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, 1997
                                      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

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

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

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

         Securities registered pursuant to Section 12(b) of the Act:
                                                      Name of each exchange on
Title of each class                                      which registered
-------------------                                      ----------------
     None                                                      None

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes   X     No _
                                        ___

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

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


<PAGE>


             PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                                1997 FORM 10-K

                              TABLE OF CONTENTS

PART I                                                                    Page

Item       1            Business                                          I-1

Item       2            Properties                                        I-3

Item       3            Legal Proceedings                                 I-4

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

PART II

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

Item       6            Selected Financial Data                          II-1

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

Item       8            Financial Statements and Supplementary Data      II-8

Item       9            Changes in and Disagreements with Accountants
                          on Accounting and Financial Disclosure         II-8

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-41


<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-6 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,  1997,  the  Partnership  owned  directly or through  joint
venture  partnerships the properties or interests in the properties set forth in
the following table, which consist of four office/R&D  buildings,  two apartment
complexes and one mixed-use retail/office property.

<TABLE>
<CAPTION>

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

Crystal Tree Commerce Center       74,923 square   10/23/85      Fee ownership of land and
North Palm Beach, FL               feet of retail                improvements
                                   space and
                                   40,115 square
                                   feet of office
                                   space
     
Warner/Red Hill Associates         93,895           12/18/85     Fee ownership of land and
Warner/Red Hill Business Center    net rentable                  improvements (through
Tustin, CA                         square feet of                joint venture)
                                   office space

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

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

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

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

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

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

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

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

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

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

(i)   preserve and protect the original capital invested in the Partnership;

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

      Through March 31, 1997, the Limited Partners had received  cumulative cash
distributions  totalling  approximately  $37,782,000 or $428 per original $1,000
investment for the Partnership's  earliest  investors.  Quarterly  distributions
were paid at the rate of 9% per annum on invested capital from inception through
the quarter ended  December 31, 1988. The  distributions  were reduced to 6% per
annum  effective for the quarter ended March 31, 1989 and were paid at that rate
through the quarter ended March 31, 1990, at which point they were reduced to 2%
per annum.  Effective for the quarter ended December 31, 1992,  the  Partnership
suspended the payment of quarterly  distributions as part of an overall strategy
aimed at accelerating the timetable for repaying the  Partnership's  zero coupon
loans, the refinancings of which were completed during fiscal 1995. As a result,
distributions  were  reinstated  at a rate of 1% per annum on  invested  capital
effective for the quarter ended March 31, 1995. As discussed further below, as a
result of the  improvement in operations of the properties in the  Partnership's
portfolio,  particularly  at Sunol  Center,  the  Partnership  has increased the
quarterly distribution to a 2% annualized return, effective for the distribution
paid on May 15, 1997 for the quarter ended March 31, 1997. A substantial portion
of the distributions paid to date has been sheltered from current federal income
tax liability. In addition, the Partnership retains an ownership interest in all
seven of its original investment properties, although, as noted above, the Sunol
Center joint venture has sold one of its three office buildings. The proceeds of
this sale  transaction  were used to retire an outstanding  zero coupon loan and
for reinvestment in certain of the existing joint ventures.

     The  Partnership's  success in meeting its capital  appreciation  objective
will  depend  upon the  proceeds  received  from the  final  liquidation  of the
investments.  The amount of such proceeds will ultimately  depend upon the value
of the underlying investment properties at the time of their liquidation,  which
cannot  presently be  determined.  While  market  values for  commercial  office
buildings  have  generally  begun to recover  after  several  years of depressed
conditions,  such  values,  for the most part,  remain  below the  levels  which
existed  in the  mid-1980's,  which is when the  Partnership's  properties  were
acquired.  Such conditions are due, in part, due to the residual  effects of the
overbuilding  which  occurred in the late 1980's and the trend toward  corporate
downsizing  and  restructurings  which occurred in the wake of the last national
recession.  In  addition,  at the  present  time real  estate  values for retail
shopping centers in certain markets are being adversely  impacted by the effects
of  overbuilding  and  consolidations  among retailers which have resulted in an
oversupply of space. The market for multi-family  residential properties in most
markets  throughout  the country  remained  strong  during  fiscal 1997 although
estimated  market values in some markets  appeared to have plateaued as a result
of the  increase  in  development  activity  referred  to below.  Management  is
currently  focusing on potential  disposition  strategies for the investments in
its portfolio. Although no assurances can be given, it is currently contemplated
that sales of the  Partnership's  remaining assets could be completed within the
next 2- to- 3 years.

      All of the Partnership's  investment properties are located in real estate
markets  in which  they  face  significant  competition  for the  revenues  they
generate. The apartment complexes compete with numerous projects of similar type
generally  on the  basis of price and  amenities.  Apartment  properties  in all
markets also compete  with the local single  family home market for  prospective
tenants. The continued availability of low interest rates on home mortgage loans
has increased the level of this  competition  over the past few years.  However,
the impact of the competition from the  single-family  home market has generally
been  offset  by the  lack  of  significant  new  construction  activity  in the
multi-family  apartment market over most of this period.  In the past 12 months,
development  activity for multi-family  properties in many markets has escalated
significantly.  The  Partnership's  shopping  center and office  buildings  also
compete for long-term  commercial tenants with numerous projects of similar type
generally on the basis of price, location and tenant improvement allowances.

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

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

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

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

Item 2.  Properties

      At March 31,  1997,  the  Partnership  had  interests  in seven  operating
properties  through  direct  ownership  and  joint  venture  partnerships.   The
properties and the related joint venture partnerships are referred to under Item
1 above to which  reference is made for the name,  location and  description  of
each property.

      Occupancy  figures  for each fiscal  quarter  during  1997,  along with an
average for the year, are presented below for each property:
<TABLE>
<CAPTION>


                                                Percent Occupied At
                                 ------------------------------------------------
                                                                          Fiscal 
                                                                          1997
                                 6/30/96     9/30/96  12/31/96  3/31/97   Average 
                                 -------     -------  --------  -------   ------- 
<S>                               <C>        <C>      <C>       <C>       <C>    

Crystal Tree                      92%         96%       94%       96%      95%

Warner/Red Hill                   82%         85%       85%       80%      83%

Monterra Apartments               98%         98%       99%       98%      98%

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

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

1881 Worcester Road              100%         51%       51%       51%      63%

625 North Michigan Avenue         89%         89%       86%       84%      87%
</TABLE>

<PAGE>


Item 3.  Legal Proceedings

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

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

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

     In February 1996,  approximately  150 plaintiffs  filed an action  entitled
Abbate v.  PaineWebber  Inc. in  Sacramento,  California  Superior Court against
PaineWebber   Incorporated  and  various  affiliated   entities  concerning  the
plaintiffs' purchases of various limited partnership interests,  including those
offered by the  Partnership.  The complaint  alleged,  among other things,  that
PaineWebber and its related entities committed fraud and  misrepresentation  and
breached  fiduciary  duties  allegedly  owed to the  plaintiffs  by  selling  or
promoting  limited   partnership   investments  that  were  unsuitable  for  the
plaintiffs and by overstating the benefits,  understating  the risks and failing
to state  material  facts  concerning  the  investments.  The  complaint  sought
compensatory  damages of $15 million plus punitive damages against  PaineWebber.
In June 1996, approximately 50 plaintiffs filed an action entitled Bandrowski v.
PaineWebber Inc. in Sacramento,  California  Superior Court against  PaineWebber
Incorporated  and  various  affiliated   entities   concerning  the  plaintiffs'
purchases of various limited partnership  interests,  including those offered by
the  Partnership.  The complaint was very similar to the Abbate action described
above and sought  compensatory  damages of $3.4  million plus  punitive  damages
against  PaineWebber.  In  September  1996,  the  court  dismissed  many  of the
plaintiffs'  claims  in both the  Abbate  and  Bandrowski  actions  as barred by
applicable  securities  arbitration  regulations.  Mediation with respect to the
Abbate and  Bandrowski  actions was held in December  1996.  As a result of such
mediation, a settlement between PaineWebber and the plaintiffs was reached which
provided  for the  complete  resolution  of both  actions.  Final  releases  and
dismissals  with regard to these actions were  received  subsequent to March 31,
1997.

     Based on the  settlement  agreements  discussed  above  covering all of the
outstanding unitholder  litigation,  and notwithstanding the appeal of the class
action  settlement  referred  to  above,  management  does not  expect  that the
resolution  of these  matters will have a material  impact on the  Partnership's
financial statements, taken as a whole.

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

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

      None.
<PAGE>

                                   PART II


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

    At  March  31,  1997  there  were  7,920  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.  The Managing  General Partner will
not redeem or repurchase Units.

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

    Reference  is made to Item 6 below for a  discussion  of cash  distributions
made to the Limited Partners during fiscal 1997.

