<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549


                                   FORM 10-Q




                 Quarterly Report under Section 13 or 15(d) of
                      the Securities Exchange Act of 1934



For the Quarter Ended June 30, 1999             Commission File Number  1-14516


                           PRENTISS PROPERTIES TRUST
            (Exact Name of Registrant as Specified in its Charter)




           Maryland                                              75-2661588
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)



         3890 West Northwest Highway, Suite 400, Dallas, Texas  75220
             (Address of Registrant's Principal Executive Office)


                                (214) 654-0886
             (Registrant's Telephone Number, Including Area Code)



     Indicate by check mark whether the Registrant (i) 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 report), and (ii) has been subject to such
filing requirements for the past 90 days.

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

The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding
as of August 10, 1999, was 37,898,320 and the number of outstanding
Participating Cumulative Redeemable Preferred Shares of Beneficial Interest,
Series A, was 3,773,585.
<PAGE>

PRENTISS PROPERIES TRUST


                                     INDEX
                                     -----

Part I:  FINANCIAL INFORMATION                                       Page Number
                                                                     -----------
         Item 1.  Financial Statements

                  Consolidated Balance Sheets of Prentiss
                  Properties Trust at June 30, 1999 (unaudited)
                  and December 31, 1998                                   4

                  Consolidated Statements of Income of Prentiss
                  Properties Trust for the three month periods and
                  the six month periods ended June 30, 1999
                  and 1998 (unaudited)                                    5

                  Consolidated Statements of Cash Flows of Prentiss
                  Properties Trust for the six month periods ended
                  June 30, 1999 and 1998 (unaudited)                      6

                  Notes to Consolidated Financial Statements           7-13

         Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of  Operations                14-25

         Item 3.  Quantitative and Qualitative Disclosures about
                  Market Risk                                         25-26

Part II: OTHER INFORMATION

         Item 4.  Submission of Matters to a Vote of Security Holders    26
         Item 5.  Other Information                                      27
         Item 6.  Exhibits and Reports on Form 8-K                    27-28

SIGNATURE                                                                29

                                       2
<PAGE>

                          FORWARD-LOOKING STATEMENTS

          This Form 10-Q and the documents incorporated by reference herein
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").  When used
in this Form 10-Q, words such as "anticipate," "believe," "estimate," "expect,"
"intend," "predict," "project," and similar expressions, as they relate to the
Company's management, identify forward-looking statements. Such forward-looking
statements are based on the beliefs of the Company's management as well as
assumptions made by and information currently available to the Company.  These
forward-looking statements are subject to certain risks, uncertainties and
assumptions, including, but not limited to, risks, uncertainties and assumptions
related to the following:

<TABLE>
<S>                                                      <C>
 .  The geographic concentration of our properties;       .  Conflicts of interest;

 .  The Company's real estate acquisition,                .  Change in our investment, financing and borrowing
   redevelopment, development and construction              policies without shareholder approval;
   activities;

 .  Operating performance of properties;                  .  The Company's dependence on key personnel;

 .  The Company's incurrence of debt;                     .  The Company's third-party property management,
                                                            leasing, development and construction business and
                                                            related services; and

 .  Limited ability of shareholders to effect a change    .  Effect of shares available for future sale on price
   of control;                                              of common shares.

 .  The Company's failure to qualify as a Real Estate
   Investment Trust ("REIT");
</TABLE>

     Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, expected or projected. Such forward-looking statements
reflect the Company's current views with respect to future events and are
subject to these and other risks, uncertainties and assumptions, relating to the
Company's operations, growth strategy and liquidity. All subsequent written and
oral forward-looking statements attributable to us or individuals acting on our
behalf are expressly qualified in their entirety by this paragraph. A detailed
discussion of risks is included in the Company's Form 10-K, filed on March 29,
1999, under the caption "Risk Factors".



                                    PART I
                             FINANCIAL INFORMATION

Item 1.  Financial Statements

                                       3
<PAGE>

                           PRENTISS PROPERTIES TRUST
                          CONSOLIDATED BALANCE SHEETS

                   (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                  June 30,            December 31,
                                                                                    1999                  1998
                                                                            --------------------  --------------------
                                                                                (Unaudited)
                                                        ASSETS
<S>                                                                         <C>                   <C>
Real estate.....................................................                     $1,840,539            $1,810,735
   Less: accumulated depreciation...............................                        (80,032)              (61,232)
                                                                                     ----------            ----------
                                                                                      1,760,507             1,749,503

Deferred charges and other assets, net..........................                         89,597                74,560
Receivables, net................................................                         23,672                20,484
Cash and cash equivalents.......................................                         11,750                 5,523
Escrowed cash...................................................                          5,499                 8,172
Other receivables (affiliates)..................................                          4,215                 2,245
Investments in joint ventures and unconsolidated subsidiary.....                         19,936                10,658
                                                                                     ----------            ----------
 Total assets...................................................                     $1,915,176            $1,871,145
                                                                                     ==========            ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
 Debt on real estate............................................                     $  883,576            $  800,263
 Accounts payable and other liabilities.........................                         50,187                62,410
 Distributions payable..........................................                         21,065                17,774
                                                                                     ----------            ----------

    Total liabilities...........................................                        954,828               880,447
                                                                                     ----------            ----------

Minority interest in operating partnership......................                        127,556               128,775
                                                                                     ----------            ----------
Minority interest in real estate partnerships...................                          1,419                 1,345
                                                                                     ----------            ----------

