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, 1999

                                       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
July 18, 1985, as supplemented                              Part IV

Current Report on Form 8-K of registrant
dated October 2, 1998                                       Part IV

Current Report on Form 8-K of registrant
dated November 20, 1998                                     Part IV

Current Report on Form 8-K of registrant
dated May 14, 1999                                          Part IV

<PAGE>
                   PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                                      1999 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-4


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 7A     Market Risk Disclosures                                     II-9

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-49

<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-7 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, 1999,  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 three  office/R&D  buildings  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

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.

     The Partnership  originally  owned interests in seven operating  investment
properties.  On October 2, 1998,  Lake Sammamish  Limited  Partnership  and Crow
PaineWebber  LaJolla  Limited  Partnership,  two  joint  ventures  in which  the
Partnership had an interest,  sold the properties  known as the Chandler's Reach
Apartments  and the  Monterra  Apartments  to the same  unrelated  third  party.
Chandler's Reach, located in Redmond,  Washington,  was sold for $17.85 million,
and Monterra,  located in LaJolla,  California,  was sold for $20.1 million. The
Partnership received net proceeds of approximately  $12,359,000 from the sale of
Chandler's  Reach  after  deducting  closing  costs of  approximately  $561,000,
closing  proration  adjustments of approximately  $55,000,  the repayment of the
existing mortgage note of approximately  $3,415,000 and a prepayment  penalty of
approximately  $354,000 (of which $205,000 was paid by the buyer), and a payment
of  approximately  $1,311,000 to the  Partnership's  co-venture  partner for its
share of the sale proceeds in accordance with the joint venture  agreement.  The
Partnership received net proceeds of approximately  $14,796,000 from the sale of
Monterra  after  deducting  closing  costs of  approximately  $306,000,  closing
proration adjustments of approximately  $114,000,  the repayment of the existing
mortgage  note  of  approximately   $4,672,000  and  a  prepayment   penalty  of
approximately  $500,000 (of which $295,000 was paid by the buyer), and a payment
of approximately $7,000 to the Partnership's co-venture partner for its share of
the sale proceeds in accordance  with the joint venture  agreement.  On November
20, 1998, Sunol Center Associates,  a joint venture in which the Partnership had
an interest,  sold the  property  known as the Sunol  Center  Office  Buildings,
located  in  Pleasanton,  California,  to an  unrelated  third  party for $15.75
million. The Partnership received net proceeds of approximately $15,532,000 from
the sale of Sunol Center after deducting closing costs of approximately $161,000
and net closing proration adjustments of approximately $57,000.

     In addition,  subsequent to year-end,  on May 14, 1999 the Partnership sold
the wholly-owned property known as the Crystal Tree Commerce Center,  located in
North Palm Beach,  Florida, to an unrelated third party for $10.55 million.  The
Partnership  received net proceeds of approximately  $6,690,000 from the sale of
Crystal  Tree after  deducting  closing  costs of  approximately  $295,000,  net
closing proration adjustments of approximately $287,000 and the repayment of the
outstanding first mortgage loan and accrued interest of $3,278,000.

     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, 1999, the Limited  Partners had received  cumulative cash
distributions  totalling  approximately  $82,102,000,  or $871.52  per  original
$1,000 investment for the Partnership's  earliest  investors.  The Partnership's
earliest  investor  group  represents  those  Limited  Partners  admitted to the
Partnership on October 29, 1985, the Partnership's first admittance date. Of the
total  cash  distributions  paid  through  March  31,  1999,  $468.32  was  from
operations  and  $403.20  resulted  from  the  sales  of  the  Chandler's  Reach
Apartments,  Monterra  Apartments  and Sunol Center  properties.  Subsequent  to
year-end,  on June 15, 1999, the Partnership made a special capital distribution
of $67 per original $1,000  investment  which  represented the net proceeds from
the sale of the Crystal Tree property.  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
has been  sheltered  from  federal  income tax  liability.  As  reported  in the
Partnership's  Quarterly  Report on Form 10-Q for the quarter ended December 31,
1998,  the sales of Sunol  Center,  Chandler's  Reach  Apartments  and  Monterra
Apartments  significantly  reduced the distributable cash flow to be received by
the Partnership.  As a result,  the payment of a regular quarterly  distribution
was  discontinued  effective  for the fourth  quarter of fiscal 1999.  The final
regular  quarterly  distribution  payment was made on February  12, 1999 for the
quarter ended December 31, 1998.

     The  Partnership's  success in meeting its capital  appreciation  objective
will depend upon the proceeds  received from the final  liquidation of the three
remaining  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.  Management has been focusing
on  potential  disposition  strategies  for  the  remaining  investments  in the
Partnership's  portfolio.  Subsequent to the sale of Crystal Tree, the remaining
investments  consist of joint venture  interests in the Warner/Red Hill Business
Center,  the 1881  Worcester  Road Office  Building  and the 625 North  Michigan
Office Building.  Although there are no assurances, it is currently contemplated
that sales of the Partnership's  remaining assets,  which would be followed by a
liquidation of the  Partnership,  could be completed by the end of calendar year
1999.

     All of the  Partnership's  remaining  investment  properties are located in
real estate markets in which they face significant  competition for the revenues
they  generate.   The  Partnership's  office  buildings  compete  for  long-term
commercial tenants with numerous projects of similar type generally on the basis
of price, location and tenant improvement  allowances.  Limited new construction
and healthy  economic growth have  significantly  improved the supply and demand
fundamentals for office buildings in many markets  throughout the country during
fiscal  1999.  Such  factors have had a  substantial  influence on  management's
decision to pursue a liquidation of the remaining investments in the near term.

     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,  1999,  the  Partnership  had  interests  in four  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 1999, along with
an average for the year,  are  presented  below for each  property  owned during
fiscal 1999:

                                        Percent Occupied At
                          ------------------------------------------------------
                                                                     Fiscal 1999
                          6/30/98    9/30/98   12/31/98   3/31/99    Average
                          -------    -------   --------   -------    -------

Crystal Tree                100%       100%       100%     100% (3)    100%

Warner/Red Hill              98%        97%        99%     100%         99%

Monterra Apartments          96%        N/A (1)    N/A      N/A         N/A

Sunol Center                100%       100%        N/A (2)  N/A         N/A

Chandler's Reach
  Apartments                 95%        N/A (1)    N/A      N/A         N/A

1881 Worcester Road         100%       100%       100%     100%        100%

625 North Michigan Avenue    95%        95%        96%      93%         95%

(1)  The property was sold on October 2, 1998 as described in Item 1.

(2)  The property was sold on November 20, 1998 as described in Item 1.

(3)  The property was sold subsequent to year-end, on May 14, 1999, as described
     in Item 1.

Item 3.  Legal Proceedings

      The Partnership is not subject to any 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,  1999  there  were  7,163  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.

      Reference is made to Item 6 below for a discussion  of cash  distributions
made to the Limited Partners during fiscal 1999.

Item 6. Selected Financial Data

               PaineWebber Equity Partners One Limited Partnership
         For the years ended March 31, 1999, 1998, 1997, 1996 and 1995
                    (in thousands, except for per Unit data)

                         1999       1998        1997        1996        1995
                         ----       ----        ----        ----        ----

Revenues            $   4,936     $ 4,308    $  3,173   $   2,726    $  2,346

Operating loss      $  (1,537)    $  (878)   $ (1,099)  $  (1,739)   $ (1,637)

Gain on sale of
  operating
  investment
  property          $   7,373           -           -           -           -

Interest income
  on notes
  receivable from
  unconsolidated
  ventures          $     400     $   800    $    800   $     800   $     800

Partnership's share
  of unconsolidated
  ventures' losses  $    (233)    $  (178)   $   (107)  $    (324)  $    (715)

Partnership's share
  of gain on sale
  of operating
  investment
  properties        $  19,084           -           -           -           -

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

Net income (loss)   $  25,087     $  (256)   $   (406)  $  (1,263)   $(10,255)

Net income (loss)
  per Limited
  Partnership Unit  $   12.41     $  0.13)   $  (0.20)  $   (0.62)   $  (5.07)

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

Cash distributions
  from sale,
  refinancing or
  other disposition
  transactions
  per Limited
  Partnership
  Unit              $   20.16           -           -           -           -


Total assets        $  34,107     $52,242    $ 49,736   $  51,255    $ 53,572

Long-term debt      $  15,357     $16,140    $ 11,152   $  11,356    $ 11,548

      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 the  beginning  of fiscal  1999,  the  Partnership  retained an
ownership interest in seven operating investment properties,  which consisted of
four  office/R&D  complexes,   two  multi-family  apartment  complexes  and  one
mixed-use retail/office property. As discussed further below, during fiscal 1999
the two multi-family  apartment  complexes and one office/R&D complex were sold.
In addition,  subsequent to year-end,  the mixed-use  retail/office property was
sold. 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
is an opportune time to sell the  Partnership's  portfolio of  properties.  As a
result, management has been 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 by the end of calendar year 1999.  The sale
of the  three  remaining  real  estate  investments  would  be  followed  by the
liquidation of the Partnership.