Item 6. Selected Financial Data

               PaineWebber Equity Partners One Limited Partnershi
          For the years ended March 31, 1997, 1996, 1995, 1994 and 1993
                    (in thousands, except for per Unit data)

                         1997       1996        1995        1994        1993
                         ----       ----        ----        ----        ----

Revenues             $  3,173   $   2,726    $  2,346    $  1,971    $  2,139

Operating loss       $ (1,099)  $  (1,739)   $ (1,637)   $ (2,196)   $ (2,025)

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

Partnership's share
  of unconsolidated
  ventures' losses   $   (107)   $   (324)   $   (715)   $ (1,072)   $ (1,048)

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

Net loss             $   (406)   $ (1,263)   $(10,255)  $  (2,468)   $ (2,273)

Net loss per
  Limited 
  Partnership Unit   $  (0.20)   $ (0.62)    $ (5.07)   $   (1.22)   $  (1.12)

Cash distributions
  per Limited
  Partnership Unit   $   0.50    $    0.50        -            -     $   0.75

Total assets         $  49,736   $  51,255   $  53,572    $ 64,370    $ 66,169

Long-term debt       $  11,152   $  11,356   $  11,548    $ 12,148    $ 11,273

    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.
<PAGE>

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

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
--------------------------------------------------

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

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

     The Partnership  offered limited  partnership  interests to the public from
July 18, 1985 to July 17, 1986 pursuant to a Registration  Statement filed under
the Securities Act of 1933. Gross proceeds of $100,000,000  were received by the
Partnership  from the sale of Partnership  Units.  The Partnership also received
proceeds of  $17,000,000  from the issuance of four zero coupon loans during the
initial  acquisition  period. The proceeds of such borrowings,  net of financing
expenses  of  approximately   $275,000,  were  used  to  pay  the  offering  and
organizational  expenses,  acquisition fees and acquisition-related  expenses of
the Partnership  and to fund the  Partnership's  cash reserves.  The Partnership
initially  invested  approximately  $97,472,000  (excluding  acquisition fees of
$2,830,000) in seven operating properties through joint venture investments.  In
fiscal 1990, the Partnership received approximately $7,479,000 from the proceeds
of a sale of a part of one of the operating properties. The Partnership used the
proceeds  from  this sale to repay a zero  coupon  loan and  replenish  its cash
reserves.  As of March 31, 1997, the Partnership  retained an ownership interest
in seven  operating  investment  properties,  which  consist of four  office/R&D
complexes,  two multi-family apartment complexes and one mixed-use retail/office
property.   The  Partnership  does  not  have  any  commitments  for  additional
investments but may be called upon to fund its portion of operating  deficits or
capital  improvements  of the joint  ventures in accordance  with the respective
joint venture agreements.

      In light of the continued strength in the national real estate market with
respect to multi-family  apartment properties and the recent improvements in the
office/R&D property markets,  management believes that this may be the opportune
time to sell the Partnership's portfolio of properties.  As a result, management
is currently  focusing on potential  disposition  strategies  for the  remaining
investments in the Partnership's portfolio. Although there are no assurances, it
is currently contemplated that sales of the Partnership's remaining assets could
be  completed  within the next  2-to-3  years.  The two  multi-family  apartment
properties  in which the  Partnership  has an interest  continue  to  experience
strong occupancy levels and increasing rental rates. As discussed further below,
the  operations  of the five  commercial  office  and retail  properties  in the
Partnership's  portfolio  are  either  stable or  improving.  As a result of the
improvement  in operations of the  properties  in the  Partnership's  portfolio,
particularly  at  Sunol  Center,   the   Partnership   increased  the  quarterly
distribution to $5.00 per original $1,000  investment,  which is equivalent to a
2% annualized  return.  This increase was effective for the distribution paid on
May 15, 1997 for the quarter ended March 31, 1997.

      Sunol Center,  in  Pleasanton,  California,  remained 100% leased to three
tenants  throughout  fiscal 1997.  During the third quarter of fiscal 1997,  the
property's  largest tenant took occupancy of the final 12,000 square feet of its
leased  space,  representing  the remaining  vacant space at the property.  This
tenant now occupies 61,621 square feet, or  approximately  52% of the property's
net rentable area.  During fiscal 1997,  the  Partnership  funded  approximately
$348,000 to the Sunol Center joint  venture to pay for tenant  improvements  and
leasing  commissions  in  connection  with the  final  build-out  of this  major
tenant's space. Now that all the required  capital work is completed,  the Sunol
Center  joint   venture  is  not   expected  to  require  any  further   capital
contributions  for the next several  years.  None of the current leases at Sunol
Center  expire before  October  2001.  The overall  market  remains  strong with
increasing rental rates and a low vacancy level of 2%. Selective  development in
the  area is  continuing  as a  result  of this  low  vacancy  level.  Four  new
Pleasanton  office  projects,  all owner/user  developments  or  build-to-suits,
totalling 542,000 square feet commenced  construction  during the fourth quarter
of fiscal  1997.  Two other  major  Pleasanton  office/flex  developments  under
construction have pre-leased a significant  amount of their space. The BART (Bay
Area Rapid  Transit)  station,  which will serve the Hacienda  Business  Park in
which Sunol Center is located,  opened ahead of schedule in early May 1997.  The
existing  rental  rates on the leases at Sunol  Center are  significantly  below
current  market  rates.  Provided  there is not a  dramatic  increase  in either
planned  speculative  development  or  build-to-suit  development  with  current
tenants  in the local  market,  the  Partnership  can be  expected  to achieve a
materially  higher sale price as the existing  leases with  below-market  rental
rates approach their expiration dates. In the meantime, management will continue
to closely monitor all planned development activity in the market.  Accordingly,
management  plans to defer any sale efforts for the immediate future in order to
capture this expected increase in value.

      The 64,000 square foot 1881 Worcester Road Office  Building was 51% leased
as of March 31, 1997. As previously reported, a tenant which had occupied 49% of
the net  leasable  area moved out of the building  during the second  quarter of
fiscal  1997,  although its lease  obligation  was  scheduled to continue  until
December 1998. During the third quarter,  a settlement  payment in the amount of
$100,000  was  received  from  this  tenant in  return  for a  release  from its
remaining lease  obligation.  The funds from this settlement will be used to pay
for leasing  costs at the  property.  During the third quarter of fiscal 1997, a
lease  expansion and extension  agreement  was signed with the  building's  sole
remaining tenant. This tenant,  which agreed to extend its lease term from three
to six years,  now occupies the entire second floor of this two-story  building,
increasing  its occupancy  from 29% to 51% of the net rentable  area. The market
for office space in the  suburban  Boston area in which 1881  Worcester  Road is
located has continued to strengthen in recent months.  Average vacancy levels at
similar  buildings in the area have declined to  approximately  5%. As a result,
very few  large  blocks  of space  are  available.  In  addition,  the  property
management team has recently  completed the renovation of the building's  lobby,
and  subsequent  to  year-end,  a new leasing  agent was  retained to market the
vacant space at the property.  The lobby  renovations  and the new leasing agent
appear to have  stimulated  leasing  activity  which  has  resulted  in  serious
discussions  with two prospects  that together would absorb all of the available
space at 1881 Worcester Road. Consequently,  management is cautiously optimistic
that the  leasing  of the  vacant  first  floor at 1881  Worcester  Road,  which
comprises over 31,000 square feet,  will be  successfully  completed in the near
term.

     The  occupancy  level at Warner/Red  Hill  decreased to 80% as of March 31,
1997, from its 83% level of one year earlier.  The decline in occupancy occurred
because a tenant moved its  operations to another  location at the expiration of
its lease  agreement  in the  fourth  quarter  of  fiscal  1997.  Subsequent  to
year-end,  a lease was executed  with a new tenant to occupy 11,415 square feet,
or 12% or the  property's  rentable area.  Leases with four tenants  occupying a
total of 13,013 square feet are scheduled to expire over the next twelve months.
The largest of these  tenants,  which occupies 8,837 square feet, is expected to
renew its lease.  Local rental rates for office space have  experienced a modest
increase  in recent  months.  This is the  first  positive  sign of  potentially
improving  market  conditions in the Tustin,  California  area in several years.
With the lack of  speculative  office  construction  in the  local  market,  the
property's  leasing  team is  cautiously  optimistic  that  the  general  market
conditions will continue to improve in fiscal 1998.

      625 North Michigan  Avenue in Chicago,  Illinois,  was 84% leased at March
31, 1997,  compared to 89% at the end of the prior year. This decrease is mainly
the result of the loss of a 15,639  square foot tenant  which had occupied 5% of
the building's rentable area. This tenant vacated the property at the end of its
lease term to move to another  building which was better able to accommodate the
tenant's  need to expand and its desire to be on one floor.  In  addition,  this
tenant's  new space had been  recently  and  expensively  improved by a previous
tenant with a similar  use.  Although the  building's  current  occupancy  level
reflects the loss of a few larger  tenants with recent  lease  expirations,  the
local office market has been improving and its average occupancy level has risen
to 86%. As a result,  management is cautiously  optimistic  that ongoing leasing
efforts will lead to improved  occupancy at the property  over the near term. In
fiscal 1998,  eight tenants  occupying a total of 15,053 square feet have leases
that will expire.  The property's  leasing team expects four of these tenants to
renew their leases.  The  modernization of the building's  elevator  controls is
currently  underway,  with work on two of the eight elevator cars now completed.
This work is expected to continue for the  remainder of calendar year 1997 at an
estimated total cost of approximately $700,000.

      As a result of several lease  transactions at Crystal Tree Commerce Center
in North Palm Beach,  Florida,  the Center was 96% leased at March 31, 1997,  an
increase  from 92% at March 31, 1996.  Ten new leases were signed  during fiscal
1997 with  tenants  that moved into a total of 15,600  square feet of space.  In
addition,  seven leases covering 8,800 square feet were renewed during the year.
This leasing activity was partially offset by the loss of seven tenants that had
occupied  10,647 square feet and vacated the Center  during fiscal 1997.  During
fiscal  1998,  leases  with  eleven  tenants  totalling  10,200  square feet are
scheduled to expire.  Of these  expiring  leases,  seven tenants are expected to
renew. Property  improvements  completed during the year included restriping the
parking lot,  resurfacing  the retail  walkways,  installing  new awnings on the
fourth floor balconies in the office section of the property,  installation of a
new  air  conditioning  unit  and  repair  and  refurbishment  of the  courtyard
fountain.

      The average  occupancy  level at Chandler's  Reach  Apartments in Redmond,
Washington, remained at 94% for the quarter ended March 31, 1997, unchanged from
the prior quarter.  Conditions in the local market remain favorable as evidenced
by high  occupancy  levels  that  average  97%,  minimal  new  construction  and
increasing  rental  rates.  For calendar  year 1997,  rental rates at Chandler's
Reach are targeted to increase by 7%. The use of concessions in the form of free
rent is no longer common in this market. Construction of Microsoft Corporation's
37-acre  campus,  which is located  within  two miles of  Chandler's  Reach,  is
ongoing and is expected to add 2,500  employees  to the area.  The Redmond  Town
Center Mall, also located within two miles of the property, is scheduled to open
in August of 1997.  This new mall will consist of 400,000  square feet of retail
space, a 44-acre park and bike trails covering 120 acres. These nearby amenities
are  expected  to add to the  appeal of  Chandler's  Reach  Apartments.  Capital
improvement plans at Chandler's Reach for the remainder of calendar 1997 include
the repainting of all of the building exteriors.