Commitments and contingencies

Shareholders' equity:
     Preferred shares $.01 par value, 20,000,000
     shares authorized, 3,773,585 shares issued and
     outstanding................................................                        100,000               100,000
     Common shares $.01 par value, 100,000,000 shares
     authorized, 40,028,649 (includes 2,098,800 in treasury)
     and 39,930,288 (includes 998,800 in treasury)
     shares issued and outstanding at June 30, 1999
     and December 31, 1998, respectively........................                            400                   399
 Additional paid-in capital.....................................                        789,247               787,193
 Distributions in excess of accumulated earnings................                         (5,038)               (3,700)
 Common shares in treasury, at cost, 2,098,800
   and 998,800 at June 30, 1999 and
   December 31, 1998, respectively..............................                        (53,236)              (23,314)
                                                                                     ----------            ----------
   Total shareholders' equity...................................                        831,373               860,578
                                                                                     ----------            ----------
   Total liabilities and shareholders' equity...................                     $1,915,176            $1,871,145
                                                                                     ==========            ==========
</TABLE>




   The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>

                           PRENTISS PROPERTIES TRUST
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                    Three Months    Three Months     Six Months      Six Months
                                                                       Ended           Ended           Ended           Ended
                                                                   June 30, 1999   June 30, 1998   June 30, 1999   June 30, 1998
                                                                   --------------  --------------  --------------  --------------
<S>                                                                <C>             <C>             <C>             <C>
Revenues:
 Rental income.................................................          $73,100         $53,974        $144,060        $103,939
 Mortgage interest.............................................                -             960               -           1,920
 Management and other fees, net................................              793             515           1,195             963
                                                                         -------         -------        --------        --------
  Total revenues...............................................           73,893          55,449         145,255         106,822
                                                                         -------         -------        --------        --------
Expenses:
 Property operating and maintenance............................           16,738          12,085          32,819          23,581
 Real estate taxes.............................................            8,831           5,993          17,417          11,268
 General and administrative and personnel costs, net...........            2,339           2,007           4,410           3,879
 Interest expense..............................................           14,595           8,533          28,088          16,679
 Amortization of deferred financing costs......................              270             200             519             396
 Depreciation and amortization.................................           13,340           9,644          25,484          18,159
                                                                         -------         -------        --------        --------
  Total expenses...............................................           56,113          38,462         108,737          73,962
                                                                         -------         -------        --------        --------


Equity in income of joint ventures and unconsolidated
 subsidiary....................................................            1,102           1,704           2,244           2,950
                                                                         -------         -------        --------        --------
Income before gains on sale, minority interests, and
 extraordinary items...........................................           18,882          18,691          38,762          35,810
Gains on sale..................................................              193           1,269             289           3,824
Minority interests.............................................           (2,674)           (909)         (5,395)         (2,179)
                                                                         -------         -------        --------        --------

Income before extraordinary items..............................           16,401          19,051          33,656          37,455
Extraordinary items............................................                -               -               -          (8,908)
                                                                         -------         -------        --------        --------
Net income.....................................................           16,401          19,051          33,656          28,547
Preferred dividends............................................           (1,660)         (1,505)         (3,170)         (2,641)
                                                                         -------         -------        --------        --------
Net income applicable to common shareholders...................          $14,741         $17,546        $ 30,486        $ 25,906
                                                                         =======         =======        ========        ========
Net income per common share before extraordinary items - basic.
Extraordinary items............................................          $  0.39         $  0.44        $   0.80        $   0.91
                                                                         -------         -------        --------        --------
                                                                               -               -               -           (0.23)
                                                                         -------         -------        --------        --------
Net income per common share - basic............................          $  0.39         $  0.44        $   0.80        $   0.68
                                                                         -------         -------        --------        --------

Weighted average number of common shares outstanding - basic...           37,889          39,873          37,994          38,340
                                                                         =======         =======        ========        ========

Net income per common share before
   extraordinary items - diluted...............................          $  0.39         $  0.43        $   0.80        $   0.89
Extraordinary items............................................                -               -               -           (0.21)
                                                                         -------         -------        --------        --------
Net income per common share - diluted..........................          $  0.39         $  0.43        $   0.80        $   0.68
                                                                         =======         =======        ========        ========
Weighted average number of common shares and
 common share equivalents outstanding - diluted................           38,019          43,936          38,070          41,992
                                                                         =======         =======        ========        ========
</TABLE>




   The accompanying notes are an integral part of these financial statements.

                                       5
<PAGE>

                           PRENTISS PROPERTIES TRUST
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                                             Six Months       Six Months
                                                                                                Ended            Ended
                                                                                            June 30, 1999     June 30, 1998
                                                                                            -------------     -------------
<S>                                                                                         <C>               <C>
Cash Flows from Operating Activities:
   Net income..................................................................                $  33,656         $  28,547

   Adjustments to reconcile net income to net cash provided by operating
    activities:
       Minority interests......................................................                    5,395             2,179
       Extraordinary items.....................................................                        -             8,908
       Gains on sale...........................................................                     (289)           (3,824)
       Provision for doubtful accounts.........................................                      382               427
       Depreciation and amortization...........................................                   25,484            18,159
       Amortization of deferred financing costs................................                      519               396
       Equity in income of joint ventures and unconsolidated subsidiary........                   (2,244)           (2,950)
       Non-cash compensation...................................................                       50                50
   Changes in assets and liabilities:
       Deferred charges and other assets.......................................                      141               670
       Receivables.............................................................                   (3,570)           (6,778)
       Escrowed cash...........................................................                     (991)           (4,403)
       Other receivables (affiliates)..........................................                   (1,970)            7,276
       Accounts payable and other liabilities..................................                  (12,590)            6,561
                                                                                               ---------         ---------