      Marketing  efforts  for  the  sale of the  Chandlers  Reach  and  Monterra
apartment  properties  commenced  during the  quarter  ended June 30,  1998.  On
October 2, 1998, Lake Sammamish Limited Partnership and Crow PaineWebber LaJolla
Limited  Partnership,  two  joint  ventures  in  which  the  Partnership  had an
interest,  sold the properties  known as the Chandler's Reach Apartments and the
Monterra  Apartments to the same  unrelated  third  parties.  Chandler's  Reach,
located in  Redmond,  Washington,  was sold for $17.85  million,  and  Monterra,
located in LaJolla,  California,  was sold for $20.1  million.  The  Partnership
received net proceeds of  approximately  $12,359,000 from the sale of Chandler's
Reach after deducting closing costs of approximately $561,000, closing proration
adjustments of  approximately  $55,000,  the repayment of the existing  mortgage
note of  approximately  $3,415,000  and a  prepayment  penalty of  approximately
$354,000  (of  which  $205,000  was  paid  by  the  buyer),  and  a  payment  of
approximately  $1,311,000 to the Partnership's  co-venture partner for its share
of the sale  proceeds  in  accordance  with the  joint  venture  agreement.  The
Partnership received net proceeds of approximately  $14,796,000 from the sale of
Monterra  after  deducting  closing  costs of  approximately  $306,000,  closing
proration adjustments of approximately  $114,000,  the repayment of the existing
mortgage  note  of  approximately   $4,672,000  and  a  prepayment   penalty  of
approximately  $500,000 (of which $295,000 was paid by the buyer), and a payment
of approximately $7,000 to the Partnership's co-venture partner for its share of
the sale proceeds in accordance with the joint venture agreement.

      Despite  incurring sizable  prepayment  penalties on the repayment of both
outstanding first mortgage loans,  management  believed that the current sale of
the  Chandler's  Reach and Monterra  properties was in the best interests of the
Limited Partners due to the exceptionally strong market conditions that exist at
the present time and which resulted in the achievement of very favorable selling
prices.  The  Partnership  distributed  $24,800,000 of the net proceeds from the
sales of the Chandler's  Reach and Monterra  properties in the form of a special
distribution to the Limited  Partners of $248 per original $1,000  investment on
November 13, 1998.  The remainder of the net proceeds were retained and added to
the  Partnership's  cash reserves to ensure that the  Partnership has sufficient
capital resources to fund its share of potential capital improvement expenses at
its  remaining  investment   properties.   The  Partnership  recorded  gains  of
$9,799,000 and $9,285,000,  respectively,  on the sales of the Chandler's  Reach
and Monterra operating investment properties.

      During the quarter ended June 30, 1998, the  Partnership  began  exploring
potential  opportunities  to sell Sunol Center, a 116,680 square foot office/R&D
property in Pleasanton,  California.  As part of these efforts,  the Partnership
initiated discussions with real estate firms with a strong background in selling
properties like Sunol Center. The Partnership  subsequently  selected a national
firm  that is a  leading  seller of this  type of  property.  Preliminary  sales
materials  were  prepared  and initial  marketing  efforts  were  undertaken.  A
marketing  package was then  finalized and  comprehensive  sale efforts began in
June 1998. As a result of those efforts,  several  offers were  received.  After
completing  an  evaluation  of these  offers and the  relative  strength  of the
prospective  purchasers,  the Partnership selected an offer. A purchase and sale
agreement was  negotiated  with an unrelated  third-party  prospective  buyer on
September 21, 1998 and a non-refundable  deposit of $750,000 was made on October
21, 1998. On November 20, 1998,  Sunol Center  Associates  sold the Sunol Center
Office  Buildings  to  this  unrelated  third  party  for  $15.75  million.  The
Partnership received net proceeds of approximately  $15,532,000 from the sale of
Sunol Center after  deducting  closing costs of  approximately  $161,000 and net
closing proration adjustments of approximately $57,000. As a result of the sale,
the  Partnership  made  a  special  distribution  to  the  Limited  Partners  of
$15,520,000, or $155.20 per original $1,000 investment, on December 4, 1998. The
Partnership  recorded  a gain  of  $7,373,000  on  the  sale  of  the  operating
investment property.

      With the sales of the Chandler's Reach Apartments, Monterra Apartments and
Sunol Center Office  Buildings  during the quarter ended  December 31, 1998, and
the  resulting  reduction  in  distributable  cash  flow to be  received  by the
Partnership,  the payment of a regular  quarterly  distribution was discontinued
beginning  with the quarter  ended March 31,  1999.  A final  regular  quarterly
distribution of $5.00 per original $1,000  investment,  which is equivalent to a
2%  annualized  rate of return on an  original  $1,000  investment,  was made on
February 12, 1999 for the quarter ended December 31, 1998.

      The Crystal  Tree  Commerce  Center in North Palm Beach,  Florida was 100%
leased on average for the year ended  March 31,  1999,  a 2%  increase  from the
prior year. As previously reported,  management had been positioning the Crystal
Tree Commerce Center for a possible 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.
As of March 31,  1999,  70% of the leases at the  property  were on a triple-net
basis,  up from 61% at the end of the prior quarter.  With an occupancy level of
100%  and a  stable  base of  tenants,  the  Partnership  believed  this  was an
opportune time to sell the property.  As part of its plan to market the property
for sale, the Partnership  selected a Florida real estate firm that is a leading
seller of this type of property.  Preliminary  sales materials were prepared and
initial  marketing  efforts  were  undertaken.  A  marketing  package  was  then
finalized and comprehensive  sale efforts began in December 1998. As a result of
these sale efforts,  twelve offers were received. As part of the sale efforts to
reduce the  prospective  buyer's  due  diligence  work and the time  required to
complete it, updated operating  reports as well as environmental  information on
the property were provided to the top prospective buyers, who were then asked to
submit best and final offers and did so. After completing an evaluation of these
offers and the relative strength of the prospective purchasers,  the Partnership
selected an offer and negotiated a purchase and sale agreement  which was signed
on March 4, 1999. Subsequent to year-end, on May 14, 1999, Crystal Tree was sold
for $10.55  million.  The  Partnership  received net  proceeds of  approximately
$6,690,000  from the sale of  Crystal  Tree  after  deducting  closing  costs of
approximately  $295,000,  net closing  proration  adjustments  of  approximately
$287,000 and the repayment of the  outstanding  first  mortgage loan and accrued
interest of $3,278,000.  As a result of the sale, the Partnership made a special
distribution to the Limited  Partners of $6,700,000,  or $67 per original $1,000
investment, on June 15, 1999.

      The 64,000 square foot 1881 Worcester Road Office  Building  remained 100%
leased as of March 31,  1999.  As  previously  reported,  while  this  two-story
property was leased to two financially  strong tenants with no lease expirations
until  December  31,  2002,  the tenant  leasing the entire  second floor of the
property  informed the Partnership  that it is  consolidating  its operations at
another location and had requested a lease termination.  This tenant's lease did
not expire until February 28, 2003.  Negotiations  with this tenant concerning a
lease  termination  agreement were completed during the fourth quarter of fiscal
1999.  Because of the agreement on a lease  termination,  the property's leasing
team was then  able to  negotiate  and  secure a new  lease for all of the space
being  vacated by the former  tenant.  The new lease is at a higher  rental rate
than the rate  payable  under the  former  tenant's  lease.  This new  tenant is
expected to take  occupancy by July 31,  1999.  Now that this new lease has been
signed,  the  Partnership  and its co-venture  partner have decided to sell 1881
Worcester  Road.  A firm has been  selected to market the property for sale and,
subsequent to the March 31, 1999 fiscal year-end, a sales package was finalized.
Comprehensive  sale  efforts  were  underway  by late May  1999.  As  previously
reported,  the owner 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.  They also notified the Partnership  that  contamination  has
migrated to the property because ground water flows in the direction of the 1881
Worcester Road building.  At the time of the discovery of the gasoline leak, the
Partnership  received an  indemnification  from the  operator of the gas station
against  any loss,  cost or damage  resulting  from  failure  to  remediate  the
contamination.  Any buyer of the 1881 Worcester Road property will receive these
same protections  through an assignment of the  indemnification  agreement which
would be made as part of any sale.  The  Partnership  continues  to  assess  the
contamination  of the  property as well as monitor the status of any  assessment
and remediation activities by the operator of the gas station.

      The 625 North  Michigan  Office  Building  in Chicago,  Illinois,  was 95%
leased on average for the year ended March 31, 1999,  up from the average of 88%
achieved for fiscal 1998. Approximately 21,000 square feet in five suites remain
to be leased.  During the fourth  quarter of fiscal 1999, a new tenant  signed a
lease and took occupancy on 1,500 square feet of space.  As previously  reported
an existing tenant that occupied  approximately  8,000 square feet relocated and
expanded  into a total of  10,200  square  feet.  The  space  was  renovated  in
preparation  for the tenant's  occupancy,  which occurred in March. In addition,
two  tenants  expanded  their  existing  suites by a total of 2,724  square feet
during the fourth  quarter.  Over the next year,  twelve leases  representing  a
total of 20,770 square feet are scheduled to expire. The property's leasing team
expects that five of these tenants  occupying 7,817 square feet will renew,  and
that the remaining space will be leased to new tenants.  The property's  leasing
team  continues to  negotiate  with two  prospective  tenants that would lease a
total of  approximately  6,500 square feet.  As previously  reported,  the local
market  continues to display an improving  trend.  In this local  market,  where
there is no current or planned  new  construction  of office  space,  the market
vacancy  level at March 31, 1999 has been  reduced to 10.1%,  which  places more
upward  pressure on rental rates.  The higher  effective  rents  currently being
achieved at 625 North  Michigan  Avenue are  expected to increase  cash flow and
value as new tenants  sign leases and existing  tenants  sign lease  renewals in
calendar  year  1999.  The  Partnership  has  been  actively  working  with  the
co-venture  partner on potential  redevelopment and leasing  opportunities  with
specialty  and fashion  retailers  looking to locate  stores near the  building.
These retailers pay significantly  higher rental rates than office rental rates.
Formal approval received from the City Council during fiscal 1999 to enclose the
arcade  sections of the first floor will greatly improve the chances of adding a
major retail  component to the building's  North Michigan Avenue  frontage.  Now
that  this  approval  has  been  obtained,  the  Partnership  is  simultaneously
exploring  potential  opportunities  to sell this property with the  development
rights.