      The  average   occupancy  level  at  Monterra   Apartments  in  La  Jolla,
California,  was 98% for the quarter  ended March 31, 1997,  compared to 99% for
the prior quarter.  Rental rates were increased by 2% during the fourth quarter,
which is ahead of schedule to meet the 1997 budget of 7% for the calendar  year.
The current  occupancy level for competing  properties  averages 97%, and no new
construction  is planned in the local market area.  A major  capital  project to
repair and/or  replace  water-damaged  stair towers and landings at the Monterra
Apartments is scheduled to be completed during fiscal 1998. The preliminary cost
estimate to complete this capital project is approximately $300,000.

     At March 31, 1997, the Partnership and its  consolidated  joint venture had
available cash and cash  equivalents of approximately  $4,325,000.  These funds,
along with the future cash flow  distributions  from the  operating  properties,
will be  utilized  for the  working  capital  requirements  of the  Partnership,
monthly loan payments, the funding of capital enhancements and potential leasing
costs for its commercial  property  investments,  and for  distributions  to the
partners.  The source of future  liquidity and  distributions to the partners is
expected  to be from  the  sales  or  refinancing  of the  operating  investment
properties.  Such sources of liquidity are expected to be sufficient to meet the
Partnership's  needs on both a short-term  and  long-term  basis.  The source of
future  liquidity and  distributions  to the partners is expected to be from the
sales or refinancings of the operating investment properties.

Results of Operations
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 is 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 has  occurred at the Sunol  Center  property  over the past year as a
result of the leasing  activity.  Real estate tax expense  increased  by $54,000
primarily due to the receipt of a refund at Sunol Center during the prior year.

      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 is
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
for the current year 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 for
the current  year  largely due to an increase in rental  income  resulting  from
rental rate  increases  implemented  over the past year. The increase in the net
income of the Warner/Red  Hill joint venture and the decrease in the net loss of
the Monterra  joint  venture  were  partially  offset by small  decreases in net
income at the 625 North  Michigan and 1881 Worcester  Road joint  ventures.  Net
income  decreased  by $33,000 at 625 North  Michigan  due to an increase in real
estate taxes.  Net income decreased at 1881 Worcester Road by $56,000 mainly due
to the write-off of certain  leasehold  improvements  and deferred leasing costs
resulting from former tenants vacating the property.

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

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

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

1995 Compared to 1994
---------------------

     The  Partnership's  net loss  increased by  $7,787,000  in fiscal 1995 when
compared to the prior year due to the impairment  losses recognized with respect
to the Warner/Red  Hill and 1881  Worcester  Road  properties in fiscal 1995, as
discussed  further in the notes to the accompanying  financial  statements.  The
impact  of the  impairment  losses  was  partially  offset by  decreases  in the
Partnership's  operating  loss and the  Partnership's  share  of  unconsolidated
ventures'  losses of $559,000  and  $357,000,  respectively.  The  Partnership's
fiscal 1995 operating loss decreased primarily due to a decrease in the net loss
of the Partnership's consolidated joint venture, Sunol Center Associates, and an
increase in the net income of the wholly owned Crystal Tree Commerce Center. The
net loss at Sunol Center  decreased by $198,000  primarily due to an increase in
other revenues.  Net income of the Crystal Tree Commerce Center increased due to
an  increase in rental  income of $62,000 and a decrease in bad debt  expense of
$27,000.  Rental income increased due to an increase in average occupancy to 98%
in fiscal 1995 from 97% in fiscal 1994.  In addition to the decrease in net loss
at Sunol Center and the increase in net income at Crystal Tree,  operating  loss
decreased  due to an increase in interest  income and  decreases  in general and
administrative  expenses  and interest  expense.  Interest  income  increased by
$126,000  due to a steady  increase  in interest  rates  earned on cash and cash
equivalents throughout fiscal 1995. General and administrative expense decreased
by  $87,000  mainly  due to a  decrease  in  legal  expenses.  Interest  expense
decreased by $41,000 due to the modification  and principal  paydown of the loan
secured by the 625 North Michigan property and the refinancing and payoff of the
zero coupon  loan which was  secured by the  Chandler's  Reach  Apartments.  The
impact of those two transactions on interest expense was partially offset by the
issuance of mortgage  debt  secured by the Crystal  Tree  property in  September
1994.

     The  Partnership's  share of  unconsolidated  ventures' losses decreased by
$357,000  in fiscal  1995 when  compared  to the prior year  primarily  due to a
significant  decrease in the net loss at the Warner/Red Hill joint venture prior
to the  aforementioned  impairment  loss. Net loss at the Warner/Red  Hill joint
venture prior to the impairment  loss  decreased by $336,000  primarily due to a
decrease in interest  expense as a result of the modification of the zero coupon
loan secured by the property.  The modification provided for the discontinuation
of the  compounding of interest and  significantly  reduced the interest rate on
the debt.  Rental  revenues  declined  by  $200,000  at  Warner/Red  Hill during
calendar 1994 due to a decrease in occupancy during the year.  Operations at the
Monterra and Chandler's Reach joint ventures  remained  relatively  unchanged in
calendar  1994 as slight  increases  in rental  revenues  were  offset by higher
property operating  expenses.  At 625 North Michigan  operations remained stable
despite a $219,000 drop in rental revenues due to a substantial  decline in real
estate taxes for calendar  1994.  Operations  of the 1881  Worcester  Road joint
venture  improved  slightly  during calendar 1994 as an increase in occupancy at
the property resulted in a $51,000 increase in rental revenues.

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.

     Competition.  The financial performance of the Partnership's remaining real
estate  investments  will be  significantly  impacted  by the  competition  from
comparable  properties  in their local market areas.  The  occupancy  levels and
rental rates  achievable at the  properties are largely a function of supply and
demand in the markets.  In many markets  across the country,  development of new
multi-family  properties  has surged in the past 12 months.  Existing  apartment
properties in such markets have generally  experienced increased vacancy levels,
declines in  effective  rental  rates and, in some cases,  declines in estimated
market values as a result of the increased  competition.  The commercial  office
segment has begun to  experience  limited new  development  activity in selected
areas after  several years of virtually no new supply being added to the market.
The retail  segment of the real estate  market is  currently  suffering  from an
oversupply of space resulting from overbuilding in recent years and the trend of
consolidations  and bankruptcies  among retailers prompted by the generally flat
rate of growth in  overall  retail  sales.  There are no  assurances  that these
competitive  pressures will not adversely  affect the  operations  and/or market
values of the Partnership's investment properties in the future.

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

    Availability of a Pool of Qualified  Buyers.  The  availability of a pool of
qualified  and  interested  buyers  for the  Partnership's  remaining  assets is
critical  to the  Partnership's  ability to realize  the  estimated  fair market
values of such  properties  at the time of their final  dispositions.  Demand by
buyers of multi-family  apartment,  office and retail  properties is affected by
many factors,  including the size,  quality,  age, condition and location of the
subject property,  the quality and stability of the tenant roster,  the terms of
any long-term leases,  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 eleventh
full year of operations in the current fiscal year. The effects of inflation and
changes in prices on the  Partnership's  operating results to date have not been
significant.

     Inflation  in future  periods may  increase  revenues as well as  operating
expenses  at the  Partnership's  operating  investment  properties.  Most of the
existing  leases with tenants at the  Partnership's  shopping  center and office
buildings contain rental escalation and/or expense  reimbursement  clauses based
on  increases  in tenant sales or property  operating  expenses.  Tenants at the
Partnership's apartment properties have short-term leases, generally of one year
or less in duration.  Rental rates at these  properties can be adjusted,  to the
extent market  conditions  allow,  to keep pace with inflation as the leases are
renewed or turned over.  Such increases in rental income would be expected to at
least partially offset the  corresponding  increases in Partnership and property
operating  expenses  resulting from  inflation.  As noted above,  the Warner/Red
Hill, 625 North Michigan and 1881 Worcester Road office buildings presently have
a  significant  amount  of  unleased  space.  During  a  period  of  significant
inflation,  increased  operating  expenses  attributable to space which remained
unleased at such time would not be recoverable  and would  adversely  affect the
Partnership's net cash flow.

Item 8.  Financial Statements and Supplementary Data

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

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

     None.


<PAGE>

                                   PART III

Item 10.  Directors and Executive Officers of the Partnership

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

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

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

Bruce J. Rubin          President and Director           37          8/22/96
Terrence E. Fancher     Director                         43          10/10/96
Walter V. Arnold        Senior Vice President and
                          Chief Financial Officer        49          10/29/85
David F. Brooks         First Vice President and
                          Assistant Treasurer            54          4/17/85 *
Timothy J. Medlock      Vice President and Treasurer     36          6/1/88
Thomas W. Boland        Vice President                   34          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.


<PAGE>


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

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

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

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

    Thomas W. Boland is a Vice President of the Managing  General  Partner and
a Vice  President  and Manager of Financial  Reporting 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,  1997,  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.

    The  Partnership  paid  cash  distributions  to the  Limited  Partners  on a
quarterly basis at a rate of 2% per annum on invested  capital for all of fiscal
1992 and through the second  quarter of fiscal 1993.  Effective  for the quarter
ended  December  31,  1992,  such  distributions  were  suspended  in  order  to
accumulate  cash required to repay and refinance the  Partnership's  zero coupon
loans.  The last of the  refinancing  transactions  was completed  during fiscal
1995.  Distributions  were  reinstated  at a rate of 1% per  annum  on  invested
capital  effective for the quarter ended March 31, 1995 and were  increased to a
rate of 2% per annum on invested  capital  effective for the quarter ended March
31, 1997. However, the Partnership's  Limited Partnership Units are not actively
traded on any organized  exchange,  and no efficient  secondary  market  exists.
Accordingly,  no  accurate  price  information  is  available  for these  Units.
Therefore,  a presentation of historical  unitholder  total returns would not be
meaningful.
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

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

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

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

Item 13.  Certain Relationships and Related Transactions

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

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

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

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

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

    An affiliate of the Managing General Partner  performs  certain  accounting,
tax  preparation,  securities  law compliance  and investor  communications  and
relations  services  for the  Partnership.  The  total  costs  incurred  by this
affiliate in providing  such  services are  allocated  among  several  entities,
including the Partnership.  Included in general and administrative  expenses for
the year ended March 31, 1997 is $179,000,  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 $9,000  (included in general and  administrative  expenses)  for managing the
Partnership's  cash assets during fiscal 1997. 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, 1997  accounts  receivable - affiliates  includes  $100,000 due
from a certain  unconsolidated  joint venture for interest earned on a permanent
loan and $145,000 of investor servicing fees due from several joint ventures for
reimbursement of certain expenses incurred in reporting  Partnership  operations
to the Limited Partners of the Partnership.  Accounts receivable - affiliates at
March 31, 1997 also  includes  $15,000 of expenses  paid by the  Partnership  on
behalf of certain of the joint ventures during fiscal 1993.