   Net cash provided by operating activities...................................                   43,973            55,218
                                                                                               ---------         ---------
Cash Flows from Investing Activities:
   Purchase and development of real estate.....................................                  (40,610)         (375,830)
   Investment in real estate...................................................                  (22,254)          (20,949)
   Investment in joint ventures................................................                   (9,757)                -
   Investment in mortgage note receivable......................................                        -                85
   Proceeds from sale of real estate...........................................                   11,095            12,905
   Distributions received from joint ventures and unconsolidated subsidiary....                    2,596             4,543
                                                                                               ---------         ---------
   Net cash used in investing activities.......................................                  (58,930)         (379,246)
                                                                                               ---------         ---------
Cash Flows from Financing Activities:
   Net proceeds from sale of common shares.....................................                    1,217           106,412
   Net proceeds from sale of preferred shares..................................                        -            25,000
   Net proceeds from sale of preferred units...................................                        -            95,000
   Purchase of treasury shares.................................................                  (26,257)                -
   Distributions paid to limited partners......................................                   (1,383)           (2,050)
   Distributions paid to common shareholders...................................                  (30,716)          (29,222)
   Distributions paid to preferred shareholders................................                   (3,019)           (1,161)
   Distributions paid to preferred unitholders.................................                   (1,971)                -
   Proceeds from debt on real estate...........................................                  333,826           411,097
   Repayments of debt on real estate...........................................                 (250,513)         (276,776)
                                                                                               ---------         ---------
   Net cash provided by financing activities...................................                   21,184           328,300
                                                                                               ---------         ---------

   Net change in cash and cash equivalents.....................................                    6,227             4,272
   Cash and cash equivalents, beginning of period..............................                    5,523             7,075
                                                                                               ---------         ---------
   Cash and cash equivalents, end of period....................................                $  11,750         $  11,347
                                                                                               =========         =========
Supplemental Cash Flow Information:
   Cash paid for interest......................................................                $  29,854         $  17,523
                                                                                               =========         =========
</TABLE>



   The accompanying notes are an integral part of these financial statements.

                                       6
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


1.   The Organization

     Prentiss Properties Trust is a Maryland Real Estate Investment Trust
("REIT") that acquires, owns, manages, leases, develops and builds office and
industrial properties throughout the United States. The Company is self-
administered in that it provides its own administrative services, such as
accounting, tax and legal, internally through its own employees. The Company is
self-managed in that it internally provides all the management and maintenance
services that its properties require through its own employees such as property
managers, leasing professionals and engineers. The Company operates principally
through Prentiss Properties Acquisition Partners, L.P. and its subsidiaries (the
"Operating Partnership") and Prentiss Properties Limited, Inc. (the "Manager")
(collectively referred to herein as the "Company").  As of June 30, 1999 the
Company owned interests in a diversified portfolio of 234 primarily suburban
Class A office and suburban industrial properties containing approximately 21.0
million net rentable square feet. The properties consist of 131 office buildings
(the "Office Properties") containing approximately 14.1 million net rentable
square feet and 103 industrial buildings (the "Industrial Properties" and
together with the Office Properties, the "Properties") containing approximately
6.9 million net rentable square feet. The Properties include 12 Properties
containing 1.5 million square feet that are in various stages of development or
have been recently developed by the Company and are in various stages of lease-
up (the "Development Properties"). The Development Properties, upon completion,
will include 1.2 million square feet of office space and 262,000 square feet of
industrial space. As of June 30, 1999, the Office Properties and Industrial
Properties, exclusive of the Development Properties, were approximately 95%
leased to approximately 1,212 tenants and approximately 96% leased to
approximately 309 tenants, respectively. In addition to managing the Properties
that the Company owns or has ownership interests in, the Company manages
approximately 25.4 million net rentable square feet in office, industrial and
other properties that are owned by third parties.

     The Long-Term Incentive Program

     Effective June 30, 1999, the Company loaned $4.2 million to various key
employees as part of the Company's long-term incentive plan to retain such
employees. The loans are full recourse notes which accrue interest quarterly at
a fixed rate of 7% and have terms of five years. Interest payments are due
quarterly. The loan balances are to be forgiven, contingent upon each key
employees' continued service to the Company, in the following manner: one-third
of the principal balances will be forgiven at the end of the third year of the
loan term, one-third will be forgiven at the end of the fourth year of the loan
term, and the remaining principal balances will be forgiven at the end of the
fifth year of the loan term. The effect of the loans is reflected in the
Company's cash and receivables balances, respectively, as of June 30, 1999.

2.   Basis of Presentation

     The accompanying financial statements are unaudited; however, the financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles ("GAAP") for interim financial information and
the rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the disclosures required by GAAP for
complete financial statements.  In the opinion of management, all adjustments
(consisting solely of normal recurring matters) necessary for a fair
presentation of the financial statements for these interim periods have been
included.  The results for the three and six month periods ended June 30, 1999
are not necessarily indicative of the results to be obtained for the full fiscal
year.  These financial statements should be read in conjunction with the
December 31, 1998 audited financial statements and notes thereto of the Company,
included in its annual report on Form 10-K for the fiscal year ended December
31, 1998.

3.   Real Estate


     During the three months ended June 30, 1999, the Company sold two
industrial properties containing 228,000 square feet. The two properties,
located in the Los Angeles area, sold for proceeds of $8.6 million, resulting in
a gain on sale of approximately $193,000. The Company transitioned the 3130
Fairview Park Drive Property, which contains 183,000 square feet, to operations
during the second quarter. Additionally, the Company began development of an
office project containing 53,000 square feet on the recently acquired Oaklands
21 and 27 land parcels ("Oaklands 21 and 27") in Suburban Philadelphia,
Pennsylvania. In connection with the second quarter acquisition, the Company
paid $1.2 million for a 60% equity interest in Oaklands 21 and 27.

