UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549

                                  FORM 10-K

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

                  FOR FISCAL YEAR ENDED: SEPTEMBER 30, 1996

                                      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: 0-17148

           PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED  PARTNERSHIP
             (Exact name of registrant as specified in its charter)

        Delaware                                             04-2921780
(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
                                      ---

                     DOCUMENTS INCORPORATED BY REFERENCE

Documents                                                 Form 10-K Reference
---------                                                 -------------------
Prospectus of registrant dated                                 Part IV
September 17, 1986, as supplemented



<PAGE>


           PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
                                1996 FORM 10-K

                              TABLE OF CONTENTS

PART I                                                                  Page
------                                                                  ----

Item  1       Business                                                  I-1

Item  2       Properties                                                I-3

Item  3       Legal Proceedings                                         I-3

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-7

Item  9       Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                    II-7

Part III

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

Item 11       Executive Compensation                                  III-3

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-38







<PAGE>


                                    PART I

Item 1.  Business
-----------------

   Paine Webber Income Properties Eight Limited  Partnership (the "Partnership")
is a  limited  partnership  formed  in April  1986  under  the  Uniform  Limited
Partnership  Act of the State of  Delaware  for the  purpose of  investing  in a
diversified  portfolio  of existing  income-producing  real  properties  such as
apartments, shopping centers, office buildings, industrial buildings and hotels.
The Partnership sold $35,548,976 in Limited Partnership units (the "Units"),  at
$1 per Unit,  from  September  17, 1986 to  September  16,  1988  pursuant to an
Amended  Registration  Statement on Form S-11 filed under the  Securities Act of
1933  (Registration No. 33-5179).  Limited Partners will not be required to make
any additional capital contributions.

   The Partnership  originally invested the net proceeds of the public offering,
either  directly  or through  joint  venture  partnerships,  in seven  operating
properties.  As discussed  further below,  through September 30, 1996 two of the
Partnership's   original   investments   had  been  lost   through   foreclosure
proceedings.  As of September 30, 1996,  the  Partnership  owned,  through joint
venture  partnerships,  interests in the operating  properties  set forth in the
following table:

<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>
Daniel Meadows II General Partnership       200            10/15/87        Fee ownership of land
The Meadows in the Park                     units                          and improvements
  Apartments                                                (through       joint venture)
Birmingham, Alabama

Maplewood Drive Associates                  144            6/14/88         Fee   ownership  of land
Maplewood Park Apartments                   units                          and improvements
Manassas, Virginia                                                         (through joint venture)

Spinnaker Bay Associates:                                                  Fee   ownership  of land
Bay Club Apartments                         88 units       6/10/88         and improvements
Spinnaker Landing Apartments                66 units       6/10/88         (through  joint venture)
Des Moines, Washington

Norman Crossing Associates                  52,000         9/15/89         Fee   ownership  of land
Norman Crossing Shopping                    square                         and improvements
  Center                                    feet                           (through joint venture)
Charlotte, North Carolina
</TABLE>

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

   In  addition  to  the  five  remaining   investments   described  above,  the
Partnership  originally owned fee simple  interests in two Marriott hotels,  the
Newport Beach Marriott Suites Hotel, a 254-suite hotel located in Newport Beach,
California,  and the  Marriott  Suites - Perimeter  Center,  a  224-suite  hotel
located in Atlanta,  Georgia. As discussed further in Note 4 to the accompanying
financial  statements,  the  Partnership  had been in default under the modified
terms of the mortgage  loan secured by the Newport Beach  Marriott  Suites Hotel
since March 1995. On February 19, 1996,  the first  mortgage loan secured by the
Newport  Beach  Marriott  Suites Hotel was  purchased  by a new lender,  and the
Partnership subsequently received formal notice of default from this new lender.
Subsequently,  the Partnership received a notice of a foreclosure sale scheduled
for August 7, 1996,  at which time title to the Newport  Beach  Marriott  Suites
Hotel was transferred to the mortgage lender. On December 3, 1991, the holder of
the  mortgage  debt  secured by the Atlanta  Marriott  hotel  foreclosed  on the
operating property due to the Partnership's  inability to meet the required debt
service payments.  In both cases, the hotels were new developments when acquired
and subsequently failed to generate the average room rates projected at the time
of their acquisitions.  Protracted negotiations and modification agreements with
the  mortgage  lenders  ultimately  failed  to  result  in  economically  viable
restructuring plans. As a result of the foreclosure proceedings described above,
the  Partnership  no longer has any  ownership  interest  in either of the hotel
properties.

      The Partnership's original investment objectives were to:

     (i) provide the Limited  Partners with cash  distributions  which,  to some
         extent,  will not  constitute  taxable  income;  
    (ii) preserve  and protect the Limited Partners' capital;  
   (iii) obtain long-term  appreciation in the value of its  properties;  
    (iv) increase the Limited  Partners'  return on investment by using  
         leverage;  and 
     (v) provide a build-up of equity through the reduction of mortgage loans on
         its properties.

     Regular  quarterly   distributions  of  excess  operating  cash  flow  were
suspended  indefinitely in fiscal 1991.  Through September 30, 1996, the Limited
Partners had received  cumulative cash distributions  from operations  totalling
approximately  $5,719,000,  or  $192  per  original  $1,000  investment  for the
Partnership's  earliest  investors.  A substantial  portion of the distributions
paid to date has been sheltered from current  taxable  income.  The  Partnership
retains  its  ownership  interest  in  five  of its  seven  original  investment
properties,  all of which were acquired using leverage of between  approximately
60% and 75% of the  original  purchase  price.  As stated  above,  however,  the
Partnership has been forced to relinquish ownership of its two hotel investments
as a result of  foreclosure  actions by the first mortgage  lenders.  Due to the
foreclosure  losses of the Newport  Beach and Atlanta  Marriott  Suites  Hotels,
which  represented  a  combined  63% of the  Partnership's  original  investment
portfolio,  the Partnership will be unable to return any significant  portion of
the original capital contributed by the Limited Partners.  The amount of capital
which will be returned  will depend upon the proceeds  recovered  from the final
liquidation  of the  remaining  investments.  The amount of such  proceeds  will
ultimately depend upon the value of the underlying  investment properties at the
time of their final  disposition,  which, for the most part, cannot presently be
determined.   As  discussed   further  in  Item  7,  at  the  present  time  the
Partnership's  interest  in The  Meadows  in the  Park  Apartments  is the  only
investment with any significant  value to the Partnership based on the estimated
current  market values of the underlying  properties.  As of September 30, 1996,
the joint venture which owns the Spinnaker  Landing and Bay Club  Apartments was
in  default  of the  mortgage  loans  secured by the  operating  properties.  As
discussed  further in Item 7, the  Partnership  expects to either sell these two
properties  and  receive  a  nominal  amount  of net  proceeds  or to  lose  the
properties  through  foreclosure  proceedings  prior  to the  end of the  second
quarter of fiscal 1997.  In addition,  subsequent  to year-end the joint venture
which owns the Maplewood  Park  Apartments  failed to make a required  principal
payment  due under  the  terms of its  mortgage  loan  agreement  due to lack of
available funds. If a mutually acceptable resolution of this situation cannot be
reached with the mortgage  lender,  the  Maplewood  Park joint  venture could be
declared  in default of its  mortgage  indebtedness  during  fiscal  1997.  With
respect to the Norman  Crossing  Shopping  Center,  at the  present  time market
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.  Physical  occupancy  of the Norman
Crossing  property  stood at 88% as of September 30, 1996,  and the property was
generating net cash flow deficits which were being funded from the Partnership's
cash reserves.

   All of the  Partnership's  investments  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, location and amenities.  Apartment properties in all markets
also  compete  with the local  single  family  home  market  for  revenues.  The
continued  availability  of low  interest  rates  on  home  mortgage  loans  has
increased  the level of this  competition  in all parts of the country  over the
past  several  years.   However,   the  impact  of  the  competition   from  the
single-family  home  market  has  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 shopping  center competes for
long-term commercial tenants with numerous projects of similar type generally on
the  basis  of  location,  rental  rates,  tenant  mix  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.


<PAGE>


   The Partnership has no employees;  it has, however,  entered into an Advisory
Contract 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 Eighth
Income  Properties  Inc. and  Properties  Associates  1986,  L.P.  Eighth Income
Properties,  Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group, Inc., is the managing general partner of the Partnership. The
associate general partner of the Partnership is Properties Associates 1986, 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.  Subject to the Managing General Partner's  overall  authority,
the business of the Partnership is managed by the Adviser.

   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
------------------

   As of September 30, 1996, the  Partnership  owned interests in five operating
properties through joint venture  partnerships.  Such properties are referred to
under Item 1 above to which reference is hereby made for the name,  location and
description of each property.

   Leasing levels for each fiscal quarter during 1996, along with an average for
the year, are presented below for each property:

                                            Percent Leased At
                             ----------------------------------------------
                                                                    Fiscal 
                                                                    1996
                             12/31/95  3/31/96    6/30/96  9/30/96  Average
                             --------  -------    -------  -------  -------

The Meadows in the Park
  Apartments                   81%      83%        96%      96%      89%

Maplewood Park Apartments      96%      95%        93%      98%      96%

Bay Club and Spinnaker 
  Landing Apartments (1)       94%      94%        93%      94%      94%

Norman Crossing Shopping 
  Center (2)                  100%     100%       100%     100%     100%

   (1)Occupancy  figures  represent  the  combined  occupancy  level  of the two
      apartment properties owned by SBA Associates.

   (2)In October 1993,  the sole anchor tenant of the Norman  Crossing  Shopping
      Center vacated the center to relocate its  operations.  This anchor tenant
      continues  to pay rent on its prior  space,  which  represents  48% of the
      property's net rentable  area,  under the terms of its lease which expires
      in the year 2007. As a result of this anchor tenant vacancy,  the physical
      occupancy of the property as of September  30, 1996 stood at 88% (see Item
      7 for a further discussion).

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  Eighth  Income  Properties,  Inc. and  Properties
Associates  1986,  L.P.  ("PA1986")  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  Income Properties
Eight  Limited  Partnership,  PaineWebber,  Eighth Income  Properties,  Inc. and
PA1986 (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
Income  Properties  Eight Limited  Partnership,  also alleged that following the
sale of the partnership interests,  PaineWebber,  Eighth Income Properties, Inc.
and PA1986 misrepresented financial information about the Partnerships value and
performance.  The amended  complaint  alleged that  PaineWebber,  Eighth  Income
Properties,  Inc.  and PA1986  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 has been preliminarily approved by the court and provides for the complete
resolution of the class action  litigation,  including  releases in favor of the
Partnership  and the General  Partners,  and the  allocation of the $125 million
settlement  fund among  investors  in the various  partnerships  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.
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 a ruling by the court as a
result of this final hearing is currently pending.

     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
plaintiff's purchases of various limited partnership interests,  including those
offered  by the  Partnership.  The  complaint  is  substantially  similar to the
complaint in the Abbate action described above, and sought compensatory  damages
of $3.4 million plus punitive damages.

     Mediation with respect to the Abbate and Bandrowski actions described above
was held in December 1996. As a result of such mediation, a tentative settlement
between  PaineWebber  and the  plaintiffs  was reached  which would  provide for
complete resolution of both actions.  PaineWebber  anticipates that releases and
dismissals with regard to these actions will be received by February 1997.

      Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual  obligations,  PaineWebber affiliates could be entitled to
indemnification  for expenses and  liabilities in connection with the litigation
described above. However, PaineWebber has agreed not to seek indemnification for
any amounts it is required to pay in connection  with the  settlement of the New
York Limited  Partnership  Actions.  At the present time,  the General  Partners
cannot estimate the impact, if any, of the potential  indemnification  claims on
the  Partnership's  financial  statements,  taken  as a whole.  Accordingly,  no
provision  for any  liability  which could result from the  eventual  outcome of
these  matters has been made in the  accompanying  financial  statements  of the
Partnership.

      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  September  30, 1996,  there were 1,666 record  holders of Units in the
Partnership.  There is no public  market for the resale of the Units,  and it is
not anticipated  that a public market for resale of the Units will develop.  The
Managing General Partner will not redeem or repurchase Units.

      There  were no cash  distributions  made to the  Limited  Partners  during
fiscal 1996.

Item 6.  Selected Financial Data

           PaineWebber Income Properties Eight Limited Partnership For the years
       ended September 30, 1996, 1995, 1994, 1993 and 1992
                     (In thousands, except per Unit data)

                         1996 (1)      1995       1994       1993      1992 (2)
                         --------      ----       ----       ----      ----


Revenues              $  8,455   $   8,649   $   8,195   $   8,050   $  8,717

Provision for
  possible investment
  loss                $   (588)          -           -           -          -

Loss due to impairment
  of long-lived asset        -   $  (6,369)          -           -          -

Operating loss        $ (2,829)  $  (8,957)  $  (2,940)  $  (2,978)  $ (5,325)

Partnership's share of
  ventures' losses   $    (712)  $    (577)  $  (1,036)  $  (1,356)  $ (1,246)

Loss on transfer of
  assets at 
  foreclosure        $    (137)          -           -           -   $ (5,653)

Loss before
  extraordinary gain $  (3,678)  $  (9,534)  $  (3,976) $   (4,334)  $(12,224)

Extraordinary gain from
  settlement of debt
  obligation         $  23,459           -           -           -   $ 11,360

Net income (loss)    $  19,781   $  (9,534)   $ (3,976  $   (4,334)  $   (864)

Total assets         $     443   $  23,623    $ 31,090  $   33,521   $ 36,660

Mortgage debt payable        -   $  36,060    $ 35,237  $  34,634(3) $ 29,400

Per 1,000 Limited
  Partnership Units:

  Loss before
    extraordinary 
    gain            $ (102.56)   $ (265.38)   $(110.68)   $ (120.64) $ (340.23)

  Extraordinary 
  gain from
  settlement of 
  debt obligation   $ 652.96             -          -             -  $  316.19

  Net income
   (loss)           $ 550.40    $ (265.38)   $(110.68)    $(120.64)  $ (24.04)

(1) The fiscal  1996  amounts  reflect  the  foreclosure  of the  wholly-owned
    Newport Beach Marriott Suites Hotel which occurred on August 7, 1996. A loss
    to write  down  the  book  value of the  operating  investment  property  to
    estimated fair value had been recorded in the prior year. The  extraordinary
    gain from settlement of debt obligation recognized in fiscal 1996 represents
    the amount by which the carrying value of the debt obligations  exceeded the
    fair  value of the  property  transferred  to the  lender at the time of the
    foreclosure.

(2) The loss on transfer of assets at foreclosure and the extraordinary  gain on
    settlement  of debt  obligation  recognized in fiscal 1992 resulted from the
    foreclosure,  on  December 3, 1991,  of the  wholly-owned  Atlanta  Marriott
    Suites Hotel.

(3) The increase in long-term  debt as of September  30, 1993  resulted from the
    modification  of the  mortgage  note  payable  secured by the Newport  Beach
    Marriott operating investment property. As more fully explained in Note 6 to
    the accompanying financial statements, accrued interest payable as of August
    11, 1992 was added to the outstanding  principal  balance in accordance with
    the  modification  agreement  which also permitted the future  deferral of a
    portion of the debt service obligation (see Item 7).

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

      The above per 1,000 Limited  Partnership  Units  information is based upon
the 35,548,976 Limited Partnership Units outstanding during each year.

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

Liquidity and Capital Resources

      The  Partnership  offered  Units of Limited  Partnership  interests to the
public from  September 17, 1986 to September 16, 1988 pursuant to a Registration
Statement filed under the Securities Act of 1933.  Gross proceeds of $35,548,976
were received by the Partnership  from the sale of Partnership  Units and, after
deducting  selling  expenses and offering costs,  approximately  $28,474,000 was
originally invested in seven operating  investment  properties.  The Partnership
originally  owned two hotel  properties  directly and made  investments  in four
joint venture  partnerships which own five operating investment  properties.  To
date, the Partnership  has lost its two hotel  investments  through  foreclosure
proceedings by the first mortgage lenders,  including one during fiscal 1996. As
of September 30, 1996, the  Partnership  retains its interests in the five joint
venture  operating  properties,  which  consist of four  multi-family  apartment
complexes and one retail shopping center.  However,  as discussed further below,
two of the  joint  ventures  which  own  three of the  apartment  complexes  are
currently in default of their mortgage debt  obligations  and are in jeopardy of
having their properties foreclosed upon. In addition, the retail shopping center
is currently  generating  cash flow deficits which have been funded to date from
the Partnership's cash reserves.

      The  Partnership  originally  owned fee simple  interests  in two Marriott
hotels,  the Newport Beach Marriott  Suites Hotel, a 254-suite  hotel located in
Newport  Beach,  California,  and the  Marriott  Suites -  Perimeter  Center,  a
224-suite  hotel  located in  Atlanta,  Georgia.  As  previously  reported,  the
Partnership  had been in default  under the modified  terms of the mortgage loan
secured by the Newport Beach Marriott Suites Hotel since March 1995. On February
19, 1996, the first  mortgage loan secured by the Newport Beach Marriott  Suites
Hotel was purchased by a new lender, and the Partnership  subsequently  received
formal  notice of default from this new lender.  Subsequently,  the  Partnership
received a notice of a foreclosure  sale  scheduled for August 7, 1996, at which
time title to the Newport Beach  Marriott  Suites Hotel was  transferred  to the
mortgage lender.  Despite an improvement in the Hotel's  operating  results over
the last year, the estimated value of the Hotel property remained  substantially
less  than  the  obligation  to  the  mortgage  lender.  Given  the  significant
deficiency  which existed  between the estimated fair value of the Hotel and the
outstanding debt obligation payable to the mortgage lender,  management believed
that it would not be prudent to use any of the  Partnership's  capital resources
to cure the default or contest the foreclosure without substantial modifications
to the loan terms which would afford the  Partnership the opportunity to recover
such  additional  investments  plus a portion of its original  investment in the
Hotel.   The  new  mortgage  lender  was  not  willing  to  grant  the  required
concessions. On December 3, 1991, the holder of the mortgage debt secured by the
Atlanta  Marriott  hotel  foreclosed  on  the  operating  property  due  to  the
Partnership's  inability to meet the required  debt  service  payments.  In both
cases, the hotels were new developments when acquired and subsequently failed to
generate  the average room rates  projected  at the time of their  acquisitions.
Protracted  negotiations and  modification  agreements with the mortgage lenders
ultimately  failed to result in economically  viable  restructuring  plans. As a
result of the foreclosure proceedings described above, the Partnership no longer
has any ownership interest in either of the hotel properties.

     Due to the  foreclosure  losses of the Newport  Beach and Atlanta  Marriott
Suites Hotels,  which represented a combined 63% of the  Partnership's  original
investment  portfolio,  the Partnership will be unable to return any significant
portion of the original capital contributed by the Limited Partners.  The amount
of capital which will be returned will depend upon the proceeds  recovered  from
the final liquidation of the remaining investments.  The amount of such proceeds
will ultimately depend upon the value of the underlying investment properties at
the time of their final disposition,  which, for the most part, cannot presently
be determined.  Nonetheless,  at the present time the Partnership's  interest in
The Meadows in the Park  Apartments is the only  investment with any significant
value to the  Partnership  based on the estimated  current  market values of the
underlying  properties.  The status of the remaining investments is discussed in
more detail below.

