----       ----
    Partnership's share of combined net loss
      as shown above                        $    (132)   $    (61)   $   (278)
    Amortization of excess basis                  (46)        (46)        (46)
                                            ---------    --------    --------
    Partnership's share of unconsolidated
      ventures' losses                      $    (178)   $   (107)   $   (324)
                                            ==========   ========    ========

      Investments  in   unconsolidated   joint  ventures,   at  equity,  is  the
Partnership's net investment in the unconsolidated  joint venture  partnerships.
These joint ventures are subject to Partnership  agreements  which determine the
distribution of available funds, the disposition of the ventures' assets and the
rights of the partners,  regardless of the  Partnership's  percentage  ownership
interest in the venture.  As a result,  substantially  all of the  Partnership's
investments in these joint ventures are restricted as to distributions.

      Investments  in   unconsolidated   joint  ventures,   at  equity,  on  the
accompanying  balance  sheets at March  31,  1998 and 1997 is  comprised  of the
following equity method carrying values (in thousands):


                                                            1998        1997
                                                            ----        ----
    Investments in joint ventures, at equity:
      Warner/Red Hill Associates                       $        -   $  (1,914)
      Crow PaineWebber LaJolla, Ltd.                        2,063       1,973
      Lake Sammamish Limited Partnership                   (1,058)       (921)
      Framingham 1881 - Associates                          2,672       2,153
      Chicago-625 Partnership                              12,692      13,234
                                                       ----------   ---------
                                                           16,369      14,525
    Notes receivable:
      Crow PaineWebber LaJolla, Ltd.                        4,000       4,000
      Lake Sammamish Limited Partnership                    4,000       4,000
                                                       ----------   ---------
                                                            8,000       8,000
                                                       ----------   ---------
                                                       $   24,369  $   22,525
                                                       ==========  ==========

      Cash distributions  received from the Partnership's  unconsolidated  joint
ventures  for the years ended March 31,  1998,  1997 and 1996 are as follows (in
thousands):

                                                1998        1997        1996
                                                ----        ----        ----

    Warner/Red Hill Associates               $      -     $   604     $   333
    Crow PaineWebber LaJolla, Ltd.                 27         176          57
    Lake Sammamish Limited Partnership              -          22          76
    Framingham 1881 - Associates                    -         200          70
    Chicago - 625 Partnership                   1,025       1,148         796
                                             --------     -------     -------
                                             $  1,052     $ 2,150     $ 1,332
                                             ========     =======     =======

      For each of the years ended March 31, 1998, 1997 and 1996, the Partnership
earned interest income of $800,000 from the notes receivable  described below in
the discussions of Crow  PaineWebber  LaJolla,  Ltd. and Lake Sammamish  Limited
Partnership.

      Descriptions of the properties owned by the unconsolidated  joint ventures
and the terms of the joint venture agreements are summarized as follows:

      a.  Crow PaineWebber LaJolla, Ltd.
      ----------------------------------

      On July 1, 1986 the Partnership  acquired an interest in Crow  PaineWebber
LaJolla,  Ltd. (the "joint venture"),  a Texas limited partnership  organized in
accordance  with  a  joint  venture   agreement   between  the  Partnership  and
Crow-Western #302 - San Diego Limited  Partnership,  a Texas limited partnership
(the  "co-venturer"),  to  construct  and operate the Monterra  Apartments  (the
"Property").  The co-venturer is an affiliate of the Trammell Crow organization.
The  Property,  which  was 96%  occupied  as of  March  31,  1998,  consists  of
garden-style  apartments  situated on 7 acres of land and  includes  180 one-and
two-bedroom  units,  comprising  approximately  136,000  square feet in LaJolla,
California.

      The aggregate cash investment  (including a note receivable of $4,000,000)
in the joint venture by the Partnership was $15,363,000  (including  acquisition
fees  of  $490,000  paid to the  Adviser).  The  Property  was  encumbered  by a
construction loan payable to a bank of $11,491,000 at the time of purchase.  The
construction loan was repaid upon completion of construction  during fiscal 1988
from the proceeds of the Partnership's capital contribution.  At March 31, 1994,
the property was  encumbered by a $4,500,000  nonrecourse  zero coupon loan, and
the related  accrued  interest of  $3,805,000,  which was scheduled to mature in
June of 1994, at which time a total payment of approximately $8,645,000 was due.
During fiscal 1995,  this loan was repaid with the proceeds of a new  $4,920,000
loan and a capital contribution from the Partnership of $3,869,000 (see Note 6).

      In accordance  with the joint venture  agreement,  upon the  completion of
construction of the operating  property the co-venturer  received,  as a capital
withdrawal,  10% of certain development costs incurred,  as defined in the joint
venture agreement.

      Net cash flow from  operations of the joint  venture is to be  distributed
quarterly  in the  following  order  of  priority:  1) the  Partnership  and the
co-venturer will each be repaid accrued  interest and principal,  in that order,
on any optional loans (as described  below) they made to the joint  venture;  2)
the Partnership  will receive a cumulative  annual  preferred  return of 10% per
annum on the Partnership's  Investment;  and 3) any remaining net cash flow will
be distributed 85% to the Partnership and 15% to the co-venturer. The cumulative
unfunded amount relating to the Partnership's  preferential return is $4,570,000
at December 31, 1997.

      Proceeds  from the sale or  refinancing  of the Property in excess of debt
repayment  will be  distributed  in the  following  order of  priority:  (1) the
Partnership  and the  co-venturer  will each receive  proceeds to repay  accrued
interest and principal on any outstanding  optional loans they made to the joint
venture, (2) the Partnership will receive the aggregate amount of its cumulative
annual 10% preferred  return not  theretofore  paid;  (3) the  Partnership  will
receive an amount equal to the Partnership Investment;  and (4) thereafter,  any
remaining  proceeds will be distributed  85% to the  Partnership  and 15% to the
co-venturer.

      To the extent that there are distributable  funds, as defined,  net income
(other  than  gain from a sale or other  disposition  of the  Property)  will be
allocated to the Partnership to the extent of its preferential  return, with the
remainder 85% to the Partnership and 15% to the co-venturer.  In the event there
are no distributable  funds, as defined, net income will be allocated 85% to the
Partnership  and 15% to the  co-venturer;  net losses  (other than losses from a
sale or  other  disposition  of the  Property)  shall  be  allocated  99% to the
Partnership  and 1% to the  co-venturer,  provided that if the co-venturer has a
credit balance in its capital  account,  it shall be entitled to its appropriate
share  of  losses  to  offset  any such  credit  balance  prior  to any  further
allocation of net losses to the Partnership.

      Gains from a sale or other  disposition  of the Property will be allocated
as  follows:  (i) to the  Partners to the extent of, and among them in the ratio
of, their respective  capital account deficit balances;  (ii) to the Partnership
until the Partnership's  capital account has been increased to a credit equal to
the net proceeds to be distributed to the Partnership  pursuant to subparagraphs
(2)  and  (3) of  the  distribution  of net  proceeds  paragraph,  (iii)  to the
co-venturer in the ratio  necessary to cause the  co-venturer's  capital account
balance to be in the ratio of 85% to the Partnership and 15% to the co-venturer,
and (iv) the balance, if any, 85% to the Partnership and 15% to the co-venturer.

      The joint venture has a note payable to the  Partnership  in the amount of
$4,000,000  which  bears  interest  at 10% per  annum.  As a result  of the debt
modification  discussed  in  Note 6,  this  note is now  unsecured.  All  unpaid
principal and interest on the note is due on July 1, 2011.  Interest  expense on
the note, which is payable on a quarterly  basis,  amounted to $400,000 for each
of the years ended March 31, 1998, 1996 and 1995.

      The Partnership  receives an annual investor  servicing fee of $10,000 for
the  reimbursement  of certain  costs  incurred to report the  operations of the
joint venture to the Limited Partners of the Partnership.

      The joint venture entered into a management  contract with an affiliate of
the co-venturer  which is cancelable at the option of the  Partnership  upon the
occurrence of certain events. The management fee is 5% of gross rents collected.

b.  Lake Sammamish Limited Partnership
 -------------------------------------

      The Partnership acquired an interest in Lake Sammamish Limited Partnership
(the "Joint Venture"),  a Texas limited partnership organized on October 1, 1986
in  accordance  with  a  joint  venture   agreement   between  the  Partnership,
Crow-Western  #504-Lake Sammamish Limited  Partnership  ("Crow") and Trammell S.
Crow (the "Limited Partner") to own and operate Chandler's Reach Apartments (the
"Property").  The  Property is situated on 8.5 acres of land and consists of 166
units with  approximately  135,110 net  rentable  square feet in eleven  two-and
three-story  buildings.  The  property,  which was 91%  occupied as of March 31,
1998, is located in Redmond, Washington.

      The aggregate cash investment  (including a note receivable of $4,000,000)
in  the  joint  venture  by  the  Partnership  was  $10,541,000   (including  an
acquisition  fee of  $340,000  paid to the  Adviser).  At March  31,  1998,  the
property was  encumbered by a loan with a principal  amount of  $3,445,000  (see
Note 6).

      Net cash flow (as defined) is to be distributed quarterly in the following
order of priority:  First,  the Partnership and Crow will each be repaid accrued
interest and  principal,  in that order,  on any  optional  loans.  Second,  the
Partnership  will receive a cumulative  annual preferred return of 10% per annum
of its Investment.  Third, to the extent of available net cash flow prior to the
end of the Guaranty Period, the Partnership will receive a distribution equal to
$350,000.  Fourth,  any remaining net cash flow will be  distributed  75% to the
Partnership and 25% to Crow and the Limited Partnership (subject to "Adjustment"
as defined below).  The preference  payable to the  Partnership  pursuant to the
second  clause above will be reduced by any amounts  distributed  as a return on
capital  and in  proportion  to the  amount  distributed  as a return of capital
through sale or refinancing.  The cumulative amount of the preference return due
to the Partnership at December 31, 1997 was approximately $2,402,000.

      Proceeds  from the sale or  refinancing  of the Property in excess of debt
repayment  will be distributed in the following  order of priority:  First,  the
Partnership  and Crow will each receive  proceeds to repay accrued  interest and
principal on any  outstanding  optional  loans.  Second,  the  Partnership  will
receive the aggregate  amount of its cumulative  annual 10% preferred return not
theretofore  paid.  Third,  the Partnership  will receive an amount equal to its
Investment.  Fourth,  thereafter, any remaining proceeds will be distributed 75%
to the  Partnership  and  25% to Crow  and  the  Limited  Partners  (subject  to
Adjustment as defined above).

      Net  income  (other  than gains  from a sale or other  disposition  of the
Property) will be allocated to the  Partnership,  to the extent of distributable
funds  distributed to the  Partnership  with the remainder  allocated 75% to the
Partnership and 25% to Crow. In the event there are no distributable  funds from
operations,  net income will be allocated 75% to the Partnership and 25% to Crow
and the  Limited  Partner;  net losses  (other  than losses from a sale or other
disposition)  shall be allocated 99% to the  Partnership  and 1% to Crow and the
Limited  Partner,  provided  that if Crow or the  Limited  Partner  has a credit
balance in its capital account, it shall be entitled to its appropriate share of
losses to offset any such credit balance prior to any further  allocation of net
losses to the Partnership.

      The  Partnership  and Crow agreed that until the fifth  anniversary of the
closing  date,  the joint  venture  would not be entitled  to sell the  Property
without the prior written consent of both Crow and the Partnership.  Thereafter,
Crow and the  Partnership  shall each have the right of first refusal to acquire
the other's  interest  in the  Property on the same terms as any offer made by a
third party.