      The Warner/Red Hill Business Center had an average leased level of 99% for
the year  ended  March 31,  1999,  up from 87% for the prior  year.  There was a
decline in  occupancy  at the end of the fourth  quarter of fiscal 1999 that was
expected and temporary. During the quarter, a tenant that occupies 15,266 square
feet moved from the property.  The leasing team subsequently  negotiated a lease
at the market's  currently  higher rental rates with a new tenant  interested in
occupying the entire  15,266 square foot space.  This new tenant is scheduled to
take  occupancy by July 31,  1999.  Also,  this tenant has leased an  additional
2,508 square feet space and is expected to take  occupancy of this space in July
1999 when the tenant currently  occupying the space moves from the property.  In
addition, a lease was signed with a new tenant that moved into 1,702 square feet
during the quarter  ended March 31,  1999.  Also  during the fourth  quarter,  a
tenant  occupying 8,656 square feet renewed its lease at the market's  currently
higher  rental  rate.  Over the  next  twelve  months  one  lease  with a tenant
occupying  7,793  square feet is scheduled  to expire.  With a strong  occupancy
level and a stable base of tenants,  the Partnership believes it is an opportune
time to sell the Warner/Red  Hill Business  Center.  As part of a plan to market
the property for sale, the Partnership selected a national real estate firm that
is a leading  seller of this property type to market  Warner/Red  Hill for sale.
Preliminary  sales  materials were prepared and initial  marketing  efforts were
undertaken  in  March  1999.  A  marketing   package  was  then   finalized  and
comprehensive  sale efforts began in early April 1999. As of April 30, 1999, six
offers  were  received,  all of which  were in  excess  of the  property's  1998
year-end  estimated value. To reduce the prospective  buyer's due diligence work
and the time  required  to complete  it,  updated  operating  reports as well as
environmental  information on the property were provided to the top  prospective
buyers, who have been asked to submit best and final offers. After completing an
evaluation  of  these  offers  and  the  relative  strength  of the  prospective
purchasers,  the  Partnership  is  currently  in the  process of  negotiating  a
purchase and sale agreement with a prospective  buyer.  However,  since any sale
transaction  remains  contingent  upon,  among other things,  the execution of a
definitive  sale  agreement  and  satisfactory  completion  of the  buyer's  due
diligence,  there are no assurances that a sale will be completed. As previously
reported,   during  fiscal  1998  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  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 the fourth quarter
of fiscal  1998.  Previously  the venture had been  accounted  for on the equity
method.

      At March 31, 1999, the Partnership and its consolidated  joint venture had
available cash and cash  equivalents of approximately  $5,753,000.  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

      As noted above, the Partnership  expects to be liquidated prior to the end
of calendar year 1999.  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
1999 Compared to 1998
---------------------

      The Partnership had net income of $25,087,000 for the year ended March 31,
1999 as compared to a net loss of  $256,000  in the prior  year.  The  favorable
change in net income  (loss) was  primarily a result of the gains  realized from
the sale of three operating  investment  properties  during the current year. As
discussed  further above,  the Partnership  sold the  consolidated  Sunol Center
Office  Buildings on November 20, 1998 and  realized a gain of  $7,373,000.  The
Partnership also realized gains from the sales of the unconsolidated  Chandler's
Reach  Apartments  and Monterra  Apartments,  which were both sold on October 2,
1998, in the amounts of $9,799,000 and $9,285,000, respectively.

      Excluding  the  gains  realized  from  the  sales of the  three  operating
investment   properties,   the  Partnership's  net  income  (loss)  declined  by
$1,114,000  during fiscal 1999 due to a $659,000  increase in operating  loss, a
$400,000  decrease in interest income on notes receivable and a $55,000 increase
in the Partnership's  share of unconsolidated  ventures' losses. The Partnership
reported an operating  loss of  $1,537,000  for the year ended March 31, 1999 as
compared to an operating  loss of $878,000 for the prior year.  This increase in
operating  loss was the result of an increase in expenses of  $1,287,000,  which
was partially offset by an increase in revenues of $628,000. Expenses increasing
was mainly  attributable to higher interest  expense  recorded in fiscal 1999 on
the Warner/Red Hill participating  mortgage loan.  Effective in fiscal 1999, the
Partnership  adopted  Statement of Position  97-1,  Accounting by  Participating
Mortgage  Loan  Borrowers  ("SOP  97-1"),   which   establishes  the  borrower's
accounting  for a  participating  mortgage  loan if the lender  participates  in
increases in the market value of the mortgaged real estate project,  the results
of operations of that  mortgaged real estate  project,  or both. SOP 97-1 states
that if a lender is entitled to participate in the market value of the mortgaged
real  estate  project,  the  borrower  should  determine  the fair  value of the
participation feature at the inception of the loan and recognize a participation
liability in that amount, with a corresponding entry to a debt discount account.
The debt  discount  is to be  amortized  over the  life of the  loan  using  the
interest  method and the effective  interest  rate. At the end of each reporting
period, the participation liability should be adjusted to equal the current fair
value of the participation  feature.  The Partnership's  mortgage  participation
liability  related to the Warner/Red  Hill debt totalled  $1,830,000 at December
31, 1998. Due to the expected sale of the Warner/Red Hill property during fiscal
2000,  the  Partnership  has  elected to  amortize  the debt  discount  over the
expected  remaining holding period of two years as opposed to over the remaining
term of the mortgage note. Amortization of the debt discount charged to interest
expense  totalled  $932,000 for fiscal 1999. The increase in revenues  reflected
higher rental income and expense  reimbursements due to the improved occupancies
and rental rates achieved at the  consolidated  Warner/Red Hill and Crystal Tree
properties  during  fiscal 1999,  as well as higher  interest and other  income.
Interest and other income  increased  due to the interest  income  earned on the
temporary  investment of the sales proceeds from the three operating  investment
properties  discussed  above  pending the special  distributions  to the Limited
Partners.  In addition,  as noted above, a portion of the sale proceeds from the
Monterra  and  Chandler's  Reach  transactions  was  retained  and  added to the
Partnership's cash reserves.

      Interest income on notes receivable from  unconsolidated  ventures related
to loans made by the  Partnership  to the  Monterra and  Chandler's  Reach joint
ventures  and  declined  in  fiscal  1999  due to  the  sale  of  the  ventures'
properties.  The Partnership's share of losses from unconsolidated  ventures was
$233,000 during the year ended March 31, 1999, as compared to losses of $178,000
for the  prior  year.  This  unfavorable  change in the  Partnership's  share of
unconsolidated  ventures'  losses was  primarily  the  result of the  prepayment
penalties   incurred  in  order  to  sell  the  Monterra  and  Chandler's  Reach
properties.  As discussed further above, in order to prepay the outstanding debt
on these two properties,  the joint ventures  incurred  prepayment  penalties of
$500,000 and $354,000,  respectively. The impact of the prepayment penalties was
partially  offset by an  increase in  operating  income  from the  Monterra  and
Chandler's Reach properties,  mainly due to higher rental rates achieved for the
current year prior to the sales of the properties.
<PAGE>

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 fiscal  1998.  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 fiscal
1997. 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 fiscal 1998.  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  fiscal 1998 as a
result of the strong local apartment  market.  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  fiscal  1998,  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.
<PAGE>

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 during calendar year 1999.

      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. Limited new construction and healthy economic growth have
significantly  improved the supply and demand  fundamentals for office buildings
in many markets throughout the country over the past year. The commercial office
segment has begun to experience new development activity in selected areas after
several years of virtually no new supply being added to the market. 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  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.
<PAGE>

      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  office  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 thirteenth
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  office  buildings  contain
expense reimbursement clauses based on increases in property operating expenses.
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.

Item 7A.  Market Risk Disclosures

      As  discussed   further  in  the  notes  to  the  accompanying   financial
statements, the Partnership's financial instruments are limited to cash and cash
equivalents  and  mortgage  notes  payable.  The cash  equivalents  are invested
exclusively  in  short-term  money market  instruments  and the  long-term  debt
consists exclusively of fixed rate obligations.  The Partnership does not invest
in derivative financial instruments or engage in hedging transactions.  In light
of these facts, and due to the Partnership's  expected liquidation by the end of
calendar year 1999, management does not believe that the Partnership's financial
instruments have any material exposure to market risk factors.

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                          46         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*
Thomas W. Boland       Vice President and Controller     36         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.

     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,  1999,  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,  as a result of the
sales of the Sunol  Center,  Chandler's  Reach and  Monterra  properties  during
fiscal 1999, the  distributable  cash flow to be received by the Partnership has
been  significantly  reduced.  Accordingly,  the payment of a regular  quarterly
distribution was  discontinued  effective for the fourth quarter of fiscal 1999.
Furthermore, 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, 1999. 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, 1999 is $185,000,  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 $7,000  (included in general and  administrative  expenses)  for managing the
Partnership's  cash assets during fiscal 1999. 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, 1999  accounts  receivable - affiliates  includes  $26,000 of
investor  servicing  fees  due  from  the  Warner/Red  Hill  joint  venture  for
reimbursement of certain expenses incurred in reporting  Partnership  operations
to the Limited Partners of the Partnership.  Accounts receivable - affiliates at
March 31, 1999 also  includes  $10,000 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. However, a Current Report on Form 8-K was filed by the Partnership
        subsequent  to year-end to report the sale of the  wholly-owned  Crystal
        Tree Commerce Center and is hereby incorporated herein by reference.