4.   Debt on Real Estate

     At June 30, 1999, the Company had debt on real estate of $883.6 million,
excluding the Company's proportionate share of debt on its 50% and 20% equity
investments in the joint ventures owning the Broadmoor Austin Properties (as
defined herein) and the Burnett Plaza Property, respectively.

                                       7
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


     The Company's mortgage debt transactions for the three months ended June
30, 1999 are summarized in the table below:

                                                                  (in thousands)
Debt on real estate at March 31, 1999............................    $871,777

Activity for the three months ending June 30, 1999:
 Property mortgage loans completed...............................      38,000
 Net payments under the line of credit...........................     (11,200)
 Construction loan draws.........................................         183
 Construction loan repaid........................................     (14,500)
 Other repayments of principal...................................        (684)
                                                                     --------
Debt on real estate at June 30, 1999.............................    $883,576
                                                                     ========

     On April 16, 1999 the Company closed a $23.5 million, 12-year non-recourse
mortgage with Metropolitan Life Insurance Company. The loan has an interest rate
of 7.00% and is collateralized by the recently completed 3130 Fairview Park
Drive Office Property in the Northern Virginia area.

     On May 21, 1999, the Company closed a $14.5 million 10-year non-recourse
mortgage with an affiliate of Dresdner Bank. The loan has an interest rate of
7.46% and is collateralized by the recently completed 2500 Cumberland Parkway
Property in Atlanta, Georgia.

     During the period, the Company made net payments against its $300.0 million
line of credit (the "Line of Credit") of $11.2 million resulting in an
outstanding balance of $216.1 million at June 30, 1999. The Company's Line of
Credit bears interest at LIBOR plus 137.5 basis points and matures on January 2,
2001. At June 30, 1999, LIBOR was equal to 5.24%.

     The Company's debt balance at June 30, 1999, excluding its share of
unconsolidated joint ventures debt, was $883.6 million. Of this amount, $554.2
million is fixed rate, non-recourse, long-term mortgages.  The remaining $329.4
million is floating rate debt, of which $50.0 million is hedged until June 2003
and $110.0 million is hedged until September 2004.  Future scheduled principal
repayments of debt on real estate are as follows:

                                                             (in thousands)
        1999...............................................     $  1,570
        2000...............................................        8,535
        2001...............................................      235,540
        2002...............................................      105,528
        2003...............................................       64,470
        Thereafter.........................................      467,933
                                                                --------
                                                                $883,576
                                                                ========

5.   Distribution

     On June 16, 1999, the Company declared a cash distribution for the second
quarter of 1999 in the amount of $.44 per share, payable on July 16, 1999 to
common shareholders of record on June 30, 1999. Additionally, it was determined
that a distribution of $.44 per unit would be made to the partners of the
Operating Partnership, and the holders of the Company's Series A Convertible
Preferred Shares (the "Series A Convertible Preferred Shares"). The total
distributions were paid on July 16, 1999, totaling approximately $19.1 million.
In addition, a quarterly distribution equal to an annualized 8.3% of the face
amount of the Series B Perpetual Preferred Units (the "Series B Perpetual
Preferred Units"), or $2.0 million, was declared on June 30, 1999 and paid on
July 1, 1999.

                                       8
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


6.   Investment in Joint Ventures and Unconsolidated Subsidiary


     Included in Investments in Joint Ventures and Unconsolidated Subsidiary
are the Company's investment in Broadmoor Austin Associates ("Broadmoor
Austin"), the Company's investment in the recently acquired Oaklands 21 and 27,
the Company's investment in the Burnett Plaza and the Company's investment in
the Manager. The Company accounts for its 50%, 60%, 20% and 95% investments in
Broadmoor Austin, Oaklands 21 and 27, Burnett Plaza and the Manager,
respectively, using the equity method of accounting, and thus reports its share
of income and losses based on its ownership interest in the respective entities.
At June 30, 1999, the carrying value of the Company's interest in Broadmoor
Austin, Oaklands 21 and 27, Burnett Plaza and the Manager totaled $6.2 million,
$1.2 million, $8.6 million and $3.9 million, respectively. The difference
between the carrying value of the Company's interest in Broadmoor Austin and the
book value of the underlying equity is being amortized over 40 years.

     The following is summarized financial information for 100% of Broadmoor
     Austin at June 30, 1999 and December 31, 1998 and for the three and six
     months ended June 30, 1999 and 1998:

                                               June 30, 1999   Dec. 31, 1998
                                               -------------   -------------
Balance sheet:                                         (in thousands)
--------------
Real estate and deferred charges, net.........    $105,845          $108,013
Total assets..................................    $120,985          $123,255
Mortgage note payable.........................    $154,000          $154,000
Venturers' deficit............................    $(33,729)         $(32,915)


<TABLE>
<CAPTION>
                                             Three Months Ended  Three Months Ended  Six Months Ended  Six Months Ended
                                                 June 30, 1999      June 30, 1998      June 30, 1999      June 30, 1998
                                             ------------------   -----------------  ----------------  -----------------
Income statement:
----------------
<S>                                              <C>                  <C>                 <C>               <C>
Rental and other income........................   $  4,948              $5,017            $9,895          $  9,896
Interest expense...............................   $  2,741              $2,711            $5,451          $  6,069
Depreciation and amortization..................   $  1,084              $1,082            $2,168          $  2,166
Extraordinary item.............................                                                           $ 12,900
Net income (loss)..............................   $    973              $1,080            $1,976          $(11,562)
</TABLE>