      If  the  joint  venture  requires  additional  funds,  such  funds  may be
provided,  in the form of optional loans,  by either one of the  co-venturers or
75% by the Partnership and 25% by Crow and the Limited  Partner.  Optional loans
will bear interest at the rate of 1% over the prime rate.

      The joint venture has a note payable to the  Partnership  in the amount of
$4,000,000  which  bears  interest  at 10% per  annum.  As a result  of the debt
modification  discussed  in  Note 6,  this  note is now  unsecured.  All  unpaid
principal and interest on the note is due on October 1, 2011.  Interest  expense
on the note,  which is payable on a quarterly  basis,  amounted to $400,000  for
each of the years ended March 31, 1998, 1997 and 1996.

      The Partnership  receives an annual investor  servicing fee of $10,000 for
the  reimbursement of certain expenses  incurred to report the operations of the
joint venture to the Limited Partners of the Partnership.

      Crow or an affiliate will receive an annual  management fee of $10,000 for
services rendered in managing the joint venture. In addition,  the joint venture
entered  into a  management  contract  with  an  affiliate  of  Crow,  which  is
cancelable  at the  option of the  Partnership  upon the  occurrence  of certain
events.  The  annual  management  fee,  payable  monthly,  is 5% of gross  rents
collected.

      c.  Framingham - 1881 Associates
      --------------------------------

     The  Partnership  acquired an interest in Framingham - 1881 Associates (the
"joint venture"),  a Massachusetts  general  partnership on December 12, 1986 in
accordance  with a joint  venture  agreement  between the  Partnership,  Furrose
Associates  Limited  Partnership,  and Spaulding  and Slye  Company,  to own and
operate the 1881 Worcester Road office building (the  "Property").  Prior to the
Partnership's acquisition,  Furrose Associates Limited Partnership and Spaulding
& Slye Company had formed an existing Partnership.  They each had sold a portion
of their interest to the  Partnership  and hereafter will be referred to as "the
Selling  Partners".  The Property consists of 64,189 net rentable square feet in
one  two-story  building.  The  Property,  which was 100% leased as of March 31,
1998,  is  located  in  Framingham,   Massachusetts.  During  fiscal  1998,  the
Partnership  became aware of potential  contamination on the 1881 Worcester Road
property as a result of a leak in an underground storage tank of an adjacent gas
station. The Partnership received an indemnification from the former gas station
operator  against  any  loss,  cost or  damage  resulting  from the  failure  to
remediate the  contamination.  The extent of the  contamination and its ultimate
impact on the  operations  and market value of the 1881  Worcester Road property
cannot be determined at this time.

      As discussed in Note 2, the Partnership  elected early application of SFAS
121  effective  for  fiscal  1995.  The  effect  of  such  application  was  the
recognition of an impairment loss on the operating  investment property owned by
Framingham  1881 -  Associates.  Framingham  1881  -  Associates  recognized  an
impairment loss of $2,983,000 to write down the operating investment property to
its estimated  fair value of $2,200,000 as of December 31, 1994.  Fair value was
estimated  using  an  independent  appraisal  of the  operating  property.  Such
appraisals  make use of a combination of certain  generally  accepted  valuation
techniques,   including  direct   capitalization,   discounted  cash  flows  and
comparable sales analysis.

      The aggregate cash  investment in the joint venture by the Partnership was
$7,377,000  (including  an  acquisition  fee of $265,000 paid to the Adviser and
legal and audit fees of $7,000).  The Property was  originally  encumbered  by a
construction  note payable totalling  $4,029,000.  This note was repaid from the
proceeds of the contribution from the Partnership.

      The Selling  Partners  agreed to contribute  to the joint venture  through
November  30,  1987 the  amount by which the  Partnership's  minimum  preference
return (described below) for each month exceeds the greater of (i) the amount of
Net Cash Flow (if Net Cash Flow was a positive amount) or (ii) zero (if Net Cash
Flow was a negative amount). Such contributions (the "Mandatory  Contributions")
will be deemed as capital contributions by the Selling Partners. Thereafter, and
until November 30, 1989, the Selling  Partners agreed to contribute,  as capital
contributions,  to the joint  venture all funds that were  required to eliminate
the Net Cash Flow  Shortfall and enable the  Partnership  to receive its monthly
Preference Return.  Any contributions made in the period commencing  December 1,
1987 and ending  November 30, 1989 were  subject to a cumulative  rate of return
payable  out of  available  Net Cash  Flow of 9.5% per  annum  from the date the
Mandatory  Contribution was made until returned (or until November 30, 1991) and
if still  outstanding  as of  November  30,  1991 at the rate of 9.75% per annum
thereafter.  Amounts  contributed  by the Selling  Partners and not yet returned
aggregate $288,000 at December 31, 1996. These contributions commencing December
1, 1987 are also subject to a priority return from Capital  Proceeds as outlined
in the joint venture agreement.

      The joint venture agreement  provides that net cash flow (as defined),  to
the extent  available,  will generally be  distributed  monthly in the following
order of priority:  First,  beginning  December 31, 1989 the Partnership and the
Selling Partners will each be paid accrued interest on any advances they made to
the  Partnership.  Second,  the  Partnership  will receive a  cumulative  annual
preferred  return of 9.5% per  annum on its Net  Investment  for the first  five
years  after  the  Closing  Date  and  9.75%  per  annum  on its Net  Investment
thereafter. Third, the Partnership and the Selling Partners will be paid accrued
interest on advances  from net cash flow  generated  through  November 30, 1989.
Fourth,  the  Selling  Partners  will  receive  an  amount  equal  to  Mandatory
Contributions.  Fifth,  the Selling  Partners will receive a preferred return on
Mandatory  Contributions  made in year 2 and year 3, if any,  of 9.5% per  annum
through November 30, 1991 and 9.75% per annum thereafter. Sixth, payment will be
made to the Capital Reserve, as defined in the joint venture agreement. Seventh,
remaining net cash flow will be distributed  70% to the  Partnership  and 30% to
the Selling  Partners.  The amount of the preference  payable to the Partnership
pursuant to the second  clause above is  calculated  as a percentage  of capital
remaining  after any amounts are  distributed  as a return on capital and by any
amounts  distributed  as a return of capital  through sale or  refinancing.  The
cumulative  unpaid  preference return payable to the Partnership at December 31,
1997 was $5,064,000.

      Proceeds from the sale or  refinancing of the Property will be distributed
in the following  order of priority:  First,  to the Partnership and the Selling
Partners in  proportion  to accrued  interest and  outstanding  principal on any
advances to the Partnership. Second, to the Selling Partners until any Mandatory
Contributions are returned and the Selling Partners have received any previously
unpaid preferred return on such Mandatory Contributions.  Third, the Partnership
will receive the aggregate amount of its cumulative  annual preferred return not
theretofore  paid.  Fourth,  the Partnership will receive an amount equal to its
Net Investment.  Fifth,  thereafter,  any remaining proceeds will be distributed
70% to the Partnership and 30% to the Selling Partners.

      Net income and losses will generally be allocated to the  Partnership  and
the  Selling  Partners  in any  year in the  same  proportions  as  actual  cash
distributions.  Gains  resulting  from the sale or  refinancing  of the Property
shall be allocated as follows:  First,  capital gains shall be used to bring any
negative balances of the capital accounts to zero.  Second, the Selling Partners
and then the  Partnership  in an  amount  to each  equal  to the  excess  of the
distributions  to the  received  over  the  positive  capital  account  of  each
immediately  prior to the sale or refinancing.  Third,  remaining  capital gains
distributed  70% to the  Partnership  and 30% to the Selling  Partners.  Capital
losses shall be  allocated to the Partners in an amount up to and in  proportion
to their positive capital balances.  Additional losses shall be allocated 70% to
the Partnership and 30% to the Selling Partners.

      The joint venture  entered into a management  contract with  Spaulding and
Slye Company (the  "Manager"),  an affiliate of the Selling  Partners,  which is
cancelable  at the  option of the  Partnership  upon the  occurrence  of certain
events.  The Manager  receives a management fee equal to the greater of $750 per
month or the sum of 2% of the gross  receipts  from all triple net leases and 3%
of the gross receipts from all gross leases.
<PAGE>

      d.  Chicago - 625 Partnership
      -----------------------------

      The  Partnership  acquired an interest in Chicago - 625  Partnership  (the
"joint venture"), an Illinois general partnership organized on December 16, 1986
in  accordance  with a joint  venture  agreement  between  the  Partnership,  an
affiliate of the Partnership and  Michigan-Ontario  Limited, an Illinois limited
partnership  and  affiliate of Golub & Company (the  "co-venturer"),  to own and
operate 625 North Michigan Avenue Office Tower (the "property"). The property is
a 27-story  commercial  office tower  containing an aggregate of 324,829  square
feet of leasable space on approximately  .38 acres of land. The property,  which
was 88% leased as of March 31, 1998, is located in Chicago, Illinois.

      The aggregate  cash  investment  made by the  Partnership  for its current
interest was  $17,278,000  (including an acquisition fee of $383,000 paid to the
Adviser).  At the same time the  Partnership  acquired its interest in the joint
venture,  PaineWebber  Equity  Partners  Two  Limited  Partnership  (PWEP2),  an
affiliate of the Managing General Partner with investment  objectives similar to
the  Partnership's  investment  objectives,  acquired  an interest in this joint
venture.  PWEP2's  aggregate  cash  investment  for  its  current  interest  was
$26,010,000  (including an acquisition fee of $1,316,000  paid to PWPI).  During
1990, the joint venture agreement was amended to allow the Partnership and PWEP2
the option to make  contributions  to the joint  venture equal to total costs of
capital improvements,  leasehold  improvements and leasing commissions ("Leasing
Expense  Contributions")  incurred  since  April 1,  1989,  not in excess of the
accrued  and unpaid  Preference  Return due to the  Partnership  and PWEP2.  The
Partnership  had made  Leasing  Expense  Contributions  totalling  approximately
$2,499,000 through December 31, 1997.

      During   calendar   1995,   circumstances   indicated   that  Chicago  625
Partnership's  operating  investment  property  might  be  impaired.  The  joint
venture's  estimate of  undiscounted  cash flows  indicated  that the property's
carrying amount was expected to be recovered, but that the reversion value could
be less than the carrying amount at the time of disposition. As a result of such
assessment,  the  venture  reassessed  its  depreciation  policy  and  commenced
recording an additional annual  depreciation charge of $350,000 in calendar 1995
to adjust the carrying value of the operating  investment  property such that it
will  match  the  expected  reversion  value  at the  time of  disposition.  The
Partnership's  share of such amount is reflected in the  Partnership's  share of
unconsolidated  ventures'  losses.  Such an annual  charge was also  recorded in
calendar 1996 and 1997 and will continue to be recorded in future periods.

      The joint venture agreement  provides for aggregate  distributions of cash
flow  and  sale  or   refinancing   proceeds  to  the   Partnership   and  PWEP2
(collectively,  the "PWEP Partners").  These amounts are then distributed to the
Partnership and PWEP2 based on their  respective  cash  investments in the joint
venture exclusive of acquisition fees  (approximately 41% to the Partnership and
59% to PWEP2).

      Net cash flow, as defined, is to be distributed,  within 15 days after the
end of each calendar month,  in the following  order of priority:  First, to the
PWEP  Partners  until  the  PWEP  Partners  have  received  an  amount  equal to
one-twelfth  of the lesser of  $3,722,000 or 9% of the PWEP net  investment,  as
defined,  for the  month  ("PWEP  Preference  Return")  plus any  amount of PWEP
Preference  Return not theretofore paid in respect to that fiscal year for which
such distribution is made. Second, to the payment of all unpaid accrued interest
on all outstanding  default notes, as defined in the Agreement,  and then to the
repayment of any principal amounts on such outstanding  default notes. Third, to
the payment of all unpaid accrued  interest on all outstanding  operating notes,
as defined in the Agreement,  and then to the repayment of any principal amounts
on such outstanding operating notes. Fourth, 70% to the PWEP Partners and 30% to
Michigan-Ontario.  The cumulative unpaid and unaccrued  Preference Return due to
the Partnership totalled $6,004,000 at December 31, 1997.