   (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 28, 1999

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 28, 1999
   ------------------------                     -------------
   Bruce J. Rubin
   Director




By:/s/ Terrence E. Fancher                Date: June 28, 1999
   ------------------------                     -------------
   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 pursuant
              dated July 18, 1985, as                to Rule 424(c) and incorporated
              supplemented, with particular          herein by reference.
              reference to the 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 all    incorporated herein  by reference.
              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
                                                     1999  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 I of his
                                                     Report  Page  I-1,  to which eference
                                                     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

                                                                    Reference
                                                                    ---------

PaineWebber Equity Partners One Limited Partnership:

   Report of independent auditors                                     F-3

   Consolidated balance sheets as of March 31, 1999 and 1998          F-4

   Consolidated statements of operations for the years ended
     March 31, 1999, 1998 and 1997                                    F-5

   Consolidated statements of changes in partners' capital
     (deficit) for the years ended March 31, 1999, 1998 and 1997      F-6

   Consolidated statements of cash flows for the years ended
     March 31, 1999, 1998 and 1997                                    F-7

   Notes to consolidated financial statements                         F-9

   Schedule III - Real Estate and Accumulated Depreciation           F-28

1998 and 1997 Combined Joint Ventures of PaineWebber Equity Partners One Limited
Partnership:

   Report of independent auditors                                    F-29

   Combined balance sheets as of December 31, 1998 and 1997          F-30

   Combined statements of operations and changes in venturers'
     capital for the years ended December 31, 1998 and 1997          F-31

   Combined statements of cash flows for the years ended
     December 31, 1998 and 1997                                      F-32

   Notes to combined financial statements                            F-33

   Schedule III - Real Estate and Accumulated Depreciation           F-38

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

   Reports of independent auditors                                   F-39

   Combined balance sheets as of December 31, 1997 and 1996          F-40

   Combined statements of operations and changes in venturers'
     capital for the years ended December 31, 1997 and 1996          F-41

   Combined statements of cash flows for the years ended
     December 31, 1997 and 1996                                      F-42

   Notes to combined financial statements                            F-43

   Schedule III - Real Estate and Accumulated Depreciation           F-49

   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.




<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, 1999 and
1998,  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, 1999.  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 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, 1999 and 1998,
and the  consolidated  results of its  operations and its cash flows for each of
the three years in the period ended March 31, 1999, 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 18, 1999



<PAGE>


                         PAINEWEBBER EQUITY PARTNERS ONE
                               LIMITED PARTNERSHIP

                           CONSOLIDATED BALANCE SHEETS
                             March 31, 1999 and 1998
                    (In thousands, except for per Unit data)

                                           ASSETS
                                                      1999            1998
                                                      ----            ----
Operating investment properties:
   Land                                             $  3,700         $  5,218
   Building and improvements                          18,767           32,691
                                                    --------         --------
                                                      22,467           37,909
   Less accumulated depreciation                     (10,215)         (15,131)
                                                    --------         --------
                                                      12,252           22,778

Investments in and notes receivable
   from unconsolidated joint ventures,
   at equity                                          15,129           24,369
Cash and cash equivalents                              5,753            3,268
Prepaid expenses                                           -               13
Accounts receivable                                       29               69
Accounts receivable - affiliates                          36              308
Deferred rent receivable                                 138              415
Deferred expenses, net of accumulated
  amortization of $227 ($589 in 1998)                    292              732
Other assets                                             478              290
                                                    --------         --------
                                                    $ 34,107         $ 52,242
                                                    ========         ========

                        LIABILITIES AND PARTNERS' CAPITAL

Net advances from consolidated ventures             $     48         $     32
Accounts payable and accrued expenses                    368              412
Interest payable                                           -               71
Bonds payable                                              -            1,420
Mortgage notes payable (net of discount
  of $898 in 1999)                                    13,527           14,720
Mortgage participation liability                       1,830                -
                                                    --------         --------
      Total liabilities                               15,773           16,655

Partners' capital:
   General Partners:
     Capital contributions                                 1                1
     Cumulative net income (loss)                        308               44
     Cumulative cash distributions                    (1,038)          (1,018)

Limited Partners ($50 per unit;
  2,000,000 Units outstanding):
   Capital contributions, net of
   offering costs                                     90,055           90,055
     Cumulative net income (loss)                     11,110          (13,713)
     Cumulative cash distributions                   (82,102)         (39,782)
                                                    --------         --------
      Total partners' capital                         18,334           35,587
                                                    --------         --------
                                                    $ 34,107         $ 52,242
                                                    ========         ========



                             See accompanying notes.


<PAGE>


                         PAINEWEBBER EQUITY PARTNERS ONE
                               LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                For the years ended March 31, 1999, 1998 and 1997
                    (In thousands, except for per Unit data)


                                                1999        1998         1997
                                                ----        ----         ----

Revenues:
   Rental income and expense
     reimbursements                         $   4,276   $   4,000   $   2,882
   Interest and other income                      660         308         291
                                            ---------   ---------   ---------
                                                4,936       4,308       3,173

Expenses:
   Interest expense                             2,053       1,137         995
   Depreciation expense                         1,759       1,464       1,324
   Property operating expenses                  1,671       1,593       1,153
   Real estate taxes                              301         351         271
   General and administrative                     475         482         412
   Amortization expense                           198         143         117
   Bad debt expense                                16          16           -
                                            ---------   ---------   ---------
                                                6,473       5,186       4,272
                                            ---------   ---------   ---------
Operating loss                                 (1,537)       (878)     (1,099)

Gain on sale of operating investment
  property                                      7,373           -           -

Investment income:
   Interest income on notes receivable
      from unconsolidated ventures                400         800         800
   Partnership's share of
      unconsolidated ventures' losses            (233)       (178)       (107)
   Partnership's share of gains on sale
      of unconsolidated operating
      investment properties                    19,084           -           -
                                            ---------   ---------   ---------

Net income (loss)                           $  25,087   $    (256)  $    (406)
                                            =========   =========   =========

Net income (loss) per Limited
  Partnership Unit                          $   12.41   $   (0.13)  $   (0.20)
                                            =========   =========   =========

Cash distributions per Limited
  Partnership Unit                          $   21.16  $     1.00   $    0.50
                                            =========  ==========   =========


     The above net income (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, 1999, 1998 and 1997
                                 (In thousands)


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

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

Cash distributions                        (20)       (42,320)      (42,340)

Net income                                264         24,823        25,087
                                     --------       --------      --------

Balance at March 31, 1999            $   (729)      $ 19,063      $ 18,334
                                     ========       ========      ========

















                             See accompanying notes.


<PAGE>
<TABLE>


                         PAINEWEBBER EQUITY PARTNERS ONE
                               LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the years ended March 31, 1999, 1998 and 1997
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)
<CAPTION>
                                                                 1999           1998           1997
                                                                 ----           ----           ----
<S>                                                              <C>            <C>            <C>

Cash flows from operating activities:
  Net income (loss)                                              $   25,087     $    (256)     $   (406)
  Adjustments to reconcile net income (loss)
     to net cash provided by operating activities:
   Partnership's share of unconsolidated ventures' losses               233           178           107
   Gain on sale of operating investment property                     (7,373)            -             -
   Partnership share of gains on sale of unconsolidated
     operating investment properties                                (19,084)            -             -
   Depreciation and amortization                                      1,957         1,607         1,441
   Amortization of discount on note payable to insurance
     company                                                            932             -             -
   Amortization of deferred financing costs                              24            23            20
   Bad debt expense                                                      16            16           (21)
   Changes in assets and liabilities:
     Prepaid expenses                                                    13             -             -
     Accounts receivable                                                 24            54           (37)
     Accounts receivable - affiliates                                   272           (48)           (5)
     Deferred rent receivable                                           277            91          (168)
     Deferred expenses                                                  (95)            -           (80)
     Accounts payable and accrued expenses                              (44)         (138)          101
     Interest payable                                                   (71)           (2)            -
     Net advances from consolidated ventures                             16           (41)            -
                                                                 ----------     ---------      --------
        Total adjustments                                           (22,908)        1,740         1,358
                                                                 ----------     ---------      --------
        Net cash provided by operating activities                     2,184         1,484           952
                                                                 ----------     ---------      --------

Cash flows from investing activities:
    Net proceeds from sale of operating investment property          15,589             -             -
  Additions to operating investment properties                         (549)         (216)         (551)
  Payment of leasing commissions                                        (99)         (128)            -
  Distributions from unconsolidated joint ventures                   28,693         1,052         2,150
  Additional investments in unconsolidated
   joint ventures                                                      (602)       (1,160)       (1,054)
                                                                 ----------     ---------      --------
        Net cash provided by (used in) investing activities          43,032          (452)          545
                                                                 ----------     ---------      --------

Cash flows from financing activities:
  Repayment of principal on long-term debt                             (295)         (278)         (131)
  Payments on district bond assessments                                 (96)          (83)          (73)
  Distributions to partners                                         (42,340)       (2,020)       (1,010)
                                                                 ----------     ---------      --------
        Net cash used in financing activities                       (42,731)       (2,381)       (1,214)
                                                                 ----------     ---------      --------

Net increase (decrease) in cash and cash equivalents                  2,485        (1,349)          283

Cash and cash equivalents, beginning of year                          3,268         4,325         4,042

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

Cash and cash equivalents, end of year                           $    5,753     $   3,268      $  4,325
                                                                 ==========     =========      ========

Cash paid during the year for interest                           $    1,168     $   1,116      $    975
                                                                 ==========     =========      ========


Supplemental Schedule of Noncash Financing Activity:
----------------------------------------------------
  Discount on note payable to insurance company                  $  (1,830)     $       -      $      -

  Mortgage participation liability                                   1,830              -             -

</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. During fiscal 1999, the Partnership
sold its  interests  in an  office/R&D  complex and two  multi-family  apartment
complexes.  As of March 31, 1999, the Partnership retained an ownership interest
in four operating  investment  properties,  which consisted of three  office/R&D
complexes and one mixed-use retail/office  property.  Subsequent to year-end, on
May 14, 1999 the  Partnership  sold its interest in the mixed-use  retail/office
property.  The  Partnership  is  currently  focusing  on  potential  disposition
strategies for the three  remaining  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 prior to the end of calendar
year 1999. The disposition of the remaining  investments  would be followed by a
liquidation of the Partnership.