      The loans secured by the Spinnaker  Landing and Bay Club  Apartments  were
scheduled  to mature in  December  1996.  During  fiscal  1995,  management  had
evaluated a proposal from the existing  mortgage lender to repay the outstanding
debt at a significant discount. Such a plan would have required a sizable equity
contribution  by the  Partnership.  Management  evaluated  whether an additional
investment of funds in the venture would be economically prudent in light of the
future  appreciation  potential  of  the  properties  and  concluded,  based  on
negotiations  with  the  lender,   that  an  economically   viable   refinancing
transaction could not be accomplished.  During the third quarter of fiscal 1996,
the  Partnership was notified that Spinnaker Bay's first mortgage lender and the
related  loans  were  purchased  by  another  financial   institution.   Due  to
semi-annual  real estate tax payments made during the third fiscal  quarter,  as
well as the  payment  of  ongoing  operating  expenses,  the  monthly  cash flow
available from the properties was  insufficient  to pay the minimum debt service
required in May 1996. A notice of default was issued by the  mortgage  lender in
the fourth  quarter of fiscal 1996. As of September 30, 1996,  the combined debt
obligation to the first mortgage holder for both properties totalled $6,153,000.
The estimated combined fair value of the properties, while higher than their net
carrying values, is significantly less than this debt balance. In light of these
circumstances,  effective in September 1996 the venture  partners entered into a
Property  Disposition  Agreement  with  the  lender.  Under  the  terms  of  the
agreement,  the lender agreed to delay  foreclosure  of the  properties for five
months to provide the venture with an  opportunity  to complete a sale. Any sale
of the  properties  is  expected  to be for an  amount  significantly  below the
outstanding  debt balance.  However,  under the terms of the agreement  with the
lender,  the  Partnership  and the  co-venture  partner can qualify to receive a
nominal payment from the sales proceeds if a sale is completed by the end of the
second  quarter of fiscal 1997 and certain other  conditions are met. As part of
the agreement, a receiver was appointed for the property and will be responsible
for the  collection of rents and the payment of operating  expenses  through the
end of the forbearance period.

      In December 1996, the Spinnaker Bay joint venture  executed a purchase and
sale  agreement  with an  unrelated  third party to sell the  properties  for an
amount less than the total debt obligation. If the transaction were to close and
the  conditions  referred  to above  were  met,  the  Partnership  could  end up
receiving a nomimal amount from the proceeds of the sale  transaction.  However,
the sale remains  contingent upon the buyer's due diligence and the receipt of a
financing commitment.  Accordingly, there are no assurances that the transaction
will be consummated. The Partnership has a large negative carrying value for its
investment  in Spinnaker  Bay  Associates as of September 30, 1996 because prior
year equity method  losses and  distributions  have  exceeded the  Partnership's
investments in the venture.  Consequently, the Partnership will recognize a gain
upon either the sale or the foreclosure of the operating investment properties.

      During the first quarter of fiscal 1996, the Partnership funded $63,000 to
the  Maplewood  joint  venture to cover its share of the  venture's  annual debt
service  principal  payment.  Similar  advances had been made in each of the two
preceding  years.  Subsequent  to the  end of  fiscal  1996,  the  Partnership's
co-venture  partner made another  request for the Partnership to fund 70% of the
$95,000  principal  payment due on the  venture's  mortgage  loan on December 2,
1996. Based on its current analysis,  management has concluded that it would not
be in the  Partnership's  best  interests  to  continue to fund its share of the
Maplewood venture's cash flow deficits. Accordingly, management has informed the
co-venture partner that the Partnership will not be making the requested capital
contribution.  The mortgage debt secured by the Maplewood  Park  Apartments  was
provided with tax-exempt revenue bonds issued by a local housing authority.  The
bonds are secured by a standby letter of credit issued to the joint venture by a
bank.  The letter of credit,  which is scheduled to expire in October  1998,  is
secured by a first  mortgage on the venture's  operating  property.  The revenue
bonds bear interest at a floating rate that is determined daily by a remarketing
agent based on comparable market rates for similar tax-exempt obligations.  Such
rates generally  fluctuated  between 3.5% and 4.5% per annum during fiscal 1996.
In  addition,  the  venture  is  obligated  to pay a letter  of  credit  fee,  a
remarketing  fee and a housing  authority  fee under the terms of the  financing
agreement.  The operating  property produces excess net cash flow after the debt
service and related fees due under the terms of the bond  financing  arrangement
because of the low tax-exempt interest rate paid on the bonds.  However, as part
of the joint venture agreement the Partnership's  co-venture  partner receives a
guaranteed cash  distribution on a monthly basis to the extent that the interest
cost of the  venture's  debt is less  than  8.25%  per  annum.  Conversely,  the
co-venture partner is obligated to contribute funds to the venture to the extent
that the interest cost exceeds  8.25%.  Over the past three years,  the interest
rate   differential   distributions  to  the  co-venturer  under  the  foregoing
arrangement  have  averaged  $189,000 per year.  As of September  30, 1996,  the
Partnership and the co-venturer  were not in agreement  regarding the cumulative
cash  flow  distributed  to the  co-venturer  pursuant  to  this  interest  rate
differential  calculation.  The  Partnership  believes that the  co-venturer has
received an additional $79,000 over the amount it is entitled to under the terms
of the  joint  venture  agreement  through  September  30,  1996.  The  ultimate
resolution of this dispute cannot be determined at the present time.

     Since all of the economic benefits of the Maplewood joint venture currently
accrue to the co-venture  partner in the form of the interest rate  differential
payments  described above,  management  concluded that continued  funding of the
venture's  annual  cash  flow  deficits  would  not be  prudent  in light of the
Partnership's limited remaining cash reserves. Subsequently, management has made
a proposal to the co-venture  partner to sell the Partnership's  interest in the
joint venture,  but no agreement has been reached to date.  Furthermore,  at the
present time the  co-venture  partner has not funded the required  December 1996
principal  payment,  which could result in the venture being declared in default
of the  mortgage  loan  agreement.  The current  estimated  market  value of the
Maplewood  property,  while higher than the property's  carrying value, is at or
below the amount of the outstanding principal balance owed on the first mortgage
loan. As a result,  even if the payment  default were to be cured,  there are no
assurances  that the  letter  of credit  underlying  the  mortgage  loan will be
renewed upon its expiration.  The ultimate  outcome of this situation  cannot be
determined  at the present  time.  The net carrying  value of the  Partnership's
investment in the Maplewood joint venture was $428,000 as of September 30, 1996.
Management  believes  that  this net  carrying  value is  recoverable  if a sale
agreement  can be  reached  with the  co-venture  partner  or if the  co-venture
partner cures the principal  payment  deliquency and the letter of credit can be
extended.  If, however, a sale agreement cannot be achieved and a foreclosure of
the operating property results,  the Partnership would recognize a loss equal to
its remaining investment balance.

      In October 1993,  the sole anchor tenant of the Norman  Crossing  Shopping
Center vacated the center to relocate its operations. The tenant, which occupied
26,752 square feet of the  property's  net leasable  area, is a national  credit
grocery store chain which is still  obligated under the terms of its lease which
runs  through the year 2007.  To date,  all rents due from this tenant have been
collected.  Nonetheless,  the anchor tenant vacancy  resulted in several tenants
receiving rental  abatements during fiscal 1995 and has had an adverse effect on
the ability to lease other vacant shop space.  During the last quarter of fiscal
1995,  the former anchor tenant reached an agreement to sub-lease its space to a
new tenant.  This new sublease  tenant is a health club operator  which occupies
20,552 square feet of the former  anchor's space and will sublease the remaining
6,200  square  feet.  As a result of the new  health  club  tenant  opening  for
business in February  1996, the rental  abatements  granted to the other tenants
have  been  terminated.   However,  the  long-term  impact  of  this  subleasing
arrangement  on the operations of the property  remains  uncertain at this time.
The joint  venture may have to continue  to make tenant  improvements  and grant
rental concessions in order to maintain a high occupancy level. Funding for such
improvements,  along with any operating cash flow deficits  incurred during this
period of re-stabilization  for the shopping center, would be provided primarily
by the  Partnership.  During  fiscal  1996,  the  Partnership  funded  cash flow
deficits of  approximately  $16,000 to the Norman  Crossing joint  venture.  The
Partnership is prepared to fund any additional  operating deficits of the Norman
Crossing  joint  venture  in the  near-term.  However,  given the  Partnership's
limited  capital   resources,   the   Partnership   cannot  fund  such  deficits
indefinitely.  Consequently,  the  Partnership  may look to sell  the  operating
property or its interest in the joint venture in the near future. At the present
time,  market 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.  Based on the current
estimated fair value of the Norman Crossing  Shopping  Center,  a sale under the
existing market  conditions  would not result in any significant  proceeds above
the mortgage loan balance.  In light of the above  circumstances and a resulting
reassessment of the Partnership's likely remaining holding period for the Norman
Crossing  investment,   the  Partnership  recorded  an  allowance  for  possible
investment  loss of $588,000 in fiscal 1996 to write down the net carrying value
of the equity interest to management's  estimate of its net realizable  value as
of September 30, 1996.

      Repairs to the construction defects at the Meadows in the Park Apartments,
in Birmingham, Alabama, were substantially completed during the third quarter of
fiscal 1996 using the proceeds of the insurance  settlement  which were escrowed
with the venture's  mortgage lender.  The average occupancy level at the Meadows
property had  increased to 96% for the quarter  ended  September  30, 1996 after
starting the year in the low 80% range.  The  dramatic  increase in occupancy is
the  result  of the  completion  of the  structural  repairs  in  May  1996.  As
previously  reported,  during the structural  repair program  certain  apartment
units were taken out of service each month,  which depressed  average  occupancy
levels. With the completion of the construction repairs at the Meadows,  average
occupancy  levels and rental  rates now  compare  favorably  to other  apartment
communities  in its  sub-market.  As  stated  above,  the  Meadows  in the  Park
Apartments is the only one of the  Partnership's  investments which would appear
to have any significant  value above the related mortgage loan obligations based
on  current  estimated  market  values.  Assuming  that the  overall  market for
multi-family  apartment  properties remains strong in the near term, the Meadows
joint venture may have a favorable  opportunity to sell the operating investment
property during fiscal 1997.

      In light of the  expected  fiscal 1997  disposition  of the  Partnership's
interests  in the  Spinnaker  Landing  and Bay Club  Apartments,  the  potential
disposition  of  the  Maplewood  joint  venture  investment,  and  the  possible
near-term  sales of the Norman  Crossing  Shopping Center and the Meadows on the
Lake Apartments,  the Partnership could be positioned for a possible liquidation
within the next two years. However, there are no assurances that the Partnership
will be able to dispose of its remaining  investments within this time frame. At
September 30, 1996, the Partnership  had available cash and cash  equivalents of
$433,000.  Such  cash  and cash  equivalents  will be  utilized  as  needed  for
Partnership  requirements  such as the  payment of  operating  expenses  and the
funding of joint venture  capital  improvements  or operating  deficits,  to the
extent economically justified.  The source of future liquidity and distributions
to the partners is expected to be through cash generated from  operations of the
Partnership's  income-producing investment properties and proceeds received from
the sale or  refinancing  of such  properties.  Such  sources of  liquidity  are
expected to be sufficient to meet the  Partnership's  needs only on a short-term
basis.  If the  Partnership is able to dispose of its remaining  investments and
complete a liquidation  within the next two years,  as discussed  further above,
the Partnership should have sufficient liquidity to meet its obligations.
<PAGE>
Results of Operations
1996 Compared to 1995
---------------------

    The  Partnership  had net income of $19,781,000 for fiscal 1996, as compared
to a net loss of  $9,534,000  in the prior  year.  The  current  year net income
resulted  from the  foreclosure  of the Newport Beach  Marriott  Suites Hotel on
August 7, 1996 which, as explained below, resulted in an extraordinary gain from
settlement  of debt  obligation  of  $23,459,000.  The  extraordinary  gain  was
partially offset by a loss on transfer of assets at foreclosure of $137,000. The
transfer of the Hotel's title to the lender through foreclosure  proceedings was
accounted for as a troubled debt  restructuring  in accordance with Statement of
Financial  Accounting Standards No. 15, "Accounting by Debtors and Creditors for
Troubled Debt  Restructurings."  The  extraordinary  gain arises due to the fact
that the balance of the mortgage loan and related accrued interest  exceeded the
estimated fair value of the hotel investment and other assets transferred to the
lender at the time of the  foreclosure.  The loss on transfer of assets  results
from the fact that the net  carrying  value of the Hotel  exceeded  the  Hotel's
estimated  fair value at the time of  foreclosure.  An  impairment  writedown of
$6,369,000  had been recorded in fiscal 1995 to adjust the carrying value of the
Newport Beach Marriott Suites Hotel to  management's  estimate of the property's
fair market value as of  September  30, 1995.  In fiscal 1996,  the  Partnership
recognized a provision  for possible  impairment  loss of $588,000 to adjust the
carrying value of its investment in the Norman  Crossing  Shopping Center to its
estimated net realizable value, as discussed further above.

      The Partnership's net loss, excluding all of the revenues, expenses, gains
and losses  related to the Newport Beach Hotel,  increased by $141,000 in fiscal
1996.  This  unfavorable  change in net  operating  results  was the result of a
decrease  in  interest  income and an  increase  in the  Partnership's  share of
ventures'  losses  which  were  partially  offset by a decline  in  general  and
administrative  expenses. The decrease in interest income can be attributed to a
decline in the average  outstanding  balance of the Partnership's cash reserves.
The Partnership's  share of ventures' losses increased by $135,000 during fiscal
1996,  as compared to the prior year.  The primary  reason for this  increase is
that the  Partnership  accelerated  the  amortization of its excess basis in the
joint venture  investments  during the current period as a result of the overall
Partnership outlook. Such adjustment resulted in an increase in the amortization
of the Partnership's  excess basis by $115,000 for fiscal 1996. Operating losses
also increased at the Meadows and  Spinnaker/Bay  joint ventures in fiscal 1996.
The net  operating  results of the Meadows  joint  venture  declined,  despite a
decrease in interest  expense  resulting from the fiscal 1995 refinancing of the
venture's  long-term  debt, as a result of increases in repairs and  maintenance
and  marketing  expenses.  The net loss of the joint  venture which owns the Bay
Club and Spinnaker Landing Apartments  increased primarily due to an increase in
interest expense resulting from the addition of unpaid interest to the principal
balance of the  venture's  outstanding  mortgage  indebtedness.  The decrease in
Partnership general and administrative  expenses,  of $69,000, was mainly due to
additional  professional  fees incurred in fiscal 1995 related to an independent
valuation of the Partnership's portfolio of operating investment properties.

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

      The  Partnership had a net loss of $9,534,000 for fiscal 1995, as compared
to a net loss of $3,976,000 in the prior year. This significant  increase in net
loss was primarily due to the $6,369,000  impairment  write-down recorded on the
Newport Beach Marriott Suites Hotel in fiscal 1995, as discussed  further above.
In addition,  an increase in interest expense on the Marriott loan  arrangements
of $1,421,000 also  contributed to the increase in net loss for fiscal 1995. The
increase in interest expense was the result of default interest being accrued on
the  outstanding  mortgage  loan and  additional  loan  facility  secured by the
Newport  Beach  Marriott  Suites Hotel  beginning in April 1995,  along with the
increase in the outstanding amount of the additional loan facility during fiscal
1994 and 1995.  The increase in net loss was  partially  offset by a decrease in
Hotel operating expenses of $716,000, an increase in Hotel revenues of $390,000,
a decrease in depreciation and amortization expense of $567,000 and a decline in
the  Partnership's  share of  ventures'  losses of  $459,000.  The  decrease  in
expenses at the wholly-owned Marriott Hotel was mainly due to a substantial real
estate tax refund received in fiscal 1995 as a result of a successful  appeal of
prior year assessments.  The refund, which totalled $731,000,  was received late
in fiscal 1995 and, subsequent to year-end,  was remitted to the mortgage lender
as additional  debt service owed under the terms of the modified loan agreement.
Room revenues at the Newport Beach Hotel were up by $344,000,  or 6%, for fiscal
1995 as a result of an  increase  in average  occupancy.  The  increase  in room
revenues  resulted from an improvement in the Hotel's  average  occupancy  level
from 75% for  fiscal  1994 to 78% for  fiscal  1995.  Amortization  expense  was
significantly  lower in fiscal 1995 as a result of certain fees  becoming  fully
amortized in the prior year. In addition, an increase of $64,000 in interest and
other income and a decrease of $36,000 in Partnership general and administrative
expenses also offset the increase in net loss for fiscal 1995.  Interest  income
in fiscal 1995  reflected  interest  received on certain  advances to one of the
Partnership's joint ventures.

      The decrease in the Partnership's share of ventures' losses was mainly the
result of increases in revenues at the Meadows,  Spinnaker  Landing and Bay Club
Apartments,  a decrease in depreciation expense at the Meadows joint venture and
a decrease in combined property  operating  expenses.  Rental income at Bay Club
and  Spinnaker  Landing  increased as a result of the  lease-up  achieved at the
renovated  apartments  during fiscal 1994 and 1995.  Revenues were higher at the
Meadows  joint  venture,  despite a decrease  in  occupancy,  as a result of the
designation of the excess of the settlement proceeds received over the estimated
repair costs as rental interruption  compensation,  which was recorded as income
in fiscal 1995.  Depreciation  expense at the Meadows joint venture decreased by
$100,000 as a result of certain  assets being fully  depreciated  during  fiscal
1994.  The decline in combined  property  operating  expenses could be primarily
attributed  to a decrease  in repairs  and  maintenance  expenses at the Meadows
joint venture.

1994 Compared to 1993
---------------------

     The  Partnership  had a net loss of $3,976,000 for fiscal 1994, as compared
to a net loss of  $4,334,000  in the prior  year.  The  primary  reason for this
decrease in net loss of $358,000  was a decrease in the  Partnership's  share of
ventures'  losses in fiscal 1994. The  Partnership's  share of ventures'  losses
decreased by $320,000 mainly due to an increase in rental income  resulting from
a  significant  increase  in  occupancy  at the  Spinnaker  Landing and Bay Club
Apartments  as a result of the  renewal of  leasing  efforts  subsequent  to the
renovations  of the  properties.  The  increase in rental  income was  partially
offset by an increase in interest expense on the Spinnaker  Landing and Bay Club
mortgage  loans as a result of the accrual of interest on debt service  payments
deferred by the lender  during fiscal 1993.  The  Partnership's  operating  loss
decreased by $38,000 in fiscal 1994  primarily as a result of an increase in net
operating income from the Newport Beach Marriott Suites Hotel, due to the higher
occupancy  levels  achieved  at the  Hotel in fiscal  1994,  and a  decrease  in
depreciation and amortization  expense, due to certain deferred fees being fully
amortized in the prior year. The increase in hotel net operating  income and the
decrease in  depreciation  and  amortization  expense were  partially  offset by
increases in interest expense and general and  administrative  expenses in 1994.
Interest  expense  increased  due to the  advances  under  the  additional  loan
facility from the Hotel's mortgage lender to pay debt service  shortfalls and an
increase in the variable  interest rate on this loan  facility.  The increase in
Partnership general and administrative expenses reflected certain costs incurred
in  connection  with an  independent  valuation of the  Partnership's  operating
properties  which  was  commissioned  during  fiscal  1994 in  conjunction  with
management's    ongoing   refinancing    efforts   and   portfolio    management
responsibilities.