      Net income  shall be  allocated  in the same  proportion  as net cash flow
distributed to the Partners for each fiscal year to the extent that such profits
do not exceed the net cash flow distributed in the year. Net income in excess of
net  cash  flow  shall  be  allocated  99%  to  the  PWEP  Partners  and  1%  to
Michigan-Ontario.  Losses shall be allocated  99% to the PWEP Partners and 1% to
Michigan-Ontario.

      Proceeds from sale or  refinancing  shall be  distributed in the following
order of priority:

      First,  to the payment of all unpaid accrued  interest on all  outstanding
default  notes,  as defined in the  Agreement,  and then to the repayment of any
principal  amounts  on such  outstanding  default  notes.  Second,  to the  PWEP
Partners and  Michigan-Ontario for the payment of all unpaid accrued interest on
all outstanding  operating  notes, as defined in the Agreement,  and then to the
repayment of any principal amounts on such outstanding  operating notes.  Third,
100% to the PWEP Partners  until they have received the aggregate  amount of the
PWEP Preference Return not theretofore paid.  Fourth,  100% to the PWEP Partners
until they have received an amount equal to its net investment.  Fifth,  100% to
the PWEP  Partners  until they have received an amount equal to the PWEP leasing
expense contributions less any amount previously  distributed,  pursuant to this
provision. Sixth, 100% to Michigan-Ontario until it has received an amount equal
to  $6,000,000,   less  any  amount  of  proceeds   previously   distributed  to
Michigan-Ontario,  pursuant to this provision. Seventh, 100% to Michigan-Ontario
until it has received an amount equal to any reduction in the amount of Net Cash
Flow that it would have received had the Partnership  not incurred  indebtedness
in the form of operating  notes.  Eighth,  100% to the PWEP Partners  until they
have received $2,068,000,  less any amount of proceeds previously distributed to
the PWEP Partners,  pursuant to this provision.  Ninth, 75% to the PWEP Partners
and 25% to Michigan-Ontario  until the PWEP Partners have received  $20,675,000,
less any amount  previously  distributed to the PWEP Partners,  pursuant to this
provision.  Tenth,  100% to the  PWEP  Partners  until  the PWEP  Partners  have
received  an  amount  equal to a  cumulative  return  of 9% on the PWEP  leasing
expense  contributions.  Eleventh, any remaining balance thereof 55% to the PWEP
Partners and 45% to Michigan-Ontario.

      Gains  resulting  from the sale of the  property  shall  be  allocated  as
follows:

      First,  capital  profits  shall be allocated to Partners  having  negative
capital  account  balances,  until the balances of the capital  accounts of such
Partners equal zero.  Second,  any remaining capital profits up to the amount of
capital  proceeds  distributed  to the  Partners  pursuant  to  distribution  of
proceeds of a sale or refinancing with respect to the capital transaction giving
rise to such capital profits shall be allocated to the Partners in proportion to
the amount of capital  proceeds so distributed to the Partners.  Third,  capital
profits in excess of capital  proceeds,  if any, shall be allocated  between the
Partners in the same proportions  that capital proceeds of a subsequent  capital
transaction  would be  distributed  if the  capital  proceeds  were equal to the
remaining amount of capital profits to be allocated.

      Capital losses shall be allocated as follows:

      First,  capital  losses shall be allocated to the Partners in an amount up
to and in proportion to their respective  positive capital  balances.  Then, all
remaining  capital losses shall be allocated 70% in total to the Partnership and
PWEP1 and 30% to the co-venturer.

      The Partnership has a property  management  agreement with an affiliate of
the co-venturer  that provides for management and leasing  commission fees to be
paid to the property  manager.  The  management fee is 4% of gross rents and the
leasing  commission  is 7%, as  defined.  The  property  management  contract is
cancelable at the Partnership's option upon the occurrence of certain events.

6.  Mortgage Notes Payable
 -------------------------

      Mortgage notes payable on the Partnership's consolidated balance sheets at
March 31, 1998 and 1997 consist of the following (in thousands):

                                                       1998          1997
                                                       ----          ----
     9.125%  nonrecourse loan payable to
     an  insurance  company,   which  is
     secured  by the 625 North  Michigan
     Avenue     operating     investment
     property  (see  discussion  below).
     Monthly payments including interest
     of $55  are due  beginning  July 1,
     1994  through  maturity  on May 31,
     1999.  The  terms of the note  were
     modified  effective  May 31,  1994.
     The fair value of the mortgage note
     payable  approximated  its carrying
     value at March 31, 1998 and 1997.               $ 6,188    $ 6,279

     8.39%  nonrecourse  note payable to
     an  insurance  company,   which  is
     secured   by   the   Crystal   Tree
     Commerce      Center      operating
     investment property (see discussion
     below).  Monthly payments including
     interest  of $28 are due  beginning
     November 15, 1994 through  maturity
     on  September  19,  2001.  The fair
     value of the mortgage  note payable
     approximated  its carrying value at
     March  31,  1998  and  1997.                     3,318       3,370

     Nonrecourse   note  payable  to  an
     insurance company, which is secured
     by  the  Warner/RedHill   operating
     investment  property.  The note was
     amended  and  restated  during 1994
     (see  discussion  below).  The note
     bears interest at 2.875% per annum,
     requires  monthly  payments  of $24
     and has a scheduled  maturity  date
     of   August   1,   2003.                        5,214             -
                                                  --------      --------
                                                  $ 14,720      $  9,649 
                                                  ========      ========
<PAGE>

      The  scheduled  annual  principal  payments to retire notes payable are as
follows (in thousands):

                  1999               $   295
                  2000                 6,293
                  2001                   214
                  2002                 3,283
                  2003                   156
`                 Thereafter           4,479
                                     -------
                                     $14,720
                                     =======

      On April 29, 1988, the  Partnership  borrowed  $4,000,000 in the form of a
zero coupon loan secured by the 625 North Michigan  operating property which had
a  scheduled  maturity  date in May of 1995.  The  terms  of the loan  agreement
required that if the loan ratio,  as defined,  exceeded 80%, the Partnership was
required to deposit additional  collateral in an amount sufficient to reduce the
loan ratio to 80%. During fiscal 1994, the lender informed the Partnership  that
based on an interim property  appraisal,  the loan ratio exceeded 80% and that a
deposit of additional  collateral was required.  Subsequently,  the  Partnership
submitted an appraisal which demonstrated that the loan ratio exceeded 80% by an
amount  less than  previously  demanded by the lender.  In  December  1993,  the
Partnership  deposited additional  collateral of $144,000 in accordance with the
higher  appraised  value.  The  lender  accepted  the  Partnership's  deposit of
additional collateral but disputed whether the Partnership had complied with the
terms of the loan  agreement  regarding  the 80% loan ratio.  During the quarter
ended June 30, 1994, an agreement was reached with the lender of the zero coupon
loan on a proposal to refinance the loan and resolve the  outstanding  disputes.
The terms of the agreement required the Partnership to make a principal pay down
of $541,000,  including the application of the additional collateral referred to
above.  The  maturity  date of the loan which  requires  principal  and interest
payments on a monthly  basis as set forth  above,  was extended to May 31, 1999.
The terms of the loan  agreement  also required the  establishment  of an escrow
account for real estate taxes, as well as a capital  improvement escrow which is
to  be  funded  with  monthly   deposits   from  the   Partnership   aggregating
approximately  $700,000 through the scheduled  maturity date.  Formal closing of
the modification and extension agreement occurred on May 31, 1994.

      In addition,  during 1986 and 1987 the  Partnership  received the proceeds
from three additional nonrecourse zero coupon loans in the initial amounts of $3
million, $4.5 million and approximately $1.9 million,  which were secured by the
Warner/Red  Hill office  building,  the Monterra  Apartments  and the Chandler's
Reach Apartments,  respectively.  Legal liability for the repayment of the loans
secured by the Warner/Red Hill and Monterra  properties  rested with the related
joint ventures and, accordingly, these amounts were recorded on the books of the
joint  ventures.  The  Partnership  indemnified  Warner/Red  Hill Associates and
Crow/PaineWebber - LaJolla,  Ltd., along with the related  co-venture  partners,
against all liabilities,  claims and expenses  associated with these borrowings.
Interest  expense on the  Warner/Red  Hill and Monterra  loans accrued at 9.36%,
compounded annually,  and was due at maturity in August of 1993 and September of
1994,  respectively,  at  which  time  total  principal  and  interest  payments
aggregating $5,763,000 and $8,645,000, respectively, became due and payable. The
nonrecourse zero coupon loan secured by the Chandler's Reach  Apartments,  which
bore interest at 10.5%,  compounded annually,  matured on August 1, 1994 with an
outstanding  balance of $3,462,000.  During the quarter ended December 31, 1993,
the  Partnership  negotiated  and signed a letter of intent to modify and extend
the maturity of the Warner/Red  Hill zero coupon loan with the existing  lender.
The terms of the extension and  modification  agreement,  which was finalized in
August 1994,  provide for a 10-year  extension  of the note  effective as of the
original maturity date of August 15, 1993. During the term of the agreement, the
loan will bear  interest at 2.875% per annum and monthly  principal and interest
payments  of $24,000  will be  required.  In  addition,  the  lender  required a
participation  in the proceeds of a future sale or debt  refinancing in order to
enter into this  agreement.  Accordingly,  upon the sale or  refinancing  of the
Warner/Red  Hill property,  the lender will receive 40% of the residual value of
the property,  as defined,  after the payment of the outstanding  balance of the
loan  payable.  The  extension  and  modification  agreement  also  required the
Partnership  to establish an escrow account in the name of the joint venture and
to fund such escrow with an equity contribution of $350,000.  The escrowed funds
are to be used  solely  for the  payment of  capital  and  tenant  improvements,
leasing  commissions  and real  estate  taxes  related  to the  Warner/Red  Hill
property.  The balance of the escrow  account is to be  maintained  at a minimum
level of $150,000.  In the event that the escrow  balance falls below  $150,000,
all net cash flow from the property is to be deposited into the escrow until the
minimum  balance is  re-established.  It is not  practicable  for  management to
estimate the fair value of the  mortgage  note  secured by the  Warner/Red  Hill
property without incurring excessive costs due to the unique terms of the note.