   The Company acquired a 20% equity interest in the joint venture owning the
   Burnett Plaza Property on March 25, 1999. The following is summarized
   financial information for 100% of Burnett Plaza at June 30, 1999 and for the
   period subsequent to acquisition by the Company through June 30, 1999:


                                               June 30, 1999
                                              ---------------
Balance sheet:                                 (in thousands)
--------------
Real estate and deferred charges, net..........   $86,315
Total assets...................................   $91,366
Mortgage note payable..........................   $47,000
Venturers' equity..............................   $42,823


                                               Period Ended
                                               June 30, 1999
                                              ---------------
Income statement:                              (in thousands)
-----------------
Rental and other income........................   $ 3,295
Interest expense...............................   $   948
Depreciation and amortization..................   $   507
Extraordinary item.............................
Net income (loss)..............................   $   275

                                       9
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


The following is summarized financial information for 100% of the Manager at
June 30, 1999 and December 31, 1998 and for the three and six months ended June
30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                    June 30, 1999       Dec. 31, 1998
                                                 -------------------  ------------------
Balance sheet:                                               (in thousands)
--------------
<S>                                              <C>                  <C>
Total assets...................................              $15,396             $15,326
Total liabilities..............................              $11,189             $11,119
Owners' equity.................................              $ 4,207             $ 4,207
</TABLE>

<TABLE>
<CAPTION>
                                                 Three Months Ended   Three Months Ended   Six Months Ended    Six Months Ended
                                                    June 30, 1999       June 30, 1998       June 30, 1999       June 30, 1998
                                                 -------------------  ------------------  ------------------  ------------------
Income statement:                                                                (in thousands)
-----------------------------------------------
<S>                                              <C>                  <C>                 <C>                 <C>
Fee income.....................................               $5,577              $7,448             $10,441             $14,849
General and administrative and personnel
 costs, net....................................               $4,899              $6,141             $ 9,154             $12,675
Net income.....................................               $  560              $1,117             $ 1,201             $ 2,286
</TABLE>

     The Oaklands 21 and 27 development project had no operations for the three
months ended June 30, 1999. The project's assets totaled $1.7 million at June
30, 1999.

7.   Supplemental Disclosure of Non-Cash Activities

     During the three months ended June 30, 1999, the Company declared cash
distributions totaling $19.1 million payable to holders of common shares,
Operating Partnership units ("Units") and Series A Convertible Preferred Shares.
The distributions were paid July 16, 1999. In addition, a distribution totaling
$2.0 million was declared in June 1999 payable to holders of the Company's
Series B Perpetual Preferred Units.  The distribution was paid on July 1, 1999.

8.   Impact of the Year 2000 Issue

     The Year 2000 ("Y2K") compliance problem is the result of computer programs
designed to use two digit rather than four digit years.  Thus, the year 1999 is
represented as 99 and the year 2000 would be represented as 00.  This could be
interpreted as either 1900 or 2000.  Systems that have Y2K-related issues, may
perceive time to have reverted back 100 years.  Systems, equipment and software
with exposure to Y2K-related problems exist not only in computerized information
systems ("Information Systems") but also in building operating systems such as
elevators, alarm systems, energy management systems, phone systems, and numerous
other systems and equipment (the "Non-Information Technology Systems")
(collectively, the "Systems").  Failure to adequately identify and correct Y2K-
related problems could result in a Systems failure or malfunction with potential
adverse effects including personal injury, property damage, and disruption of
operations.  Any or all of these failures could materially and adversely affect
the Company's business, financial condition, or results of operations.

     Due to the exposure and potential liabilities inherent in both the Systems
used internally by the Company ("Internal Systems") and those Systems used by
third parties to conduct business with the Company ("Third-Party Systems"), in
September 1997, the Company created the Y2K Committee (the "Y2K Committee")
headed by the Vice President of Information Systems and co-chaired by the Vice
President of National Property Operations.  Due to the national presence of the
Company, the Y2K Committee appointed approximately 85 employees (the "Y2K
Coordinators") designated as either Y2K property coordinators or Y2K corporate
office coordinators. The purpose of the Y2K Committee was to develop a plan to
assess and mitigate the Company's exposure to potential Y2K-related problems
(the "Company's Y2K Plan"). In order to implement the Company's Y2K Plan in a
timely and uniform manner, during August 1998 the Y2K Committee held classes to
educate the Y2K Coordinators on the steps to be taken to implement the Y2K Plan.
Due to the risks associated with inadequate assessments and remediations of the
Systems, the Company engaged various independent sources to assist in the review
of the Company's Y2K Plan, including:

                                       10
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS



 .    An embedded systems specialist to focus on building Systems
 .    A Big 5 Accounting firm to focus on financial Systems
 .    A legal firm specializing in Y2K issues
 .    Computer Sciences Corporation ("CSC") to perform an overall review

Estimate of Financial Impact

     The Y2K Committee has assessed and continues to assess the financial impact
of the Company's Y2K remediations. The total costs associated with required
modifications to become Y2K compliant are not expected to be material to the
Company's financial position. The Company currently estimates the total Y2K
readiness costs are between $500,000 and $600,000. The costs incurred to date
are consistent with the various stages of completion of the three categories as
follows:.