Inflation
---------

      The  Partnership  completed  its ninth full year of  operations  in fiscal
1996.  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.  Some of the
existing leases with tenants at the Partnership's commercial investment property
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
six-to-twelve  months  in  duration.  Rental  rates at these  properties  can be
adjusted to keep pace with  inflation,  to the extent market  conditions  allow,
when 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 future inflation.

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  Eighth  Income
Properties, Inc., a Delaware corporation,  which is a wholly-owned subsidiary of
PaineWebber.  The Associate  General  Partner of the  Partnership  is Properties
Associates 1986, 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 operation;  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
James A. Snyder      Senior Vice President                  51       7/6/92
David F. Brooks      First Vice President and 
                      Assistant Treasurer                   54      8/27/85 *
Timothy J. Medlock   Vice President and Treasurer           35       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 principal executive officers mentioned above.

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

      (e) All of the directors and  executive  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  Paine  Webber   Properties
Incorporated  serves as the  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 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. He began his career in 1974 with Arthur Young & Company in Houston. Mr.
Arnold is a Certified Public Accountant licensed in the state of Texas.

      James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser.  Mr. Snyder re-joined the Adviser in
July 1992  having  served  previously  as an  officer  of PWPI from July 1980 to
August 1987.  From January 1991 to July 1992, Mr. Snyder was with the Resolution
Trust  Corporation where he served as the Vice President of Asset Sales prior to
re-joining  PWPI. From February 1989 to October 1990, he was President of Kan Am
Investors, Inc., a real estate investment company. During the period August 1987
to February 1989,  Mr. Snyder was Executive  Vice President and Chief  Financial
Officer  of  Southeast  Regional  Management  Inc.,  a real  estate  development
company.

      David F. Brooks is a First Vice  President and Assistant  Treasurer of the
Managing  General Partner and a First Vice President and an Assistant  Treasurer
of the Adviser.  Mr. Brooks joined the Adviser 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 were 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 September 30, 1996, all filing
requirements  applicable to the officers and  directors of the Managing  General
Partner and ten-percent beneficial holders were complied with.



<PAGE>


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
Partnership  is  required to pay certain  fees to the  Adviser,  and the General
Partners are entitled to receive a share of Partnership cash distributions and a
share of profits and losses. These items are described under Item 13.

      The  Partnership  paid cash  distributions  to the  Limited  Partners on a
quarterly  basis  at a rate  equal  to 5% per  annum on  invested  capital  from
inception  through the first  quarter of fiscal 1991.  Effective for the quarter
ended  March  31,  1991,  such   distributions   were  suspended   indefinitely.
Furthermore, the Partnership's Limited Partnership Units are not actively traded
on  any  organized   exchange,   and  no  efficient   secondary  market  exists.
Accordingly,  no  accurate  price  information  is  available  for these  Units.
Therefore,  a presentation of historical  Unitholder  total returns would not be
meaningful.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

      (a) The  Partnership  is a limited  partnership  issuing  Units of Limited
Partnership  Interest,  not voting securities.  All the outstanding stock of the
Managing  General  Partner,   Eighth  Income  Properties,   Inc.,  is  owned  by
PaineWebber. Properties Associates 1986, L.P., the Associate General Partner, is
a Virginia limited partnership,  the limited partners of which are also officers
of the Adviser and the Managing  General  Partner.  Properties  Associates 1986,
L.P. also is the Initial Limited  Partner.  An affiliate of the Managing General
Partner referred to below owned either directly or beneficially  more than 5% of
the outstanding Units of limited  partnership  interest in the Partnership as of
September 30, 1996.



                                                     Amount
                        Name and Address             Beneficially      Percent
Title of Class          of Beneficial Owner          Owned             of Class
--------------          -------------------          -----             --------

Units of Limited       PaineWebber Incorporated      5,705,002         16%
Partnership            1285 Avenue of the Americas                     Units
                       New York, NY  10019



      (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

      The General Partners of the Partnership are Eighth Income Properties, Inc.
(the  "Managing  General  Partner"),  a  wholly-owned  subsidiary of PaineWebber
Group,  Inc.   ("PaineWebber"),   and  Properties  Associates  1986,  L.P.  (the
"Associate General Partner"),  a Virginia limited  partnership,  certain limited
partners of which are also officers of the Managing General Partner.  Subject to
the  Managing  General  Partner's  overall   authority,   the  business  of  the
Partnership is managed by PaineWebber  Properties  Incorporated (the "Adviser"),
pursuant to an advisory  contract.  The Adviser is a wholly-owned  subsidiary of
PaineWebber Incorporated ("PWI").

      The General  Partners,  the Adviser and PWI 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.

      In connection  with the  acquisition of properties,  the Adviser  received
acquisition fees in an amount not greater than 5% of the gross proceeds from the
sale of Partnership  Units.  In connection  with the sale of each property,  the
Adviser  may  receive  a  disposition  fee,  payable  upon  liquidation  of  the
Partnership, in an amount equal to the lesser of 1% of the aggregate sales price
of the property or 50% of the standard  brokerage  commissions,  subordinated to
the payment of certain amounts to the Limited Partners.

      Pursuant  to the  terms of the  Partnership  Agreement,  as  amended,  any
taxable  income  or tax loss  (other  than from a  Capital  Transaction)  of the
Partnership  will  be  allocated   98.94802625%  to  the  Limited  Partners  and
1.05197375% to the General  Partners.  Taxable income or tax loss arising from a
sale or  refinancing of investment  properties  will be allocated to the Limited
Partners  and the  General  Partners  in  proportion  to the  amounts of sale or
refinancing  proceeds  to which they are  entitled;  provided  that the  General
Partners shall be allocated at least 1% of taxable income arising from a sale or
refinancing. If there are no sale or refinancing proceeds, taxable income or tax
loss from a sale or refinancing  will be allocated  98.94802625%  to the Limited
Partners and  1.05197375%  to the General  Partners.  Notwithstanding  this, the
Partnership  Agreement  provides that the  allocation of taxable  income and tax
losses arising from the sale of a property which leads to the dissolution of the
Partnership shall be adjusted to the extent feasible so that neither the General
or Limited  Partners  recognize  any gain or loss as a result of having either a
positive  or negative  balance  remaining  in their  capital  accounts  upon the
dissolution of the  Partnership.  If the General Partner has a negative  capital
account  balance  subsequent  to the  sale  of a  property  which  leads  to the
dissolution of the Partnership,  the General Partner may be obligated to restore
a portion of such negative  capital  account balance as determined in accordance
with  the  provisions  of  the   Partnership   Agreement.   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.

      All  distributable  cash,  as  defined,  for  each  fiscal  year  shall be
distributed quarterly in the ratio of 95% to the Limited Partners,  1.01% to the
General Partners and 3.99% to the Adviser, as an asset management fee.

      Under  the  advisory  contract,   the  Adviser  has  specific   management
responsibilities; to administer day-to-day operations of the Partnership, and to
report  periodically  the performance of the Partnership to the Managing General
Partner.  The Adviser will be paid a basic  management  fee (3% of adjusted cash
flow, as defined in the Partnership  Agreement) and an incentive  management fee
(2% of adjusted cash flow  subordinated to a noncumulative  annual return to the
Limited Partners equal to 5% based upon their adjusted  capital  contributions),
in  addition  to the  asset  management  fee  referred  to above,  for  services
rendered.  The Adviser earned no management fees during the year ended September
30, 1996.

      Both  the   Managing   General   Partner  and  the  Adviser  will  receive
reimbursements  for actual amounts paid on the  Partnership's  behalf  including
offering and organization costs (not to exceed 5% of the gross offering proceeds
of the offering),  acquisition  expenses  incurred in investigating or acquiring
real property  investments and any other costs for goods or services used for or
by the Partnership.

      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  September 30, 1996 is $90,000,  representing  reimbursements  to
this affiliate for providing such services to the Partnership.

   The  Partnership  uses  the  services  of  Mitchell  Hutchins   Institutional
Investors,  Inc.  ("Mitchell  Hutchins"),  an affiliate of the Managing  General
Partner,  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 $2,000 (included in general and
administrative  expenses)  for managing  the  Partnership's  cash assets  during
fiscal  1996.  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.




<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  listed  on  the  accompanying   index  to
                        exhibits at Page IV-3 are filed as part of this Report.


   (b)  No Current Reports on Form 8-K were filed during the last quarter of the
        period covered by this Report.

   (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.

                                  PAINE WEBBER INCOME PROPERTIES EIGHT
                                        LIMITED PARTNERSHIP


                                  By:  Eighth Income Properties, 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:  January 13, 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 in
the capacity and on the dates indicated.




By:/s/ Bruce J. Rubin                           Date:  January 13, 1997
   -----------------------                             ----------------
   Bruce J. Rubin
   Director






By:/s/ Terrence E. Fancher                      Date:  January 13, 1997
   -----------------------                             ----------------
   Terrence E. Fancher
   Director


<PAGE>


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

           PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
                              INDEX TO EXHIBITS

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

(3) and (4)    Prospectus of the Registrant dated           Filed with the Commission pursuant
               September 17, 1986, as supplemented,         to   Rule   424(c)  and incorporated
               with particular reference to the             herein by reference.
               Restated Certificate and Agreement
               of Limited Partnership


(10)           Material contracts previously filed as       Filed with  the Commission pursuant
               exhibits to registration statements          to  Section  13 or 15(d) of the Securities
               and amendments thereto of the                Exchange Act of 1934 and incorporated
               registrant together with all such            herein  by reference.
               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 the year ended
                                                            September 30, 1996  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 1 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 14(d)
           PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
                        INDEX TO FINANCIAL STATEMENTS
                      AND FINANCIAL STATEMENT SCHEDULES



                                                                    Reference
                                                                    ---------

Paine Webber Income Properties Eight Limited Partnership:

  Report of independent auditors                                          F-2

  Balance sheets as of September 30, 1996 and 1995                        F-3

  Statements of operations  for the years ended  September 30, 1996,
     1995 and 1994                                                        F-4

  Statements  of changes in  partners'  deficit for the years ended 
     September 30, 1996,  1995 and 1994                                   F-5

  Statements of cash flows for the years ended  September  30, 1996, 
     1995 and 1994                                                        F-6

  Notes to financial statements                                           F-7

Combined  Joint  Ventures  of  PaineWebber  Income  Properties  Eight  Limited
Partnership:

  Report of independent auditors                                          F-24

  Combined balance sheets as of September 30, 1996 and 1995               F-25

  Combined  statements of operations and changes in ventures'  
     deficit for the years ended September 30, 1996, 1995 and 1994        F-26

  Combined  statements  of cash flows for the years ended
     September 30, 1996, 1995 and 1994                                    F-27

  Notes to combined financial statements                                  F-28

  Schedule III - Real estate and accumulated depreciation                 F-38


  Other  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  consolidated
financial statements, including the notes thereto.




<PAGE>



                        REPORT OF INDEPENDENT AUDITORS



The Partners of
PaineWebber Income Properties Eight Limited Partnership:

     We have  audited the  accompanying  balance  sheets of  PaineWebber  Income
Properties Eight Limited  Partnership as of September 30, 1996 and 1995, and the
related  statements of operations,  changes in partners'  capital(deficit),  and
cash flows for each of the three years in the period ended  September  30, 1996.
These  financial   statements  are  the   responsibility  of  the  Partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

      In our opinion, the financial statements referred to above present fairly,
in  all  material  respects,   the  financial  position  of  PaineWebber  Income
Properties  Eight Limited  Partnership  at September 30, 1996 and 1995,  and the
results of its  operations and its cash flows for each of the three years in the
period  ended  September  30,  1996,  in  conformity  with  generally   accepted
accounting principles.

     As discussed in Notes 2 and 4 to the financial  statements,  in fiscal 1995
the Partnership  adopted  Statement of Financial  Accounting  Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of."




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




Boston, Massachusetts
December 26, 1996


<PAGE>


           PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP

                                BALANCE SHEETS
                         September 30, 1996 and 1995
                   (In thousands, except per Unit amounts)

                                    ASSETS
                                    ------

                                                      1996          1995
                                                      ----          ----
Operating investment property:
   Land                                            $       -      $  5,488
   Buildings                                               -        21,377
   Equipment and improvements                              -         2,868
                                                   ---------      --------
                                                           -        29,733
   Less accumulated depreciation                           -        (9,733)
                                                   ---------      --------
                                                           -        20,000

Investments in joint ventures, at equity                   -           412
Cash and cash equivalents                                 433        1,362
Cash reserved for capital expenditures                     -           618
Accounts receivable                                        1           240
Due from Marriott Corporation                              -           680
Inventories                                                -           124
Other assets                                               9            50
Deferred expenses, net of accumulated amortization
 of $2,425 in 1995                                         -           137
                                                   ---------      --------
                                                   $     443      $ 23,623
                                                   =========      ========

                      LIABILITIES AND PARTNERS' DEFICIT
                      ---------------------------------

Accounts payable and accrued expenses              $      41      $    182
Accounts payable - affiliates                              2             2
Accrued interest payable                                   -         1,242
Equity in losses of joint ventures in 
  excess of investments and advances                     810             -
Loan payable to Marriott Corporation                       -         6,328
Mortgage debt payable                                      -        36,060
                                                   ---------      --------
      Total liabilities                                  853        43,814

Partners' deficit:
  General Partners:
   Capital contributions                                   1             1
   Cumulative net loss                                  (302)         (510)
   Cumulative cash distributions                         (86)          (86)

  Limited Partners ($1 per Unit; 35,548,976 
     Units subscribed and issued):
   Capital contributions, net of offering 
     costs of $4,791                                  30,758         30,758
   Cumulative net loss                               (25,062)       (44,635)
   Cumulative cash distributions                      (5,719)        (5,719)
                                                   ----------     ---------
      Total partners' deficit                           (410)       (20,191)
                                                   ---------      ---------
                                                   $     443      $  23,623
                                                   =========      =========


                           See accompanying notes.


<PAGE>


           PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP

                           STATEMENTS OF OPERATIONS
            For the years ended September 30, 1996, 1995 and 1994
                     (In thousands, except per Unit data)


                                                1996        1995        1994
                                                ----        ----        ----
Revenues:
   Hotel revenues                           $   8,393    $  8,512    $  8,122
   Interest and other income                       62         137          73
                                            ---------    --------    --------
                                                8,455       8,649       8,195
Expenses:
   Hotel operating expenses                     5,631       5,550       6,266
   Interest expense                             4,050       4,389       2,968
   Depreciation expense                           727         893       1,406
   General and administrative                     267         336         372
   Provision for possible
     investment loss                              588           -           -
   Loss due to impairment of long-lived
     assets                                         -       6,369           -
   Amortization expense                            21          69         123
                                            ---------    --------   ---------
                                               11,284      17,606      11,135
                                            ---------    --------   ---------

Operating loss                                 (2,829)     (8,957)     (2,940)

Partnership's share of ventures' losses          (712)       (577)     (1,036)

Loss on transfer of assets at foreclosure        (137)          -           -
                                            ----------   --------   ---------

Loss before extraordinary gain                 (3,678)     (9,534)     (3,976)

Extraordinary gain from settlement 
  of debt obligation                           23,459           -           -
                                           ----------    --------   ---------

Net income (loss)                          $   19,781    $ (9,534)  $  (3,976)
                                           ==========    ========   =========

Net income (loss) per 1,000 
 Limited Partnership Unit:

   Loss before extraordinary gain          $ (102.56)    $(265.38)  $ (110.68)
   Extraordinary gain                         652.96            -           -
                                           ---------     --------   ---------
   Net income (loss)                       $  550.40     $(265.38)  $ (110.68)
                                           =========     ========    ========


   The above per 1,000 Limited  Partnership  Units information is based upon the
35,548,976 Limited Partnership Units outstanding during each year.










                           See accompanying notes.


<PAGE>


            PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP

              STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
              For the years ended September 30, 1996, 1995 and 1994
                                 (In thousands)

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

Balance at September 30, 1993            $ (453)    $ (6,228)     $ (6,681)

Net loss                                    (42)      (3,934)       (3,976)
                                         -------    --------      --------

Balance at September 30, 1994              (495)     (10,162)      (10,657)

Net loss                                   (100)      (9,434)       (9,534)
                                         ------     --------      --------

Balance at September 30, 1995              (595)     (19,596)      (20,191)

Net income                                  208       19,573        19,781
                                         ------     --------     ---------

Balance at September 30, 1996            $ (387)    $    (23)    $    (410)
                                         ======     ========     =========
































                           See accompanying notes.


<PAGE>


            PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
              For the years ended September 30, 1996, 1995 and 1994
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

                                                1996        1995        1994
                                                ----        ----        ----
Cash flows from operating activities:
  Net income (loss)                          $ 19,781     $(9,534)    $(3,976)
  Adjustments to reconcile net income (loss)
     to net cash used in operating activities:
   Interest expense                               547         600         543
   Depreciation and amortization                  748         962       1,529
   Amortization of deferred gain on 
     forgiveness of debt                            -        (324)       (768)
   Partnership's share of ventures' losses        712         577       1,036
   Provision for possible investment loss         588           -           -
   Loss due to impairment of long-lived assets      -       6,369           -
   Loss on transfer of assets at foreclosure      137           -           -
   Extraordinary gain from settlement of debt
     obligation                               (23,459)          -           -
   Changes in assets and liabilities:
     Cash subject to transfer at foreclosure     (516)          -           -
     Accounts receivable                          (37)         46         (68)
     Due to/from Marriott Corporation             460        (692)         47
     Inventories                                   27          14          (6)
     Other assets                                 (21)          1           5
     Accounts payable and accrued expenses        128        (299)        263
     Accounts payable - affiliates                  -           -         (21)
     Accrued interest payable                     373         955         144
                                             --------      ------     -------
         Total adjustments                    (20,313)      8,209       2,704
                                             --------      ------     -------
         Net cash used in operating activities   (532)     (1,325)     (1,272)

Cash flows from investing activities:
  Additions to operating investment property     (467)       (165)       (536)
  Net withdrawals from capital expenditure
   reserve                                        149         140          53
  Investments in joint ventures                   (79)       (152)          -
  Distributions from joint ventures                 -         221         398
                                             --------      ------     -------
         Net cash provided by (used in)
           investing activities                  (397)         44         (85)

Cash flows from financing activities:
  Proceeds from issuance of long-term debt          -       1,147       1,371
                                             ---------     -------    -------
         Net cash provided by
           financing activities                     -       1,147       1,371
                                             ---------     ------     -------

Net (decrease) increase in cash and
  cash equivalents                                (929)      (134)         14

Cash and cash equivalents, beginning of year     1,362      1,496       1,482
                                             ---------     ------     -------

Cash and cash equivalents, end of year       $    433      $1,362     $ 1,496
                                             ========      ======     =======

Cash paid during the year for interest       $  3,130      $3,157     $ 3,049
                                             ========      ======     =======


                           See accompanying notes.