<PAGE>


                                   PART IV




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

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

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

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

        (3)  Exhibits:

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

   (b)  No  reports on Form 8-K were  filed  during  the last  quarter of fiscal
        1997.

   (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


Dated:  June 30, 1997

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 30, 1997
   -----------------------                  -------------
   Bruce J. Rubin
   Director




By:/s/ Terrence E. Fancher            Date: June 30, 1997
   -----------------------                  -------------
   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
                                                     1997 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 this
                                                     Report Page I-1, to which reference
                                                     is hereby made.

(27)          Financial Data Schedule                Filed as the last page of EDGAR
                                                     submission following the Financial
                                                     Statements and Financial Statement
                                                     Schedule required by Item 14.

</TABLE>

<PAGE>


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

                       PAINEWEBBER EQUITY PARTNERS ONE
                             LIMITED PARTNERSHIP

       INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                                                                    Reference
                                                                    ---------

PaineWebber Equity Partners One Limited Partnership:

   Reports of independent auditors                                    F-2

   Consolidated balance sheets as of March 31, 1997 and 1996          F-4

   Consolidated statements of operations for the years ended
     March 31, 1997, 1996 and 1995                                    F-5

   Consolidated statements of changes in partners' capital
     (deficit) for the  years ended March 31, 1997, 1996 and 1995     F-6

   Consolidated statements of cash flows for the years ended
     March 31, 1997, 1996 and 1995                                    F-7

   Notes to consolidated financial statements                         F-8

   Schedule III - Real Estate and Accumulated Depreciation            F-29

Combined Joint Ventures of PaineWebber Equity Partners One Limited Partnership:

   Reports of independent auditors                                    F-30

   Combined balance sheets as of December 31, 1996 and 1995           F-32

   Combined  statements  of operations  and changes in venturers' 
     capital for the years ended December 31, 1996, 1995 and 1994     F-33

   Combined statements of cash flows for the years ended 
     December 31, 1996, 1995 and 1994                                 F-34

   Notes to combined financial statements                             F-35

   Schedule III - Real Estate and Accumulated Depreciation            F-41



   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, 1997 and 1996, 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, 1997. 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.  The
financial  statements of Warner/Red  Hill  Associates (an  unconsolidated  joint
venture) as of December  31, 1994 and for the year then ended have been  audited
by other  auditors whose report has been furnished to us; insofar as our opinion
on the consolidated financial statements relates to data included for Warner/Red
Hill  Associates  for the year ended  December 31,  1994,  it is based solely on
their report. In the consolidated financial statements, the Partnership's equity
in the net loss of Warner/Red  Hill  Associates is stated at $5,687,000  for the
year ended March 31, 1995.

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

     In our opinion,  based on our audits and the report of other auditors,  the
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,  1997 and 1996,  and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
March 31, 1997 in conformity  with  generally  accepted  accounting  principles.
Also, in our opinion,  based on our audits and the report of other auditors, the
related financial statement  schedule,  when considered in relation to the basic
financial statements taken as a whole,  presents fairly in all material respects
the information set forth therein.




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

Boston, Massachusetts
June 20, 1997


<PAGE>




                         INDEPENDENT AUDITORS' REPORT



The Partners
Warner/Redhill Associates:

     We  have  audited  the  accompanying   balance  sheets  of   Warner/Redhill
Associates (a California  general  partnership) as of December 31, 1994 and 1993
and the related statements of operations,  changes in partners' capital and cash
flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of management of Warner/Redhill Associates. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Warner/Redhill Associates as
of December  31, 1994 and 1993 and the  results of its  operations  and its cash
flows for the years then ended in conformity with generally accepted  accounting
principles.

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





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




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



<PAGE>


                       PAINEWEBBER EQUITY PARTNERS ONE
                             LIMITED PARTNERSHIP

                         CONSOLIDATED BALANCE SHEETS
                           March 31, 1997 and 1996
                   (In thousands, except for per Unit data)

                                    ASSETS
                                                        1997            1996
                                                        ----            ----
Operating investment properties:
   Land                                            $   3,962        $   3,962
   Building and improvements                          28,322           27,771
                                                   ---------        ---------
                                                      32,284           31,733
   Less accumulated depreciation                     (10,823)          (9,499)
                                                   ---------        ---------
                                                      21,461           22,234

Investments in unconsolidated joint ventures          22,525           23,728
Cash and cash equivalents                              4,325            4,042
Prepaid expenses                                          13               13
Accounts receivable, less allowance for
   possible uncollectible amounts of $1
   ($89 in 1996)                                         139               81
Accounts receivable - affiliates                         260              255
Deferred rent receivable                                 353              185
Deferred expenses, net                                   660              717
                                                   ---------        ---------
                                                   $  49,736        $  51,255
                                                   =========        =========

                      LIABILITIES AND PARTNERS' CAPITAL

Accounts payable and accrued expenses              $     474        $     373
Interest payable                                          60               60
Bonds payable                                          1,503            1,576
Mortgage notes payable                                 9,649            9,780
                                                   ---------        ---------
        Total liabilities                             11,686           11,789

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

Partners' capital:
   General Partners:
     Capital contributions                                 1                1
     Cumulative net income (loss)                         47               51
     Cumulative cash distributions                      (998)            (988)

   Limited Partners ($50 per unit; 2,000,000
     Units outstanding):
     Capital contributions, net of offering costs     90,055           90,055
     Cumulative net income (loss)                    (13,460)         (13,058)
     Cumulative cash distributions                   (37,782)         (36,782)
        Total partners' capital                       37,863           39,279
                                                   ---------        ---------
                                                   $  49,736        $  51,255
                                                   =========        =========



                            See accompanying notes.


<PAGE>


                         PAINEWEBBER EQUITY PARTNERS ONE
                               LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                For the years ended March 31, 1997, 1996 and 1995
                    (In thousands, except for per Unit data)


                                                1997        1996         1995
                                                ----        ----         ----

Revenues:
   Rental income and expense reimbursements   $ 2,882    $  2,449    $  1,836
   Interest and other income                      291         277         510
                                              -------    --------    --------
                                                3,173       2,726       2,346

Expenses:
   Interest expense                               995       1,027       1,022
   Depreciation expense                         1,324       1,277         993
   Property operating expenses                  1,153       1,279         982
   Real estate taxes                              271         217         248
   General and administrative                     412         539         613
   Amortization expense                           117          87          75
   Bad debt expense                                 -          39          50
                                              -------    --------    --------
                                                4,272       4,465       3,983
                                              -------    --------    --------
 Operating loss                               (1,099)     (1,739)     (1,637)

Investment income:
   Interest income on notes receivable
      from unconsolidated ventures                800         800         800
   Partnership's share of
      unconsolidated ventures' losses            (107)       (324)       (715)
   Partnership's share of
      losses due to impairment of 
      operating investment properties              -            -      (8,703)
                                              -------    --------    --------
       Net loss                               $  (406)   $ (1,263)   $(10,255)
                                              =======    ========    ========

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

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


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








                           See accompanying notes.


<PAGE>


                         PAINEWEBBER EQUITY PARTNERS ONE
                               LIMITED PARTNERSHIP

        CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
                For the years ended March 31, 1997, 1996 and 1995
                                 (In thousands)


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

Balance at March 31, 1994           $    (804)      $ 52,611       $51,807

Net loss                                 (108)       (10,147)      (10,255)
                                    ----------      --------      --------

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

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

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

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

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

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

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






















                           See accompanying notes.


<PAGE>


                         PAINEWEBBER EQUITY PARTNERS ONE
                               LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               For the years ended March 31, 1997, 1996 and 1995
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)
<TABLE>
<CAPTION>


                                                           1997         1996         1995
                                                           ----         ----         ----

<S>                                                        <C>           <C>         <C>  

Cash flows from operating activities:
  Net loss                                               $   (406)    $ (1,263)    $ (10,255)
  Adjustments to reconcile net loss
        to net cash provided by operating activities:
   Partnership's share of losses due to
    impairment of operating investment properties               -            -         8,703
   Partnership's share of unconsolidated ventures' losses     107          324           715
   Depreciation and amortization                            1,441        1,364         1,068
   Amortization of deferred financing costs                    20           20            10
   Bad debt expense                                           (21)          39            50
   Interest expense                                             -            -           229
   Changes in assets and liabilities:
     Escrowed cash                                              -            -           144
     Prepaid expenses                                           -           (1)           (1)
     Accounts receivable                                      (37)         (43)          (72)
     Accounts receivable - affiliates                          (5)         (40)          154
     Deferred rent receivable                                (168)        (156)           17
     Deferred expenses                                        (80)         (33)         (169)
     Accounts payable and accrued expenses                    101          149            57
     Interest payable                                           -           (1)            -
                                                           ------      --------      -------
        Total adjustments                                   1,358        1,622        10,905
                                                           ------      --------      -------
        Net cash provided by operating activities             952          359           650
                                                           ------      --------      -------

Cash flows from investing activities:
  Additions to operating investment properties               (551)      (2,002)         (95)
  Payment of leasing commissions                                -         (557)           -
  Distributions from unconsolidated joint venture           2,150        1,332        5,654
  Additional investments in unconsolidated
   joint ventures                                          (1,054)        (348)      (5,183)
                                                          -------      -------      -------
        Net cash provided by (used in) investing
          activities                                          545       (1,575)         376
                                                          -------      -------      -------