      During  September  1994, the Partnership  obtained three new  nonrecourse,
current-pay  mortgage  loans and used the  proceeds  to pay off the zero  coupon
loans secured by the Monterra and Chandler's Reach apartment  properties.  These
three new loans were in the  amounts  of  $3,600,000  secured by the  Chandler's
Reach Apartments,  $4,920,000 secured by the Monterra  Apartments and $3,480,000
secured by the Crystal Tree Commerce  Center.  The legal liability for the loans
secured by the Chandler's  Reach  Apartments and the Monterra  Apartments  rests
with the related joint ventures and, accordingly,  these amounts are recorded on
the books of the joint ventures. The legal liability for the loan secured by the
Crystal Tree Commerce Center rests with the Partnership and,  accordingly,  this
loan  is  recorded  on  the  books  of  the  Partnership.  The  Partnership  has
indemnified  the Monterra and Chandler's  Reach joint  ventures,  along with the
related  co-venture  partners,  against  all  liabilities,  claims and  expenses
associated with these borrowings. The three new nonrecourse loans all have terms
of seven years and mature in September of 2001. The Chandler's  Reach loan bears
interest at a rate of 8.33% and requires monthly principal and interest payments
of  $29,000.  This  loan will  have an  outstanding  balance  of  $3,199,000  at
maturity.  The  Monterra  loan bears  interest  at a rate of 8.45% and  requires
monthly  principal  and  interest  payments of  $40,000.  This loan will have an
outstanding  balance of approximately  $4,380,000 at maturity.  The Crystal Tree
loan  bears  interest  at a rate of 8.39% and  requires  monthly  principal  and
interest  payments of  $28,000.  This loan will have an  outstanding  balance of
$3,095,000  at  maturity.  In  order  to  close  the  above  refinancings,   the
Partnership  was required to  contribute  net capital of  $583,000.  This amount
consisted  of $350,000  for  transaction  fees and closing  costs,  $128,000 for
interest  payments  due for August and  September on the matured  Monterra  note
balance and a partial paydown of outstanding principal of $105,000.

7.  Bonds Payable
-----------------

      Bonds  payable  consist  of the  Sunol  Center  joint  venture's  share of
liabilities  for bonds issued by the City of  Pleasanton,  California for public
improvements that benefit the Sunol Center operating investment  property.  Bond
assessments are levied on a semi-annual  basis as interest and principal  become
due on the bonds. The bonds for which the property is subject to assessment bear
interest  at rates  ranging  from 5% to 7.875%,  with an  average  rate of 7.2%.
Principal  and interest are payable in  semi-annual  installments  and mature in
years 2004 through 2017. In the event that the operating  investment property is
sold, the liability for the bond assessments  would be transferred to the buyer.
Therefore, the Sunol Center joint venture would no longer be liable for the bond
assessments.

      Future scheduled principal payments on bond assessments are as follows (in
thousands):

            Year ending December 31,

                  1998             $      73
                  1999                    78
                  2000                    84
                  2001                    91
`                 2002                    97
                  Thereafter             997
                                   ---------
                                   $   1,420
                                   =========

8.  Rental Revenues
-------------------

      The Crystal Tree,  Sunol Center and  Warner/RedHill  operating  investment
properties  have  operating  leases with tenants which provide for fixed minimum
rents and reimbursements of certain operating costs.  Approximate minimum future
rental  revenues to be  recognized on the  straight-line  basis in the future on
noncancellable leases are as follows (in thousands):

           Year ending December 31,    Amount

                  1998              $  3,959
                  1999                 3,569
                  2000                 3,117
                  2001                 2,671
                  2002                 1,336
                                    --------
                                    $ 14,652
                                    ========

9.  Subsequent Events
---------------------

      On May 15, 1998, the  Partnership  paid  distributions  to the Limited and
General  Partners in the amounts of $500,000 and $5,000,  respectively,  for the
quarter ended March 31, 1998.


<PAGE>


<TABLE>

Schedule III - Real Estate and Accumulated Depreciation
                                      PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                                     SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                           March 31, 1998
                                                           (In thousands)
                                               Cost
                                             Capitalized
                                             (Removed)                                                                 Life on Which
                          Initial Cost to    Subsequent to                                                             Depreciation
                           Partnership/      Acquisition   Gross Amount at Which Carried at                            in Latest
                           Venture           Land                   End of Year                                        Income
                               Buildings &   Buildings &       Buildings &          Accumulated  Date of      Date     Statement
 Description Encumbrances Land Improvements  Improvements Land Improvements  Total  Depreciation Construction Acquired is Computed
 ----------- ------------ ---- ------------  ------------ ---- ------------  -----  ------------ ------------ -------- -----------
<S>          <C>          <C>    <C>         <C>          <C>    <C>         <C>       <C>         <C>          <C>        <C> 

Shopping Center
North Palm Beach,
  FL           $ 3,318    $3,217  $15,598   $(1,872)      $2,444  $14,499    $16,943   $ 6,391      1983       10/23/85    5-27 yrs.

Office Building
Pleasanton, CA   1,420     2,318   15,429    (2,295)       1,518   13,934     15,452     5,739      1985       8/15/86     30 years

Office Building
Tustin, CA       5,214     3,124    9,126    (6,736)       1,256    4,258      5,514     3,001      1984       12/18/85    35 years
              --------    ------  -------  --------       ------  -------     ------   --------
              $ 9,952     $8,659  $40,153  $(10,903)      $5,218  $32,691     $37,909  $15,131
             ========     ======  =======  ========       ======  =======     =======  =======
Notes
(A) The  aggregate  cost of real estate  owned at December  31, 1997 for Federal income tax  purposes  is  approximately  $47,017.
(B) For  financial  reporting purposes,  the initial cost of the  operating  investment  properties  have been
    reduced by payments from former joint venture partners related to a guaranty to pay the Partnership
    a certain Preference Return.
(C) See Notes 6 and 7 to the financial statements for a description of the terms of the debt encumbering the properties. 
(D) Reconciliation of real estate owned:
                                                            1998         1997       1996
                                                            ----         ----       ----

       Balance at beginning of period                       $32,284     $31,733     $29,731
       Consolidation of Warner/Red Hill joint venture         5,409       -           -
       Increase due to additions                                216         551       2,002
                                                            -------     -------     -------
       Balance at end of period                             $37,909     $32,284     $31,733
                                                            =======     =======     =======

(E) Reconciliation of accumulated depreciation:

       Balance at beginning of period                       $10,823     $ 9,499     $ 8,222
       Consolidation of Warner/Red Hill joint venture         2,844           -           -
       Depreciation expense                                   1,464       1,324       1,277
                                                            -------     -------     -------
       Balance at end of period                             $15,131     $10,823     $ 9,499
                                                            =======     =======     =======

</TABLE>


<PAGE>



                         REPORT OF INDEPENDENT AUDITORS



The Partners
PaineWebber Equity Partners One Limited Partnership:

     We have  audited  the  accompanying  combined  balance  sheet  of the  1997
Combined Joint Ventures of PaineWebber  Equity Partners One Limited  Partnership
as of December 31, 1997, and the related  combined  statements of operations and
changes in venturers' capital, and cash flows for the year then ended. Our audit
also  included  the  financial  statement  schedule  listed in the Index at Item
14(a).  These financial  statements and schedule are the  responsibility  of the
Partnership's  management.  Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.

     We conducted  our audit 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 audit provides a reasonable basis for our opinion.

     In our opinion, the combined financial statements referred to above present
fairly, in all material  respects,  the combined  financial position of the 1997
Combined Joint Ventures of PaineWebber  Equity Partners One Limited  Partnership
at December 31, 1997,  and the combined  results of their  operations  and their
cash  flows for the year then  ended,  in  conformity  with  generally  accepted
accounting  principles.  Also, in our opinion,  the related financial  statement
schedule, when considered in relation to the basic financial statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.




                                     /S/ ERNST & YOUNG LLP
                                     ---------------------
                                     ERNST & YOUNG LLP





Boston, Massachusetts
March 27, 1998



<PAGE>


                         1997 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP

                             COMBINED BALANCE SHEET
                                December 31, 1997
                                 (In thousands)

                                     ASSETS
                                                             1997
                                                             ----
Current assets:
   Cash and cash equivalents                           $       323
   Accounts receivable                                         772
   Other current assets                                          9
                                                       -----------
        Total current assets                                 1,104

Operating investment properties:
   Land                                                     15,762
   Building, improvements and equipment                     61,008
                                                            76,770
   Less accumulated depreciation                           (24,814)
                                                       -----------
                                                            51,956

Escrowed cash                                                  979
Long-term rents receivable                                   1,319
Due from partners                                              269
Deferred expenses, net of accumulated
   amortization of $1,512                                    1,281
Other assets                                                    65
                                                       -----------
                                                       $    56,973
                                                       ===========

                       LIABILITIES AND VENTURERS' CAPITAL

Current liabilities:
   Current portion of long-term debt                  $        136
   Accounts payable and accrued liabilities                    351
   Accounts payable - affiliates                               159
   Real estate taxes payable                                 1,975
   Distributions payable to venturers                          204
   Other current liabilities                                   127
                                                      ------------
        Total current liabilities                            2,952

Tenant security deposits                                       295
Notes payable to venturers                                   8,000
Long-term debt                                               8,020
Venturers' capital                                          37,706
                                                      ------------
                                                      $     56,973
                                                      ============






                             See accompanying notes.


<PAGE>


                         1997 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP

       COMBINED STATEMENT OF OPERATIONS AND CHANGES IN VENTURERS' CAPITAL
                      For the year ended December 31, 1997
                                 (In thousands)

                                                        1997
                                                        ----

Revenues:
   Rental income and expense recoveries            $  10,194
   Interest income                                        25
   Other income                                          492
                                                   ---------
                                                      10,711
Expenses:
   Depreciation expense                                2,716
   Real estate taxes                                   2,290
   Interest expense                                      730
   Interest expense payable to partner                   800
   Property operating expenses                         1,159
   Repairs and maintenance                             1,371
   Utilities                                             619
   Management fees                                       391
   Salaries and related expenses                         381
   Amortization expense                                  237
   Insurance                                              70
                                                  ----------
       Total expenses                                 10,764

Net loss                                                 (53)

Contributions from venturers                           2,093

Distributions to venturers                            (2,836)

Venturers' capital, beginning of year                 38,502
                                                  ----------

Venturers' capital, end of year                   $   37,706
                                                  ==========















                             See accompanying notes.


<PAGE>


                         1997 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP

                        COMBINED STATEMENT OF CASH FLOWS
                      For the year ended December 31, 1997
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

                                                         1997
                                                         ----

Cash flows from operating activities:
  Net loss                                           $   (53)
  Adjustments to reconcile net loss to net cash
   provided by operating activities:
   Depreciation and amortization                       2,953
   Amortization of deferred financing costs               19
   Changes in assets and liabilities:
     Accounts receivable                                  87
     Escrowed cash                                        35
     Long-term rents receivable                           49
     Deferred expenses                                  (324)
     Other assets                                       (230)
     Accounts payable and accrued liabilities            233
     Real estate taxes payable                           120
     Other current liabilities                           (24)
     Tenant security deposits                              9
                                                     -------
        Total adjustments                              2,927
                                                     -------
        Net cash provided by operating activities      2,874

Cash flows from investing activities:
  Additions to operating investment properties        (2,219)

Cash flows from financing activities:
  Repayment of long-term debt                           (125)
  Contributions from venturers                         2,093
  Distributions to venturers                          (2,836)
                                                     -------
        Net cash used in financing activities           (868)
                                                     -------

Net decrease in cash and cash equivalents               (213)
Cash and cash equivalents, beginning of year             536
                                                     -------
Cash and cash equivalents, end of year               $   323
                                                     =======

Cash paid during the year for interest               $ 1,452
                                                     =======










                             See accompanying notes.


<PAGE>
                         1997 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                     Notes to Combined Financial Statements


1.  Organization
    ------------

      The accompanying  financial statements of the 1997 Combined Joint Ventures
of PaineWebber Equity Partners One Limited Partnership (Combined Joint Ventures)
include the accounts of Crow PaineWebber  LaJolla,  Ltd. (Crow  PaineWebber),  a
Texas limited partnership;  Lake Sammamish Limited Partnership (Lake Sammamish),
a Texas limited partnership; Framingham - 1881 Associates (1881 Worcester Road),
a Massachusetts general Partnership;  and Chicago-625 Partnership (Chicago-625),
an Illinois limited partnership.  The financial statements of the Combined Joint
Ventures are  presented in combined  form due to the nature of the  relationship
between each of the joint ventures and  PaineWebber  Equity Partners One Limited
Partnership (PWEP1).