<PAGE>


                     PAINEWEBBER INCOME PROPERTIES EIGHT
                              LIMITED PARTNERSHP
                        Notes to Financial Statements


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

      PaineWebber    Income   Properties   Eight   Limited    Partnership   (the
     "Partnership")  is a limited  partnership  organized  in April 1986 for the
     purpose of investing in a diversified  portfolio of  income-producing  real
     properties.  The Partnership  authorized the issuance of Partnership  units
     (the  "Units"),  at $1 per Unit, of which  35,548,976  were  subscribed and
     issued between September 17, 1986 and September 16, 1988.

      The Partnership  originally owned two hotel  properties  directly and made
     investments  in four joint venture  partnerships  which own five  operating
     investment  properties.  To date,  the  Partnership  has lost its two hotel
     investments through foreclosure  proceedings by the first mortgage lenders,
     including one during fiscal 1996. As of September 30, 1996, the Partnership
     retains its interests in the five joint venture operating properties, which
     consist of four  multi-family  apartment  complexes and one retail shopping
     center.  However, as discussed further in Note 5, two of the joint ventures
     which own three of the  apartment  complexes  are  currently  in default of
     their  mortgage  debt  obligations  and are in  jeopardy  of  having  their
     properties  foreclosed  upon. In addition,  the retail  shopping  center is
     currently generating cash flow deficits which have been funded to date from
     the  Partnership's  cash  reserves.  See  Notes  4,  5 and 6 for a  further
     discussion of the Partnership's real estate investments.

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 require  management to make estimates and assumptions that
     affect the reported  amounts of assets and  liabilities  and disclosures of
     contingent  assets and  liabilities  as of September  30, 1996 and 1995 and
     revenues  and  expenses  for each of the three  years in the  period  ended
     September  30, 1996.  Actual  results  could differ from the  estimates and
     assumptions used.

      The   accompanying   financial   statements   include  the   Partnership's
     investments  in four joint venture  partnerships  which own five  operating
     properties.  The Partnership accounts for its investments in joint ventures
     using the equity  method  because  the  Partnership  does not have a voting
     control interest 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.  See Note 5 for a description of the
     joint venture investments.

      Through  September  30,  1994,  the  Partnership   carried  its  operating
      investment   property  at  the  lower  of  cost,  reduced  by  accumulated
      depreciation and guaranteed  payments  received from Marriott  Corporation
      (see Note 4), or net  realizable  value.  Effective  for fiscal 1995,  the
      Partnership  adopted Statement of Financial  Accounting  Standards No. 121
      (SFAS  121),  "Accounting  for  Impairment  of  Long-Lived  Assets and for
      Long-Lived  Assets  to Be  Disposed  Of," to  account  for  its  operating
      investment  properties,   including  those  owned  through  joint  venture
      partnerships. 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. In conjunction
      with the application of SFAS 121, an impairment loss on the  Partnership's
      wholly-owned Hotel investment  property was recognized in fiscal 1995 (see
      Note 4.)

      Depreciation  expense on the  operating  investment  property was computed
     using the  straight-line  method  over an  estimated  useful life of thirty
     years for the  buildings,  and seven years for equipment and  improvements.
     Acquisition expenses,  including  professional fees and guaranty fees, were
     capitalized  and had been included in the cost of the operating  investment
     property prior to its foreclosure in fiscal 1996 (see Note 4).

      Inventories  were  valued at the  lower of cost or  market on a  first-in,
     first-out  (FIFO) basis.  Inventories  consisted of supply  inventories  of
     $111,000 and food and  beverage  inventories  of $13,000 at  September  30,
     1995. The inventories  related to hotel  operations and were transferred to
     the  mortgage  lender as a result of the  fiscal  1996  foreclosure  of the
     wholly-owned operating investment property (see Note 4).

      Deferred  expenses had included  capitalized  pre-opening costs related to
     the Newport Beach hotel property,  prepaid management fees, non-competition
     fees  paid to  Marriott  Corporation  (see  Note 4),  and  financing  costs
     associated  with the  Partnership's  mortgage note payable.  These expenses
     were being amortized using the  straight-line  method primarily over three-
     to  seven-year   periods.   Certain  closing  costs   associated  with  the
     modification  of the  mortgage  note payable  secured by the Newport  Beach
     Marriott  were being  amortized  over the remaining  term of the loan.  All
     unamortized  deferred expenses were written off upon the foreclosure of the
     hotel property in fiscal 1996 (see Note 4).

      For the  purposes  of  reporting  cash  flows,  cash and cash  equivalents
     include all highly liquid investments which have original  maturities of 90
     days or less.

      The cash and cash equivalents,  receivables,  accounts payable  affiliates
     and accounts  payable and accrued  expenses  appearing on the  accompanying
     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 these assets and liabilities
     approximates  their  fair  value  as of  September  30,  1996  due  to  the
     short-term maturities of these instruments.

      Certain  prior  year  amounts  have been  reclassified  to  conform to the
     current year presentation.

      No  provision  for income  taxes has been made as the  liability  for such
      taxes is that of the individual partners rather than the Partnership. Upon
      sale or disposition of the Partnership's investments,  the taxable gain or
      the tax loss incurred will be allocated among the partners. In cases where
      the disposition of the investment  involves the lender  foreclosing on the
      investment,  taxable income could occur without distribution of cash. This
      income  would  represent  passive  income to the  partners  which could be
      offset by each partners'  existing  passive losses,  including any passive
      loss carryovers from prior years.

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

      The General Partners of the Partnership are Eighth Income Properties, Inc.
     (the "Managing General Partner"), a wholly-owned  subsidiary of PaineWebber
     Group,  Inc.  ("PaineWebber"),  and Properties  Associates  1986, L.P. (the
     "Associate  General  Partner"),  a Virginia  limited  partnership,  certain
     limited  partners  of  which  are also  officers  of the  Managing  General
     Partner.  Subject to the Managing General Partner's overall authority,  the
     business  of  the   Partnership  is  managed  by   PaineWebber   Properties
     Incorporated (the "Adviser"), pursuant to an advisory contract. The Adviser
     is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI").

      The General  Partners,  the Adviser and PWI 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.

      In connection  with the  acquisition of properties,  the Adviser  received
     acquisition  fees in an amount not  greater  than 5% of the gross  proceeds
     from the sale of  Partnership  Units.  In connection  with the sale of each
     property,   the  Adviser  may  receive  a  disposition  fee,  payable  upon
     liquidation of the  Partnership,  in an amount equal to the lesser of 1% of
     the aggregate sales price of the property or 50% of the standard  brokerage
     commissions,  subordinated to the payment of certain amounts to the Limited
     Partners.

      Pursuant  to the  terms of the  Partnership  Agreement,  as  amended,  any
     taxable income or tax loss (other than from a Capital  Transaction)  of the
     Partnership  will be  allocated  98.94802625%  to the Limited  Partners and
     1.05197375%  to the General  Partners.  Taxable  income or tax loss arising
     from a sale or  refinancing of investment  properties  will be allocated to
     the Limited  Partners and the General Partners in proportion to the amounts
     of sale or refinancing  proceeds to which they are entitled;  provided that
     the  General  Partners  shall be  allocated  at least 1% of taxable  income
     arising  from a sale or  refinancing.  If there are no sale or  refinancing
     proceeds,  taxable  income or tax loss from a sale or  refinancing  will be
     allocated  98.94802625%  to the Limited  Partners  and  1.05197375%  to the
     General Partners.  Notwithstanding this, the Partnership Agreement provides
     that the  allocation of taxable income and tax losses arising from the sale
     of a property which leads to the  dissolution of the  Partnership  shall be
     adjusted  to the extent  feasible  so that  neither  the General or Limited
     Partners recognize any gain or loss as a result of having either a positive
     or  negative   balance   remaining  in  their  capital  accounts  upon  the
     dissolution  of the  Partnership.  If the  General  Partner  has a negative
     capital account balance subsequent to the sale of a property which leads to
     the dissolution of the Partnership, the General Partner may be obligated to
     restore a portion of such negative capital account balance as determined in
     accordance with the provisions of the Partnership Agreement. 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.

      All  distributable  cash,  as  defined,  for  each  fiscal  year  shall be
     distributed quarterly in the ratio of 95% to the Limited Partners, 1.01% to
     the General Partners and 3.99% to the Adviser, as an asset management fee.

      Under  the  advisory  contract,   the  Adviser  has  specific   management
     responsibilities;  to administer  day-to-day operations of the Partnership,
     and to  report  periodically  the  performance  of the  Partnership  to the
     Managing General  Partner.  The Adviser will be paid a basic management fee
     (3% of adjusted cash flow, as defined in the Partnership  Agreement) and an
     incentive  management  fee (2% of  adjusted  cash  flow  subordinated  to a
     noncumulative  annual return to the Limited Partners equal to 5% based upon
     their adjusted capital contributions),  in addition to the asset management
     fee  referred  to above,  for  services  rendered.  The  Adviser  earned no
     management fees during the three-year period ended September 30, 1996.

      Both the Managing  General Partner and the Adviser receive  reimbursements
     for actual amounts paid on the Partnership's  behalf including offering and
     organization  costs (not to exceed 5% of the gross offering proceeds of the
     offering), acquisition expenses incurred in investigating or acquiring real
     property  investments and any other costs for goods or services used for or
     by the Partnership.

      Included  in  general  and  administrative  expenses  for the years  ended
     September  30,  1996,  1995  and 1994 is  $90,000,  $91,000  and  $111,000,
     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"), an affiliate of the Managing General
     Partner, 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 $2,000, $4,000
     and $3,000 (included in general and  administrative  expenses) for managing
     the   Partnership's   cash  assets  during  fiscal  1996,  1995  and  1994,
     respectively.

 4.   Operating Investment Property
      -----------------------------

    The  Partnership  acquired a 100%  interest  in the  Marriott  Suites  Hotel
    located  in  Newport  Beach,   California  from  the  Marriott   Corporation
    ("Marriott")  on August 10, 1988. The Hotel consists of 254 two-room  suites
    encompassing 201,606 square feet located on approximately 4.8 acres of land.
    The Hotel was managed for the  Partnership  by Marriott  and its  affiliates
    (the "Manager"), as described below. The Partnership purchased the operating
    investment property for approximately $39,946,000,  including an acquisition
    fee paid by Marriott to the Adviser of $580,000 and a $325,000  guaranty fee
    paid to Marriott.  The Hotel was acquired  subject to a first  mortgage loan
    with an initial  principal balance of $29,400,000 (see Note 6). In addition,
    the Partnership provided an initial working capital reserve of approximately
    $554,000 to the Manager for Hotel operations.

    Since  the  time  of its  acquisition,  the  Hotel  experienced  substantial
    recurring losses after debt service. Through September 30, 1991, the Hotel's
    cash flow  deficits  were funded by Marriott,  as discussed  further  below.
    After  Marriott  had  fulfilled  its   obligation  to  fund  deficits,   the
    Partnership  and the lender  reached an  agreement,  which was  finalized in
    fiscal 1993,  to modify the terms of the first  mortgage  loan. As discussed
    further in Note 6, the  Partnership  was in default of the modified terms of
    the first  mortgage loan  agreement  secured by the Newport  Beach  Marriott
    Suites Hotel as of September 30, 1995.  During fiscal 1995, the  Partnership
    reached  the limit on the debt  service  deferrals  imposed by the 1993 loan
    modification  agreement.  On February  19,  1996,  the first  mortgage  loan
    secured by the Newport  Beach  Marriott  Suites Hotel was purchased by a new
    lender, and the Partnership  subsequently  received formal notice of default
    from this new lender.  Subsequently,  the Partnership received a notice of a
    foreclosure  sale  scheduled  for August 7, 1996, at which time title to the
    Newport Beach Marriott Suites Hotel was transferred to the mortgage  lender.
    The  transfer  of the  Hotel's  title to the lender was  accounted  for as a
    troubled  debt  restructuring  in  accordance  with  Statement  of Financial
    Accounting  Standards  No. 15,  "Accounting  by Debtors  and  Creditors  for
    Troubled Debt  Restructurings."  As a result,  the  Partnership  recorded an
    extraordinary  gain from  settlement  of debt  obligation  of  approximately
    $23,459,000, partially offset by a loss on transfer of assets at foreclosure
    of approximately  $137,000.  The  extraordinary  gain arises due to the fact
    that the balance of the mortgage loan and related accrued interest  exceeded
    the estimated  fair market value of the Hotel  investment,  and other assets
    transferred  to the  lender,  at the  time of the  foreclosure.  The loss on
    transfer of assets  results from the fact that the net carrying value of the
    Hotel exceeded its estimated fair value at the time of the foreclosure.

    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  wholly-owned  Hotel  property in
    fiscal 1995. The impairment loss resulted because, in management's judgment,
    the default  status of the mortgage loan secured by the  property,  combined
    with the lack of near-term  prospects for sufficient  future  improvement in
    market  conditions  in the Orange  County  market in which the  property  is
    located, were not expected to enable the Partnership to recover the adjusted
    cost basis of the property. The Partnership recognized an impairment loss of
    $6,369,000 to write down the operating  investment property to its estimated
    fair value of $20,000,000 as of September 30, 1995. 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  guaranty  fee  referred to above was paid in exchange  for an agreement
    (the "Payment  Agreement") by Marriott to fund, for a four-year period,  the
    amounts necessary in the event that revenues generated by the Hotel were not
    sufficient  to pay: (1) debt service  payments on the mortgage  loan;  (2) a
    cumulative  preferred  return  to  the  Partnership  equal  to  7.5%  of the
    Partnership's Net Investment,  as defined (the "Preferred Return");  and (3)
    operating  losses  incurred  by the Hotel;  if any,  up to  $5,000,000.  The
    Partnership had no obligation to reimburse Marriott for the first $1,500,000
    of funds so advanced.  The payment by Marriott Corporation of the $1,500,000
    non-refundable  advance was accounted for as a reduction to the basis of the
    operating investment  property.  Funds advanced in excess of $1,500,000 were
    in the form of non-recourse  loans (the "Loans").  The Loans were payable to
    Marriott,  with  interest on the amounts  advanced  calculated  at a monthly
    compounded rate of 10% per annum, only under certain  circumstances,  out of
    excess  proceeds  generated by any sale or refinancing of the Hotel.  At the
    date  of  foreclosure,   August  7,  1996,  the  loan  payable  to  Marriott
    Corporation totalled $6,875,000, including accrued interest. Since the loans
    were only payable out of sale or refinancing  proceeds,  the  foreclosure of
    the Hotel resulted in the  cancellation  of this debt  obligation,  which is
    included in the extraordinary gain discussed further above.

    The  following  is a summary  of the  Newport  Beach  Hotel's  revenues  and
    operating  expenses  from October 1, 1995  through the date of  foreclosure,
    August  7,  1996 and for the  years  ended  September  30,  1995  and  1994,
    respectively (in thousands):

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

   Revenues:
     Guest rooms                         $6,187         $6,465         $6,121
     Food and beverage                    1,449          1,621          1,604
     Other revenues                         757            426            397
                                         ------         ------         ------
                                         $8,393         $8,512         $8,122
                                         ======         ======         ======

   Operating expenses:
     Guest rooms                         $1,622         $1,772         $1,681
     Food and beverage:
      Cost of sales                         390            443            426
      Operating expenses                    753            883            928
     Other operating expenses               659            850            913
     Management fees - Manager              161            170            162
     Selling, general and administrative  1,340          1,370          1,325
     Repairs and maintenance                381            424            421
     Real estate taxes, net of refunds 
       of $731 in 1995                      325          (362)            410
                                         ------         ------         ------
                                         $5,631         $5,550         $6,266
                                         ======         ======         ======

    The base  management  fee paid to the  Manager  was equal to 2% of the gross
    revenues  generated by the Hotel. The operating  expenses of the Hotel noted
    above  included  significant   transactions  with  the  Manager.  All  Hotel
    employees were  employees of the Manager and the related  payroll costs were
    allocated to the Hotel operations by the Manager. A majority of the supplies
    and food purchased  during fiscal 1996, 1995 and 1994 were purchased from an
    affiliate of the Manager.  In addition,  the Manager also allocated  certain
    central  reservation  center expenses,  employee benefit costs,  advertising
    costs and management training costs to the Hotel.

    Due from Marriott Corporation at September 30, 1995 consisted principally of
    a real estate tax refund  received by Marriott  Corporation on behalf of the
    Partnership.  During  fiscal 1996,  this amount was remitted to the mortgage
    holder as additional debt service (see Note 6).



<PAGE>


5.    Investments in Joint Venture Partnerships
      -----------------------------------------

     The  Partnership  has  investments  in four  joint  ventures  that own five
     operating  investment  properties.  These joint  ventures are accounted for
     under the equity method in the Partnership's  financial  statements.  Under
     the equity  method  the  investment  in a joint  venture is carried at cost
     adjusted for the Partnership's  share of the ventures'  earnings and losses
     and distributions.  Condensed combined financial  statements of these joint
     ventures follow.

                      Condensed Combined Balance Sheets
                      ---------------------------------
                         September 30, 1996 and 1995
                                (in thousands)
                                    Assets
                                    ------
                                                       1996             1995
                                                       ----             ----

   Current assets                                   $  5,422        $     391
   Operating investment properties, net               14,255           19,741
   Other assets                                          416            1,226
                                                    --------        ---------
                                                    $ 20,093        $  21,358
                                                    ========        =========

                 Liabilities and Partners' Capital (Deficit)
                 -------------------------------------------

   Current liabilities                              $ 12,213        $   1,199
   Other liabilities                                     295              272
   Long-term debt, less current portion                8,031           19,600
   Partnership's share of combined capital
      (deficit)                                        (349)              160
   Co-venturers' share of combined capital 
      (deficit)                                         (97)              127
                                                    -------         ---------
                                                    $20,093         $  21,358
                                                    =======         =========

                  Reconciliation of Partnership's Investment
                  ------------------------------------------

                                                       1996             1995
                                                       ----             ----

   Partnership's share of capital 
     (deficit), as shown above                       $  (349)       $     160
   Excess basis due to investment in 
     ventures, net (1)                                   127              252
   Allowance for possible investment 
     loss recorded by Partnership (2)                   (588)               -
                                                     -------        ---------
   Investment in joint ventures, at equity           $  (810)       $     412
                                                     =======        =========

(1) At September 30, 1996 and 1995,  the  Partnership's  investment  exceeds its
    share of the combined  joint venture  capital  accounts and  liabilities  by
    approximately  $127,000 and $252,000,  respectively.  These  amounts,  which
    relate to certain  expenses  incurred by the  Partnership in connection with
    acquiring  its  joint  venture   investments,   are  being  amortized  on  a
    straight-line  basis  over the  estimated  remaining  holding  period of the
    properties.