<TABLE>
<CAPTION>
Category                               Low          High        Q4/98       Q1/99       Q2/99       Q3/99       Q4/99
                                   ------------  -----------  ----------  ----------  ----------  ----------  ----------
<S>                                <C>           <C>          <C>         <C>         <C>         <C>         <C>
Non-Information Technology
 Systems                               $400,000     $475,000          8%         66%         10%         16%
Information Systems                      40,000       50,000         20%         70%         10%
Y2K Committee                            60,000       75,000         80%         10%          5%          5%
                                       --------     --------
Total                                  $500,000     $600,000
                                       ========     ========
</TABLE>

     These costs are net of the Company's personnel costs that are considered to
be part of normal operating costs.  A significant portion of the Non-Information
Technology Systems costs are expected to be capitalized and recovered from
tenants through building operations, while the balance will be expensed in the
period incurred.  Much of the Information Systems costs are version upgrades
that will be expensed as incurred.  The Y2K Committee costs consist largely of
consulting charges that are expensed as incurred.

     The Company's readiness program is an ongoing process, and the estimates of
costs and completion dates for the various categories described above are
subject to material change.

Contingency Plans

     The Company has been developing contingency plans to be implemented as part
of its efforts to identify and correct Y2K issues.  The Company has
substantially completed the contingency plans for assets owned as of June 30,
1999.  These contingency plans range from manual overrides to alternative
processes such as building lock downs in the event of a long-term power failure.
Fortunately, most buildings currently have contingency plans in place for
natural disasters such as earthquakes, floods, ice storms, and the like, which
provide a basis for the Y2K contingency plans.  These plans may also include
short-term use of backup equipment and software, increased work hours for
Company personnel or use of contract personnel, and the orderly shut down of the
buildings on December 31, 1999 and January 1, 2000 in order to perform tests of
critical Systems.

                                       11
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


9.   Recently Issued Accounting Standards


     In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
No. 133"). FAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities.  It requires that an entity recognizes all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value.  In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" ("FAS No.
137"). FAS No. 133 was originally effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. FAS No. 137 deferred the effective date of
FAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company believes that upon implementation, FAS No. 133 will not have a
material impact on the financial statements of the Company.

10.  Segment Information


     The Company's primary business is the ownership and operation of office and
industrial Properties throughout the United States. The Company has determined
that its reportable segments are those that are based on the Company's method of
internal reporting, which disaggregates its business by geographic region. The
Company's reportable segments are the Company's six regions which include (1)
Mid-Atlantic; (2) Midwest; (3) Northeast; (4) Southeast; (5) Southwest; and (6)
West.

     The tables below present information about net income/loss and segment
assets used by the chief operating decision maker of the Company as of and for
the three and six months ended June 30, 1999:

     For the Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
                              (in thousands)
                                                                                                     Corporate
                        Mid-                                                            Total      Not Allocable      Consolidated
                       Atlantic  Midwest   Northeast  Southeast  Southwest    West     Segments     to Segments          Total
                       --------  -------   ---------  ---------  ---------  --------  ----------    -----------          -----
<S>                <C>           <C>       <C>        <C>        <C>        <C>       <C>         <C>               <C>
Revenues               $ 14,891  $ 14,217   $  6,738    $ 3,343   $ 17,861  $ 16,961  $   74,011         $   (118)        $   73,893
                       ========  ========   ========    =======   ========  ========  ==========         ========         ==========

Income before
 extraordinary
 Item                  $  8,014  $  7,360   $  3,496    $ 1,176   $  7,157  $  9,338  $   36,541         $(20,140)        $   16,401
                       ========  ========   ========    =======   ========  ========  ==========         ========         ==========

Assets                 $374,501  $357,614   $204,774    $71,042   $438,105  $435,903  $1,881,939         $ 33,237         $1,915,176
                       ========  ========   ========    =======   ========  ========  ==========         ========         ==========
</TABLE>


     For the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
                              (in thousands)
                                                                                                       Corporate
                        Mid-                                                            Total        Not Allocable      Consolidated
                       Atlantic  Midwest   Northeast  Southeast  Southwest    West     Segments       to Segments          Total
                       --------  -------   ---------  ---------  ---------  --------  ----------      -----------          -----
 <S>                  <C>        <C>       <C>        <C>        <C>        <C>       <C>             <C>               <C>
Revenues               $ 29,012  $ 28,383   $ 13,108    $ 6,440   $ 34,379  $ 33,896  $  145,218       $     37         $  145,255
                       ========  ========   ========    =======   ========  ========  ==========       ========         ==========

Income before
 extraordinary
 Item                  $ 15,567  $ 14,066   $  7,030    $ 1,982   $ 14,457  $ 17,877  $   70,979       $(37,323)        $   33,656
                       ========  ========   ========    =======   ========  ========  ==========       ========         ==========

Assets                 $374,501  $357,614   $204,774    $71,042   $438,105  $435,903  $1,881,939       $ 33,237         $1,915,176
                       ========  ========   ========    =======   ========  ========  ==========       ========         ==========
</TABLE>

       The Company has not disclosed prior years' segment data on a comparative
basis because management found it impracticable to obtain the comparative data
for prior years.

                                       12
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


11.  Earnings per Share


   The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS No. 128").
FAS No. 128 requires a dual presentation of basic and diluted Earnings per Share
on the face of the income statements.  Additionally, FAS No. 128 requires a
reconciliation of the numerator and denominator used in computing basic and
diluted Earnings per Share.