      The dates of PWEP1's acquisition of interests in the joint ventures are as
follows:

                                                           Date of Acquisition
                     Joint Venture                            of Interest
                     -------------                         -------------------

            Crow PaineWebber LaJolla, Ltd.                 July 1, 1986
            Lake Sammamish Limited Partnership             October 1, 1986
            Framingham 1881 - Associates                   December 12, 1986
            Chicago-625 Partnership                        December 16, 1986

2.  Summary of significant accounting policies
    ------------------------------------------

      The  accompanying  financial  statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting  principles
which  requires  management to make  estimates and  assumptions  that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and  liabilities  as of December 31, 1997 and revenues and expenses for the year
then ended. Actual results could differ from the estimates and assumptions used.

      Operating investment properties
      -------------------------------

      Effective  for 1995 for  Chicago-625  Partnership  and  effective for 1994
Framingham  1881 -  Associates,  these  ventures  elected early  application  of
Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of"
(SFAS 121). In accordance  with SFAS 121, an impairment  loss with respect to an
operating  investment property is recognized when the sum of the expected future
net cash flows  (undiscounted  and  without  interest  charges) is less than the
carrying  amount of the asset.  An impairment  loss is measured as the amount by
which the carrying amount of the asset exceeds its fair value,  where fair value
is defined as the amount at which the asset could be bought or sold in a current
transaction between willing parties,  that is other than a forced or liquidation
sale. The remaining joint ventures adopted SFAS 121 during 1996.

      One of the  Joint  Ventures  was  acquired  prior  to  the  completion  of
construction. Interest costs and property taxes incurred during the construction
period were  capitalized.  Through December 31, 1994,  depreciation  expense was
computed  on a  straight-line  basis  over  the  estimated  useful  lives of the
operating  investment  properties,  generally  five years for the  equipment and
fixtures  and forty  years for the  buildings  and  improvements.  During  1995,
circumstances  indicated  that Chicago 625  Partnership's  operating  investment
property might be impaired.  The joint venture's  estimate of undiscounted  cash
flows  indicated  that  the  property's  carrying  amount  was  expected  to  be
recovered,  but that the reversion  value could be less that the carrying amount
at the  time of  disposition.  As a  result  of  such  assessment,  the  venture
reassessed its depreciation  policy and commenced recording an additional annual
depreciation  charge of  $350,000  in 1995 to adjust the  carrying  value of the
operating  investment  property  such that it will match the expected  reversion
value at the time of  disposition.  Such an annual  charge was also  recorded in
1996 and 1997 and will continue to be recorded in future periods.

      Deferred expenses
      -----------------

      Deferred expenses consist primarily of organization  costs which have been
amortized over five years, loan fees which are being amortized over the terms of
the related loans, and lease commissions and rental  concessions which are being
amortized over the term of the applicable lease.

      Cash and cash equivalents
      -------------------------

      For purposes of the statement of cash flows,  the Combined  Joint Ventures
consider all highly liquid  investments,  money market funds and certificates of
deposit  purchased  with original  maturity  dates of three months or less to be
cash equivalents.

      Rental revenues
      ---------------

      Certain joint  ventures have  operating  leases with tenants which provide
for fixed minimum rents and  reimbursements of certain  operating costs.  Rental
revenues are  recognized on a  straight-line  basis over the term of the related
lease agreements.  Rental revenues for the residential properties are recognized
when earned.

      Minimum rental revenues to be recognized on the straight-line basis in the
future on noncancellable leases are as follows (in thousands):

                              1998         $   6,225
                              1999             5,976
                              2000             5,735
                              2001             3,879
                              2002             2,897
                              Thereafter       4,097
                                           ---------
                                           $  28,809
                                           =========

      Income tax matters
      ------------------

      The  Combined  Joint  Ventures  are  comprised  of entities  which are not
taxable and,  accordingly,  the results of their  operations are included on the
tax returns of the various  partners.  Accordingly,  no income tax  provision is
reflected in the accompanying combined financial statements.

      Fair value of financial instruments
      -----------------------------------

      The  carrying  amounts  of cash and cash  equivalents  and  escrowed  cash
approximate  their  respective  fair  values  at  December  31,  1997 due to the
short-term maturities of such instruments.  It is not practicable for management
to estimate the fair value of the notes payable to venturers  without  incurring
excessive costs because the loans were provided in non-arm's length transactions
without  regard  to  collateral  issues  or  other  traditional  conditions  and
covenants.  Where  practicable,  the fair value of  long-term  debt is estimated
using  discounted  cash flow  analysis,  based on the current  market  rates for
similar types of borrowing arrangements (see Note 6).

3.  Joint Ventures
    --------------

      See Note 5 to the financial  statements  of PWEP1  included in this Annual
Report  for a more  detailed  description  of the  joint  venture  partnerships.
Descriptions of the ventures' properties are summarized below:

      a.  Crow PaineWebber LaJolla, Ltd.
          -----------------------------

      The  joint  venture  constructed  and  operates  the  Monterra  Apartments
consisting  of  garden-style  apartments  and includes 180 one- and  two-bedroom
units totalling approximately 136,000 square feet in LaJolla, California.

      b.  Lake Sammamish Limited Partnership
          ----------------------------------

      The joint  venture  owns and  operates  the  Chandler's  Reach  Apartments
consisting of 166 units with  approximately  135,110 net rentable square feet in
eleven two- and three-story buildings located in Redmond, Washington.

      c.  Framingham - 1881 Associates
          ----------------------------

     The joint venture owns and operates the 1881 Worcester Road office building
consisting of 64,189 net rentable square feet in one two-story  building located
in  Framingham,  Massachusetts.  During 1997,  the joint venture became aware of
potential  contamination  on the 1881  Worcester  Road property as a result of a
leak in an  underground  storage  tank of an  adjacent  gas  station.  The joint
venture received an indemnification from the former gas station operator against
any  loss,  cost  or  damage   resulting  from  the  failure  to  remediate  the
contamination.  The extent of the  contamination  and its ultimate impact on the
operations  and  market  value of the 1881  Worcester  Road  property  cannot be
determined at this time.

      d.  Chicago - 625 Partnership
          -------------------------

      The joint venture  constructed  and operates the 625 North Michigan office
building  consisting  of  a  27-story  commercial  office  tower  containing  an
aggregate of 387,000  square feet (324,829  rentable  space) located in Chicago,
Illinois.

      The following description of the joint venture agreements provides certain
general information.

      Allocations of net income and loss
      ----------------------------------

      The  agreements  generally  provide that net income and losses (other than
those  resulting  from  sales or other  dispositions  of the  projects)  will be
allocated  to the  venture  partners  in the same  proportions  as  actual  cash
distributions from operations.

      Gains or losses resulting from sales or other dispositions of the projects
shall be  allocated  according  to the  formulas  provided in the joint  venture
agreements.

      Distributions
      -------------

      Distributable   funds  will  generally  be  distributed  first,  to  repay
co-venturer negative cash flow contributions;  second, to repay accrued interest
and principal on certain loans and, third,  specified amounts to PWEP1, with the
balance  distributed in amounts  ranging from 85% to 29% to PWEP1 and 15% to 71%
to the co-venturers, as described in the joint venture agreements.

      Distributions of net proceeds upon the sale or disposition of the projects
shall  be made  in  accordance  with  formulas  provided  in the  joint  venture
agreements.

4.  Related Party Transactions
    --------------------------

      The joint ventures  entered into  management  contracts with affiliates of
the co-venturers which are cancelable at the option of PWEP1 upon the occurrence
of certain  events.  The management  fees generally range from 3% to 5% of gross
rents collected.

      The related  property  manager of the 625 North Michigan  property  leases
space in the property  under a lease  agreement  extending  through  October 31,
2001. The 1997 revenues include $178,000 relating to this lease.

      Accounts payable - affiliates at December 31, 1997 principally  consist of
accrued  interest on notes payable to venturers,  advances from  venturers,  and
management fees and reimbursements payable to the property managers.

      Certain  of the  Combined  Joint  Ventures  are  also  required  to pay an
investor servicing fee to PWEP1 ranging from $2,500 to $10,000 per year.

5.  Notes Payable to Venturers
    --------------------------

      Notes  payable to  venturers  at December  31, 1997  includes an unsecured
permanent  loan  provided by PWEP1 to the Lake  Sammamish  joint  venture in the
amount of  $4,000,000.  Interest-only  payments on the permanent loan are at 10%
per annum, payable quarterly. Principal is due in October 2011. Notes payable to
venturers at December 31, 1997 also includes an unsecured  note payable to PWEP1
from Crow PaineWebber LaJolla,  Ltd. of $4,000,000.  This note bears interest at
10% per annum.  Accrued interest is payable quarterly.  Principal is due on July
1, 2011. Interest expense on these two notes payable aggregated $800,000 for the
year ended December 31, 1997.

6.  Mortgage Notes Payable
    ----------------------

      Mortgage  notes payable at December 31, 1997 consists of the following (in
thousands):

                                                           1997
                                                           ----

     8.45% nonrecourse loan payable to a
     third party which is secured by the
     Monterra   Apartments.   The   loan
     requires   monthly   principal  and
     interest   payments   of  $40   and
     matures in September 2001. The fair
     value   of   this   mortgage   note
     approximated  its carrying value as
     of December 31, 1997.                                $ 4,711

     8.33% nonrecourse loan payable to a
     third party which is secured by the
     Chandler's  Reach  Apartments.  The
     loan requires monthly principal and
     interest   payments   of  $29   and
     matures in September 2001. The fair
     value   of   this   mortgage   note
     approximated  its carrying value as
     of December 31, 1997.                                  3,445 
                                                          -------
                                                            8,156

    Less:  current portion                                   (136)
                                                          -------
                                                          $ 8,020
                                                          =======

    The  scheduled  annual  principal  payments to retire  notes  payable are as
follows (in thousands):

                  1998           $    136
                  1999                148
                  2000                161
                  2001                175
`                 2002                191
                  Thereafter        7,345
                                 --------
                                 $  8,156
                                 ========

      The  repayment of principal and interest on the loans  described  above is
the  responsibility  of  PWEP1,  which  received  the loan  proceeds.  PWEP1 has
indemnified   Crow   PaineWebber-LaJolla,   Ltd.  and  Lake  Sammamish   Limited
Partnership  from all  liabilities,  claims  and  expenses  associated  with any
defaults by PWEP1 in connection with these borrowings.