(2) During  fiscal 1996,  the  Partnership  recognized a provision  for possible
    investment  loss of  $588,000  to  adjust  the  carrying  value of its joint
    venture  investment in the Norman Crossing  Shopping Center to its estimated
    net realizable value (see discussion below).


<PAGE>


                    Condensed Combined Summary of Operations
              For the years ended September 30, 1996, 1995 and 1994
                                 (in thousands)

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

   Rental revenues and expense recoveries     $ 3,864     $ 3,786     $ 3,668
   Interest and other income                      176         170         155
                                              -------     -------     -------
                                                4,040       3,956       3,823

   Interest expense                             1,516       1,609       1,559
   Property operating expenses                  2,334       2,048       2,177
   Depreciation and amortization                  853         864         976
                                             --------    --------    --------
                                                4,703       4,521       4,712
                                             --------    --------    --------
   Net loss                                  $   (663)   $   (565)   $   (889)
                                             ========    =========   ========

   Net loss:
     Partnership's share of combined
      operations                             $   (586)   $   (566)   $ (1,025)
     Co-venturers' share of combined
      operations                                  (77)          1         136
                                             --------    --------    --------
                                             $   (663)   $   (565)   $   (889)
                                             ========    =========   ========

             Reconciliation of Partnership's Share of Operations
             ---------------------------------------------------

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

   Partnership's share of combined operations,
     as shown above                           $  (586)   $   (566)    $(1,025)
   Amortization of excess basis                  (126)        (11)        (11)
                                              -------    ---------   --------
   Partnership's share of ventures' losses    $  (712)   $   (577)   $ (1,036)
                                              =======    =========   ========

   The 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.  Substantially  all of the  Partnership's
   investments in these joint ventures are restricted as to distributions.

   Investment in joint ventures,  at equity on the balance sheet is comprised of
   the following joint venture investments (in thousands):

                                                     1996              1995
                                                     ----              ----

   Daniel Meadows II General Partnership         $     10            $     19
   Spinnaker Bay Associates                        (1,498)             (1,082)
   Maplewood Drive Associates                         428                 548
   Norman Crossing Associates                         250                 927
                                                 --------            --------
                                                 $   (810)           $    412
                                                 ========            ========



<PAGE>


    The Partnership  received cash  distributions from the ventures as set forth
    below (in thousands):

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

     Daniel Meadows II General Partnership    $     -    $     61     $   200
     Spinnaker Bay Associates                       -         160           -
     Maplewood Drive Associates                     -           -         198
     Norman Crossing Associates                     -           -           -
                                              -------    --------     -------
                                              $     -    $    221     $   398
                                              ======     ========     =======

    A description of the ventures' properties and the terms of the joint venture
    agreements are summarized as follows:

      Daniel Meadows II General Partnership
      -------------------------------------

    On October 15, 1987, the Partnership acquired a general partnership interest
    in Daniel Meadows II General  Partnership (the "Joint Venture"),  a Virginia
    general partnership which was formed to develop, own and operate The Meadows
    in the Park Apartments,  a 200-unit apartment complex located in Birmingham,
    Alabama.  The  Partnership's  co-venture  partner is an  affiliate of Daniel
    Realty Company.

    The  aggregate  cash  investment  by the  Partnership  for its  interest was
    approximately  $3,754,000  (including an acquisition fee of $223,000 paid to
    the Adviser).  On July 20, 1989, the Partnership paid $215,000 in additional
    capital  contributions  to the joint  venture  pursuant  to the terms of the
    Partnership  agreement.  These funds were subsequently paid to Daniel Realty
    Company in final settlement of the contingent  portion of the purchase price
    of the property.  The project is encumbered by a nonrecourse  first mortgage
    loan with a principal  balance of approximately  $5,411,000 at September 30,
    1996.  The mortgage  debt, in the initial  principal  amount of  $5,500,000,
    bears  interest at a variable rate equal to the 30-day LIBOR rate plus 2.25%
    (equivalent to a rate of approximately 7.6875% per annum as of September 30,
    1996). The loan requires monthly interest and principal  payments based on a
    25-year  amortization  schedule  and is  scheduled  to mature on February 5,
    2000.

    During fiscal 1991, the Partnership  discovered that certain  materials used
    to construct the operating property were manufactured  incorrectly and would
    require substantial  repairs.  During fiscal 1992, the Meadows joint venture
    engaged local legal counsel to seek recoveries from the venture's  insurance
    carrier,  as well as various  contractors  and suppliers,  for the venture's
    claim of damages, which were estimated at between $1.6 and $2.1 million, not
    including  legal fees and other  incidental  costs.  During fiscal 1993, the
    insurance  carrier deposited  approximately  $522,000 into an escrow account
    controlled by the venture's  mortgage lender in settlement of the undisputed
    portion of the venture's  claim.  During fiscal 1994,  the insurer agreed to
    enter into non-binding  mediation towards  settlement of the disputed claims
    out of court.  On October  3, 1994,  the joint  venture  verbally  agreed to
    settle  its  claims  against  the  insurance  carrier,  architect,   general
    contractor and the surety/completion bond insurer for $1,714,000,  which was
    in addition to the $522,000 previously paid by the insurance carrier.  These
    settlement proceeds were escrowed with the mortgage holder,  which agreed to
    release such funds as needed for structural renovations.  The loan was to be
    fully recourse to the joint venture and to the partners of the joint venture
    until the  repairs  were  completed,  at which  time the  entire  obligation
    becomes  non-recourse.  As  of  September  30,  1996,  $1,491,000  had  been
    disbursed  from the fiscal 1995  settlement  proceeds  for the  renovations,
    which were  completed  during fiscal 1996.  In addition,  included in rental
    income in the above condensed  combined  summary of ventures'  operations is
    $109,000 and $165,000 during fiscal 1996 and 1995,  respectively,  of income
    attributed  to rent  loss  recovery  for the  apartment  units  taken out of
    service  to  complete  interior  renovations.  The  cost  of all  structural
    renovations  including  rent  losses  sustained  during  completion  of  the
    renovations  exceeded the insurance proceeds received by $51,000,  which was
    recorded as a loss in the venture's financial statements during fiscal 1996.
    The Joint Venture  Agreement  provides that from available cash flow,  after
    the repayment of any optional  loans made by the partners,  the  Partnership
    will  receive  an 8% per annum  cumulative  preferred  return on its  funded
    capital  contributions  ($3,788,000 at September 30, 1996) during the period
    from  October  14,  1987 to  April  30,  1990  (the  "Guaranty  Period"),  a
    cumulative  preferred return of 8% from May 1, 1990 to September 30, 1990; a
    cumulative preferred return of 9% from October 1, 1990 to September 30, 1992
    and a 10% cumulative  preferred return  thereafter.  The general partners of
    the co-venturer  personally  guaranteed payment of the Partnership's  return
    through  April  30,  1990.  Under the terms of the  Agreement,  the  general
    partners of the co-venturer were required to contribute  capital of $141,562
    to fund deficits in the  Partnership's  preference return during fiscal 1990
    (through the end of the Guaranty  Period).  As of  September  30, 1996,  the
    co-venturer  was  obligated  to make  additional  capital  contributions  of
    $96,822 with respect to shortfalls which accumulated  through the expiration
    of the  Guaranty  Period.  Such  amount  is not  recorded  in the  venture's
    financial  statements.  Any  excess  cash  remaining,  after  payment to the
    Partnership of its preferred  distribution,  will be distributed  60% to the
    Partnership  and 40% to the  co-venturer.  In addition,  the  Partnership is
    entitled to receive $2,500 annually as an investor servicing fee.

    The Joint Venture Agreement  generally  provides that net sale proceeds,  as
    defined,  shall be  distributed  (after  payment of mortgage  debt and other
    indebtedness  of the Joint Venture) as follows and in the following order of
    priority: (1) to repay accrued interest and principal, in that order, on any
    optional loans made by the partners, (2) to the Partnership in the amount of
    any unpaid  cumulative  preferred  return  ($2,150,000  as of September  30,
    1996), (3) to the Partnership until it has received cumulative distributions
    equal to 115% of its funded capital  contributions,  (4) 100% to co-venturer
    until  they  receive  distributions  equal  to  $375,000,  (5)  70%  to  the
    Partnership and 30% to co-venturer  until  $2,000,000 has been  cumulatively
    distributed and (6) thereafter,  the balance, if any, 60% to the Partnership
    and 40% to the co-venturer.

    Taxable  income  from  operations  in each year  shall be  allocated  to the
    Partnership and the co-venturer in accordance with distributions of cash, to
    the extent of such distributions, and then 60% to the Partnership and 40% to
    the co-venturer,  respectively.  Through the date upon which the Partnership
    has been allocated tax losses equal to $3,515,000,  losses will be allocated
    98% to the Partnership and 2% to the co-venturer,  respectively. However, if
    the  co-venturer  has a positive  capital  balance and the Partnership has a
    zero or  negative  capital  balance,  then  100% of the tax  losses  will be
    allocated to the  co-venturer  until its capital balance is reduced to zero.
    Thereafter,  net tax losses are allocated 60% to the  Partnership and 40% to
    the  co-venturer.  Allocations  of income and loss for financial  accounting
    purposes have been made in conformity with the allocations of taxable income
    or tax loss.

    Generally,  gains and losses  arising  from the sale or  disposition  of the
    property are allocated first on the basis of the partners'  capital balances
    after  consideration  of any cash  distributions  generated from the sale or
    disposition; thereafter, remaining gains and losses are allocated 60% to the
    Partnership and 40% to the co-venturer.

    If additional  working  capital is required in connection with the operating
    property,  it may be provided as optional loans by the  Partnership  and the
    co-venturer in the proportion of 60% and 40%, respectively.

    The Joint  Venture  entered  into a  property  management  contract  with an
    affiliate of the  co-venturer,  cancellable at the option of the Partnership
    upon the  occurrence of certain  events.  The  management fee is 5% of rents
    collected  from the property  and certain  other  income,  as defined in the
    management agreement.

    Spinnaker Bay Associates
    ------------------------

    On June 10, 1988, the Partnership acquired a general partnership interest in
    Spinnaker  Bay  Associates  (the  "Joint  Venture"),  a  California  general
    partnership, which was formed to own and operate the Bay Club Apartments and
    Spinnaker  Landing   Apartments,   two  complexes  located  in  Des  Moines,
    Washington   comprised  of  88  units  and  66  units,   respectively.   The
    Partnership's co-venture partner is an affiliate of Pacific Union Investment
    Corporation.

    The  aggregate  cash  investment  by the  Partnership  for its  interest was
    approximately  $2,415,000  (including an acquisition fee of $310,000 paid to
    the Adviser).  Construction-related  defects were discovered at both the Bay
    Club and Spinnaker  Landing  apartment  complexes  during  fiscal 1991.  The
    deficiencies and damages  included lack of adequate fire blocking  materials
    in the  walls  and  other  areas and  insufficient  structural  support,  as
    required by the Uniform Building Code. During 1991, Spinnaker Bay Associates
    participated as a plaintiff in a lawsuit filed against the developer,  which
    also involved  certain other  properties  constructed by the developer.  The
    suit alleged, among other things, that the developer failed to construct the
    buildings in  accordance  with the plans and  specifications,  as warranted,
    used substandard  materials and provided inadequate  workmanship.  The joint
    venture's  claim against the  developer  was settled  during fiscal 1991 for
    $1,350,000.  Such funds were  received in December of 1991 and were recorded
    by  the  joint  venture  as a  reduction  in  the  basis  of  the  operating
    properties. From the proceeds of this settlement, $450,000 was paid to legal
    counsel in connection with the litigation and was capitalized as an addition
    to the carrying value of the operating  properties.  In addition to the cash
    received at the time of the settlement,  the venture  received a note in the
    amount of $161,500 from the developer  which was due in 1994.  During fiscal
    1993, the venture agreed to accept a discounted  payment of $113,050 in full
    satisfaction  of the note if payment  was made by  December  31,  1993.  The
    developer made this  discounted  payment to the venture in the first quarter
    of fiscal  1994.  In  addition,  during  fiscal  1994 the  venture  received
    additional  settlement  proceeds totalling  approximately  $351,000 from its
    pursuit of claims against certain  subcontractors of the development company
    and other responsible  parties.  Additional  settlement  proceeds  totalling
    approximately  $402,000 were  collected  during fiscal 1995. As of September
    30,  1995,  all claims had been  settled  and no  additional  proceeds  were
    anticipated.

    As part of the  initial  settlement,  the  venture  also  negotiated  a loan
    modification  agreement which provided the majority of the additional  funds
    needed to complete the repairs to the operating  properties and extended the
    maturity date for repayment of the  obligation to December  1996.  Under the
    terms of the loan  modification,  which was executed in December  1991,  the
    lender  agreed to loan to the joint  venture 80% of the  additional  amounts
    necessary  to  complete  the  repair of the  properties  up to a maximum  of
    $760,000.  Advances  through  the  completion  of the repair  work  totalled
    approximately  $617,000.  The loan modification  agreement also required the
    lender to defer all past due  interest  and all of the  interest due through
    July 1, 1993, which was added to the loan principal. Additional amounts owed
    to the  lender  as a result  of the  deferred  payments,  including  accrued
    interest,  totalled  approximately  $1,300,000 as of September 30, 1996. The
    total  obligation to the first mortgage holder for both properties  totalled
    $6,153,000 as of September 30, 1996. The repairs to the operating investment
    properties,  which were  completed  during  fiscal  1994,  net of  insurance
    proceeds,  were  capitalized  or  expensed  in  accordance  with  the  joint
    venture's normal accounting policy for such items.

     In May  1996,  Spinnaker  Bay  Associates  did not make its  required  debt
     service payments under the mortgage loan agreements and the loans went into
     default.  Effective September 18, 1996, the venture partners entered into a
     Property  Disposition  Agreement  with the  lender.  Under the terms of the
     agreement,  the lender agreed to delay  foreclosure  of the  properties for
     five months to provide the venture with an  opportunity to complete a sale.
     Any sale of the  properties  is expected to be for an amount  significantly
     below  the  outstanding  debt  balance.  However,  under  the  terms of the
     agreement with the lender,  the Partnership and the co-venture  partner can
     qualify to receive a nominal  payment from the sales  proceeds if a sale is
     completed by the end of the second quarter of fiscal 1997 and certain other
     conditions are met. As part of the agreement,  a receiver was appointed for
     the property and will be  responsible  for the  collection of rents and the
     payment of operating  expenses  through the end of the forbearance  period.
     These conditions  raise  substantial  doubt about the venture's  ability to
     continue as a going concern.  The accompanying  financial statements do not
     include  any  adjustments  that  might  result  from  the  outcome  of this
     uncertainty. The total assets, total liabilities,  gross revenues and total
     expenses  of  Spinnaker  Bay  Associates  included  in the above  condensed
     combined  balance  sheet and summary of  operations  as of and for the year
     ended September 30, 1996 amounted to $4,871,000,  $6,489,000,  $950,000 and
     $1,358,000, respectively.

     In December 1996,  the Spinnaker Bay joint venture  executed a purchase and
     sale agreement with an unrelated  third party to sell the properties for an
     amount  less than the total debt  obligation.  If the  transaction  were to
     close and the conditions  referred to above were met, the Partnership could
     end  up  receiving  a  nomimal   amount  from  the  proceeds  of  the  sale
     transaction.  However,  the sale  remains  contingent  upon the buyer's due
     diligence and the receipt of a financing commitment. Accordingly, there are
     no assurances that the transaction will be consummated. The Partnership has
     a large  negative  carrying  value  for its  investment  in  Spinnaker  Bay
     Associates as of September 30, 1996 because prior year equity method losses
     and  distributions  have  exceeded  the  Partnership's  investments  in the
     venture.  Consequently,  the Partnership  will recognize a gain upon either
     the sale or the foreclosure of the operating investment properties.

    Taxable income from operations is to be allocated in accordance with the net
    cash flow  distributions  described above. Tax losses from operations are to
    be allocated  between the  Partnership  and the co-venturer in proportion to
    net cash flow actually  distributed or distributable during any fiscal year.
    Interest  expense  on  loans  from the  venture  partners  are  specifically
    allocated to the respective venture partners. Allocations of income and loss
    for financial  accounting  purposes  have been made in  conformity  with the
    allocations  of  taxable  income or tax loss.  Generally,  gains and  losses
    arising from a sale of the  property are to be allocated  first on the basis
    of the partners'  capital balances;  thereafter,  remaining gains and losses
    are to be allocated 80% to the Partnership and 20% to the co-venturer.

    The Joint  Venture  entered  into a  property  management  contract  with an
    affiliate of the  co-venturer,  cancellable at the option of the Partnership
    upon the  occurrence of certain  events.  The management fee is equal to the
    greater of 5% of gross rents  collected from the property or $3,000 a month.
    In  addition,  under an  amendment  to the joint  venture  agreement  and as
    consideration  for  services  provided in  conjunction  with the  litigation
    discussed  above,  the venture paid the manager a fee of $29,000 and $21,000
    during fiscal 1995 and 1994, respectively. No such fee was paid during 1996.

    Maplewood Drive Associates
    --------------------------

    On June 14, 1988, the Partnership acquired a general partnership interest in
    Maplewood Drive Associate (the "Joint  Venture") which was formed to own and
    operate Maplewood Park Apartments,  a 144-unit  apartment complex located in
    Manassas,  Virginia.  The  Partnership's  co-venture  partner  is  Maplewood
    Associates Limited Partnership, an affiliate of Amurcon
    Corporation of Virginia.

     The original  aggregate cash investment by the Partnership for its interest
     was  approximately  $2,563,000  paid to the  Joint  Venture.  Approximately
     $800,000 of such amount was used to fund the Guaranty  Escrow,  $50,000 was
     placed in a reserve  to pay for the cost of  certain  improvements  and the
     remaining  portion of such amount was distributed to the  co-venturer.  The
     Partnership  also paid the  Adviser  an  acquisition  fee in the  amount of
     $143,000 in  connection  with  acquiring  the  investment.  The property is
     encumbered  by  a  nonrecourse  first  mortgage  note  with  a  balance  of
     $5,545,000  at  September  30,  1996.  The  mortgage  debt  secured  by the
     Maplewood Park Apartments was provided with tax-exempt revenue bonds issued
     by a local housing authority.  The bonds are secured by a standby letter of
     credit issued to the joint venture by a bank.  The letter of credit,  which
     is scheduled to expire in October 1998,  is secured by a first  mortgage on
     the  venture's  operating  property.  The revenue  bonds bear interest at a
     floating  rate that is  determined  daily by a  remarketing  agent based on
     comparable  market  rates for similar  tax-exempt  obligations.  Such rates
     generally fluctuated between 3.5% and 4.5% per annum during fiscal 1996. In
     addition,  the  venture  is  obligated  to pay a letter  of credit  fee,  a
     remarketing  fee  and a  housing  authority  fee  under  the  terms  of the
     financing  agreement.  The operating property produces excess net cash flow
     after the debt  service  and  related  fees due under the terms of the bond
     financing  arrangement  because of the low tax-exempt interest rate paid on
     the  bonds.   However,   as  part  of  the  joint  venture   agreement  the
     Partnership's co-venture partner receives a guaranteed cash distribution on
     a monthly basis to the extent that the interest cost of the venture's  debt
     is less  than  8.25% per  annum.  Conversely,  the  co-venture  partner  is
     obligated  to  contribute  funds  to the  venture  to the  extent  that the
     interest cost exceeds 8.25%.  Over the past three years,  the interest rate
     differential   distributions   to  the  co-venturer   under  the  foregoing
     arrangement have averaged  $189,000 per year. As of September 30, 1996, the
     Partnership  and  the  co-venturer  were  not in  agreement  regarding  the
     cumulative  cash  flow  distributed  to the  co-venturer  pursuant  to this
     interest rate differential  calculation.  The Partnership believes that the
     co-venturer  has  received  an  additional  $79,000  over the  amount it is
     entitled  to  under  the  terms  of the  joint  venture  agreement  through
     September  30, 1996.  The  ultimate  resolution  of this dispute  cannot be
     determined at the present time.