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, 1999 and 1998 and revenues and expenses for each
of the three years in the period  ended March 31,  1999.  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, or owned, 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 was
presented  on a  consolidated  basis in the  accompanying  financial  statements
through the date of the sale of the venture's  operating  investment property on
November  20,  1998.  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  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 are 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 on the accompanying balance sheets.

      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.

      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  additional  annual  charges  to
depreciation  expense 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.  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 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.  Upon  sale or
disposition of the Partnership's  investments,  the taxable gain or the tax loss
incurred will be allocated among the partners.  The principal difference between
the Partnership's  accounting on a federal income tax basis and the accompanying
financial  statements  prepared in accordance with generally accepted accounting
principals  (GAAP)  relates to the methods  used to determine  the  depreciation
expense on the consolidated and unconsolidated  operating investment properties.
As a result of the difference in  depreciation,  the gains  calculated  upon the
sale of the operating investment  properties for GAAP purposes differ from those
calculated for federal income tax purposes.

      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, 1999 and
1998  due to  the  short-term  maturities  of  these  instruments.  It  was  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 1998 and 1997 amounts have been  reclassified to conform to
the fiscal 1999 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. No management fees were earned for the fiscal years
ended March 31, 1999,  1998 and 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.

      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,  1999,  1998 and 1997 is  $185,000,  $181,000  and  $179,000,  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 $7,000, $14,000 and $9,000 (included in general and administrative  expenses)
for managing the  Partnership's  cash assets during fiscal 1999,  1998 and 1997,
respectively.

      At March 31, 1999 and 1998,  accounts  receivable  -  affiliates  includes
$26,000 and $167,000,  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.  At March 31,
1998,  accounts  receivable - affiliates also included $126,000 due from the two
sold  unconsolidated  joint  ventures  for interest  earned on permanent  loans.
Accounts  receivable  -  affiliates  at March 31,  1999 and 1998  also  includes
$10,000 and $15,000, respectively, of expenses paid by the Partnership on behalf
of the joint ventures during fiscal 1993.

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

      At March 31, 1999, the Partnership's  balance sheet includes two operating
investment  properties (three at March 31, 1998): the wholly-owned  Crystal Tree
Commerce  Center and the Warner/Red  Hill Business  Center,  owned by Warner/Red
Hill Associates,  a majority-owned and controlled joint venture. On November 20,
1998, Sunol Center  Associates,  a joint venture in which the Partnership had an
interest,  sold the property known as the Sunol Center Office  Buildings,  to an
unrelated third party for $15.75 million. 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.
<PAGE>

      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, 1999, 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.

      Subsequent  to  year-end,  on May  14,  1999,  the  Partnership  sold  the
wholly-owned Crystal Tree Commerce Center to an unrelated third party for $10.55
million. The Partnership received net proceeds of approximately  $6,690,000 from
the  sale of  Crystal  Tree  after  deducting  closing  costs  of  approximately
$295,000,  net closing proration  adjustments of approximately  $287,000 and the
repayment  of the  outstanding  first  mortgage  loan and  accrued  interest  of
$3,278,000. As a result of the sale, the Partnership made a special distribution
to the Limited Partners of $6,700,000, or $67 per original $1,000 investment, on
June 15, 1999. The Partnership will recognize a gain of approximately $1 million
in fiscal 2000 in conjunction with the sale of the Crystal Tree property.

      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, 1999,  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,  1999.  The  Partnership  will  continue  to  pursue
collection of this balance during fiscal 2000. However,  there are no assurances
that any portion of this balance will be collected.

      On November 20, 1998,  Sunol Center  Associates sold the property known as
the Sunol  Center  Office  Buildings,  to an  unrelated  third  party for $15.75
million. The Partnership received net proceeds of approximately $15,532,000 from
the sale of Sunol Center after deducting closing costs of approximately $161,000
and net closing proration  adjustments of approximately  $57,000. As a result of
the sale, the Partnership made a special distribution to the Limited Partners of
$15,520,000, or $155.20 per original $1,000 investment, on December 4, 1998. The
Partnership  recognized a gain of $7,373,000  in fiscal 1999 in connection  with
the sale of the Sunol Center property.

      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 original  co-venturer was
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 100% leased as of March 31, 1999, 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).

      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, 1998, the
property was  encumbered by a loan with a principal  balance of $5,076,000  (see
Note 6).

      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,
1998 was $10,943,000, including accrued interest of $3,595,000.

      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   (net  of  the  mortgage   lender's
participation   interest  which  is  discussed  further  in  Note  6)  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; 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.

      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 original  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 years ended March 31,  1999 and 1998 and for the Crystal  Tree  Commerce
Center  and Sunol  Center  Office  Building  as  reported  in the  Partnership's
statements of operations for the year ended March 31, 1997 (in thousands):

                                            1999        1998        1997
                                            ----        ----        ----
      Property operating expenses:
         Repairs and maintenance          $     573    $    393    $    221
         Utilities                              374         346         202
         Insurance                               64          82          61
         Administrative and other               590         703         641
         Management fees                         70          69          28
                                          ---------    --------    --------
                                          $   1,671    $  1,593    $  1,153
                                          =========    ========    ========

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

      As  of  March  31,  1999,   the   Partnership   had   investments  in  two
unconsolidated joint ventures which own operating investment properties (four at
March  31,  1998).  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.

      On  October  2,  1998,  Lake  Sammamish   Limited   Partnership  and  Crow
PaineWebber  LaJolla  Limited  Partnership,  two  joint  ventures  in which  the
Partnership had an interest,  sold the properties  known as the Chandler's Reach
Apartments  and the  Monterra  Apartments  to the same  unrelated  third  party.
Chandler's Reach, located in Redmond,  Washington,  was sold for $17.85 million,
and Monterra,  located in LaJolla,  California,  was sold for $20.1 million. The
Partnership received net proceeds of approximately  $12,359,000 from the sale of
Chandler's  Reach  after  deducting  closing  costs of  approximately  $561,000,
closing  proration  adjustments of approximately  $55,000,  the repayment of the
existing mortgage note of approximately  $3,415,000 and a prepayment  penalty of
approximately  $354,000 (of which $205,000 was paid by the buyer), and a payment
of  approximately  $1,311,000 to the  Partnership's  co-venture  partner for its
share of the sale proceeds in accordance with the joint venture  agreement.  The
Partnership received net proceeds of approximately  $14,796,000 from the sale of
Monterra  after  deducting  closing  costs of  approximately  $306,000,  closing
proration adjustments of approximately  $114,000,  the repayment of the existing
mortgage  note  of  approximately   $4,672,000  and  a  prepayment   penalty  of
approximately  $500,000 (of which $295,000 was paid by the buyer), and a payment
of approximately $7,000 to the Partnership's co-venture partner for its share of
the  sale  proceeds  in  accordance  with  the  joint  venture  agreement.   The
Partnership  distributed  $24,800,000  of the net proceeds from the sales of the
Chandler's Reach and Monterra  properties in the form of a special  distribution
to the Limited  Partners of $248 per original $1,000  investment on November 13,
1998.  The  remainder  of the  net  proceeds  were  retained  and  added  to the
Partnership's  cash  reserves  to ensure  that the  Partnership  has  sufficient
capital resources to fund its share of potential capital improvement expenses at
its  remaining  investment   properties.   The  Partnership  recorded  gains  of
$9,799,000 and $9,285,000,  respectively,  on the sales of the Chandler's  Reach
and Monterra operating investment properties.
<PAGE>

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

                        Condensed Combined Balance Sheets
                           December 31, 1998 and 1997
                                 (in thousands)
                                     Assets
                                                         1998        1997
                                                         ----        ----

    Current assets                                    $   1,185   $   1,104
    Operating investment properties, net                 35,564      51,956
    Other assets                                          4,043       3,913
                                                      ---------   ---------
                                                      $  40,792   $  56,973
                                                      =========   =========

                             Liabilities and Capital

    Current liabilities                               $   2,054   $   2,952
    Other liabilities                                       220         295
    Long-term debt and notes payable to venturers             -      16,020
    Partnership's share of combined capital              14,990      15,507
    Co-venturers' share of combined capital              23,528      22,199
                                                      ---------   ---------
                                                      $  40,792   $  56,973
                                                      =========   =========

                    Condensed Combined Summary of Operations
              For the years ended December 31, 1998, 1997 and 1996
                                 (in thousands)

                                                1998     1997        1996
                                                ----     ----        ----
   Revenues:
     Rental income and expense
       recoveries                          $  10,540  $  10,194   $  10,910
     Interest and other income                   486        517         361
                                           ---------  ---------   ---------
        Total revenues                        11,026     10,711      11,271

   Expenses:
     Property operating expenses               3,618      3,991       4,000
     Real estate taxes                         1,852      2,290       2,139
     Mortgage interest expense                 1,379        730       1,068
     Interest expense payable to partner         600        800         800
     Depreciation and amortization             3,175      2,953       3,163
                                           ---------  ---------   ---------
                                              10,624     10,764      11,170
                                           ---------  ---------   ---------

   Operating income (loss)                       402        (53)        101
   Gain on sale of operating
     investment properties                    21,963          -           -
                                           ---------  ---------   ---------

   Net income (loss)                       $  22,365  $     (53)  $     101
                                           =========  =========   =========

   Net income (loss):
     Partnership's share of
      combined net income (loss)           $  19,396  $    (132)  $     (61)
     Co-venturers' share of
      combined net income (loss)               2,969         79          162
                                           ---------  ---------   ----------
                                           $  22,365  $     (53)  $      101
                                           =========  =========   ==========

                   Reconciliation of Partnership's Investment
                             March 31, 1999 and 1998
                                 (in thousands)

                                                         1998        1997
                                                         ----        ----
    Partnership's share of capital at
      December 31, as shown above                     $  14,990   $  15,507
    Excess basis due to investment in joint
      ventures, net (1)                                     328         873
    Partnership's share of ventures' current
      liabilities and long-term debt                          -       8,039
    Timing differences due to distributions received
      from and contributions sent to joint ventures
      subsequent to December 31 (see Note 2)               (189)        (50)
                                                      ---------   ---------
         Investments in unconsolidated joint
           ventures, at equity at March 31            $  15,129   $  24,369
                                                      =========   =========
<PAGE>

(1) The  Partnership's  investments in joint  ventures  exceeds its share of the
    combined joint  ventures'  capital  accounts by  approximately  $328,000 and
    $873,000  at March  31,  1999 and 1998,  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).