<TABLE>
<CAPTION>
Reconciliation of Earnings per Share Numerator          Three Months    Three Months     Six Months      Six Months
                                                           Ended           Ended           Ended           Ended
                                                       June 30, 1999   June 30, 1998   June 30, 1999   June 30, 1998
                                                       --------------  --------------  --------------  --------------
                                                                   (in thousands, except per share data)
<S>                                                    <C>             <C>             <C>             <C>
Net income...........................................        $16,401         $19,051         $33,656         $28,547
Preferred dividends..................................         (1,660)         (1,505)         (3,170)         (2,641)
                                                             -------         -------         -------         -------
Net income available to common shareholders..........        $14,741         $17,546         $30,486         $25,906
                                                             =======         =======         =======         =======
Reconciliation of Earnings per Share Denominator

Weighted average common shares outstanding...........         37,889          39,873          37,994          38,340
                                                             =======         =======         =======         =======

Basic Earnings per Share.............................        $  0.39         $  0.44         $  0.80         $  0.68
                                                             =======         =======         =======         =======


Dilutive Effect of Common Share Equivalents

Dilutive options.....................................            130             290              76             342
Dilutive preferred shares............................            (A)           3,773             (A)           3,310
Weighted average common shares outstanding...........         37,889          39,873          37,994          38,340
                                                             -------         -------         -------         -------
Weighted average common shares and common share

   Equivalents.......................................         38,019          43,936          38,070          41,992
                                                             =======         =======         =======         =======

Diluted Earnings per Share...........................        $  0.39         $  0.43         $  0.80         $  0.68
                                                             =======         =======         =======         =======
</TABLE>

(A) Preferred shares for the quarter and six months ended June 30, 1999 are
    excluded from the calculation of Dilutive Earnings per Shares as such shares
    are anti-dilutive for the respective periods.

12.    Subsequent Events

     On July 1, 1999, the Company disposed of the two Regents Centre office
buildings which contained 101,000 square feet. In connection with the sale, the
Company received gross proceeds of approximately $11.2 million and recorded an
estimated gain on sale of $1.5 million. Regents Centre is located in the
Phoenix, Arizona area.

     On July 2, 1999, the Company disposed of the six industrial buildings
comprising the Shadowridge Plaza in San Diego, California for gross proceeds of
approximately $5.0 million resulting in an estimated gain on sale of $237,000.
Shadowridge Plaza contained 32,000 square feet of industrial space.

     On July 20, 1999 the Company acquired two office buildings for a purchase
price of $9.8 million. The two buildings ("Orchard Place I and II") contain
approximately 105,000 square feet and are located in the Denver, Colorado area.

                                       13
<PAGE>

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Overview

     Prentiss Properties Trust is a Maryland Real Estate Investment Trust (the
"REIT") that acquires, owns, manages, leases, develops and builds office and
industrial properties throughout the United States. The REIT operates
principally through Prentiss Properties Acquisition Partners, L.P. and its
subsidiaries (the "Operating Partnership") and Prentiss Properties Limited, Inc.
(the "Manager" and together with the REIT and the Operating Partnership, the
"Company"). The Company is self-administered in that it provides its own
administrative services, such as accounting, tax and legal, internally through
its own employees. The Company is self-managed in that it internally provides
all the management and maintenance services that its properties require through
its own employees such as property managers, leasing professionals and
engineers.

     At December 31, 1998, the Company owned 233 properties consisting of 128
office and 105 industrial properties containing in the aggregate 21.0 million
net rentable square feet. During the six months ended June 30, 1999, the Company
acquired a 20% equity interest in Burnett Plaza Associates ("Burnett Plaza"), a
joint venture owning one Class A office property containing approximately 1.0
million square feet. Additionally, the Company sold two industrial properties in
the Los Angeles, California area which contained 228,000 square feet,
transitioned the 3130 Fairview Park Drive Property to operations, and acquired a
60% equity interest in two land parcels in Suburban Philadelphia, Pennsylvania
(the "Oaklands 21 and 27"). The Company also began development of an office
project containing 53,000 square feet on the Oaklands 21 and 27. Inclusive of
the Company's proportionate share of the net rentable square feet of Burnett
Plaza and the development project comprising the Oaklands 21 and 27, at June 30,
1999, the Company had 234 properties (the "Properties") containing 21.0 million
net rentable square feet. The Company's Properties include 12 Properties
containing 1.5 million square feet that are in various stages of development or
have been recently developed by the Company and are in various stages of lease-
up. As of June 30, 1999, the 12 development properties had incurred total costs
of approximately $146.4 million and were 84% leased or committed.

Results of Operations

     The results of operations for the three month periods ended June 30, 1999
and 1998 include the respective operations of the Company. During the period
from April 1, 1998 through June 30, 1999, the Company had significant property
transactions including 26 Property acquisitions and 30 Property dispositions.
Consequently, the comparison of the periods provides only limited information
regarding the operations of the Company as currently constituted.

Comparison of the Three Months Ended June 30, 1999 to the Three Months Ended
June 30, 1998

     General. As a result of the Company's significant property transactions,
with respect to the comparison of the results of operations for the three months
ended June 30, 1999 to the three months ended June 30, 1998, the following
should be considered:

     .    184  Properties that consolidated into the Company's results of
               operations were owned and fully operational at April 1, 1998 and
               remained in the Company's portfoli o at June 30, 1999;
     .    8    Properties, including the Broadmoor Austin Properties and the
               recently acquired Burnett Plaza Property, are accounted for using
               the equity method of accounting;
     .    26   Properties, including Burnett Plaza, were acquired subsequent to
               April 1, 1998 and remained in the Company's portfolio at June 30,
               1999;
     .    30   Properties were sold subsequent to April 1, 1998;
     .    1    Property, the World Savings Center Property, the economics of
               which were owned during the comparative periods, was converted to
               real estate from a mortgage note receivable in December 1998;
     .    5    Properties that were developed by the Company became operational
               subsequent to April 1, 1998 and remained in the portfolio at June
               30, 1999; and
     .    12   Properties were in various stages of development or in various
               stages of lease-up at June 30, 1999.