     Since all of the economic benefits of the Maplewood joint venture currently
     accrue  to  the  co-venture  partner  in the  form  of  the  interest  rate
     differential payments described above,  management concluded that continued
     funding of the venture's  annual cash flow deficits would not be prudent in
     light of the Partnership's  limited remaining cash reserves.  Subsequently,
     management  has  made a  proposal  to the  co-venture  partner  to sell the
     Partnership's  interest in the joint  venture,  but no  agreement  has been
     reached to date.  Furthermore,  at the present time the co-venture  partner
     has not  funded a required  December  1996  principal  payment on the first
     mortgage loan,  which could result in the venture being declared in default
     of the mortgage loan agreement.  The current  estimated market value of the
     Maplewood property,  while higher than the property's carrying value, is at
     or below the amount of the outstanding  principal balance owed on the first
     mortgage loan. As a result,  even if the payment  default were to be cured,
     there are no assurances  that the letter of credit  underlying the mortgage
     loan will be renewed  upon its  expiration.  The  ultimate  outcome of this
     situation  cannot be determined at the present time. The net carrying value
     of the Partnership's investment in the Maplewood joint venture was $428,000
     as of September 30, 1996.  Management believes that this net carrying value
     is  recoverable  if a sale  agreement  can be reached  with the  co-venture
     partner or if the co-venture partner cures the principal payment deliquency
     and the letter of credit can be extended.  If,  however,  a sale  agreement
     cannot be achieved and a foreclosure of the operating property results, the
     Partnership  would  recognize  a loss  equal  to its  remaining  investment
     balance.

    The  co-venturer  unconditionally  guaranteed,  for a 60-month  period  (the
    Guaranty  Period),  to fund cash to the Joint Venture in an amount necessary
    to fund any Joint Venture negative net cash flows, as defined, and to ensure
    that  the  Joint  Venture  had   sufficient   funds  to  distribute  to  the
    Partnership,  on a monthly  basis,  no less  than an 8% per annum  preferred
    return  on  the   Partnership's   Net  Investment  of  $2,350,000.   Amounts
    contributed by the co-venturer  pursuant to the foregoing  guaranty  through
    June 14, 1991 were treated as  Non-Refundable  Capital  Contributions.  From
    June 15, 1991 to June 14, 1993, amounts contributed by the co-venturer under
    the terms of the guaranty are treated as Refundable Guaranty  Contributions,
    bearing  interest  at  10%  per  annum.  Refundable  Guaranty  Contributions
    totalled  $532,129  through the end of the guaranty  period.  After June 14,
    1993,  when the Joint  Venture  requires  funds to meet its cash needs,  the
    Partnership  and the  co-venturer  were to  contribute  the  funds  required
    ("Additional   Contributions")   in  the   proportions   of  70%  and   30%,
    respectively. Such contributions will bear interest at 1% per annum over the
    prime rate of a certain bank.

    During  the  life  of  the  joint  venture,  with  certain  exceptions,  the
    co-venturer's  share of any  distributable  funds,  as  defined in the Joint
    Venture  Agreement,  are to be  deposited  in an escrow  account  to be used
    solely  to  make  required   principal   payments  on  the  joint  venture's
    outstanding  debt.  Amounts  actually used from such escrow  account to make
    principal  payments shall be considered  capital  contributions  ("Mandatory
    Capital  Contributions").  No Mandatory  Contributions  were made during the
    three-year  period ended  September  30, 1996.  To the extent that the total
    cost of debt,  as defined in the Joint Venture  Agreement,  exceeds a simple
    interest  rate of 8.25% per annum,  the  co-venturer  is  obligated  to make
    contributions in the amount of such excess ("Interest Rate Contributions").

    Net cash flow from  operations  of the Joint  Venture  is to be  distributed
    monthly in the following  order of priority:  (1) 100% to the co-venturer to
    the extent  that the cost of debt to the Joint  Venture is less than  8.25%;
    (2) 100% to the Partnership until the Partnership has received distributions
    pursuant to the Partnership  Agreement  equal to an 8% per annum  cumulative
    return on the  Partnership's  Net Investment of  $2,350,000;  (3) during the
    Guaranty  Period only,  100% to the co-venturer to the extent of the excess,
    if any, of $15,667 over the amount distributed to the Partnership during any
    month  from the  Guaranty  Escrow;  (4) 100% to the  Partnership  until  the
    Partnership  has  received   certain   cumulative   distributions   per  the
    Partnership  Agreement;  (5)  100% to pay  accrued  interest  on  Additional
    Contributions  and (6) the balance,  if any, is to be distributed 70% to the
    Partnership  and 30% to the  co-venturer.  As of  September  30,  1996,  the
    Partnership  and  the  co-venturer  were  not  in  agreement  regarding  the
    cumulative cash flow  distributed to the co-venturer  pursuant to (1) above.
    The  Partnership  believes that the  co-venturer  has received an additional
    $79,000  over the  amount  it is  entitled  to under  the terms of the Joint
    Venture  Agreement  through  September 30, 1996. The ultimate  resolution of
    this dispute cannot be determined at the present time.

    Taxable income, after certain specific allocations of income and expense, is
    generally  allocated to the  Partnership  and the co-venturer in any year to
    the extent of and in the same proportions as actual cash  distributions from
    operations, with any remaining income being allocated 70% to the Partnership
    and 30% to the co-venturer.  In the event there are no  distributable  funds
    from  operations,  net income is allocated 70% to the Partnership and 30% to
    the co-venturer.  Tax losses are generally  allocated 99% to the Partnership
    and 1% to the  co-venturer.  Allocations  of income  and loss for  financial
    reporting  purposes have been made in  conformity  with the  allocations  of
    taxable income or loss.

    Net  proceeds  from  the  sale  or  refinancing  of the  Property  would  be
    distributed  in the  following  order of  priority:  (1) 100% to the venture
    partners  to  repay  accrued   interest  and  principal  on  any  Additional
    Contributions (2) 100% to repay accrued interest and principal on Refundable
    Guaranty  Contributions,  as defined, made to the Joint Venture; (3) 100% to
    the Partnership to the extent of any unpaid  cumulative  preference  return;
    (4) 100% to the  Partnership in an amount equal to  $2,605,000;  (5) 100% to
    the co-venturer in the amount of any previously unreturned Mandatory Capital
    Contributions  made to the Joint Venture;  (6) 100% to the co-venturer in an
    amount  equal  to  $150,000;  and  (7)  the  balance,  if  any,  70%  to the
    Partnership and 30% to the co-venturer.

    The Joint Venture  entered into a management  contract  with Amurcon  Realty
    Corporation,  an affiliate of the  co-venturer,  which is cancellable at the
    option  of the  Partnership  upon  the  occurrence  of  certain  events.  In
    consideration  for their services,  the property  manager will receive:  (i)
    during the Guaranty Period, a base monthly management fee equal to 2 1/2% of
    gross rents collected,  plus an incentive  management fee equal to all Joint
    Venture cash flow, calculated on an annualized basis, in excess of $206,800,
    but in no event shall such  incentive  management fee be in excess of 2 1/2%
    of gross rents collected for such month, and (ii) after the Guaranty Period,
    a monthly management fee equal to 5% of gross rents collected. To the extent
    the incentive management fee is not earned in any month, it shall lapse with
    respect to such period.

    Norman Crossing Associates
    --------------------------

    On  September  15,  1989,  the  Partnership  acquired a general  partnership
    interest  in Norman  Crossing  Associates  (the  "Joint  Venture"),  a North
    Carolina general  partnership which was formed to own and operate the Norman
    Crossing  Shopping  Center,  a 52,000 square foot shopping center located in
    Charlotte,  North  Carolina.  The  Partnership's  co-venture  partner  is an
    affiliate of the Paragon Group.

    The aggregate cash investment by the Partnership for its interest in Phase I
    was approximately  $1,261,000  (including an acquisition fee of $71,000 paid
    to the Adviser).  The project is encumbered by a nonrecourse  first mortgage
    loan of  approximately  $2,715,000 at September 30, 1996. This mortgage loan
    is scheduled to mature in November  2002.  In October 1993,  the  property's
    anchor tenant vacated the shopping center. The tenant, which occupied 26,752
    square  feet of the  property's  net  leasable  area,  is a national  credit
    grocery  store chain which is still  obligated  under the terms of its lease
    which runs  through the year 2007.  To date,  all rents due from this tenant
    have been  collected.  Nonetheless,  the anchor tenant  vacancy  resulted in
    several tenants  receiving rental  abatements during fiscal 1995 and has had
    an adverse  effect on the ability to lease other  vacant shop space.  During
    the last  quarter  of fiscal  1995,  the  former  anchor  tenant  reached an
    agreement to sub-lease its space to a new tenant.  This new sublease  tenant
    is a health club operator  which  occupies  20,552 square feet of the former
    anchor's  space and will  sublease the  remaining  6,200  square feet.  As a
    result of the new health club tenant  opening for business in February 1996,
    the rental  abatements  granted to the other  tenants have been  terminated.
    However,  the  long-term  impact  of  this  subleasing  arrangement  on  the
    operations of the property remains uncertain at this time. The joint venture
    may  have  to  continue  to  make  tenant   improvements  and  grant  rental
    concessions  in order to maintain a high occupancy  level.  Funding for such
    improvements,  along with any operating cash flow deficits  incurred  during
    this period of re-stabilization  for the shopping center,  would be provided
    primarily by the  Partnership.  During fiscal 1996, the  Partnership  funded
    cash flow  deficits  of  approximately  $16,000  to the joint  venture.  The
    Partnership  is prepared to fund any  additional  operating  deficits of the
    Norman  Crossing  joint  venture  in  the  near-term.   However,  given  the
    Partnership's  limited capital  resources,  the Partnership cannot fund such
    deficits  indefinitely.  Consequently,  the Partnership may look to sell the
    operating  property or its interest in the joint venture in the near future.
    At the present time,  market 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.  Based on the  current  estimated  fair value of the Norman  Crossing
    Shopping Center, a sale under the current market conditions would not result
    in any significant proceeds above the mortgage loan balance. In light of the
    above circumstances and a resulting reassessment of the Partnership's likely
    remaining holding period for the Norman Crossing investment, the Partnership
    recorded an  allowance  for possible  investment  loss of $588,000 in fiscal
    1996 to  write  down  the net  carrying  value  of the  equity  interest  to
    management's estimate of its net realizable value as of September 30, 1996.

    The Joint  Venture  Agreement  provides  that from  available  cash flow the
    Partnership  will receive an 8% per annum  cumulative  preference  return on
    $1,115,000  during the period from  September 15, 1989 to September 14, 1992
    (the "Guaranty Period"); a cumulative preference return of 9% from September
    15, 1992 to  September  14, 1993;  and a 10%  cumulative  preference  return
    thereafter,  payable  monthly  from  available  cash flow,  as defined.  The
    general  partners  of the  co-venturer  have  personally  guaranteed  a 7.5%
    minimum return on the  Partnership's  net  investment of $1,115,000  through
    September  14,  1992.  Any  excess  cash  remaining,  after  payment  to the
    Partnership of its distribution, will first be used to pay interest, but not
    principal,  compounded  annually on additional loans made by the Partnership
    and the co-venturer. Any remaining cash flow shall be distributed 80% to the
    Partnership and 20% to the co-venturer.  As of September 30, 1996, there was
    a cumulative  unpaid  distribution  of $419,000.  The  cumulative  preferred
    distribution  will be paid to the Partnership if and when there is available
    future cash flow.  Accordingly,  such amount is not accrued in the venture's
    financial statements.

    The Joint Venture Agreement generally provides that net sale and refinancing
    proceeds,  as defined,  shall be distributed (after payment of mortgage debt
    and other indebtedness of the Joint Venture) as follows and in the following
    order of priority: (1) to the Partnership until the Partnership has received
    the cumulative  annual  preference  return not  previously  paid, (2) to the
    Partnership  until it has received an amount equal to its gross  investment,
    (3) to the  Partnership  and to the  co-venturer in proportion to additional
    loans made until both have received the return of all additional  loans plus
    unpaid  interest  and  (4)  thereafter,  the  balance,  if  any,  80% to the
    Partnership and 20% to the co-venturer.

    Taxable  income  from  operations  in each year  shall be  allocated  to the
    Partnership  and  the  co-venturer  as  follows:   (1)  all  deductions  for
    depreciation  with  respect  to  the  property  shall  be  allocated  to the
    Partnership (2) income up to the amount of net cash flow distributed in each
    year shall be allocated to the Partnership and the co-venturer in proportion
    to the amount of the distributions to each partner for such year. Tax losses
    will be allocated each year up to the sum of the positive  capital  accounts
    of the  Partnership  and  co-venturer to the partners with positive  capital
    accounts in proportion to such positive capital  accounts.  All other income
    and  losses  will  be  allocated  80%  to  the  Partnership  and  20% to the
    co-venturer.  Allocations  of  income  and  loss  for  financial  accounting
    purposes have been made in conformity with the allocations of taxable income
    or tax loss.

    The Joint  Venture  entered  into a  property  management  contract  with an
    affiliate of the  co-venturer,  cancellable at the option of the Partnership
    upon the  occurrence of certain  events.  The  management fee is 4% of rents
    collected  from the property  and certain  other  income,  as defined in the
    management agreement.

6.    Mortgage Debt Payable
      ---------------------

    Mortgage debt payable at September 30, 1995 consisted of (in thousands):

                                                               1995
                                                               ----

     Permanent  mortgage loan secured by
     the Marriott  Suites  Hotel-Newport
     Beach   (see   Note   4),   bearing
     interest  at 10.09%  per annum from
     disbursement   through  August  10,
     1992. Interest accrued at 9.59% per
     annum from August 11, 1992  through
     August  10,  1995 and at a variable
     rate of adjusted  LIBOR (5.9141% at
     September  30,  1995),  as defined,
     plus 2.5% per annum from August 11,
     1995 until maturity.  On August 11,
     1996  the   balance  of   principal
     together   with  all   accrued  but
     unpaid  interest  thereon was to be
     due. See discussion below.                             $32,060

     Nonrecourse senior promissory notes
     payable,   bearing  interest  at  a
     variable  rate  of  adjusted  LIBOR
     (5.9141% at September 30, 1996), as
     defined,   plus  one   percent  per
     annum. Payments on the loan were to
     be made from available cash flow of
     the Newport Beach  Marriott  Suites
     Hotel (see discussion below).                            4,000
                                                            -------
                                                            $36,060
                                                            =======

    On January 25,  1993,  the  Managing  General  Partner and the lender on the
    Newport Beach Marriott Hotel finalized an agreement on a modification of the
    first mortgage loan secured by the Hotel which was retroactive to August 11,
    1992. Per the terms of the  modification,  the maturity date of the loan was
    extended one year to August 11, 1996.  The principal  amount of the loan was
    adjusted  to  $32,060,518  (the  original   principal  of  $29,400,000  plus
    $2,660,518  of  unpaid  interest  and  fees).  As part  of the  modification
    agreement,   the   Partnership   agreed  to  make  additional  debt  service
    contributions  to the lender of $400,000,  of which  $50,000 was paid at the
    closing of the  modification  and the balance was to be payable on a monthly
    basis in arrears for forty-two months.

    An additional loan facility from the existing lender of up to $4,000,000 was
    available to be used to pay expected  debt service  shortfalls  after August
    11, 1992.  Interest on the new loan  facility  was payable  currently to the
    extent of available cash flow from Hotel  operations.  Interest deferred due
    to the lack of available  cash flow could be added to the principal  balance
    of the new loan until the loan balance reached the $4,000,000 limitation. As
    of March 31, 1995, the  Partnership  had exhausted the entire  $4,000,000 of
    this additional loan facility. On April 11, 1995, the Partnership received a
    default notice from the lender. Under the terms of the loan agreement, as of
    April 25, 1995 additional default interest accrued at a rate of 4% per annum
    on the loan  amount of  $32,060,518  and the  additional  loan  facility  of
    $4,000,000. The Partnership continued to remit the net cash flow produced by
    the Hotel to the lender after reaching the limitation on the additional loan
    facility.  However,  subsequent to the date of the default,  the Partnership
    suspended the monthly  supplemental  payments referred to above. On February
    19, 1996,  the first  mortgage  loan on the property was  purchased by a new
    lender, and the Partnership  subsequently  received formal notice of default
    from this new lender.  Subsequently,  the Partnership received a notice of a
    foreclosure  sale  scheduled  for August 7, 1996, at which time title to the
    Hotel  was  transferred  to  the  mortgage  lender.  Given  the  significant
    deficiency  which existed  between the estimated fair value of the Hotel and
    the  outstanding  indebtedness,  management  believed  that it would  not be
    prudent  to use any of the  Partnership's  capital  resources  to  cure  the
    default or contest the foreclosure action without substantial  modifications
    to the loan terms which would  afford the  Partnership  the  opportunity  to
    recover  such  additional   investments  plus  a  portion  of  its  original
    investment in the Hotel. See Note 4 for a discussion of the gains and losses
    resulting from this foreclosure transaction.

7.  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  Eighth  Income  Properties,   Inc.  and  Properties
    Associates  1986,  L.P.  ("PA1986")  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  Income
    Properties Eight Limited Partnership, PaineWebber, Eighth Income Properties,
    Inc.  and  PA1986 (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  Income  Properties  Eight Limited  Partnership,
    also  alleged  that  following  the  sale  of  the  partnership   interests,
    PaineWebber,  Eighth  Income  Properties,  Inc.  and  PA1986  misrepresented
    financial  information  about the Partnerships  value and  performance.  The
    amended complaint alleged that PaineWebber,  Eighth Income Properties,  Inc.
    and PA1986 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 has been preliminarily  approved by
    the court and  provides  for the  complete  resolution  of the class  action
    litigation,  including  releases in favor of the Partnership and the General
    Partners,  and the  allocation  of the $125  million  settlement  fund among
    investors in the various  partnerships  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.  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 a ruling by the court as a result
    of this final hearing is currently pending.