7.  Encumbrances
    ------------

      Under the terms of the joint venture agreements,  PWEP1 is entitled to use
the joint  venture  operating  properties  as security  for certain  borrowings,
subject to various  restrictions.  As of December 31, 1997, PWEP1 (together with
an affiliated  partnership) had borrowed funds, originally in the form of a zero
coupon loan,  using the 625 North  Michigan  property as collateral  pursuant to
this  arrangement.  This  obligation  is a direct  obligation  of PWEP1  and its
affiliated  partnership  and,  therefore,  is not reflected in the  accompanying
financial  statements.  The zero coupon loan  secured by the 625 North  Michigan
Office Building had required that if the loan ratio,  as defined,  exceeded 80%,
then PWEP1,  together with its affiliated  partnership,  was required to deposit
additional  collateral in an amount  sufficient to reduce the loan ratio to 80%.
During 1993, the lender informed PWEP1 and its affiliated partnership that based
on an interim property appraisal,  the loan ratio exceeded 80% and demanded that
additional  collateral  be  deposited.  Subsequently,  PWEP1 and its  affiliated
partnership  submitted  an  appraisal  which  demonstrated  that the loan  ratio
exceeded  80% by an amount  less than  previously  demanded  by the  lender  and
deposited  additional  collateral in accordance with the higher appraised value.
The lender accepted the deposit of additional  collateral,  but disputed whether
PWEP1 and its  affiliated  partnership  had complied  with the terms of the loan
agreement  regarding  the 80% loan ratio.  On May 31,  1994,  an  agreement  was
reached  with the  lender to  refinance  the loan and  resolve  the  outstanding
disputes.  The terms of the agreement  extended the maturity date of the loan to
May 1999. The new principal  balance of the loan,  after a principal  paydown of
$1,353,000,  which was  funded by PWEP1 and its  affiliated  partnership  in the
ratios  of 41% and  59%,  respectively,  was  $16,225,000.  The new  loan  bears
interest  at a rate of 9.125%  per annum and  requires  the  current  payment of
interest  and  principal  on a monthly  basis  based on a  25-year  amortization
period.  At  December  31,  1997,  the  aggregate  indebtedness  of EP1  and its
affiliated  partnership  which  is  secured  by the 625  North  Michigan  Office
Building was  approximately  $15,644,000.  The terms of the loan  agreement also
required the  establishment  of an escrow account for real estate taxes, as well
as a capital improvement escrow which is to be funded with monthly deposits from
PWEP1  and  its  affiliated  partnership   aggregating  $1,750,000  through  the
scheduled  maturity date of the loan.  Such escrow  accounts are recorded on the
books of the joint  venture and are included in the balance of escrowed  cash on
the accompanying balance sheet.


<PAGE>
<TABLE>

Schedule III - Real Estate and Accumulated Depreciation

                                            1997 COMBINED JOINT VENTURES OF
                                  PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                                  SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                   December 31, 1997
                                                     (In thousands)
<CAPTION>

                                                 Cost
                                                Capitalized                                                            Life on Which
                                               (Removed)                                                                Depreciation
                              Initial Cost to  Subsequent to  Gross Amount at Which Carried at                          in Latest
                               Venture          Acquisition         End of Year                                         Income
                                  Buildings &   Buildings &       Buildings &        Accumulated  Date of      Date     Statement
 Description   Encumbrances  Land Improvements  Improvements Land Improvements Total Depreciation Construction Acquired is Computed
------------   ------------  ---- -----------   ------------ ---- ------------ ----- ------------ ------------ -------- -----------
<S>               <C>        <C>       <C>       <C>         <C>     <C>        <C>      <C>        <C>        <C>       <C> 

Office Building
 Chicago, IL      $15,644    $ 8,112   $35,683   $7,784      $ 8,112  $43,467  $ 51,579  $17,693    1968       12/16/86  5-17 yrs.

Apartment Complex
 LaJolla, CA        4,711      4,615     7,219      867        4,615    8,086    12,701    3,039    1987       7/1/86    30 yrs.

Apartment Complex
 Redmond, WA        3,445      2,362     6,163      143        2,362    6,306     8,668    2,672    1987       10/1/86   5-27.5 yrs.

Office Building
 Framingham, MA         -      1,317     5,510   (3,005)         673    3,149     3,822    1,410    1987       12/12/86  5-40 yrs.
                  -------    -------   -------  -------      -------  -------  --------  -------
                  $23,800    $16,406   $54,575  $ 5,789      $15,762  $61,008  $ 76,770  $24,814
                  =======    =======   =======  =======      =======  =======  ========  =======
Notes

(A) The  aggregate  cost of real estate  owned at December  31, 1997 for Federal income  tax  purposes  is  approximately  $68,337

(B) See Notes 6 and 7 to the Combined  Financial  Statements  for a  description  of the  terms  of the  debt
    encumbering the properties.

(C) Reconciliation of real estate owned:
                                                      1997
                                                      ----

      Balance at beginning of period               $ 74,551
      Increase due to additions                       2,219
                                                   --------
      Balance at end of period                     $ 76,770
                                                   ========

(D) Reconciliation of accumulated depreciation:

      Balance at beginning of period               $ 22,098
      Depreciation expense                            2,716
                                                   --------
      Balance at end of period                     $ 24,814
                                                   ========
</TABLE>

<PAGE>



                         REPORT OF INDEPENDENT AUDITORS



The Partners
PaineWebber Equity Partners One Limited Partnership:

     We have audited the  accompanying  combined  balance sheets of the 1996 and
1995  Combined  Joint  Ventures  of  PaineWebber  Equity  Partners  One  Limited
Partnership  as of  December  31,  1996  and  1995,  and  the  related  combined
statements of operations and changes in venturers'  capital,  and cash flows for
each of the three years in the period ended  December 31, 1996.  Our audits also
included the  financial  statement  schedule  listed in the Index at Item 14(a).
These  financial   statements  and  schedule  are  the   responsibility  of  the
Partnership's  management.  Our responsibility is to express an opinion on these
financial  statements  and  schedule  based on our audits.  We did not audit the
financial  statements of Warner/Red  Hill Associates as of December 31, 1994 and
for the year then ended, which statements reflect 9% of the combined revenues of
the 1996 and 1995 Combined  Joint Ventures of  PaineWebber  Equity  Partners One
Limited  Partnership for the year ended December 31, 1994. Those statements were
audited  by other  auditors  whose  report  has been  furnished  to us,  and our
opinion,  insofar as it relates to data included for Warner/Red  Hill Associates
for the year ended December 31, 1994, is based solely on the report of the other
auditors.

     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 and the report of other auditors provide a reasonable
basis for our opinion.

     In our opinion,  based on our audits and the report of other auditors,  the
combined financial  statements referred to above present fairly, in all material
respects,  the combined  financial  position of the 1996 and 1995 Combined Joint
Ventures of PaineWebber Equity Partners One Limited  Partnership at December 31,
1996 and 1995, and the combined results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting  principles.  Also, in our opinion,  based on
our audits and the report of other  auditors,  the related  financial  statement
schedule, when considered in relation to the basic financial statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.




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





Boston, Massachusetts
February 8, 1997



<PAGE>


                       KPMG Peat Marwick LLP [letterhead]


                          INDEPENDENT AUDITORS' REPORT



The Partners
Warner/Redhill Associates:

     We have audited the statements of operations,  changes in partners' capital
(deficit) and cash flows of  Warner/Redhill  Associates  (a  California  general
partnership)  for the year ended December 31, 1994.  These financial  statements
are  the  responsibility  of  management  of  Warner/Redhill   Associates.   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  results  of  operations  and  cash  flows  of
Warner/Redhill  Associates  for the year ended  December 31, 1994 in  conformity
with generally accepted accounting principles.

     As  discussed  in  Note  2  to  the  financial  statements,  Warner/Redhill
Associates  changed  its  method  of  accounting  for its  operating  investment
property  during the year ended December 31, 1994 to adopt the provisions of the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 121,  "Accounting  for  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of."





                              /s/ KPMG PEAT MARWICK
                              ---------------------
                              KPMG PEAT MARWICK


Los Angeles, California
February 1, 1995, except
for the paragraph entitled
Operating Investment Property in
Note 2 to the financial statements,
which is as of July 7, 1995


<PAGE>


                    1996 AND 1995 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP

                             COMBINED BALANCE SHEETS
                           December 31, 1996 and 1995
                                 (In thousands)

                                     ASSETS

                                                       1996           1995
                                                       ----           ----
Current assets:
   Cash and cash equivalents                         $     828     $      861
   Accounts receivable, less allowance for
     doubtful accounts of $321 ($321 in 1995)              813            888
   Other current assets                                      4              3
                                                     ---------     ----------
             Total current assets                        1,645          1,752

Operating investment properties:
   Land                                                 17,189         17,189
   Building, improvements and equipment                 63,513         63,578
                                                     ---------     ----------
                                                        80,702         80,767
   Less accumulated depreciation                       (24,942)       (23,090)
                                                     ---------     ----------
                                                        55,760         57,677

Escrowed cash                                            1,014          1,024
Long-term rents receivable                               1,367          1,462
Due from partners                                          269            269
Deferred expenses, net of accumulated
   amortization of $1,367 ($1,263 in 1995)               1,294          1,264
Other assets                                                62             63
                                                     ---------     ----------
                                                     $  61,411     $   63,511
                                                     =========     ==========

                       LIABILITIES AND VENTURERS' CAPITAL

Current liabilities:
   Current portion of long-term debt                 $     260     $      246
   Accounts payable and accrued liabilities              1,082            942
   Accounts payable - affiliates                           101            101
   Real estate taxes payable                             1,855          1,873
   Distributions payable to venturers                    1,970          1,938
   Other current liabilities                               131            107
                                                     ---------     ----------
             Total current liabilities                   5,399          5,207

Tenant security deposits                                   310            291
Notes payable to venturers                               8,000          8,000
Long-term debt                                          13,371         13,631
Venturers' capital                                      34,331         36,382
                                                     ---------     ----------
                                                     $  61,411     $   63,511
                                                     =========     ==========




                             See accompanying notes.


<PAGE>
                    1996 AND 1995 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP

                 COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN
                     VENTURERS' CAPITAL For the years ended
                        December 31, 1996, 1995 and 1994
                                 (In thousands)

                                                1996         1995       1994
                                                ----         ----       ----

Revenues:
   Rental income and expense recoveries     $  10,910    $ 10,691    $ 10,326
   Interest income                                 32          23          23
   Other income                                   329         223         239
                                            ---------    --------    --------
                                               11,271      10,937      10,588
Expenses:
   Losses due to impairment
     of operating investment properties             -           -       9,767
   Depreciation expense                         2,893       2,827       2,735
   Real estate taxes                            2,139       1,980       2,263
   Interest expense                             1,068       1,089         945
   Interest expense payable to partner            800         800         800
   Property operating expenses                  1,151       1,203       1,114
   Repairs and maintenance                      1,201       1,178       1,160
   Utilities                                      756         701         713
   Management fees                                450         440         433
   Salaries and related expenses                  368         333         300
   Amortization expense                           270         353         392
   Insurance                                       74          72          69
   Bad debt expense                                 -           1         318
                                            ---------    --------    --------
       Total expenses                          11,170      10,977      21,009
                                            ---------    --------    --------

Net income (loss)                                 101         (40)    (10,421)

Contributions from venturers                    1,494         441       5,254

Distributions to venturers                     (3,646)     (2,395)     (6,814)

Venturers' capital, beginning of year          36,382      38,376      50,357
                                            ---------    --------    --------

Venturers' capital, end of year             $  34,331    $ 36,382    $ 38,376
                                            =========    ========    ========












                             See accompanying notes.