Cash flows from financing activities:
  Repayment of principal and deferred interest
   on long-term debt                                         (131)        (120)      (4,073)
  Payments on district bond assessments                       (73)         (72)        (297)
  District bond assessments                                     -            -           61
  Distributions to partners                                (1,010)      (1,010)           -
  Issuance of note payable                                      -            -        3,480
                                                           ------     ---------    --------
        Net cash used in financing activities             (1,214)       (1,202)        (829)
                                                           ------     ---------    --------

Net increase (decrease) in cash and cash equivalents         283       (2,418)          197

Cash and cash equivalents, beginning of year                4,042        6,460        6,263
                                                          -------     --------     --------

Cash and cash equivalents, end of year                    $ 4,325     $  4,042     $  6,460
                                                          =======     ========     ========

Cash paid during the year for interest                    $   975     $  1,008     $  2,322
                                                          =======     ========     ========


                           See accompanying notes.
</TABLE>
<PAGE>

                       PAINEWEBBER EQUITY PARTNERS ONE
                             LIMITED PARTNERSHIP
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  Organization and Nature of Operations

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

       The Partnership initially invested  approximately  $97,472,000 (excluding
    acquisition fees of $2,830,000) in seven operating  properties through joint
    venture investments.  In fiscal 1990, the Partnership received approximately
    $7,479,000  from the  proceeds  of a sale of a part of one of the  operating
    properties. The Partnership used the proceeds from this sale to repay a zero
    coupon loan and  replenish  its cash  reserves.  As of March 31,  1997,  the
    Partnership  retained an ownership  interest in seven  operating  investment
    properties,  which consist of four office/R&D  complexes,  two  multi-family
    apartment   complexes  and  one  mixed-use   retail/office   property.   The
    Partnership is currently  focusing on potential  disposition  strategies for
    the investments in its portfolio. Although no assurances can be given, it is
    currently  contemplated  that sales of the  Partnership's  remaining  assets
    could be completed within the next 2- to- 3 years.

2.  Use of Estimates and Summary of Significant Accounting Policies

        The accompanying  financial statements have been prepared on the accrual
    basis  of  accounting  in  accordance  with  generally  accepted  accounting
    principles which requires  management to make estimates and assumptions that
    affect the reported  amounts of assets and  liabilities  and  disclosures of
    contingent assets and liabilities as of March 31, 1997 and 1996 and revenues
    and expenses for each of the three years in the period ended March 31, 1997.
    Actual results could differ from the estimates and assumptions used.

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

        As further discussed in Note 4, the Partnership  acquired control of the
    Sunol Center joint venture in fiscal 1992. Accordingly, the joint venture is
    presented on a consolidated basis in the accompanying  financial statements.
    As  discussed  above,  the Sunol  Center  joint  venture  has a December  31
    year-end  and  operations  of  the  venture  continue  to be  reported  on a
    three-month lag. All material  transactions  between the Partnership and its
    consolidated joint venture, 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 venture.

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

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

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

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

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

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

       The cash and cash  equivalents,  bonds payable and mortgage notes payable
    appearing  on  the  accompanying   consolidated   balance  sheets  represent
    financial  instruments  for purposes of  Statement  of Financial  Accounting
    Standards No. 107, "Disclosures about Fair Value of Financial  Instruments."
    The carrying  amount of cash and cash  equivalents  approximates  their fair
    value as of March  31,  1997 and 1996 due to the  short-term  maturities  of
    these instruments. It is not practicable for management to estimate the fair
    value of the bonds  payable  without  incurring  excessive  costs due to the
    unique nature of such obligations.  The fair value of mortgage notes payable
    is  estimated  using  discounted  cash flow  analysis,  based on the current
    market rates for similar types of borrowing arrangements.

        Certain fiscal 1996 and 1995 amounts have been  reclassified  to conform
     to the fiscal 1997 presentation.


<PAGE>


3.  The Partnership Agreement and Related Party Transactions

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

        All  distributable  cash,  as  defined,  for each  fiscal  year shall be
    distributed  quarterly in the ratio of 99% to the Limited Partners and 1% to
    the General  Partners  until the Limited  Partners  have  received an amount
    equal  to a  6%  noncumulative  annual  return  on  their  adjusted  capital
    contributions. The General Partners and PWPI will then receive distributions
    until they have  received  concurrently  an amount equal to 1.01% and 3.99%,
    respectively,  of all  distributions  to all  partners.  The balance will be
    distributed 95% to the Limited Partners,  1.01% to the General Partners, and
    3.99% to PWPI.  Payments to PWPI represent asset  management fees for PWPI's
    services in managing the business of the  Partnership.  During  fiscal 1993,
    the Partnership  suspended all distributions to Limited Partners.  Quarterly
    distributions to Limited Partners were reinstated beginning with the quarter
    ended  March 31, 1995 at a rate of 1%. As a result no  management  fees were
    earned for the fiscal years ended March 31, 1996, 1995 and 1994. All sale or
    refinancing  proceeds  shall be  distributed  in varying  proportions to the
    Limited and General Partners, as specified in the Partnership Agreement.

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

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

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

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

        Included  in general  and  administrative  expenses  for the years ended
    March  31,  1997,  1996  and  1995  is  $179,000,   $203,000  and  $210,000,
    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  $9,000,  $11,000  and  $19,000  (included  in  general  and
    administrative  expenses) for managing the Partnership's  cash assets during
    fiscal 1997, 1996 and 1995, respectively.

        At March 31, 1997 and 1996,  accounts  receivable - affiliates  includes
    $100,000  and  $117,000,  respectively,  due from two  unconsolidated  joint
    ventures for interest  earned on permanent  loans and $145,000 and $123,000,
    respectively, of investor servicing fees due from several joint ventures for
    reimbursement  of  certain  expenses   incurred  in  reporting   Partnership
    operations to the Limited Partners of the Partnership. Accounts receivable -
    affiliates at March 31, 1997 and 1996 also includes $15,000 of expenses paid
    by the Partnership on behalf of the joint ventures during fiscal 1993.

4.  Operating Investment Properties

        At March 31, 1997 and 1996, the Partnership's balance sheet includes two
    operating investment properties:  (1) the wholly-owned Crystal Tree Commerce
    Center;  and (2) the Sunol Center  Office  Buildings,  owned by Sunol Center
    Associates,  a majority owned and controlled joint venture.  The Partnership
    acquired a  controlling  interest in Sunol Center  Associates  during fiscal
    1992.  Accordingly,   the  accompanying  financial  statements  present  the
    financial  position  and results of  operations  of this joint  venture on a
    consolidated basis.  Descriptions of the operating investment properties and
    the agreements  through which the Partnership  acquired its interests in the
    properties are provided below.

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

        The  Partnership  acquired an interest in North Palm Crystal  Associates
    (the "joint venture"),  a Florida general  partnership  organized on October
    23,  1985  in  accordance  with  a  joint  venture   agreement  between  the
    Partnership  and  Caruscan of Palm Beach Inc.,  a Florida  corporation  (the
    "co-venturer")  to own and  operate the Crystal  Tree  Commerce  Center (the
    "property").   The  property  consists  of  three  one-story  retail  plazas
    containing  an  aggregate  of 74,923  square feet of leasable  space and one
    four-story office building  containing an aggregate of 40,115 square feet of
    leasable  office space,  each of which was completed in 1983.  The property,
    which was 96% occupied as of March 31, 1997, is located in North Palm Beach,
    Florida.

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

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

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

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

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

        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.  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.
    Concurrent  with the execution of the settlement  agreement,  the property's
    management contract with an affiliate of the co-venturer was terminated. 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, 1997,  payments totalling $53,726 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 $72,274 had not been
    received  as of March 31,  1997.  The  Partnership  will  continue to pursue
    collection of this balance in fiscal 1998.

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


<PAGE>


        The following is a combined summary of property  operating  expenses for
    the Crystal Tree Commerce  Center and Sunol Center  Office  Building for the
    years ended March 31, 1997, 1996 and 1995 (in thousands):

                                                 1997       1996        1995
                                                 ----       ----        ----
      Property operating expenses:
         Repairs and maintenance             $    221     $   299     $   187
         Utilities                                202         170         132
         Insurance                                 61          58          55
         Administrative and other                 641         726         582
         Management fees                           28          26          26
                                             --------     -------     -------
                                             $  1,153     $ 1,279     $   982
                                             ========     =======     =======

5.  Investments in Unconsolidated Joint Ventures

        As of March 31, 1997 and 1996, the  Partnership  had investments in five
    unconsolidated joint ventures which own operating investment properties. The
    unconsolidated  joint ventures are accounted for on the equity method in the
    Partnership's  financial  statements.  As  discussed  in Note 2, these joint
    ventures report their operations on a calendar year basis.