      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  plaintiff's   purchases  of  various  limited  partnership   interests,
    including those offered by the  Partnership.  The complaint is substantially
    similar to the complaint in the Abbate action  described  above,  and sought
    compensatory damages of $3.4 million plus punitive damages.

      Mediation  with  respect to the Abbate and  Bandrowski  actions  described
    above was held in December 1996. As a result of such mediation,  a tentative
    settlement  between  PaineWebber  and the plaintiffs was reached which would
    provide for complete  resolution  of both actions.  PaineWebber  anticipates
    that releases and  dismissals  with regard to these actions will be received
    by February 1997.

      Under certain limited circumstances, pursuant to the Partnership Agreement
    and other contractual obligations,  PaineWebber affiliates could be entitled
    to  indemnification  for expenses and  liabilities  in  connection  with the
    litigation  described  above.  However,  PaineWebber  has agreed not to seek
    indemnification for any amounts it is required to pay in connection with the
    settlement of the New York Limited Partnership Actions. At the present time,
    the General  Partners cannot  estimate the impact,  if any, of the potential
    indemnification claims on the Partnership's financial statements, taken as a
    whole.  Accordingly,  no provision for any liability which could result from
    the  eventual  outcome of these  matters  has been made in the  accompanying
    financial statements.




<PAGE>

                        REPORT OF INDEPENDENT AUDITORS





The Partners of
Paine Webber Income Properties Eight Limited Partnership:

     We have audited the  accompanying  combined  balance sheets of the Combined
Joint Ventures of Paine Webber Income Properties Eight Limited Partnership as of
September 30, 1996 and 1995, and the related  combined  statements of operations
and  changes in  venturers'  capital  (deficit),  and cash flows for each of the
three years in the period ended September 30, 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 conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the combined financial statements referred to above present
fairly,  in all  material  respects,  the  combined  financial  position  of the
Combined  Joint  Ventures  of  Paine  Webber  Income  Properties  Eight  Limited
Partnership at  September 30, 1996 and 1995, and  the combined  results of their
operations  and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule,  when considered
in relation to the basic financial statements taken as a whole,  presents fairly
in all material respects the information set forth therein.







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



Boston, Massachusetts
December 26, 1996


<PAGE>


                          COMBINED JOINT VENTURES OF
           PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP

                           COMBINED BALANCE SHEETS
                         September 30, 1996 and 1995
                                (In thousands)

                                    Assets
                                    ------

                                                            1996        1995
                                                            ----        ----
Current assets:
   Cash and cash equivalents                               $  285     $   116
   Escrow deposits                                            231         206
   Accounts receivable                                         52          31
   Prepaid expenses                                            34          38
   Properties held for sale, net                            4,820           -
                                                          -------     -------
      Total current assets                                  5,422         391

Operating investment properties:
   Land                                                     4,126       4,882
   Buildings, improvements and equipment                   17,055      22,749
                                                          -------     -------
                                                           21,181      27,631
   Less accumulated depreciation                           (6,926)     (7,890)
                                                          -------     -------
      Net operating investment properties                  14,255      19,741

Restricted cash                                               205         981
Deferred expenses and other assets                            211         245
                                                          -------     -------
                                                          $20,093     $21,358
                                                          =======     =======

                 Liabilities and Venturers' Capital (Deficit)
                 --------------------------------------------
Current liabilities:
   Current portion of long-term debt                      $11,793     $   222
   Accounts payable                                           160         722
   Accounts payable - affiliates                               48          47
   Accrued real estate taxes                                   54          55
   Accrued interest                                            70          74
   Tenant security deposits                                    58          54
   Deferred rental revenue                                     14          11
   Distributions payable to venturers                          16          14
                                                          -------     -------
      Total current liabilities                            12,213       1,199

Notes payable to venturers                                    261         248

Other liabilities                                              34          24

Long-term debt                                              8,031      19,600

Venturers' capital (deficit)                                 (446)        287
                                                          -------     -------
                                                          $20,093     $21,358
                                                          =======     =======




                           See accompanying notes.


<PAGE>


                          COMBINED JOINT VENTURES OF
           PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP

 COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS'  CAPITAL (DEFICIT)
            For the years ended September 30, 1996, 1995 and 1994
                                (In thousands)

                                                1996         1995        1994
                                                ----         ----        ----
Revenues:
  Rental income and expense recoveries         $3,864      $3,786      $3,668
  Interest and other income                       176         170         155
                                               ------      ------      ------
                                                4,040       3,956       3,823

Expenses:
  Interest expense                              1,516       1,609       1,559
  Depreciation expense                            841         860         966
  Real estate taxes                               356         330         271
  Repairs and maintenance                         682         537         653
  Salaries and related expenses                   142         140         138
  Utilities                                       265         246         251
  General and administrative                      655         613         682
  Management fees                                 183         182         182
  Amortization expense                             12           4          10
  Loss due to structural repairs                   51           -           -
                                               ------      ------     -------
                                                4,703       4,521       4,712
                                               ------      ------     -------

Net loss                                         (663)       (565)       (889)

Contributions from venturers                      107         106          70

Distributions to venturers                       (177)       (160)       (677)

Venturers' capital, beginning of year             287         906       2,402
                                               ------      ------     -------

Venturers' capital (deficit), end of year     $  (446)     $  287     $   906
                                              =======      ======     =======


















                           See accompanying notes.


<PAGE>


                           COMBINED JOINT VENTURES OF
            PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
                        COMBINED STATEMENT OF CASH FLOWS
             For the years ended September 30, 1996, 1995 and 1994
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

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

Cash flows from operating activities:
   Net loss                                    $ (663)     $ (565)   $   (889)
   Adjustments to reconcile net loss to
     net cash provided by operating activities:
      Depreciation and amortization               853         864         976
      Interest converted into note payable        204         108         107
      Interest added to partner loans              13          14          90
      Changes in assets and liabilities:
         Escrow deposits                          (25)          3         243
         Restricted cash                          776        (832)        167
         Accounts receivable                      (21)          5          (4)
         Prepaid expenses                           4          12          (5)
         Deferred expenses and other assets        22          26          45
         Accounts payable                        (562)        528          24
         Accounts payable - affiliates              1          (1)          1
         Accrued real estate taxes                 (1)          4           3
         Distributions payable to partners          2          (3)         (4)
         Deferred rental revenue                    3          (1)          7
         Other liabilities                         10          (6)        (40)
         Accrued interest                          (4)         35        (141)
         Tenant security deposits                   4           5           5
                                               ------      ------    --------
            Total adjustments                   1,279         761       1,474
                                               ------      ------    --------
            Net cash provided by
              operating activities                616         196         585
                                               ------      ------    --------

Cash flows from investing activities:
   Receipt of insurance recoveries                  -         542         464
   Additions to operating investment
      properties                                 (175)       (326)       (326)
                                               ------      ------    --------
            Net cash (used in) provided
              by investing activities            (175)        216         138
                                               ------      ------    --------
   

Cash flows from financing activities:
   Capital contributions                          107          89          70
   Distributions to venturers                    (177)       (160)       (682)
   Advances from venturers                          -          61          84
   Repayment of advances from venturers             -        (315)          -
   Proceeds from issuance of long-term debt         -       5,364           -
   Repayment of long-term debt                   (202)     (5,552)       (192)
                                               ------      ------     -------
            Net cash used in financing
              activities                         (272)       (513)       (720)
                                               ------      ------     -------

Net increase (decrease) in cash and 
   cash equivalents                               169        (101)          3

Cash and cash equivalents, 
   beginning of year                              116         217         214
                                               ------      ------     -------

Cash and cash equivalents, end of year         $  285      $  116     $   217
                                               ======      ======     =======

Cash paid during the year for interest         $1,303      $1,492     $ 1,465
                                               =====       ======     =======

                           See accompanying notes.


<PAGE>


                          COMBINED JOINT VENTURES OF
                     PAINE WEBBER INCOME PROPERTIES EIGHT
                             LIMITED PARTNERSHIP
                    Notes to Combined Financial Statements



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

         The accompanying financial statements of the Combined Joint Ventures of
    Paine Webber Income  Properties  Eight Limited  Partnership  (Combined Joint
    Ventures) include the accounts of Daniel Meadows II General  Partnership,  a
    Virginia general partnership; Spinnaker Bay Associates, a California general
    partnership;  Maplewood Drive Associates, a Virginia general partnership and
    Norman  Crossing  Associates,  a North  Caroling  general  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
    co-venturers and Paine Webber Income  Properties  Eight Limited  Partnership
    (PWIP8)  which owns a majority  financial  interest but does not have voting
    control in each joint venture.

         The dates of PWIP8's acquisition of interests in the joint ventures are
    as follows:

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

         Daniel Meadows II General Partnership              10/15/87
         Spinnaker Bay Associates                            6/10/88
         Maplewood Drive Associates                          6/14/88
         Norman Crossing Associates                          9/15/89

     The four  joint  ventures  described  above own five  operating  investment
     properties,  which consist of four multi-family apartment complexes and one
     retail shopping center.  However, as discussed further in Note 3, Spinnaker
     Bay Associates is currently in default of its mortgage debt obligations and
     is in jeopardy of having its  properties  foreclosed  upon.  These  matters
     raise  substantial  doubt about the ability of Spinnaker Bay  Associates to
     continue as a going concern.  The accompanying  financial statements do not
     include  any  adjustments  to reflect the  classification  of assets or the
     amounts  and  classification  of  liabilities  that might  result  from the
     possible  inability  of  Spinnaker  Bay  Associates  to continue as a going
     concern.

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 September 30, 1996 and revenues and
    expenses for the year ended September 30, 1996.  Actual results could differ
    from the estimates and assumptions used.

      Basis of Presentation
      ---------------------

         Certain of the records of the Combined Joint Ventures are maintained on
    the  income  tax  basis of  accounting  and are  adjusted,  principally  for
    depreciation,  to conform with generally accepted accounting  principles for
    financial reporting purposes.

    Operating Investment Properties
    -------------------------------

         The operating  investment  properties are carried at the lower of cost,
    reduced by accumulated  depreciation and certain insurance proceeds,  or net
    realizable  value. The net realizable value of a property held for long-term
    investment  purposes  is measured by the  recoverability  of the  investment
    through  expected  future  cash flows on an  undiscounted  basis,  which may
    exceed the property's  current market value.  The net realizable  value of a
    property held for sale approximates its market value.  Depreciation  expense
    is computed on a straight-line  basis over the estimated useful lives of the
    buildings,  improvements  and  equipment,  generally,  five to forty  years.
    Professional  fees  (including  acquisition  fees  paid to an  affiliate  of
    PWIP8),  and other costs incurred in connection  with the acquisition of the
    properties  have been  capitalized  and are included in the cost of the land
    and buildings.

       In March 1995, the Financial  Accounting Standards Board issued Statement
    No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets  and for
    Long-Lived  Assets To Be Disposed  Of"  ("Statement  121"),  which  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.  Statement 121 also addresses the  accounting for long-lived  assets
    that  are  expected  to be  disposed  of.  Statement  121 is  effective  for
    financial  statements  for years  beginning  after  December 15,  1995.  The
    Combined Joint  Ventures will adopt  Statement 121 in fiscal 1997 and, based
    on current circumstances, management does not believe the adoption will have
    a material effect on results of operations or financial position (see Note 3
    for a further discussion.)

    Deferred Expenses
    -----------------

         Deferred  expenses  consist  primarily  of loan  fees  which  are being
    amortized over the terms of the related loans. Such amortization  expense is
    included in interest expense on the accompanying statements of operations.

    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.

    Cash and Cash Equivalents
    -------------------------

         For  purposes  of the  statement  of cash  flows,  the  Combined  Joint
    Ventures consider all highly liquid investments with original maturity dates
    of 90 days or less to be cash equivalents.

    Escrowed and Restricted Cash
    ----------------------------

    In accordance with the joint venture  agreements,  certain cash balances are
    restricted for insurance,  real estate taxes and tenant  security  deposits.
    However,  should cash be required for operating  expenditures,  the partners
    may  modify  the joint  venture  agreements.  Included  in the cash and cash
    equivalents balance are the following restricted amounts:

                                                   1996             1995
                                                   ----             ----

       Reserve for tenant security deposits      $     64        $     53
       Reserve for insurance and tax deposits         157             145
       Renovation reserve                               -             719
       Debt service reserve                           110              78
       Replacement reserve                             55             142
       General partner reserve                         50              50
                                                 --------        --------
                                                 $    436        $  1,187
                                                 ========        ========

    The general partner reserve represents a capital  contribution made by PWIP8
    during fiscal 1992 to be used, if needed, for future capital requirements of
    the Meadows joint  venture.  Such funds are to be used at the  discretion of
    PWIP8 and,  accordingly,  are  restricted  for such  purposes as PWIP8 deems
    appropriate. In addition, PWIP8 has the right, based on an agreement between
    the  partners,  to  have  the  remaining  unused  portion  of  this  capital
    contribution returned in full, or in part, at any time.

    Fair Value of Financial Instruments
    -----------------------------------

         The carrying  amounts of cash and cash  equivalents,  escrow  deposits,
    tenant  receivables,  restricted  cash and current  liabilities  approximate
    their fair values due to the short-term maturities of these instruments.  It
    is not  practicable  for  management  to  estimate  the fair  value of notes
    payable  to  venturers  without   incurring   excessive  costs  because  the
    obligations were provided in non-arm's length transactions without regard to
    fixed  maturities,  collateral  issues or other  traditional  conditions and
    covenants. The fair value of long-term debt is estimated,  where applicable,
    using  discounted  cash flow analyses,  based on the current market rate for
    similar types of borrowing arrangements (see Note 5).

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

    See Note 5 to the financial  statements of PWIP8 in this Annual Report for a
    more detailed description of the joint venture partnerships. Descriptions of
    the ventures' properties are summarized below:

    a.  Daniel Meadows II General Partnership
        -------------------------------------

         The joint venture owns and operates The Meadows in the Park Apartments,
         a 200-unit  apartment  complex located in Birmingham,  Alabama.  During
         fiscal 1991,  the venture  discovered  that certain  materials  used to
         construct the  operating  property were  manufactured  incorrectly  and
         would require  substantial  repairs.  During  fiscal 1992,  the Meadows
         joint venture  engaged local legal counsel to seek  recoveries from the
         venture's  insurance  carrier,  as  well  as  various  contractors  and
         suppliers,  for the venture's claim of damages, which were estimated at
         between  $1.6 and $2.1  million,  not  including  legal  fees and other
         incidental  costs.  During fiscal 1993, the insurance carrier deposited
         approximately  $522,000  into  an  escrow  account  controlled  by  the
         venture's  mortgage  lender in settlement of the undisputed  portion of
         the venture's  claim.  During fiscal 1994,  the insurer agreed to enter
         into non-binding  mediation  towards  settlement of the disputed claims
         out of court. On October 3, 1994, the joint venture  verbally agreed to
         settle its claims  against the insurance  carrier,  architect,  general
         contractor and the surety/completion bond insurer for $1,714,000, which
         was in  addition  to the  $522,000  previously  paid  by the  insurance
         carrier.  These  settlement  proceeds  were  escrowed with the mortgage
         holder,  which  agreed to release  such funds as needed for  structural
         renovations. The loan was to be fully recourse to the joint venture and
         to the partners of the joint venture until the repairs were  completed,
         at  which  time  the  entire  obligation  becomes  non-recourse.  As of
         September 30, 1996,  $1,491,000 had been disbursed from the fiscal 1995
         settlement  proceeds for the  renovations,  which were completed during
         fiscal 1996. In addition, included in rental income in the accompanying
         statements of  operations  is $109,000 and $165,000  during fiscal 1996
         and 1995, respectively,  of income attributed to rent loss recovery for
         the  apartment  units  taken  out  of  service  to  complete   interior
         renovations.  The cost of all  structural  renovations  including  rent
         losses  sustained  during  completion of the  renovations  exceeded the
         insurance proceeds received by $51,000, which was recorded as a loss in
         fiscal 1996.

    b.  Maplewood Drive Associates
        --------------------------

     The joint venture owns and operates  Maplewood Park Apartments,  a 144-unit
     apartment complex located in Manassas,  Virginia.  At the present time, the
     estimated fair value of the venture's operating investment property,  while
     higher than its net carrying  value, is below the amount of the outstanding
     first mortgage loan obligation.  Subsequent to year-end,  the joint venture
     failed  to make a  required  principal  payment  due under the terms of its
     first  mortgage  loan on  December  2, 1996.  Failure to make the  required
     principal  payment could result in the venture being declared in default of
     the mortgage loan agreement.  Even if the payment default were to be cured,
     there are no assurances  that the letter of credit  underlying the mortgage
     loan will be renewed upon its expiration in October 1998 (see Note 5).

    c.  Spinnaker Bay Associates
        ------------------------

         The joint venture owns and operates the Bay Club Apartments,  a 88-unit
         apartment  complex,  and the Spinnaker  Landing  Apartments,  a 66-unit
         apartment complex, both of which are located in Des Moines, Washington.
         Construction-related  defects were  discovered at both the Bay Club and
         Spinnaker   Landing   apartment   complexes  during  fiscal  1991.  The
         deficiencies  and  damages  included  lack of  adequate  fire  blocking
         materials  in the  walls and other  areas and  insufficient  structural
         support,  as  required  by the  Uniform  Building  Code.  During  1991,
         Spinnaker Bay Associates participated as a plaintiff in a lawsuit filed
         against the  developer,  which also involved  certain other  properties
         constructed  by the  developer.  The suit alleged,  among other things,
         that the developer failed to construct the buildings in accordance with
         the plans and specifications,  as warranted, used substandard materials
         and provided inadequate workmanship.  The joint venture's claim against
         the developer was settled during fiscal 1991 for $1,350,000. Such funds
         were  received  in  December  of 1991 and were  recorded  by the  joint
         venture as a reduction in the basis of the operating  properties.  From
         the proceeds of this settlement,  $450,000 was paid to legal counsel in
         connection  with the litigation  and was  capitalized as an addition to
         the carrying value of the operating properties. In addition to the cash
         received at the time of the settlement,  the venture received a note in
         the amount of $161,500 from the developer which was due in 1994. During
         fiscal  1993,  the  venture  agreed to accept a  discounted  payment of
         $113,050  in full  satisfaction  of the  note if  payment  was  made by
         December 31, 1993.  The developer made this  discounted  payment to the
         venture in the first quarter of fiscal 1994. In addition, during fiscal
         1994 the venture  received  additional  settlement  proceeds  totalling
         approximately  $351,000  from its  pursuit  of claims  against  certain
         subcontractors  of  the  development   company  and  other  responsible
         parties.   Additional   settlement  proceeds  totalling   approximately
         $402,000 were  collected  during fiscal 1995. As of September 30, 1995,
         all  claims  had  been  settled  and  no   additional   proceeds   were
         anticipated.