<PAGE>
                    1996 AND 1995 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                        COMBINED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1996, 1995 and 1994
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)
<TABLE>
<CAPTION>

                                                             1996       1995        1994
                                                             ----       ----        ----
<S>                                                          <C>        <C>         <C> 

Cash flows from operating activities:
  Net income (loss)                                         $   101     $   (40)  $ (10,421)
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
   Increase in deferred interest on long-term debt                -           -         468
   Losses due to impairment
     of operating investment properties                           -           -       9,767
   Depreciation and amortization                              3,163       3,180       3,127
   Amortization of deferred financing costs                      43          40          16
   Bad debts                                                      -           1         318
   Changes in assets and liabilities:
     Accounts receivable                                         75         141          93
     Other current assets                                        (1)          -           1
     Escrowed cash                                               10          43      (1,067)
     Long-term rents receivable                                  95           -         335
     Deferred expenses                                         (312)       (309)       (226)
     Other assets                                                 1          14         (22)
     Accounts payable and accrued liabilities                   140         243          12
     Accounts payable - affiliates                                -        (136)         (2)
     Real estate taxes payable                                  (18)       (233)       (180)
     Other current liabilities                                   24         (45)         58
     Tenant security deposits                                    20          77          12
                                                            -------     -------   ---------
        Total adjustments                                     3,240       3,016      12,710
                                                            -------     -------   ---------
        Net cash provided by operating activities             3,341       2,976       2,289
                                                            -------     -------   ---------

Cash flows from investing activities:
  Additions to operating investment properties                 (976)       (562)     (1,256)
  Purchase/sale of investment securities                          -           -         730
                                                            -------     -------   ---------
        Net cash used in investing activities                  (976)       (562)       (526)
                                                            -------     -------    --------

Cash flows from financing activities:
  Repayment of long-term debt and deferred interest            (246)       (234)     (9,157)
  Deferred financing costs                                        -           -        (269)
  Proceeds of new loans                                           -           -       8,520
  Contributions from venturers                                1,494         441       5,254
  Distributions to venturers                                 (3,646)     (2,198)     (6,601)
                                                            -------     -------   ---------
        Net cash used in financing activities                (2,398)     (1,991)     (2,253)
                                                            -------     -------   ---------

Net (decrease) increase in cash and cash equivalents            (33)        423        (490)
Cash and cash equivalents, beginning of year                    861         438         928
                                                            -------     -------   ---------
Cash and cash equivalents, end of year                      $   828     $   861   $     438
                                                            =======     =======   =========

Cash paid during the year for interest                      $ 1,657     $ 1,670   $   5,562
                                                            =======     =======   =========

Write-off of fully depreciated building
  improvements                                              $ 1,041     $     -   $   1,121
                                                            =======     =======   =========

                             See accompanying notes.
</TABLE>


<PAGE>


                     1996 AND 1995 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                     NOTES TO COMBINED FINANCIAL STATEMENTS

                                                    
1.  Organization
    -----------

     The accompanying  financial  statements of the 1996 and 1995 Combined Joint
Ventures of PaineWebber Equity Partners One Limited Partnership  (Combined Joint
Ventures) include the accounts of Warner/Red Hill Associates  (Warner/Red Hill),
a  California  general  partnership,   Crow  PaineWebber  LaJolla,   Ltd.  (Crow
PaineWebber),  a Texas limited  partnership;  Lake Sammamish Limited Partnership
(Lake  Sammamish),  a Texas limited  partnership;  Framingham - 1881  Associates
(1881 Worcester  Road), a  Massachusetts  general  Partnership;  and Chicago-625
Partnership  (Chicago-625),  an  Illinois  limited  partnership.  The  financial
statements of the Combined  Joint Ventures are presented in combined form due to
the  nature  of  the  relationship  between  each  of  the  joint  ventures  and
PaineWebber Equity Partners One Limited Partnership (PWEP1).

       The dates of PWEP1's  acquisition  of interests in the joint ventures are
as follows:

                                                           Date of Acquisition
                     Joint Venture                         of Interest
                     -------------                         -------------------

            Warner/Red Hill Associates                     December 18, 1985
            Crow PaineWebber LaJolla, Ltd.                 July 1, 1986
            Lake Sammamish Limited Partnership             October 1, 1986
            Framingham 1881 - Associates                   December 12, 1986
            Chicago-625 Partnership                        December 16, 1986

2.  Summary of significant accounting policies
    ------------------------------------------

     The  accompanying  financial  statements  have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting  principles
which  requires  management to make  estimates and  assumptions  that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and  liabilities  as of December 31, 1996 and 1995 and revenues and expenses for
each of the three years in the period ended  December 31, 1996.  Actual  results
could differ from the estimates and assumptions used.

    Operating investment properties
    -------------------------------

     Effective for 1995 for  Chicago-625  Partnership and effective for 1994 for
Warner/Red  Hill  Associates  and Framingham  1881 - Associates,  these ventures
elected early  application  of Statement of Financial  Accounting  Standards No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of" (SFAS 121). In accordance with SFAS 121, an impairment
loss with respect to an operating investment property is recognized when the sum
of the  expected  future  net cash  flows  (undiscounted  and  without  interest
charges) is less than the carrying  amount of the asset.  An impairment  loss is
measured  as the amount by which the  carrying  amount of the asset  exceeds its
fair  value,  where fair value is defined as the amount at which the asset could
be bought or sold in a current  transaction  between  willing  parties,  that is
other than a forced or  liquidation  sale (see Note 4).  All of the other  joint
ventures adopted SFAS 121 during 1996.

     One  of the  Joint  Ventures  was  acquired  prior  to  the  completion  of
construction. Interest costs and property taxes incurred during the construction
period were  capitalized.  Through December 31, 1994,  depreciation  expense was
computed  on a  straight-line  basis  over  the  estimated  useful  life  of the
buildings,  improvements  and equipment,  generally five to forty years.  During
1995,   circumstances   indicated  that  Chicago  625  Partnership's   operating
investment  property  might  be  impaired.   The  joint  venture's  estimate  of
undiscounted  cash flows  indicated  that the  property's  carrying  amounts was
expected to be recovered,  but that the  reversion  value could be less that the
carrying amount at the time of disposition.  As a result of such assessment, the
venture reassessed its depreciation policy and commenced recording an additional
annual  depreciation  charge of $350,000 in 1995 to adjust the carrying value of
the operating investment property such that it will match the expected reversion
value at the time of  disposition.  Such an annual  charge  will  continue to be
recorded in future periods.

    Deferred expenses
    -----------------

     Deferred expenses consist  primarily of organization  costs which have been
amortized over five years, loan fees which are being amortized over the terms of
the related loans, and lease commissions and rental  concessions which are being
amortized over the term of the applicable lease.
<PAGE>

    Cash and cash equivalents
    -------------------------

     For purposes of the statement of cash flows,  the Combined  Joint  Ventures
consider all highly liquid  investments,  money market funds and certificates of
deposit  purchased  with original  maturity  dates of three months or less to be
cash equivalents.

    Rental revenues
    ---------------

     Certain joint ventures have operating leases with tenants which provide for
fixed  minimum  rents and  reimbursements  of certain  operating  costs.  Rental
revenues are  recognized on a  straight-line  basis over the term of the related
lease agreements.  Rental revenues for the residential properties are recognized
when earned.

     Minimum rental revenues to be recognized on the straight-line  basis in the
future on noncancellable leases are as follows (in thousands):

                              1997         $   5,647
                              1998             5,089
                              1999             4,239
                              2000             4,029
                              2001             2,140
                              Thereafter       2,734
                                           ---------
                                           $  23,878
                                           =========

    Income tax matters
    ------------------

     The Combined Joint Ventures are comprised of entities which are not taxable
and,  accordingly,  the  results of their  operations  are  included  on the tax
returns  of the  various  partners.  Accordingly,  no income  tax  provision  is
reflected in the accompanying combined financial statements.

    Fair value of financial instruments
    -----------------------------------

     The  carrying  amounts  of cash  and cash  equivalents  and  escrowed  cash
approximate  their  respective  fair values at December 31, 1996 and 1995 due to
the  short-term  maturities  of  such  instruments.  It is not  practicable  for
management to estimate the fair value of the notes payable to venturers  without
incurring  excessive  costs because the loans were provided in non-arm's  length
transactions without regard to collateral issues or other traditional conditions
and covenants. Where practicable,  the fair value of long-term debt is estimated
using  discounted  cash flow  analysis,  based on the current  market  rates for
similar types of borrowing arrangements.

3.  Joint Ventures
    --------------

     See Note 5 to the  financial  statements  of PWEP1  included in this Annual
Report  for a more  detailed  description  of the  joint  venture  partnerships.
Descriptions of the ventures' properties are summarized below:

    a.  Warner/Red Hill Associates
        --------------------------

        The joint venture owns and operates the Warner/Red  Hill Business Center
        consisting of three  two-story  office  buildings  totalling  93,895 net
        rentable square feet on  approximately  4.76 acres of land. The business
        center is part of a 4,200 acre  business  complex in Tustin,  California
        (see Note 4).

    b.  Crow PaineWebber LaJolla, Ltd.
        -----------------------------

        The joint  venture  constructed  and operates  the  Monterra  Apartments
        consisting  of  garden-style   apartments  and  includes  180  one-  and
        two-bedroom  units  totalling   approximately  136,000  square  feet  in
        LaJolla, California.

    c.  Lake Sammamish Limited Partnership
        ----------------------------------

        The joint  venture  owns and operates the  Chandler's  Reach  Apartments
        consisting of 166 units with  approximately  135,110 net rentable square
        feet in  eleven  two- and  three-story  buildings  located  in  Redmond,
        Washington.
<PAGE>

    d.  Framingham - 1881 Associates
        ----------------------------

        The joint  venture  owns and  operates  the 1881  Worcester  Road office
        building  consisting of 64,189 net rentable square feet in one two-story
        building located in Framingham, Massachusetts (see Note 4).

    e.  Chicago - 625 Partnership
        -------------------------

        The joint venture constructed and operates the 625 North Michigan office
        building  consisting of a 27-story commercial office tower containing an
        aggregate of 387,000  square feet (324,829  rentable  space)  located in
        Chicago, Illinois.

        The  following  description  of the joint  venture  agreements  provides
certain general information.

    Allocations of net income and loss
    ----------------------------------

     The  agreements  generally  provide that net income and losses  (other than
those  resulting  from  sales or other  dispositions  of the  projects)  will be
allocated  to the  venture  partners  in the same  proportions  as  actual  cash
distributions from operations.

     Gains or losses resulting from sales or other  dispositions of the projects
shall be  allocated  according  to the  formulas  provided in the joint  venture
agreements.

    Distributions
    -------------

     Distributable   funds  will  generally  be  distributed   first,  to  repay
co-venturer negative cash flow contributions;  second, to repay accrued interest
and principal on certain loans and, third,  specified amounts to PWEP1, with the
balance  distributed in amounts  ranging from 85% to 29% to PWEP1 and 15% to 71%
to the co-venturers, as described in the joint venture agreements.

     Distributions  of net proceeds upon the sale or disposition of the projects
shall  be made  in  accordance  with  formulas  provided  in the  joint  venture
agreements.

4.  Losses Due to Impairment Operating Investment Properties
    --------------------------------------------------------

     As discussed in Note 2,  Warner/Red  Hill  Associates and Framingham 1881 -
Associates  elected early  application  of SFAS 121 in 1994.  The effect of such
application was the recognition of impairment losses on the operating investment
properties owned by both joint ventures.  Warner/Red Hill Associates  recognized
an impairment loss of $6,784,000 to write down the operating investment property
to its estimated  fair value of  $3,600,000 as of December 31, 1994.  Framingham
1881 - Associates  recognized an impairment loss of $2,983,000 to write down the
operating  investment  property to its estimated  fair value of $2,200,000 as of
December 31, 1994. In both cases,  fair value was estimated using an independent
appraisal of the operating  property.  Such appraisals make use of a combination
of  certain   generally   accepted   valuation   techniques,   including  direct
capitalization, discounted cash flows and comparable sales analysis.

5.  Related Party Transactions
    --------------------------

     The joint ventures entered into management contracts with affiliates of the
co-venturers  which are cancelable at the option of PWEP1 upon the occurrence of
certain events. The management fees generally range from 3% to 5% of gross rents
collected.

     Accounts  payable - affiliates  at December  31, 1996 and 1995  principally
consist  of  accrued  interest  on notes  payable to  venturers,  advances  from
venturers,  and  management  fees and  reimbursements  payable  to the  property
managers.

     Certain of the Combined Joint Ventures are also required to pay an investor
servicing fee to PWEP1 ranging from $2,500 to $10,000 per year.