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

                      Condensed Combined Balance Sheets
                          December 31, 1996 and 1995
                                (in thousands)
                                    Assets
                                                            1996        1995
                                                            ----        ----

    Current assets                                      $   1,645    $  1,752
    Operating investment properties, net                   55,760      57,677
    Other assets                                            4,006       4,082
                                                        ---------    --------
                                                        $  61,411    $ 63,511
                                                        =========    ========
                           Liabilities and Capital

    Current liabilities                                 $   5,399    $  5,207
    Other liabilities                                         310         291
    Long-term debt and notes payable to venturers          21,371      21,631
    Partnership's share of combined capital                12,167      13,437
    Co-venturers' share of combined capital                22,164      22,945
                                                        ---------    --------
                                                        $  61,411    $ 63,511
                                                        =========    ========

<PAGE>
                     Condensed Combined Summary of Operation
              For the years ended December 31, 1996, 1995 and 1994
                                 (in thousands)
                                                1996        1995        1994
                                                ----        ----        ----
   Revenues:
     Rental income and expense recoveries    $ 10,910     $10,691    $ 10,326
     Interest and other income                    361         246         262
                                             --------     -------    --------
        Total revenues                         11,271      10,937      10,588

   Expenses:
     Property operating expenses                4,000       3,928       4,107
     Real estate taxes                          2,139       1,980       2,263
     Mortgage interest expense                  1,068       1,089         945
     Interest expense payable to partner          800         800         800
     Depreciation and amortization              3,163       3,180       3,127
     Losses due to permanent impairment of
        operating investment properties             -           -       9,767
                                             --------    --------    --------
                                               11,170      10,977      21,009
                                             --------    --------    --------
    Net income (loss)                        $    101    $    (40)   $(10,421)
                                             ========    ========    ========
    Net loss:
     Partnership's share of
      combined net income (loss)             $    (61)   $   (278)   $ (8,800)
     Co-venturers' share of
      combined net income (loss)                  162         238      (1,621)
                                             --------    --------    --------
                                             $    101    $    (40)   $(10,421)
                                             ========    ========    ========

                  Reconciliation of Partnership's Investment
                           March 31, 1997 and 1996
                                (in thousands)

                                                            1997        1996
                                                            ----        ----
    Partnership's share of capital at
      December 31, as shown above                        $ 12,167    $ 13,437
    Excess basis due to investment in joint
      ventures, net (1)                                       919         965
    Partnership's share of ventures' current liabilities
      and long-term debt                                    9,631       9,600
    Timing differences due to distributions received
      from and contributions sent to joint ventures
      subsequent to December 31 (see Note 2)                 (192)       (274)
                                                         --------    --------
         Investments in unconsolidated joint ventures,
         at equity at March 31                           $ 22,525    $ 23,728
                                                         ========    ========

(1) The  Partnership's  investments in joint  ventures  exceeds its share of the
    combined joint  ventures'  capital  accounts by  approximately  $919,000 and
    $965,000  at March  31,  1997 and 1996,  respectively.  This  amount,  which
    represents  acquisition fees and other expenses  incurred by the Partnership
    in connection with the  acquisition of its joint venture  interests is being
    amortized  over  the  estimated  useful  lives  of  the  related   operating
    properties  (generally  30 years).  Excess basis related to  investments  in
    joint ventures which have  recognized  impairment  losses on their operating
    investment  properties during calendar 1994 were fully written off in fiscal
    1995. Such write-off is included in the Partnership's share of losses due to
    permanent impairment of operating investment  properties on the accompanying
    statement of operations. See the further discussion below.

             Reconciliation of Partnership's Share of Operations
                        March 31, 1997, 1996 and 1995
                                (in thousands)

                                                1997       1996       1995
                                                ----       ----       ----
    Partnership's share of combined net loss
      as shown above                         $    (61)  $    (278)    $(8,800)
    Amortization of excess basis                  (46)        (46)       (618)
                                             --------   ---------     -------
    Partnership's share of unconsolidated
      ventures' net loss                     $   (107)  $    (324)    $(9,418)
                                             ========   =========     =======

         Partnership's  share of unconsolidated  ventures' net loss is presented
    as follows in the accompanying statements of operations (in thousands):

                                               1997       1996        1995
                                               ----       ----        ----

    Partnership's share of unconsolidated
       ventures' losses                      $   (107)  $    (324)    $   (715)
    Partnership's share of losses due to
       permanent impairment of
       operating investment properties              -           -       (8,703)
                                             ---------  ---------     --------
                                             $   (107)  $    (324)    $(9,418)
                                             ========   =========     =======

        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, 1997 and 1996 is comprised of the
    following equity method carrying values (in thousands):

                                                            1997        1996
                                                            ----        ----
    Investments in joint ventures, at equity:
      Warner/Red Hill Associates                        $  (1,914)  $  (1,541)
      Crow PaineWebber LaJolla, Ltd.                        1,973       2,198
      Lake Sammamish Limited Partnership                     (921)       (775)
      Framingham 1881 - Associates                          2,153       2,243
      Chicago-625 Partnership                              13,234      13,603
                                                        ---------    --------
                                                           14,525      15,728
    Notes receivable:
      Crow PaineWebber LaJolla, Ltd.                        4,000       4,000
      Lake Sammamish Limited Partnership                    4,000       4,000
                                                        ---------    --------
                                                            8,000       8,000
                                                        ---------    --------
                                                        $  22,525    $ 23,728
                                                        =========    ========


<PAGE>


        Cash distributions received from the Partnership's  unconsolidated joint
    ventures  for the years ended March 31,  1997,  1996 and 1995 are as follows
    (in thousands):

                                                1997        1996        1995
                                                ----        ----        ----

    Warner/Red Hill Associates                $   604     $   333     $   713
    Crow PaineWebber LaJolla, Ltd.                176          57         414
    Lake Sammamish Limited Partnership             22          76       3,759
    Framingham 1881 - Associates                  200          70           -
    Chicago - 625 Partnership                   1,148         796         768
                                              -------     -------     -------
                                              $ 2,150     $ 1,332     $ 5,654
                                              =======     =======     =======

        For  each of the  years  ended  March  31,  1997,  1996  and  1995,  the
    Partnership  earned  interest  income of $800,000 from the notes  receivable
    described below in the  discussions of Crow  PaineWebber  LaJolla,  Ltd. and
    Lake Sammamish Limited Partnership.  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.

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

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

        The Partnership  acquired an interest in Warner/Red Hill Associates (the
    "joint venture"), a California general partnership organized on December 18,
    1985 in accordance  with a joint venture  agreement  between the Partnership
    and Los Angeles Warner Red Hill Company Ltd., (the co-venturer),  to own and
    operate  the  Warner/Red   Hill  Business  Center  (the   "Property").   The
    co-venturer is an affiliate of The Paragon Group.  The Property  consists of
    three two-story office  buildings  totalling 93,895 net rentable square feet
    on approximately  4.76 acres of land. The Property,  which was 80% leased as
    of March 31,  1997,  is part of a 4,200  acre  business  complex  in Tustin,
    California.

        As discussed in Note 2, the  Partnership  elected early  application  of
    SFAS 121 effective for fiscal 1995. The effect of such  application  was the
    recognition of an impairment loss on the operating investment property owned
    by Warner/Red Hill  Associates.  Warner/Red  Hill  Associates  recognized an
    impairment  loss of  $6,784,000  to  write  down  the  operating  investment
    property to its estimated  fair value of $3,600,000 as of December 31, 1994.
    The  Partnership's  share of the impairment loss was $5,251,000.  Fair value
    was estimated using an independent appraisal of the operating property. Such
    appraisals make use of a combination of certain generally accepted valuation
    techniques,  including  direct  capitalization,  discounted  cash  flows and
    comparable sales analysis.

        The aggregate  cash  investment in the joint venture by the  Partnership
    was $12,658,000  (including acquisition fees of $367,000 paid to the Adviser
    and closing costs of $6,000).  The property was encumbered by a construction
    loan  payable  to a bank and a note  payable  to the  co-venturer  totalling
    $11,200,000 at the time of purchase. The construction loan was repaid during
    1986  from  the  proceeds  of the  Partnership's  capital  contribution.  At
    December 31, 1996, the property is encumbered by a $5,350,000 loan (see Note
    6).

        The co-venturer agreed to contribute,  in the form of loans to the joint
    venture, all funds that were necessary so the joint venture could distribute
    the Partnership's  full minimum  preference return (described below) through
    December 31, 1989. Such contributions (the "Mandatory  Capital") will accrue
    a return to the co-venturer at prime plus 1%, compounded  annually.  Through
    December 31, 1989 the co-venturer had contributed  $524,000 pursuant to such
    requirements.  The unpaid accrued preference return on Mandatory Capital was
    $489,000 and $403,000 at December  31, 1996 and 1995,  respectively.  If the
    joint venture  requires  additional  funds  subsequent to December 31, 1989,
    such funds are to be provided in the form of loans,  85% by the  Partnership
    and 15% by the co-venturer.  In the event that a partner does not contribute
    its share of additional funds  (Defaulting  Partner),  the other partner may
    contribute  such funds to the joint  venture  in the form of loans  (Default
    Loans).  Such Default Loans bear interest at twice the rate of regular notes
    to  partners  up to the maximum  rate  legally  allowed.  In  addition,  the
    Defaulting  Partner's  share of net cash flow and cash flow from the sale or
    refinancing proceeds are to be reduced, with a corresponding increase in the
    other  partner's  share,  in  accordance  with  a  formula  defined  in  the
    partnership  agreement.  The Partnership advanced 100% of the funds required
    by the joint venture during calendar 1996. Such advances  totalled  $31,000,
    of which $5,000 was classified as Default Loans.  Unpaid accrued interest on
    Notes to Partners  totalled  $828,000  and $657,000 at December 31, 1996 and
    1995, respectively.

        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,  (as described above) 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 the  Partnership at
    December 31, 1996 is $7,330,000, including accrued interest of $1,954,000.

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

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

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

        The joint  venture  agreement  provides that  beginning in 1991,  either
    partner may elect to purchase the property.  The partner not initiating such
    a purchase,  however,  has the option to purchase  the  property on the same
    terms contemplated by the initiating partner. In addition, beginning in 1991
    the Partnership has the right to compel a sale of the property.

        The Partnership is entitled to receive an annual investor  servicing fee
    of $2,500 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 property  management  contract with an
    affiliate of the co-venturer  cancelable at the joint venture's  option upon
    the occurrence of certain events. The management fee is equal to 4% of gross
    rents, as defined.

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

        On July 1, 1986 the Partnership acquired an interest in Crow PaineWebber
    LaJolla,  Ltd. (the "joint venture"),  a Texas limited partnership organized
    in accordance  with a joint venture  agreement  between the  Partnership and
    Crow-Western  #302  -  San  Diego  Limited  Partnership,   a  Texas  limited
    partnership  (the  "co-venturer"),  to  construct  and operate the  Monterra
    Apartments (the "Property"). The co-venturer is an affiliate of the Trammell
    Crow  organization.  The  Property,  which was 98%  occupied as of March 31,
    1997,  consists of garden-style  apartments  situated on 7 acres of land and
    includes 180 one-and  two-bedroom units,  comprising  approximately  136,000
    square feet in LaJolla, California.