               Reconciliation of Partnership's Share of Operations
                          March 31, 1999, 1998 and 1997
                                 (in thousands)

                                             1998        1997        1996
                                             ----        ----        ----
    Partnership's share of combined net
      income (loss) as shown above         $ 19,396   $    (132)  $     (61)
    Amortization of excess basis               (545)        (46)        (46)
                                           --------   ---------   ---------
    Partnership's share of unconsolidated
      ventures' net income (losses)        $ 18,851   $    (178)  $    (107)
                                           ========   ==========  =========

    The Partnership's share of the unconsolidated  ventures' net income (losses)
is  presented  as follows  in the  consolidated  statements  of  operations  (in
thousands):

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

    Partnership's share of
       unconsolidated ventures' losses     $   (233)  $   (178)   $    (107)
    Partnership's share of gain on sale
      of operating investment properties      19,084         -            -
                                           ---------  --------    ---------
                                           $  18,851  $   (178)   $    (107)
                                           =========  ========    =========

      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,  1999 and 1998 is  comprised  of the
following equity method carrying values (in thousands):

                                                         1998        1997
                                                         ----        ----
    Investments in joint ventures, at equity:
      Crow PaineWebber LaJolla, Ltd.                  $      -    $    2,063
      Lake Sammamish Limited Partnership                     -        (1,058)
      Framingham 1881 - Associates                       2,418         2,672
      Chicago-625 Partnership                           12,711        12,692
                                                      --------    ----------
                                                        15,129        16,369
    Notes receivable:
      Crow PaineWebber LaJolla, Ltd.                         -         4,000
      Lake Sammamish Limited Partnership                     -         4,000
                                                      --------    ----------
                                                             -         8,000
                                                      --------    ----------
                                                      $ 15,129    $   24,369
                                                      ========    ==========


     Cash distributions  received from the Partnership's  unconsolidated  joint
ventures  for the years ended March 31,  1999,  1998 and 1997 are as follows (in
thousands):

                                               1999        1998        1997
                                               ----        ----        ----

    Warner/Red Hill Associates             $      -   $       -   $     604
    Crow PaineWebber LaJolla, Ltd.           14,779          27         176
    Lake Sammamish Limited Partnership       12,320           -          22
    Framingham 1881 - Associates                610           -         200
    Chicago - 625 Partnership                   984       1,025       1,148
                                           --------   ---------   ---------
                                           $ 28,693   $   1,052   $   2,150
                                           ========   =========   =========

     For the years ended March 31, 1999, 1998 and 1997, the  Partnership  earned
interest income of $400,000, $800,000 and $800,000, respectively, 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 was an affiliate of the Trammell Crow organization.
The Property 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.  As  discussed  above,  the  property  was sold on
October 2, 1998 to an unrelated third party for $20.1 million.

      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  was  distributed
quarterly  in the  following  order  of  priority:  1) the  Partnership  and the
co-venturer were each repaid accrued  interest and principal,  in that order, on
any optional loans (as described  below) they made to the joint venture;  2) the
Partnership  received a cumulative  annual  preferred return of 10% per annum on
the  Partnership's  Investment;  and 3) any  remaining  net cash  flow was to be
distributed 85% to the Partnership  and 15% to the  co-venturer.  The cumulative
unfunded amount relating to the Partnership's preferential return was $4,940,000
at October 2, 1998, the date the property was sold.

      To the extent that there were distributable  funds, as defined, net income
(other than gain from a sale or other disposition of the Property) was allocated
to the Partnership to the extent of its preferential  return, with the remainder
allocated 85% to the Partnership and 15% to the co-venturer.  In the event there
were no  distributable  funds,  as defined,  net income was 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) were allocated 99% to the Partnership
and 1% to the co-venturer, provided that if the co-venturer had a credit balance
in its capital  account,  it was 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 were 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 was  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 had a note payable to the  Partnership  in the amount of
$4,000,000  which  bore  interest  at 10% per  annum.  As a  result  of the debt
modification discussed in Note 6, this note was unsecured.  All unpaid principal
and  interest  on the note was due on July 1, 2011.  This note was repaid out of
the proceeds from the sale of the property.  Interest expense on the note, which
was payable on a quarterly basis,  amounted to $200,000,  $400,000 and $400,000,
respectively, for the years ended March 31, 1999, 1998 and 1997.

      The Partnership  received 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 was cancelable at the option of the Partnership  upon the
occurrence  of  certain  events.  The  management  fee  was  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  is located in  Redmond,  Washington.  As
discussed  above,  the  Property  was sold on October 2, 1998 to an  independent
third party for $17.85 million.

      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 October 2, 1998, the date
the property was sold,  the property was  encumbered  by a loan with a principal
amount of $3,402,000 (see Note 6).

      Net cash flow (as defined)  was  distributed  quarterly  in the  following
order of priority:  First,  the  Partnership  and Crow were each repaid  accrued
interest and  principal,  in that order,  on any  optional  loans.  Second,  the
Partnership  received 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 was to receive a distribution  equal to
$350,000.  Fourth,  any remaining net cash flow was to be distributed 75% to the
Partnership and 25% to Crow and the Limited  Partnership.  The cumulative amount
of the preference return due to the Partnership at October 2, 1998, the date the
property was sold, was approximately $2,497,000.

      Net  income  (other  than gains  from a sale or other  disposition  of the
Property) was 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 were no distributable funds from
operations,  net income was allocated 75% to the Partnership and 25% to Crow and
the  Limited  Partner;  net  losses  (other  than  losses  from a sale or  other
disposition)  were  allocated  99% to the  Partnership  and 1% to  Crow  and the
Limited  Partner,  provided  that if Crow or the  Limited  Partner  had a credit
balance in its capital  account,  it was  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 joint venture had a note payable to the  Partnership  in the amount of
$4,000,000  which  bore  interest  at 10% per  annum.  As a  result  of the debt
modification discussed in Note 6, this note was unsecured.  All unpaid principal
and interest on the note was due on October 1, 2011. This note was repaid out of
the proceeds from the sale of the property.  Interest expense on the note, which
was payable on a quarterly basis,  amounted to $200,000,  $400,000 and $400,000,
respectively, for the years ended March 31, 1999, 1998 and 1997.

      The Partnership  received 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  received  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  was
cancelable  at the  option of the  Partnership  upon the  occurrence  of certain
events.  The annual  management  fee,  payable  monthly,  was 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,
1999,  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.

      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,
1998 was $5,756,000.

      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.

      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  the 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 93% leased as of March 31,  1999,  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  has made  Leasing  Expense  Contributions  totalling  approximately
$3,177,000 through December 31, 1998.

      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 additional annual depreciation charges 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 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 $6,459,000 at December 31, 1998.

      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, 1999 and 1998 consist of the following (in thousands):

                                                       1999          1998
                                                       ----          ----

     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,
     2000.  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, 1999 and 1998.              $ 6,088        $ 6,188

     8.39%  nonrecourse  note payable to
     an  insurance  company,  which  was
     secured   by   the   Crystal   Tree
     Commerce      Center      operating
     investment property (see discussion
     below).  Monthly payments including
     interest of $28 were 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,  1999  and  1998.                     3,261          3,318

     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.                            5,076          5,214
                                                    -------        -------
                                                     14,425         14,720
     Less:  Discount on Warner/Red  Hill
     debt, net of  amortization  of $932
     in  1999  (see  discussion   below)               (898)             -
                                                    -------        -------
                                                    $13,527        $14,720
                                                    =======        =======

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

                  2000              $    314
                  2001                 6,193
                  2002                 3,283
                  2003                   156
                  Thereafter           4,479
                                    --------
                                    $ 14,425
                                    ========

      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. Subsequent to
year-end,  the Partnership  negotiated a one-year extension of the maturity date
to May 31, 2000. The interest rate of 9.125% and monthly  principal and interest
payments of $55,000 remain  unchanged.  The Partnership paid an extension fee of
$30,000 to the lender to obtain the extension.

      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 plus  "appreciation  interest" which is due upon the sale of
the property or at  maturity,  will be required The loan payable is subject to a
prepayment  penalty as  described in the amended and  restated  loan  agreement.
Additionally,  the  insurance  company has the option to purchase  the  Business
Center in accordance  with the terms of the "purchase  option"  described in the
loan  agreement  if the  Partnership  desires or  intends  to sell the  Business
Center.  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 or at
maturity,  which ever is sooner, the lender will receive  appreciation  interest
equal to 40% of the amount by which the fair market value of the Business Center
exceeds  the sum of the  outstanding  principal  and  accrued  interest  for the
subject  loan and  $350,000.  The $350,000 is an equity  contribution  which was
required  by  the  extension  and  modification  agreement.  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.  The
balance of the escrow account was $153,000 and $150,000 at December 31, 1998 and
1997,  respectively.  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.