        As part of the initial  settlement,  the venture also  negotiated a loan
         modification  agreement  which  provided the majority of the additional
         funds needed to complete the repairs to the  operating  properties  and
         extended the maturity date for repayment of the  obligation to December
         1996. Under the terms of the loan  modification,  which was executed in
         December  1991,  the lender  agreed to loan to the joint venture 80% of
         the  additional  amounts  necessary  to  complete  the  repair  of  the
         properties up to a maximum of $760,000. Advances through the completion
         of  the  repair  work  totalled   approximately   $617,000.   The  loan
         modification  agreement  also required the lender to defer all past due
         interest and all of the  interest  due through July 1, 1993,  which was
         added to the loan principal. Additional amounts owed to the lender as a
         result of the deferred payments,  including accrued interest,  totalled
         approximately $1,300,000 as of September 30, 1996. The total obligation
         to the first mortgage holder for both properties totalled $6,153,000 as
         of  September  30,  1996.  The  repairs  to  the  operating  investment
         properties,  which were completed  during fiscal 1994, net of insurance
         proceeds,  were  capitalized  or expensed in accordance  with the joint
         venture's normal accounting policy for such items.

        In May 1996,  the joint  venture did not make the debt service  payments
        required  under its  mortgage  loan  agreement  and the loans  went into
        default.  Management has been conducting negotiations with the lender in
        order to sell  the  properties  as  satisfaction  of the debt and  avoid
        foreclosure  (see  Note 5).  The  partners  of the  joint  venture  have
        represented the they will not make contributions to the joint venture to
        the extent  necessary to fund negative cash flows of the joint  venture.
        These factors, as well as others, indicate that the joint venture may be
        unable to  continue  as a going  concern  unless it is able to  generate
        sufficient  cash  flows to meet  its  obligations  as they  come due and
        sustain its  operations  sufficient  to recover its  investment  in real
        estate.  Other  than  the  classification  of the  operating  investment
        properties  owned by  Spinnaker  Bay  Associates  as held for sale as of
        September 30, 1996, the accompanying financial statements do not include
        any adjustments that might result from the outcome of this uncertainty.

        Properties  held for sale, net on the  accompanying  balance sheet as of
        September 30, 1996 is comprised of the following  historical  cost basis
        amounts,  which  exceed  the  estimated  fair  value of the  assets  (in
        thousands):

                        Land                                $    770
                        Buildings and improvements             5,855
                                                            --------
                                                               6,625
                        Less accumulated depreciation         (1,805)
                                                            --------
                                                            $  4,820
                                                            ========


    d.  Norman Crossing Associates
        --------------------------

         The joint venture owned and operates Norman Crossing Shopping Center, a
         52,000  square  foot  shopping  center  located  in  Charlotte,   North
         Carolina.  In October 1993,  the  property's  anchor tenant vacated the
         shopping center.  The tenant,  which occupied 26,752 square feet of the
         property's net leasable area, is a national  credit grocery store chain
         which is still  obligated  under  the  terms of its  lease  which  runs
         through  the year 2007.  To date,  all rents due from this  tenant have
         been  collected.  Nonetheless,  the anchor tenant  vacancy  resulted in
         several tenants  receiving rental abatements during fiscal 1995 and has
         had an adverse  effect on the ability to lease other vacant shop space.
         During  the last  quarter of fiscal  1995,  the  former  anchor  tenant
         reached an agreement to sub-lease  its space to a new tenant.  This new
         sublease  tenant is a health club operator which occupies 20,552 square
         feet of the former anchor's space and will sublease the remaining 6,200
         square  feet.  As a result of the new health  club  tenant  opening for
         business in February 1996, the rental  abatements  granted to the other
         tenants have been  terminated.  However,  the long-term  impact of this
         subleasing  arrangement  on  the  operations  of the  property  remains
         uncertain at this time.  The joint venture may have to continue to make
         tenant improvements and grant rental concessions in order to maintain a
         high occupancy  level.  Funding for such  improvements,  along with any
         operating   cash  flow   deficits   incurred   during  this  period  of
         re-stabilization  for the shopping center,  would be provided primarily
         by PWIP8.  During  fiscal  1996,  PWIP8  funded  cash flow  deficits of
         approximately  $16,000.  Management  of PWIP8 is  prepared  to fund the
         joint  venture's   operating  deficits  in  the  near-term.   Based  on
         management's  estimates  of the  venture's  future cash flows,  the net
         carrying value of the operating investment property as of September 30,
         1996 is recoverable over the expected remaining holding period.

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

      The  agreements  generally  provide that taxable  income and losses (other
    than those resulting from sales or other  dispositions of the projects) will
    be allocated  between PWIP8 and the  co-venturers in the same proportions as
    cash flow distributed  from  operations,  except for certain items which are
    specifically  allocated to the  partners,  as set forth in the joint venture
    agreements.  Gains or losses  resulting from sales or other  dispositions of
    the  projects   shall  be  allocated  as  specified  in  the  joint  venture
    agreements. Allocations of income and loss for financial accounting purposes
    have been made in accordance  with the allocations of taxable income and tax
    losses as specified in the respective joint venture agreements.

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

      The joint venture agreements  generally provide that distributions will be
    paid on an annual basis first to PWIP8,  in specified  amounts  ranging from
    $111,500  to  $565,000  as a  preferred  return.  After  payment  of PWIP8's
    preference  return,  the agreements  generally provide for certain preferred
    payments,  up to  specified  amounts,  to be paid to the  co-venturers.  Any
    remaining distributable cash will be paid in proportions ranging from 80% to
    60% to PWIP8 and 20% to 40% to the  co-venturers,  as set forth in the joint
    venture agreements. See Note 5 to the financial statements of PWIP8 included
    in this Annual Report for a further discussion.

      As of September 30, 1996,  PWIP8 and its  co-venture  partner in Maplewood
    Drive  Associates  were not in agreement  regarding the cumulative cash flow
    distributed  to the  co-venturer.  PWIP8 believes that the  co-venturer  has
    received an  additional  $79,000 over the amount it is entitled to under the
    terms of the  joint  venture  agreement  through  September  30,  1996.  The
    ultimate  resolution  of this dispute  cannot be  determined  at the present
    time.

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

4.    Related party transactions
      --------------------------

      The  Combined  Joint  Ventures  originally  executed  property  management
    agreements  with  affiliates of the  co-venturers,  cancellable at the joint
    ventures' option upon the occurrence of certain events.  The management fees
    are equal to 4 to 5% of gross receipts, as defined in the agreements.

      The accounts payable - affiliates  balances at September 30, 1996 and 1995
    consist primarily of working capital advances in excess of negative net cash
    flows, as defined in the Maplewood Drive Associates joint venture agreement,
    and amounts relating to the monthly management fees discussed above.

      The  notes  payable  to  venturers  balances  represent  advances  by  the
    co-venture  partner of Spinnaker Bay Associates.  The advances bear interest
    at a rate of 10%. This interest expense has been  specifically  allocated to
    the co-venture partner.  The joint venture agreement provides that the joint
    venture's  loans  and  advances  from  partners  will be  repaid  from  cash
    available for distributions if any.


<PAGE>


5.  Long-term debt
    ---------------

    Long-term  debt at September  30, 1996 and 1995  consists of the following
    (in thousands):

                                                           1996        1995
                                                           ----        ----

     Nonrecourse mortgage secured by The
     Meadows  in  the  Park  Apartments.
     Principal  payments,   based  on  a
     25-year  amortization  period,  are
     due  monthly.  Interest  is payable
     monthly based on an annual floating
     rate  of  2.25%   over  the  London
     Interbank  Offered Rate (7.6875% at
     September  30,  1996).   The  joint
     venture may convert to a fixed rate
     at any time during the loan term at
     2.25% over U.S.  Treasury  security
     rates for the remaining term of the
     loan.  The  outstanding   principal
     balance is due in full on  February
     5,  2000.  The  fair  value of this
     mortgage  note   approximates   its
     carrying  value as of September 30,
     1996.                                                $5,411       $5,468

     Note  secured  by a  first  deed of
     trust   on   the   Maplewood   Park
     Apartments  and  an  assignment  of
     rents.  Certain  co-venturers  have
     personally guaranteed $1,418 of the
     outstanding indebtedness.  Interest
     on the Note is  payable  monthly in
     arrears. The interest rate is based
     on money market  conditions  and is
     determined daily by the lender, and
     must  not  be  less   than  2%  nor
     greater  than 14.5%.  The  interest
     rate  on  the  Note  was  3.85%  at
     September   30,  1996.  It  is  not
     practicable  to  estimate  the fair
     value of this  mortgage note due to
     its  current  default  status  (see
     discussion below).                                    5,545        5,635

     Mortgage  loans  secured  by  first
     deeds  of  trust  on the  Bay  Club
     Apartments  and  Spinnaker  Landing
     Apartments  and related  promissory
     notes.  The  loans  and  notes  are
     nonrecourse  to the joint  venture.
     The balance of the  mortgage  loans
     at September  30, 1996 and 1995 was
     $4,747  and  $4,794,  respectively.
     The mortgage loans bear interest at
     a rate  of  9.625%.  Principal  and
     interest   are   payable    monthly
     through  December 31, 1996 based on
     a 27-year amortization schedule. In
     prior  years,  the  mortgage  loans
     were modified to convert all unpaid
     interest on the  mortgage  loans to
     principal in the form of promissory
     notes (the  "Notes").  Also,  under
     the Note  Agreement,  an amount was
     advanced monthly under the Notes to
     permit the  Partnership  to pay the
     interest payments coming due on the
     above   mentioned   mortgage  loans
     through  July 1, 1993.  The balance
     of the Notes at September  30, 1996
     and 1995  was  $1,300  and  $1,181,
     respectively.    The   Notes   bear
     interest   at  a  rate  of  9.625%.
     Payments   equal  to  50%  of  "net
     operating income', as defined,  are
     due  monthly.  Unpaid  interest  is
     added  to   principal.   The  final
     maturity  date is December 31, 1996
     at which time all unpaid  principal
     and  interest  is  due.  It is  not
     practicable  to  estimate  the fair
     value of these  mortgage  loans and
     promissory   notes   due  to  their
     current    default    status   (see
     discussion below).                                    6,153        5,975

     Mortgage note payable  secured by a
     deed  of   trust   on  the   Norman
     Crossing   Shopping   Center.   The
     mortgage  payable bears interest at
     10.5%  through  November  1,  2002.
     Monthly  payments of principal  and
     interest amounting to $26 commenced
     with the payment due March 1, 1994.
     The  remaining   unpaid   principal
     balance  of $2,459  becomes  due on
     November 1, 2002. The fair value of
     this mortgage note approximates its
     carrying  value as of September 30,
     1996.                                                 2,715        2,744
                                                         -------      -------

      Total long-term debt                                19,824       19,822

      Less:  current portion                             (11,793)        (222)
                                                        ---------    --------
                                                        $  8,031     $ 19,600
                                                        ========     ========

       Maturities  of  long-term  debt  for  each of the  next  five  years  and
   thereafter are as follows:

        1997         $  11,793
        1998               105
        1999               116
        2000             5,245
        2001                48
        Thereafter       2,517
                     ---------
                     $  19,824
                     =========

       In May 1996,  Spinnaker  Bay  Associates  did not make its required  debt
    service  payments under the mortgage loan agreements and the loans went into
    default.  Effective September 18, 1996, the partners entered into a Property
    Disposition Agreement with the lender. Under the terms of the agreement, the
    lender  agreed to delay  foreclosure  of the  properties  for five months to
    provide the venture with an  opportunity to complete a sale. Any sale of the
    properties  is  expected  to  be  for  an  amount  significantly  below  the
    outstanding debt balance. However, under the terms of the agreement with the
    lender,  PWIP3 and its  co-venture  partner can qualify to receive a nominal
    payment  from the sales  proceeds if a sale is  completed  by the end of the
    second quarter of fiscal 1997 and certain other  conditions are met. As part
    of the  agreement,  a receiver  was  appointed  for the property and will be
    responsible  for the  collection  of  rents  and the  payment  of  operating
    expenses through the end of the forbearance period.

       In December 1996, the Spinnaker Bay joint venture executed a purchase and
    sale agreement  with an unrelated  third party to sell the properties for an
    amount less than the total debt obligation. If the transaction were to close
    and the  conditions  referred  to above were met,  PWIP3 and its  co-venture
    partner  could end up  receiving a nomimal  amount from the  proceeds of the
    sale transaction.  However, the sale remains contingent upon the buyer's due
    diligence and the receipt of a financing commitment.  Accordingly, there are
    no assurances that the transaction will be consummated.

       In December 1985,  Maplewood Drive Associates borrowed $6,100,000 under a
    tax-exempt  Residential  Rental  Property  Revenue Note (the "Note")  issued
    through the Harrisonburg Redevelopment and Housing Authority (the Authority)
    as issuer and  NationsBank,  as Note agent.  The  original  principal of the
    Authority's Note consisted of 6,100 separate  components (the  "Components')
    of $1,000  each which have been  marketed to  investors  by  NationsBank  in
    return for an annual remarketing fee charged to the Partnership of 3/8 of 1%
    on the principal  amount of the Note  outstanding.  The  investors  have the
    right with seven days' notice to put the Components  back to NationsBank for
    prepayment.  Components put back to NationsBank is this way are continuously
    remarketed.  If the  Note is  converted  to a fixed  rate  of  interest,  as
    discussed  below,  the  investors  rights  to put  the  Components  back  to
    NationsBank terminate.

     The balance of the principal on the Maplewood  mortgage note, which matures
     December  1,  2015,  is due in  annual  installments  as stated in the Note
     Agreement.  So long as the Note has not been  converted to a fixed interest
     rate,  the joint venture may, upon 35 days advance  notice to  NationsBank,
     prepay  the  Note in  whole or in part.  Once  converted,  prepayments  are
     limited to the scheduled annual principal payments provided for in the Note
     Agreement  for a period of three years.  Three years to six years after the
     conversion,  at the option of the joint venture and with 30 days' notice to
     the Component owners,  the joint venture may prepay the Note in whole or in
     part at par plus accrued interest and a redemption  premium ranging from 2%
     to .5%. After the seventh  anniversary of the Conversion  Date, there is no
     prepayment premium.  Prior to the Conversion Date, the Note is secured with
     a standby  letter of credit (the "Letter of Credit")  issued by NationsBank
     (the  "Letter of Credit  Bank")  pursuant to a  Reimbursement  and Purchase
     Agreement and a Note Purchase and Loan  Agreement both dated as of December
     1, 1985,  between  the  Letter of Credit  Bank and the joint  venture.  The
     Letter of  Credit  will  permit  the Note  Agent to draw,  on behalf of the
     owners of  Components  of the Note,  up to  $6,600,756.  The  amount of the
     Letter of Credit will be reduced as  principal of the Note is paid and will
     expire  on  October 31, 1998,  unless  renewed  or  earlier  terminated on
     the Conversion  Date. The joint venture pays an annual letter of credit fee
     equal to 1.5% of the amount of the letter of credit outstanding.

     The stated  maturity  date of the  Maplewood  mortgage  note is December 1,
     2015;  however the Letter of Credit will expire in October 1998, and absent
     any  instructions to the contrary from owners of the  Components,  the Note
     Agent will arrange for the  prepayment  of the Note by the joint venture on
     or before the expiration date of the Letter of Credit.  The expiration date
     of the Letter of Credit may be extended on terms satisfactory to the Letter
     of  Credit  Bank and the  joint  venture.  The  agreement  provides  for an
     increase in interest  rate if an event of  taxability  (loss of  tax-exempt
     status of the Note) occurs.  As discussed in Note 3, subsequent to year-end
     the Maplewood joint venture failed to make a required principal payment due
     under the terms of its first mortgage loan on December 2, 1996.  Failure to
     make the  required  principal  payment  could  result in the venture  being
     declared in default of the  mortgage  loan  agreement.  Even if the payment
     default were to be cured, there are no assurances that the letter of credit
     underlying  the  mortgage  loan will be renewed  upon its  expiration.  The
     ultimate outcome of this matter cannot presently be determined.

6.  Rental Revenues
    ---------------

      Norman Crossing Associates has operating leases with tenants which provide
    for fixed minimum rents and reimbursement of certain operating costs.

      Minimum rental revenues to be received in the future under  noncancellable
    leases are approximately as follows (in thousands):

                  1997        $  355
                  1998           314
                  1999           314
                  2000           299
                  2001           275
                  thereafter   1,694
                              ------
                              $3,251
                              ======




<PAGE>
<TABLE>

Schedule III - Real Estate and Accumulated Depreciation

            COMBINED JOINT VENTURES OF PAINE WEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP

                            SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION

                                             September 30, 1996
                                               (In thousands)
<CAPTION>


                                                                                                                      Life on Which
                           Initial Cost of      Costs         Gross Amount at Which Carried at                        Depreciation
                          Partnership        Capitalized                        Close of period                       in Latest
                               Buildings     (Removed)           Buildings                                            Income
                               and          Subsequent to        and               Accumulated  Date of      Date     Statement 
Description  Encumbrances Land Improvements Acquisition(1) Land Improvements Total Depreciation Construction Acquired is Computed
-----------  ------------ ---- ------------ -------------- ---- ------------ ----- ------------ ------------ -------- ------------
<S>          <C>          <C>     <C>          <C>         <C>     <C>       <C>     <C>         <C>          <C>         <C>

COMBINED JOINT VENTURES:

Apartment 
 Complex     $5,411      $  764   $ 8,171     $ 790       $  779   $ 8,946   $ 9,725  $ 4,032    1987         10/15/87    5-30 yrs.
Birmingham, AL

Apartment
 Complex      5,545       1,905     5,660        -         1,905     5,660     7,565    2,446    1987         6/14/88     5-30 yrs.
Manassas, VA

Apartment 
 Complex      6,153         770     3,263    2,592           770     5,855     6,625    1,805    1987         6/10/88     5-30 yrs.
Des Moines, WA

Shopping 
Center        2,715       1,442     2,255      194         1,442     2,449     3,891      448    1988         9/15/89     5-30 yrs.
Charlotte,
 NC         -------     -------   -------  -------        -------   -------   ------   ------

Total       $19,824      $4,881   $19,349   $3,576        $4,896    $22,910   $27,806  $8,731
            =======      ======   =======   ======        ======    =======   =======  ======

Notes

(A) The  aggregate  cost of real estate owned at September  30, 1996 for Federal income  tax  purposes  is  approximately  $27,830. 
(B) See  Note 4 to  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                   $27,631           $27,847           $27,985
      Acquisitions and improvements                        175               326               326
      Proceeds from settlements of
      claims regarding construction damages                  -              (542)             (464)
                                                       -------           -------           -------
      Balance at end of period                         $27,806           $27,631           $27,847
                                                       =======           =======           =======

(D) Reconciliation of accumulated depreciation:

      Balance at beginning of period                  $  7,890           $ 7,030           $ 6,064
      Depreciation expense                                 841               860               966
                                                      --------           -------           -------
      Balance at end of period                        $  8,731           $ 7,890           $ 7,030
                                                      ========           =======           =======

</TABLE>