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

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

        Net cash flow from  operations of the joint venture is to be distributed
    quarterly in the following  order of priority:  1) the  Partnership  and the
    co-venturer  will each be repaid  accrued  interest and  principal,  in that
    order,  on any optional  loans (as  described  below) they made to the joint
    venture;  2) the  Partnership  will  receive a cumulative  annual  preferred
    return  of  10%  per  annum  on  the  Partnership's  Investment;  and 3) any
    remaining net cash flow will be distributed  85% to the  Partnership and 15%
    to  the  co-venturer.   The  cumulative  unfunded  amount  relating  to  the
    Partnership's preferential return is $4,987,000 at December 31, 1996.

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

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

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

        The joint venture has a note payable to the Partnership in the amount of
    $4,000,000  which bears  interest at 10% per annum.  As a result of the debt
    modification  discussed  in Note 6, this note is now  unsecured.  All unpaid
    principal and interest on the note is due on July 1, 2011.  Interest expense
    on the note, which is payable on a quarterly basis, amounted to $400,000 for
    each of the years ended March 31, 1997, 1996 and 1995.

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

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

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

        The  Partnership   acquired  an  interest  in  Lake  Sammamish   Limited
    Partnership (the "Joint Venture"),  a Texas limited partnership organized on
    October 1, 1986 in  accordance  with a joint venture  agreement  between the
    Partnership,  Crow-Western  #504-Lake Sammamish Limited Partnership ("Crow")
    and Trammell S. Crow (the "Limited  Partner") to own and operate  Chandler's
    Reach Apartments (the "Property").  The Property is situated on 8.5 acres of
    land and  consists  of 166 units with  approximately  135,110  net  rentable
    square feet in eleven two-and three-story buildings. The property, which was
    94% occupied as of March 31, 1997, is located in Redmond, Washington.

        The aggregate cash investment (including a Permanent Loan of $4,000,000)
    in the joint  venture  by the  Partnership  was  $10,541,000  (including  an
    acquisition  fee of $340,000  paid to the Adviser).  At March 31, 1997,  the
    property was encumbered by a loan with a principal amount of $3,448,000 (see
    Note 6).

        Net  cash  flow  (as  defined)  is to be  distributed  quarterly  in the
    following  order of priority:  First,  the Partnership and Crow will each be
    repaid accrued interest and principal, in that order, on any optional loans.
    Second, the Partnership will receive a cumulative annual preferred return of
    10% per annum of its Investment.  Third, to the extent of available net cash
    flow prior to the end of the Guaranty Period, the Partnership will receive a
    distribution equal to $350,000.  Fourth, any remaining net cash flow will be
    distributed  75%  to the  Partnership  and  25%  to  Crow  and  the  Limited
    Partnership  (subject to  "Adjustment"  as defined  below).  The  preference
    payable  to the  Partnership  pursuant  to the second  clause  above will be
    reduced by any amounts  distributed as a return on capital and in proportion
    to  the  amount   distributed  as  a  return  of  capital  through  sale  or
    refinancing.  The  cumulative  amount of the  preference  return  due to the
    Partnership at December 31, 1996 is approximately $2,811,000.

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

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

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

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

        The joint venture has a note payable to the Partnership in the amount of
    $4,000,000  which bears  interest at 10% per annum.  As a result of the debt
    modification  discussed  in Note 6, this note is now  unsecured.  All unpaid
    principal  and  interest  on the note is due on October  1,  2011.  Interest
    expense on the note,  which is payable on a  quarterly  basis,  amounted  to
    $400,000 for each of the years ended March 31, 1997, 1996 and 1995.

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

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

d.  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 51%  leased  as of  March  31,  1997,  is  located  in
    Framingham, Massachusetts.

        As discussed in Note 2, the  Partnership  elected early  application  of
    SFAS 121 effective for fiscal 1995. The effect of such  application  was the
    recognition of an impairment loss on the operating investment property owned
    by Framingham 1881 - Associates.  Framingham  1881 Associates  recognized an
    impairment  loss of  $2,983,000  to  write  down  the  operating  investment
    property to its estimated  fair value of $2,200,000 as of December 31, 1994.
    The  Partnership's  share of the impairment loss was $2,919,000.  Fair value
    was estimated using an independent appraisal of the operating property. Such
    appraisals make use of a combination of certain generally accepted valuation
    techniques,  including  direct  capitalization,  discounted  cash  flows and
    comparable sales analysis.

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

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

        The joint venture agreement provides that net cash flow (as defined), to
    the extent available, will generally be distributed monthly in the following
    order of priority:  First,  beginning  December 31, 1989 the Partnership and
    the Selling Partners will each be paid accrued interest on any advances they
    made to the Partnership.  Second,  the Partnership will receive a cumulative
    annual  preferred  return  of 9.5% per annum on its Net  Investment  for the
    first  five  years  after  the  Closing  Date and 9.75% per annum on its Net
    Investment thereafter.  Third, the Partnership and the Selling Partners will
    be paid accrued  interest on advances from net cash flow  generated  through
    November 30, 1989. Fourth, the Selling Partners will receive an amount equal
    to  Mandatory  Contributions.  Fifth,  the Selling  Partners  will receive a
    preferred  return on Mandatory  Contributions  made in year 2 and year 3, if
    any,  of 9.5% per  annum  through  November  30,  1991 and  9.75%  per annum
    thereafter.  Sixth,  payment will be made to the Capital Reserve, as defined
    in the joint  venture  agreement.  Seventh,  remaining net cash flow will be
    distributed  70% to the  Partnership  and 30% to the Selling  Partners.  The
    amount of the preference  payable to the Partnership  pursuant to the second
    clause above is calculated as a percentage  of capital  remaining  after any
    amounts  are  distributed  as  a  return  on  capital  and  by  any  amounts
    distributed  as a  return  of  capital  through  sale  or  refinancing.  The
    cumulative  unpaid  preference return payable to the Partnership at December
    31, 1996 was $4,371,000.

        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.

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

      The  Partnership  acquired an interest in Chicago - 625  Partnership  (the
    "joint venture"),  an Illinois general partnership organized on December 16,
    1986 in accordance with a joint venture  agreement  between the Partnership,
    an affiliate of the Partnership and  Michigan-Ontario  Limited,  an Illinois
    limited partnership and affiliate of Golub & Company (the "co-venturer"), to
    own and operate 625 North Michigan Avenue Office Tower (the "property"). The
    property is a 27-story  commercial  office tower  containing an aggregate of
    324,829  square feet of leasable space on  approximately  .38 acres of land.
    The  property,  which was 82%  leased as of March 31,  1997,  is  located in
    Chicago, Illinois.

        The aggregate cash  investment  made by the  Partnership for its current
    interest was  $17,278,000  (including an acquisition fee of $383,000 paid to
    the Adviser).  At the same time the Partnership acquired its interest in the
    joint venture,  PaineWebber Equity Partners Two Limited Partnership (PWEP2),
    an affiliate  of the Managing  General  Partner with  investment  objectives
    similar to the Partnership's investment objectives,  acquired an interest in
    this joint  venture.  PWEP2's  aggregate  cash  investment  for its  current
    interest was $26,010,000 (including an acquisition fee of $1,316,000 paid to
    PWPI).  During 1990,  the joint  venture  agreement was amended to allow the
    Partnership and PWEP2 the option to make  contributions to the joint venture
    equal to total costs of capital  improvements,  leasehold  improvements  and
    leasing commissions ("Leasing Expense  Contributions")  incurred since April
    1, 1989,  not in excess of the accrued and unpaid  Preference  Return due to
    the  Partnership  and  PWEP2.  The  Partnership  had  made  Leasing  Expense
    Contributions totalling approximately $1,902,000 through December 31, 1996.

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

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

        Net cash flow, as defined,  is to be  distributed,  within 15 days after
    the end of each calendar month,  in the following order of priority:  First,
    to the PWEP  Partners  until the PWEP Partners have received an amount equal
    to one-twelfth of the lesser of $3,722,000 or 9% of the PWEP net investment,
    as defined, for the month ("PWEP Preference Return") plus any amount of PWEP
    Preference  Return not  theretofore  paid in respect to that fiscal year for
    which  such  distribution  is made.  Second,  to the  payment  of all unpaid
    accrued  interest  on all  outstanding  default  notes,  as  defined  in the
    Agreement,  and  then to the  repayment  of any  principal  amounts  on such
    outstanding  default  notes.  Third,  to the  payment of all unpaid  accrued
    interest on all  outstanding  operating  notes, as defined in the Agreement,
    and then to the  repayment  of any  principal  amounts  on such  outstanding
    operating   notes.   Fourth,   70%  to  the   PWEP   Partners   and  30%  to
    Michigan-Ontario.  The cumulative unpaid and unaccrued Preference Return due
    to the Partnership totalled $5,609,000 at December 31, 1996.