6.  Notes Payable to Venturers
    --------------------------

     Notes  payable  to  venturers  at  December  31,  1996 and 1995  include  a
permanent  loan  provided by PWEP1 to the Lake  Sammamish  joint  venture in the
amount of  $4,000,000.  Interest-only  payments on the permanent loan are at 10%
per annum, payable quarterly. Principal is due in October 2011. Notes payable to
venturers  at December  31, 1996 and 1995 also  include a note  payable to PWEP1
from Crow PaineWebber LaJolla,  Ltd. of $4,000,000.  This note bears interest at
10% per annum.  Accrued interest is payable quarterly.  Principal is due on July
1, 2011.  Interest  expense on these two notes payable  aggregated  $800,000 for
each of the three years in the period ended  December  31, 1996.  As a result of
the debt modifications discussed in Note 7, these notes are unsecured.

7.  Mortgage Notes Payable
    ----------------------

        Mortgage  notes  payable at December  31, 1996 and 1995  consists of the
following (in thousands):

                                                           1996         1995
                                                           ----         ----

     Nonrecourse   note  payable  to  an
     insurance  company which is secured
     by the  Warner/Red  Hill  operating
     investment  property.  The note was
     amended  and  restated  during 1994
     (see  discussion  below).  The note
     bears interest at 2.875% per annum,
     requires  monthly  payments  of $24
     and has a scheduled  maturity  date
     of August 1, 2003.                                $ 5,350        $ 5,481

     8.45% nonrecourse loan payable to a
     third party which is secured by the
     Monterra   Apartments.   The   loan
     requires   monthly   principal  and
     interest   payments   of  $40   and
     matures in  September  2001.                        4,783          4,849

     8.33% nonrecourse loan payable to a
     third party which is secured by the
     Chandler's  Reach  Apartments.  The
     loan requires monthly principal and
     interest   payments   of  $29   and
     matures  in  September   2001  (see
     discussion   below).                                3,498          3,547
                                                       -------        -------
                                                        13,631         13,877

    Less:  current portion                                (260)          (246)
                                                      --------       --------
                                                      $ 13,371       $ 13,631
                                                      ========       ========

        The scheduled annual  principal  payments to retire notes payable are as
follows (in thousands):

                  1997              $    260
                  1998                   275
                  1999                   291
                  2000                   308
`                 2001                   327
                  Thereafter          12,170
                                    --------
                                    $ 13,631
                                    ========

     The repayment of principal and interest on the loans described above is the
responsibility of PWEP1, which received the loan proceeds. PWEP1 has indemnified
Crow  PaineWebber-LaJolla,  Ltd.,  Warner/Red Hill Associates and Lake Sammamish
Limited  Partnership from all liabilities,  claims and expenses  associated with
any defaults by PWEP1 in connection with these borrowings.

     During 1994,  PWEP1 reached an agreement  with the lender of the Warner/Red
Hill loan regarding an extension and modification of the note payable. The terms
of the extension and modification agreement, which was finalized in August 1994,
provided  for a  10-year  extension  of the note  effective  as of the  original
maturity  date of August 15, 1993.  During the term of the  agreement,  the loan
will bear  interest  at 2.875%  per annum and  monthly  principal  and  interest
payments of $24,000 are required.  PWEP1 made principal and interest payments on
behalf of the  venture  totalling  $246,000  for the period from August 15, 1993
through  June 30,  1994 in  conjunction  with the  closing  of the  modification
agreement. In addition, the lender required a participation in the proceeds of a
future  sale  or debt  refinancing  in  order  to  enter  into  this  agreement.
Accordingly,  upon  the  sale  or  refinancing  of  Warner/Red  Hill  investment
property,  the lender will receive 40% of the residual value of the property, as
defined,  after the payment of the  outstanding  balance of the loan payable and
unpaid interest. The extension and modification agreement also required PWEP1 to
establish an escrow  account in the name of Warner/Red  Hill  Associates  and to
fund such escrow with an equity contribution of $350,000. The escrowed funds are
to be used solely for the payment of capital  and tenant  improvements,  leasing
commissions and real estate taxes related to the Warner/Red  Hill property.  The
balance of the escrow  account  is to be  maintained  at a level of no less than
$150,000.  In the event that the escrow  balance falls below  $150,000,  all net
cash flow from the property is to be deposited into the escrow until the minimum
balance is re-established.  It is not practicable for management to estimate the
fair value of the mortgage note secured by the Warner/Red Hill property  without
incurring excessive costs due to the unique terms of the note.

     During September 1994, the note payable secured by the Monterra  Apartments
was  refinanced  in  conjunction   with  the  issuance  of  a  new  nonrecourse,
current-pay  mortgage  loan  secured by the  Monterra  property  in the  initial
principal  amount of  $4,920,000.  PWEP1 was required to  contribute  capital of
$3,869,000  in  connection  with  this  refinancing  transaction.   This  amount
consisted of $146,000 for  transaction  fees and closing  costs and a paydown of
remaining  principal  of  $3,723,000.  The  fair  value  of this  mortgage  note
approximated its carrying value as of December 31, 1996 and 1995.

     The  proceeds of the note secured by the  Chandler's  Reach  property  were
distributed  to PWEP1 in 1994  pursuant to an agreement of the  partners.  PWEP1
used the  proceeds  of this note to retire  the prior  outstanding  indebtedness
secured by the  Chandler's  Reach  Apartments  which is described in Note 8. The
fair value of this mortgage note  approximated its carrying value as of December
31, 1996 and 1995.

8.  Encumbrances
    ------------

     Under the terms of the joint venture  agreements,  PWEP1 is entitled to use
the joint  venture  operating  properties  as security  for certain  borrowings,
subject to various restrictions.  As of December 31, 1993 PWEP1 (together in one
instance with an affiliated partnership) had borrowed $11,886,000 under two zero
coupon loan agreements  pursuant to this  arrangement.  These  obligations  were
direct obligations of PWEP1 and its affiliated partnership and, therefore,  were
not reflected in the accompanying financial statements.  The outstanding balance
of principal and accrued interest  outstanding under the borrowing  arrangements
aggregated $20,225,000 at December 31, 1993. The operating investment properties
of the Lake  Sammamish  and  Chicago-625  joint  ventures  had been  pledged  as
security for these loans which were  scheduled to mature in 1995,  at which time
payments aggregating  approximately  $23,056,000 were to become due and payable.
As discussed in Note 7, the note payable secured by the Lake Sammamish operating
investment  property was refinanced in September 1994 from the proceeds of a new
loan issued directly to the joint venture.

     The zero coupon loan secured by the 625 North Michigan  Office Building had
required that if the loan ratio, as defined,  exceeded 80%, then PWEP1, together
with its affiliated  partnership,  was required to deposit additional collateral
in an amount sufficient to reduce the loan ratio to 80%. During 1993, the lender
informed PWEP1 and its affiliated  partnership that based on an interim property
appraisal,  the loan ratio exceeded 80% and demanded that additional  collateral
be deposited.  Subsequently,  PWEP1 and its affiliated  partnership submitted an
appraisal which  demonstrated that the loan ratio exceeded 80% by an amount less
than previously  demanded by the lender and deposited  additional  collateral in
accordance with the higher  appraised  value. The lender accepted the deposit of
additional collateral, but disputed whether PWEP1 and its affiliated partnership
had complied with the terms of the loan agreement  regarding the 80% loan ratio.
On May 31, 1994,  an agreement was reached with the lender to refinance the loan
and resolve the outstanding  disputes.  The terms of the agreement  extended the
maturity date of the loan to May 1999.  The new  principal  balance of the loan,
after a  principal  paydown  of  $1,353,000,  which was  funded by PWEP1 and its
affiliated  partnership  in  the  ratios  of  41%  and  59%,  respectively,  was
$16,225,000.  The new loan  bears  interest  at a rate of  9.125%  per annum and
requires the current  payment of interest and principal on a monthly basis based
on  a  25-year   amortization  period.  At  December  31,  1996,  the  aggregate
indebtedness of EP1 and its affiliated  partnership  which is secured by the 625
North Michigan Office Building was approximately  $15,868,000.  The terms of the
loan  agreement  also required the  establishment  of an escrow account for real
estate taxes, as well as a capital improvement escrow which is to be funded with
monthly  deposits  from  PWEP1  and  its  affiliated   partnership   aggregating
$1,750,000 through the scheduled maturity date of the loan. Such escrow accounts
are  recorded on the books of the joint  venture and are included in the balance
of escrowed cash on the accompanying balance sheets.



<PAGE>

<TABLE>


Schedule III - Real Estate and Accumulated Depreciation
                                           1996 AND 1995 COMBINED JOINT VENTURES OF
                                      PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                                     SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                       December 31, 1996
                                                     (In thousands)
<CAPTION>

                                                 Cost
                                                Capitalized                                                            Life on Which
                                               (Removed)                                                                Depreciation
                              Initial Cost to  Subsequent to  Gross Amount at Which Carried at                          in Latest
                               Venture          Acquisition         End of Year                                         Income
                                  Buildings &   Buildings &       Buildings &        Accumulated  Date of      Date     Statement
 Description   Encumbrances  Land Improvements  Improvements Land Improvements Total Depreciation Construction Acquired is Computed
------------   ------------  ---- -----------   ------------ ---- ------------ ----- ------------ ------------ -------- -----------
<S>               <C>        <C>       <C>       <C>         <C>     <C>        <C>      <C>        <C>        <C>       <C> 


COMBINED JOINT VENTURES:

Office Building
 Chicago, IL      $15,868    $  8,112  $35,683   $6,357    $ 8,112  $42,040  $ 50,152    $15,547    1968       12/16/86  5-17 yrs.

Office Building
 Tustin, CA         5,350       3,124    9,126   (6,099)     1,428    4,723     6,151      2,844    1984       12/18/85  35 yrs.

Apartment Complex
 LaJolla, CA        4,783       4,615    7,219      657      4,615    7,876    12,491      2,794    1987       7/1/86    30 yrs.

Apartment Complex
 Redmond, WA        3,498       2,362    6,163       40      2,362    6,203     8,565      2,460    1987       10/1/86   5-27.5 yrs.

Office Building
 Framingham, MA         -       1,317    5,510   (3,484)       672    2,671     3,343      1,297   1987        12/12/86  5-40 yrs.
                  -------     -------  -------  -------    -------  -------  --------    -------
                  $29,499     $19,530  $63,701  $(2,529)   $17,189  $63,513  $ 80,702    $24,942
                  =======     =======  =======  =======    =======  =======  ========    =======
Notes

(A) The  aggregate  cost of real estate  owned at December  31, 1996 for Federal income tax purposes is approximately  $80,696.
(B) See Notes 7 and 8 to the Combined  Financial  Statements  for a  description  of the  terms  of the  debt
encumbering the properties.

(C) Reconciliation of real estate owned:
                                                 1996              1995        1994
                                                 ----              ----        ----

      Balance at beginning of period          $ 80,767          $ 80,205      $ 89,837
      Increase due to additions                    976               562         1,256
      Write-offs due to disposals               (1,041)                -        (1,121)
      Write-offs due to permanent 
        impairment (see Note 4)                      -                 -        (9,767)
                                              --------          --------      --------
      Balance at end of period                $ 80,702          $ 80,767      $ 80,205
                                              ========          ========      ========

(D) Reconciliation of accumulated depreciation:

      Balance at beginning of period          $ 23,090          $ 20,263      $ 18,649
      Depreciation expense                       2,893             2,827         2,735
      Write-offs due to disposals               (1,041)                -        (1,121)
                                              --------          --------      --------
      Balance at end of period                $ 24,942          $ 23,090      $ 20,263
                                              ========          ========      ========

(E) Costs removed include write-offs due to impairment and disposals, as well as guaranty payments from co-venturers (see Note 3).
</TABLE>