      Effective in fiscal 1999, the  Partnership  adopted  Statement of Position
97-1,  Accounting by Participating  Mortgage Loan Borrowers ("SOP 97-1"),  which
establishes the borrower's  accounting for a participating  mortgage loan if the
lender  participates  in  increases in the market  value of the  mortgaged  real
estate project, the results of operations of that mortgaged real estate project,
or both.  SOP 97-1 states that if a lender is  entitled  to  participate  in the
market value of the mortgaged real estate project, the borrower should determine
the fair value of the  participation  feature at the  inception  of the loan and
recognize a participation  liability in that amount,  with a corresponding entry
to a debt discount  account.  The debt discount is to be amortized over the life
of the loan using the interest  method and the effective  interest  rate. At the
end of each reporting period, the participation  liability should be adjusted to
equal the current fair value of the  participation  feature.  The  Partnership's
mortgage  participation  liability  related to the Warner/Red Hill debt totalled
$1,830,000 at December 31, 1998. Due to the expected sale of the Warner/Red Hill
property  during fiscal 2000, the  Partnership  has elected to amortize the debt
discount over the expected  remaining  holding period of two years as opposed to
over the remaining term of the mortgage note.  Amortization of the debt discount
charged to interest expense totalled $932,000 for fiscal 1999.

      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  rested
with the related joint ventures and, accordingly, these amounts were recorded on
the books of the joint  ventures.  These loans were repaid in full during fiscal
1999 from the  proceeds of the sales of the  properties  as described in Note 5.
The legal  liability  for the loan secured by the Crystal Tree  Commerce  Center
rested with the  Partnership  and,  accordingly,  this loan was  recorded on the
books of the Partnership. The Crystal Tree loan bore interest at a rate of 8.39%
and required monthly principal and interest payments of $28,000 through maturity
in September  2001. This loan was repaid in full subsequent to year-end upon the
sale of the Crystal Tree operating property (see Note 4).

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

      Bonds  payable  consisted  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.  Since the operating  investment  property was sold on
November 20, 1998, the liability for the bond  assessments has been  transferred
to the buyer.  Therefore,  the Sunol Center joint venture is no longer be liable
for the bond assessments.

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

      The Crystal Tree and Warner/Red Hill 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
        ------------------------     ------

                  1999               $ 2,500
                  2000                 2,131
                  2001                 1,833
                  2002                 1,413
                  2003                   242
                                     -------
                                     $ 8,119
                                     =======




<PAGE>



Schedule III - Real Estate and Accumulated Depreciation
<TABLE>

               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
              SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                                 March 31, 1999
                                 (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        $ 3,261      $3,217  $15,598       $(1,747)     $2,444  $14,624   $17,068   $ 7,269       1983      10/23/85    5-27 yrs

Office
 Building
Tustin, CA    5,076       3,124    9,126        (6,851)      1,256    4,143     5,399     2,946       1984      12/18/85    35 years
            -------      ------  -------       -------      ------  -------   -------   -------

            $ 8,337      $6,341  $24,724       $(8,598)     $3,700  $18,767   $22,467   $10,215
            =======      ======  =======       =======      ======  =======   =======   =======

Notes:

(A) The  aggregate  cost of real estate  owned at December  31, 1998 for Federal income tax purposes is approximately $30,805.

(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 Note 6 to the financial  statements  for a  description  of the   terms of the debt encumbering the properties.

(D) Reconciliation of real estate owned:

                                                               1999      1998      1997
                                                               ----      ----      ----

       Balance at beginning of period                      $ 37,909     $32,284     $31,733
       Consolidation of Warner/Red Hill joint venture             -       5,409           -
       Increase due to additions                                549         216         551
       Dispositions                                         (15,991)          -           -
                                                           --------     -------     -------
       Balance at end of period                            $ 22,467     $37,909     $32,284
                                                           ========     =======     =======

(E) Reconciliation of accumulated depreciation:

       Balance at beginning of period                      $15,131      $10,823     $ 9,499
       Consolidation of Warner/Red Hill joint venture            -        2,844           -
       Depreciation expense                                  1,759        1,464       1,324
       Dispositions and retirements                         (6,675)           -           -
                                                          --------     --------     -------
       Balance at end of period                           $ 10,215      $15,131     $10,823
                                                          ========      =======     =======

</TABLE>


<PAGE>



                               REPORT OF INDEPENDENT AUDITORS



The Partners
PaineWebber Equity Partners One Limited Partnership:

     We have audited the  accompanying  combined  balance sheets of the 1998 and
1997  Combined  Joint  Ventures  of  PaineWebber  Equity  Partners  One  Limited
Partnership  as of  December  31,  1998  and  1997,  and  the  related  combined
statements of operations and changes in venturers'  capital,  and cash flows for
the years then ended. 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 provide 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
1998 and 1997 Combined Joint Ventures of PaineWebber Equity Partners One Limited
Partnership  at December 31, 1998 and 1997,  and the  combined  results of their
operations  and their cash flows for the years 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
February 22, 1999



<PAGE>


                    1998 and 1997 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP

                             COMBINED BALANCE SHEETS
                           December 31, 1998 and 1997
                                 (In thousands)

                                     ASSETS
                                                    1998                 1997
                                                    ----                 ----
Current assets:
   Cash and cash equivalents                     $    357           $     323
   Accounts receivable                                824                 772
   Other current assets                                 4                   9
                                                 --------           ---------
        Total current assets                        1,185               1,104

Operating investment properties:
   Land                                             8,785              15,762
   Building, improvements and equipment            48,342              61,008
                                                 --------           ---------
                                                   57,127              76,770
   Less accumulated depreciation                  (21,563)            (24,814)
                                                 --------           ---------
                                                   35,564              51,956

Escrowed cash                                       1,188                 979
Long-term rents receivable                          1,264               1,319
Due from partners                                     269                 269
Deferred expenses, net of accumulated
   amortization of $1,604 ($1,512 in 1997)          1,224               1,281
Other assets                                           98                  65
                                                 --------           ---------
                                                 $ 40,792           $  56,973
                                                 ========           =========

                       LIABILITIES AND VENTURERS' CAPITAL

Current liabilities:
   Current portion of long-term debt             $      -           $     136
   Accounts payable and accrued liabilities           215                 351
   Accounts payable - affiliates                        4                 159
   Real estate taxes payable                        1,775               1,975
   Distributions payable to venturers                   -                 204
   Other current liabilities                           60                 127
                                                 --------           ---------
        Total current liabilities                   2,054               2,952

Tenant security deposits                              220                 295
Notes payable to venturers                              -               8,000
Long-term debt                                          -               8,020
Venturers' capital                                 38,518              37,706
                                                ---------           ---------
                                                $  40,792           $  56,973
                                                =========           =========






                             See accompanying notes.


<PAGE>


                    1998 and 1997 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, 1998 and 1997
                                 (In thousands)

                                                        1998            1997
                                                        ----            ----

Revenues:
   Rental income and expense recoveries            $  10,540        $  10,194
   Interest income                                        30               25
   Other income                                          456              492
                                                   ---------        ---------
                                                      11,026           10,711
Expenses:
   Depreciation expense                                2,741            2,716
   Real estate taxes                                   1,852            2,290
   Interest expense                                    1,379              730
   Interest expense payable to partner                   600              800
   Property operating expenses                         1,721            1,159
   Repairs and maintenance                               905            1,371
   Utilities                                             512              619
   Management fees                                       239              391
   Salaries and related expenses                         169              381
   Amortization expense                                  434              237
   Insurance                                              72               70
                                                   ---------        ---------
       Total expenses                                 10,624           10,764
                                                   ---------        ---------

Operating income (loss)                                  402              (53)

Gain on sales of operating investment
   properties                                         21,963                -
                                                   ---------        ---------

Net income (loss)                                     22,365              (53)

Contributions from venturers                           1,814            2,093

Distributions to venturers                           (23,367)          (2,836)

Venturers' capital, beginning of year                 37,706           38,502
                                                   ---------        ---------

Venturers' capital, end of year                    $  38,518        $  37,706
                                                   =========        =========













                             See accompanying notes.


<PAGE>


                    1998 and 1997 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP

                        COMBINED STATEMENTS OF CASH FLOWS
                 For the years ended December 31, 1998 and 1997
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)
                                                         1998           1997
                                                         ----           ----

Cash flows from operating activities:
  Net income (loss)                                  $    22,365     $      (53)
  Adjustments to reconcile net income
   (loss) to net cash provided by operating
    activities:
      Gain on sales of operating investment
        properties                                      (21,963)               -
      Depreciation and amortization                       3,175            2,953
      Amortization of deferred financing costs               19               19
      Changes in assets and liabilities:
       Accounts receivable                                 (52)              87
       Other current assets                                  5                -
       Escrowed cash                                      (209)              35
       Long-term rents receivable                           55               49
       Deferred expenses                                  (396)            (324)
       Other assets                                        (33)            (230)
       Accounts payable and accrued liabilities           (136)             233
       Accounts payable - affiliates                       (155)              -
       Real estate taxes payable                          (200)             120
       Other current liabilities                           (67)             (24)
       Tenant security deposits                            (75)               9
                                                     ---------       ----------
              Total adjustments                        (20,032)           2,927
                                                     ----------      ----------
              Net cash provided by
                 operating activities                    2,333            2,874
                                                     ---------       ----------

Cash flows from investing activities:
  Additions to operating investment properties          (1,969)          (2,219)
  Net proceeds from sales of operating
    investment properties                               37,583                -
                                                     ---------       ----------

              Net cash provided by (used in)
                 investing activities                   35,614           (2,219)
                                                     ---------       ----------


Cash flows from financing activities:
  Repayment of long-term debt                           (8,156)            (125)
  Repayment of notes payable to venturers               (8,000)               -
  Contributions from venturers                           1,814            2,093
  Distributions to venturers                           (23,571)          (2,836)
                                                     ---------       ----------

        Net cash used in financing activities          (37,913)            (868)
                                                     ---------       ----------


Net increase (decrease) in cash and cash equivalents        34             (213)
Cash and cash equivalents, beginning of year               323              536
                                                     ---------       ----------

Cash and cash equivalents, end of year               $     357       $      323
                                                     =========       ==========

Cash paid during the year for interest               $   1,960       $    1,452
                                                     =========       ==========






                             See accompanying notes.