        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, 1997 and 1996 consist of the following (in thousands):

                                                         1997            1996
                                                         ----            ----

   9.125%  nonrecourse  loan payable
   to an  insurance  company,  which
   is   secured  by  the  625  North
   Michigan     Avenue     operating
   investment      property     (see
   discussion    below).     Monthly
   payments  including  interest  of
   $55  are  due  beginning  July 1,
   1994 through  maturity on May 31,
   1999.   The  terms  of  the  note
   were  modified  effective May 31,
   1994.   The  fair  value  of  the
   mortgage       note       payable
   approximated  its carrying  value
   at March 31, 1997 and 1996.                      $  6,279         $  6,362

   8.39%  nonrecourse  note  payable
   to an  insurance  company,  which
   is  secured by the  Crystal  Tree
   Commerce     Center     operating
   investment      property     (see
   discussion    below).     Monthly
   payments  including  interest  of
   $28  are due  beginning  November
   15,  1994  through   maturity  on
   September  19,  2001.   The  fair
   value   of  the   mortgage   note
   payable      approximated     its
   carrying  value at March 31, 1997
   and 1996.                                           3,370            3,418
                                                    --------         --------
                                                    $  9,649         $  9,780
                                                    ========         ========

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

                  1998            $   143
                  1999                157
                  2000              6,150
                  2001                 67
`                 2002              3,132
                                  -------
                                  $ 9,649
                                  =======

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

        In addition,  during 1986 and 1987 the Partnership received the proceeds
    from three  additional  nonrecourse zero coupon loans in the initial amounts
    of $3 million,  $4.5  million and  approximately  $1.9  million,  which were
    secured by the Warner/Red Hill office building,  the Monterra Apartments and
    the  Chandler's  Reach  Apartments,  respectively.  Legal  liability for the
    repayment  of  the  loans  secured  by  the  Warner/Red  Hill  and  Monterra
    properties  rested with the related joint ventures and,  accordingly,  these
    amounts were recorded on the books of the joint  ventures.  The  Partnership
    indemnified Warner/Red Hill Associates and Crow/PaineWebber - LaJolla, Ltd.,
    along with the related co-venture partners, against all liabilities,  claims
    and  expenses  associated  with these  borrowings.  Interest  expense on the
    Warner/Red  Hill and Monterra loans accrued at 9.36%,  compounded  annually,
    and  was  due  at  maturity  in  August  of  1993  and  September  of  1994,
    respectively,   at  which  time  total   principal  and  interest   payments
    aggregating $5,763,000 and $8,645,000, respectively, became due and payable.
    The nonrecourse zero coupon loan secured by the Chandler's Reach Apartments,
    which bore interest at 10.5%, compounded annually, matured on August 1, 1994
    with an outstanding balance of $3,462,000. During the quarter ended December
    31, 1993, the Partnership negotiated and signed a letter of intent to modify
    and extend the  maturity  of the  Warner/Red  Hill zero coupon loan with the
    existing  lender.  The terms of the  extension and  modification  agreement,
    which was finalized in August 1994,  provide for a 10-year  extension of the
    note effective as of the original  maturity date of August 15, 1993.  During
    the terms of the agreement,  the loan will bear interest at 2.875% per annum
    and monthly principal and interest payments of $24,000 will be required. The
    Partnership  made  principal and interest  payments on behalf of the venture
    totalling approximately $246,000 for the period from August 15, 1993 through
    June 30, 1994 in conjunction with the closing of the modification agreement.
    The  outstanding  principal  balance of the  Warner/Red  Hill loan  totalled
    $5,350,000  as of December 31,  1996.  In  addition,  the lender  required a
    participation  in the proceeds of a future sale or debt refinancing in order
    to enter into this agreement.  Accordingly,  upon the sale or refinancing of
    the Warner/Red  Hill  property,  the lender will receive 40% of the residual
    value of the  property,  as defined,  after the  payment of the  outstanding
    balance of the loan payable.  The extension and modification  agreement also
    required the  Partnership  to establish an escrow account in the name of the
    joint  venture  and to fund  such  escrow  with an  equity  contribution  of
    $350,000.  The  escrowed  funds are to be used  solely  for the  payment  of
    capital and tenant  improvements,  leasing commissions and real estate taxes
    related to the Warner/Red  Hill property.  The balance of the escrow account
    is to be maintained  at a minimum  level of $150,000.  In the event that the
    escrow balance falls below $150,000,  all net cash flow from the property is
    to be deposited into the escrow until the minimum balance is re-established.

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

7.  Bonds Payable

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

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

            Year ending December 31,

                  1997            $    66
                  1998                 73
                  1999                 78
                  2000                 84
`                 2001                 91
                  Thereafter        1,111
                                  -------
                                  $ 1,503
                                  =======


<PAGE>


8.  Rental Revenues

        The Crystal Tree and Sunol Center 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
                                     ------

                  1997              $  2,599
                  1998                 2,582
                  1999                 2,466
                  2000                 2,269
                  2001                 1,810
                  Thereafter             382
                                    --------
                                    $ 12,108
                                    ========

9.  Legal Proceedings

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

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

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

       In February 1996,  approximately  150 plaintiffs filed an action entitled
    Abbate v. PaineWebber Inc. in Sacramento,  California Superior Court against
    PaineWebber  Incorporated  and various  affiliated  entities  concerning the
    plaintiffs'  purchases of various limited partnership  interests,  including
    those offered by the Partnership. The complaint alleged, among other things,
    that   PaineWebber   and  its   related   entities   committed   fraud   and
    misrepresentation  and  breached  fiduciary  duties  allegedly  owed  to the
    plaintiffs by selling or promoting limited partnership investments that were
    unsuitable for the plaintiffs and by overstating the benefits,  understating
    the risks and failing to state  material facts  concerning the  investments.
    The  complaint  sought  compensatory  damages of $15 million  plus  punitive
    damages against PaineWebber. In June 1996, approximately 50 plaintiffs filed
    an action entitled Bandrowski v. PaineWebber Inc. in Sacramento,  California
    Superior  Court  against  PaineWebber  Incorporated  and various  affiliated
    entities concerning the plaintiffs' purchases of various limited partnership
    interests,  including  those offered by the  Partnership.  The complaint was
    very similar to the Abbate action  described  above and sought  compensatory
    damages of $3.4  million  plus  punitive  damages  against  PaineWebber.  In
    September 1996, the court  dismissed many of the plaintiffs'  claims in both
    the  Abbate  and  Bandrowski  actions  as  barred by  applicable  securities
    arbitration regulations. Mediation with respect to the Abbate and Bandrowski
    actions  was  held in  December  1996.  As a  result  of such  mediation,  a
    settlement between PaineWebber and the plaintiffs was reached which provided
    for the complete  resolution of both actions.  Final releases and dismissals
    with regard to these actions were received subsequent to March 31, 1997.

        Based on the settlement  agreements  discussed above covering all of the
     outstanding  unitholder  litigation,  and notwithstanding the appeal of the
     class action settlement referred to above,  management does not expect that
     the  resolution  of  these  matters  will  have a  material  impact  on the
     Partnership's financial statements, taken as a whole

10. Subsequent Events

        On May 15, 1997, the Partnership  paid  distributions to the Limited and
    General  Partners in the amounts of $500,000 and $5,000,  respectively,  for
    the quarter ended March 31, 1997.


<PAGE>
<TABLE>



Schedule III - Real Estate and Accumulated Depreciation
                                      PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                                     SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                           March 31, 1997
                                                           (In thousands)
<CAPTION>


                                                 Cost
                                               Capitalized                                                             Life on Which
                            Initial Cost to    (Removed)                                                               Depreciation
                            Partnership/      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>

Shopping Center
North Palm Beach,
  FL            $ 3,370    $3,217  $15,598     $(1,947)    $2,444  $14,424   $16,86    $ 5,849     1983      10/23/85    5-27 yrs.

Office Building
Pleasanton, CA    1,503     2,318   15,429      (2,331)     1,518   13,898   15,416      4,974     1985      8/15/86     30 years
                -------    ------  -------    --------     ------  -------  -------    -------
                $ 4,873    $5,535  $31,027     $(4,278)    $3,962  $28,322  $32,284    $10,823
                =======    ======  =======     =======     ======  =======  =======    =======
Notes

(A) The  aggregate  cost of real estate  owned at December  31, 1996 for Federal income tax purposes is approximately  $33,346,000. 

(B) For financial  reportingpurposes,  the initial cost of the  operating  investment properties have been reduced by payments from
    former joint venture partners related to a guaranty to pay the Partnership a certain Preference Return.

(C) See Notes 6 and 7 to the financial statements for a description of the terms of the debt encumbering the property.

(D) Reconciliation of real estate owned:

                                                 1997         1996       1995
                                                 ----         ----       ----

       Balance at beginning of period          $31,733     $29,731     $29,636
       Increase due to additions                   551       2,002          95
                                               -------     -------     -------
       Balance at end of period                $32,284     $31,733     $29,731
                                               =======     =======     =======

(E) Reconciliation of accumulated depreciation:

       Balance at beginning of period          $ 9,499     $ 8,222     $ 7,229
       Depreciation expense                      1,324       1,277         993
                                               -------     -------     -------
       Balance at end of period                $10,823     $ 9,499     $ 8,222
                                               =======     =======     =======
</TABLE>
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS



The Partners
PaineWebber Equity Partners One Limited Partnership:

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

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

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



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





Boston, Massachusetts
February 8, 1997



<PAGE>




                          INDEPENDENT AUDITORS' REPORT



The Partners
Warner/Redhill Associates:

     We  have  audited  the  accompanying   balance  sheets  of   Warner/Redhill
Associates (a California  general  partnership) as of December 31, 1994 and 1993
and the related statements of operations,  changes in partners' capital and cash
flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of management of Warner/Redhill Associates. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Warner/Redhill Associates as
of December  31, 1994 and 1993 and the  results of its  operations  and its cash
flows for the years then ended in conformity with generally accepted  accounting
principles.

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





                                                   /s/ KPMG PEAT MARWICK
                                                   KPMG PEAT MARWICK


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





<PAGE>


                           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>


                           COMBINED JOINT VENTURES OF
              PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP

       COMBINEDSTATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS' CAPITAL

              For the years ended December 31, 1996, 1995 and 1994
                                 (In thousands)

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

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

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

Contributions from venturers                    1,494         441       5,254

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

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

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












                             See accompanying notes.


<PAGE>


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

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

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

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

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

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

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

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

                                                See accompanying notes.

</TABLE>

<PAGE>



                           COMBINED JOINT VENTURES OF

               PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
                     Notes to Combined Financial Statements


1.  Organization

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

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

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

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

2.  Summary of significant accounting policies

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

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

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

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

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

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

    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.


<PAGE>


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.
<PAGE>

4.  Losses Due to Impairment Operating Investment Properties

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

5.  Related Party Transactions

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

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

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

6.  Notes Payable to Venturers

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

7.  Mortgage Notes Payable

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

                                                           1996         1995
                                                           ----         ----

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

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

<PAGE>

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

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

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

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

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

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

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

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

8.  Encumbrances

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

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

<PAGE>

<TABLE>


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


                                              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   12/18/8     35yrs.

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

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    5-40yrs.
               -------    -------   -----    ------     -----    -------  --------    -------

               $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 7 and 8 to the Combined  Financial  Statements  for a  description  of the  terms  of the  debt
    encumbering the properties.

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

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

(D) Reconciliation of accumulated depreciation:

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

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