<PAGE>


                    1998 and 1997 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARNERSHIP
                     Notes to Combined Financial Statements



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

      The accompanying  financial statements of the 1998 and 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

    On October 2, 1998, Lake Sammamish Limited  Partnership and Crow PaineWebber
LaJolla Limited  Partnership  sold the properties  known as the Chandler's Reach
Apartments  and the  Monterra  Apartments  to the same  unrelated  third  party.
Chandler's Reach, located in Redmond,  Washington,  was sold for $17.85 million,
and Monterra, located in LaJolla,  California, was sold for $20.1 million. PWEP1
received net proceeds of  approximately  $12,359,000 from the sale of Chandler's
Reach after deducting closing costs of approximately $561,000, closing proration
adjustments of  approximately  $55,000,  the repayment of the existing  mortgage
note of  approximately  $3,415,000  and a  prepayment  penalty of  approximately
$354,000,   of  which  $205,000  was  paid  by  the  buyer,  and  a  payment  of
approximately  $1,311,000 to the PWEP1's co-venture partner for its share of the
sale proceeds in accordance with the joint venture agreement. PWEP1 received net
proceeds of approximately  $14,796,000 from the sale of Monterra after deducting
closing  costs of  approximately  $306,000,  closing  proration  adjustments  of
approximately   $114,000,  the  repayment  of  the  existing  mortgage  note  of
approximately  $4,672,000 and a prepayment penalty of approximately $500,000, of
which $295,000 was paid by the buyer, and a payment of  approximately  $7,000 to
PWEP1's co-venture partner for its share of the sale proceeds in accordance with
the joint venture agreement.

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, 1998 and 1997 and revenues and expenses for
the years 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  additional  annual
depreciation  charges to adjust the carrying  value of the operating  investment
property  such that it will match the  expected  reversion  value at the time of
disposition.

      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):

                              1999         $   6,184
                              2000             6,008
                              2001             4,264
                              2002             3,381
                              2003             2,188
                              Thereafter       6,898
                                           ---------
                                           $  28,923
                                           =========

      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, 1998 and 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  operated  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.  As
discussed in Note 1, the property was sold on October 2, 1998.

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

      The joint  venture  owned and operated  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.  As
discussed in Note 1, the property was sold on October 2, 1998.

      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 1998 and 1997 revenues  include  $184,000 and $178,000,  respectively,
relating to this lease.

      Accounts  payable - affiliates at December 31, 1998 consists of management
fees payable to a property  manager.  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  included 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 were at 10%
per annum,  payable quarterly.  Principal was 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 bore interest
at 10% per annum.  Accrued interest was payable quarterly.  Principal was due on
July 1, 2011.  Interest expense on these two notes payable  aggregated  $800,000
for the year ended  December 31, 1997 and  $600,000 for the year ended  December
31, 1998.  These notes were paid in full upon the sales of these  properties  on
October 2, 1998.

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

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

                                                                1997
                                                                ----
    8.45%   nonrecourse  loan  payable  to  a  third
    party   which  was   secured  by  the   Monterra
    Apartments.    The   loan    required    monthly
    principal  and interest  payments of $40 and was
    due  to  mature  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  was  secured  by  the   Chandler's
    Reach  Apartments.  The  loan  required  monthly
    principal  and interest  payments of $29 and was
    due  to  mature  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 repayment of principal and interest on the loans  described  above was
the  responsibility  of  PWEP1,  which  received  the loan  proceeds.  PWEP1 had
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.  These notes were paid in
full upon the sales of these properties on October 2, 1998.

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,  1998 and 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 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. The terms of the agreement extended the maturity date of the loan to May
1999. Subsequent to year-end,  PWEP1 and the affiliated partnership negotiated a
one-year  extension of the maturity  date to May 31, 2000.  The interest rate of
9.125% and monthly  principal and interest payments of $55,000 remain unchanged.
At December 31,  1998,  the  aggregate  indebtedness  of EP1 and its  affiliated
partnership  which is  secured by the 625 North  Michigan  Office  Building  was
approximately  $15,284,000.  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

                          1998 and 1997 COMBINED JOINT VENTURES OF
                    PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                    SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                                     December 31, 1998
                                       (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  $15,284     $8,112    $35,683      $9,509     $8,112  $45,192   $53,304  $19,992      1968        12/16/86  5-17 yrs.

Office
 Building
Framingham,
 MA                -      1,317      5,510      (3,004)       673    3,150     3,823    1,571      1987        12/12/86  5-40 yrs.
             -------     ------    -------      ------     ------  -------   -------  -------

             $15,284     $9,429    $41,193      $6,505     $8,785  $48,342   $57,127  $21,563
             =======     ======    =======      ======     ======  =======   =======  =======
Notes:

(A) The  aggregate  cost of real estate  owned at December  31, 1998 for Federal income  tax  purposes  is  approximately  $49,995.


(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:
                                                      1998        1997
                                                      ----        ----

      Balance at beginning of period               $ 76,770    $ 74,551
      Increase due to additions                       1,969       2,219
      Dispositions                                  (21,612)          -
                                                   --------    --------
      Balance at end of period                     $ 57,127    $ 76,770
                                                   ========    ========

 (D) Reconciliation of accumulated depreciation:

      Balance at beginning of period               $ 24,814    $ 22,098
      Depreciation expense                            2,741       2,716
      Dispositions                                   (5,992)          -
                                                   --------    --------
      Balance at end of period                     $ 21,563    $ 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
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 the years then
ended. 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 provide 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 1996
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 the years 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
February 8, 1997



<PAGE>


                         1996 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 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 and 1995
                                 (In thousands)

                                                      1996         1995
                                                      ----         ----

Revenues:
   Rental income and expense recoveries            $  10,910    $ 10,691
   Interest income                                        32          23
   Other income                                          329         223
                                                   ---------    --------
                                                      11,271      10,937
Expenses:
   Depreciation expense                                2,893       2,827
   Real estate taxes                                   2,139       1,980
   Interest expense                                    1,068       1,089
   Interest expense payable to partner                   800         800
   Property operating expenses                         1,151       1,203
   Repairs and maintenance                             1,201       1,178
   Utilities                                             756         701
   Management fees                                       450         440
   Salaries and related expenses                         368         333
   Amortization expense                                  270         353
   Insurance                                              74          72
   Bad debt expense                                        -           1
                                                   ---------    --------
       Total expenses                                 11,170      10,977
                                                   ---------    --------

Net income (loss)                                        101         (40)

Contributions from venturers                           1,494         441

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

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

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














                             See accompanying notes.


<PAGE>


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

Cash flows from operating activities:
  Net income (loss)                                     $   101      $    (40)
  Adjustments to reconcile net income (loss)
    to net cash provided by operating activities:
   Depreciation and amortization                          3,163         3,180
   Amortization of deferred financing costs                  43            40
   Bad debts                                                  -             1
   Changes in assets and liabilities:
     Accounts receivable                                     75           141
     Other current assets                                    (1)            -
     Escrowed cash                                           10            43
     Long-term rents receivable                              95             -
     Deferred expenses                                     (312)         (309)
     Other assets                                             1            14
     Accounts payable and accrued liabilities               140           243
     Accounts payable - affiliates                            -          (136)
     Real estate taxes payable                              (18)         (233)
     Other current liabilities                               24           (45)
     Tenant security deposits                                20            77
                                                        -------      --------
        Total adjustments                                 3,240         3,016
                                                        -------      --------
        Net cash provided by operating activities         3,341         2,976
                                                        -------      --------

Cash flows from investing activities:
  Additions to operating investment properties             (976)         (562)
                                                        -------      --------
        Net cash used in investing activities              (976)         (562)
                                                        -------      --------

Cash flows from financing activities:
  Repayment of long-term debt and deferred interest        (246)         (234)
  Contributions from venturers                            1,494           441
  Distributions to venturers                             (3,646)       (2,198)
                                                        -------      --------
        Net cash used in financing activities            (2,398)       (1,991)
                                                        -------      --------

Net (decrease) increase in cash and cash equivalents        (33)          423

Cash and cash equivalents, beginning of year                861           438
                                                        -------      --------

Cash and cash equivalents, end of year                  $   828      $    861
                                                        =======      ========

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

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

                             See accompanying notes.


<PAGE>


                         1996 COMBINED JOINT VENTUES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                     NOTES TO COMBINED FINANCIAL STATEMENTS


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

       The accompanying financial statements of the 1996 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 the years 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
    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. 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  additional annual depreciation
    charges to adjust the carrying  value of the operating  investment  property
    such  that it  will  match  the  expected  reversion  value  at the  time of
    disposition.

    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):

                              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.

    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.  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.

5.  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
    6, these notes are unsecured.

6.  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 7. The
    fair value of this  mortgage  note  approximated  its  carrying  value as of
    December 31, 1996 and 1995.
<PAGE>

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, 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 6, 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.



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Schedule III - Real Estate and Accumulated Depreciation

                         1996 COMBINED JOINT VENTURES OF
               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
              SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 1996
                                 (In thousands)

                                               Costs
                                              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  $80,696,000.

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

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

      Balance at beginning of period         $  80,767        $   80,205
      Increase due to additions                    976               562
      Write-offs due to disposals               (1,041)                -
                                             ---------        ----------
      Balance at end of period               $  80,702        $   80,767
                                             =========        ==========

(D) Reconciliation of accumulated depreciation:

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

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

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