                                       14
<PAGE>

     Rental Revenue. Rental revenues increased by $19.1 million, or 35.4%, to
$73.1 million from $54.0 million primarily as a result of Properties acquired or
development Properties becoming operational subsequent to April 1, 1998, offset
by properties that were sold subsequent to April 1, 1998. Rental income for the
184 Properties that were owned and fully operational at April 1, 1998 and
remained in the Company's portfolio at June 30, 1999 increased by $2.8 million,
or 5.8%, from $48.1 million for the three months ended June 30, 1998 to $50.9
million for the three months ended June 30, 1999. The increase for such 184
Properties was attributable to the Company's six regions as follows:


 .    20  Properties in the Mid-Atlantic Region increased $307,000, or 3.1%;
 .    22  Properties in the Midwest Region decreased $130,000, or 1.5%;
 .    18  Properties in the Northeast Region increased $283,000, or 5.7%;
 .    10  Properties in the Southeast Region increased $259,000, or 10.3%;
 .    21  Properties in the Southwest Region increased $231,000, or 2.1%; and
 .    93  Properties in the West Region increased $1.9 million, or 17.4%.


     Property Operating and Maintenance. Property operating and maintenance
increased by $4.6 million, or 38.5%, to $16.7 million from $12.1 million
primarily as a result of Properties acquired or development Properties becoming
operational subsequent to April 1, 1998, offset by properties that were sold
subsequent to April 1, 1998. Property operating and maintenance for the 184
Properties that were owned and fully operational at April 1, 1998 and remained
in the Company's portfolio at June 30, 1999 increased by $1.4 million, or 11.3%,
from $12.1 million for the three months ended June 30, 1998 to $13.5 million for
the three months ended June 30, 1999. The increase for such 184 Properties was
attributable to the Company's six regions as follows:


 .    20  Properties in the Mid-Atlantic Region increased $175,000, or 6.7%;
 .    22  Properties in the Midwest Region increased $364,000, or 21.4%;
 .    18  Properties in the Northeast Region increased $151,000, or 12.6%;
 .    10  Properties in the Southeast Region increased $7,000, or 1.0%;
 .    21  Properties in the Southwest Region increased $202,000, or 6.6%; and
 .    93  Properties in the West Region increased $467,000, or 19.6%.


     Real Estate Taxes. Real estate taxes increased by $2.9 million, or 47.4%,
to $8.8 million from $5.9 million primarily as a result of Properties acquired
or development Properties becoming operational subsequent to April 1, 1998,
offset by properties that were sold subsequent to April 1, 1998. Real estate
taxes for the 184 Properties that were owned and fully operational at April 1,
1998, and remained in the Company's portfolio at June 30, 1999 increased by
$544,000, or 10.0%, from $5.4 million for the three months ended June 30, 1998,
to $6.0 million for the three months ended June 30, 1999. The increase for such
184 Properties was attributable to the Company's six regions as follows:

 .    20  Properties in the Mid-Atlantic Region increased $44,000, or 5.8%;
 .    22  Properties in the Midwest Region increased $18,000, or 1.3%;
 .    18  Properties in the Northeast Region decreased $89,000, or 17.9%;
 .    10  Properties in the Southeast Region decreased $27,000, or 13.7%;
 .    21  Properties in the Southwest Region increased $508,000, or 32.0%; and
 .    93  Properties in the West Region increased $90,000, or 9.1%.

       General and Administrative and Personnel Costs, Net. General and
administrative and personnel costs increased by $332,000, or 16.5%, to $2.3
million from $2.0 million primarily due to one-time severance and travel costs
and cash bonuses paid in the second quarter of 1999. The bonuses related to
specific performance and were not included in the Company's December 31, 1998
payroll accrual.

     Interest Expense. Interest expense increased by $6.1 million, or 71.0%, to
$14.6 million from $8.5 million primarily as a result of the increase of the
debt on real estate from $460.0 million at April 1, 1998 to $883.6 million at
June 30, 1999. The increase in debt on real estate during the period resulted
primarily from the significant property transactions occurring between April 1,
1998 and June 30, 1999.

                                       15
<PAGE>

       Depreciation and Amortization. Depreciation and amortization increased by
$3.7 million, or 38.3%, to $13.3 million from $9.6 million primarily as a result
of Properties acquired or development Properties becoming operational subsequent
to April 1, 1998, offset by properties that were sold subsequent to April 1,
1998. Depreciation and amortization for the 184 Properties that were owned and
fully operational at April 1, 1998 and remained in the Company's portfolio at
June 30, 1999, increased by $791,000, or 9.8%, from $8.1 million for the three
months ended June 30, 1998, to $8.9 million for the three months ended June 30,
1999. The increase for such 184 Properties was attributable to the Company's six
regions as follows:


     .    20  Properties in the Mid-Atlantic Region increased $93,000, or 5.6%;
     .    22  Properties in the Midwest Region increased $128,000, or 9.1%;
     .    18  Properties in the Northeast Region increased $82,000, or 10.2%;
     .    10  Properties in the Southeast Region decreased $18,000, or 2.9%;
     .    21  Properties in the Southwest Region increased $73,000, or 3.9%; and
     .    93  Properties in the West Region increased $433,000, or 25%.

       Equity in Income of Joint Ventures and Unconsolidated Subsidiary. Equity
in income of joint ventures and unconsolidated subsidiary decreased from $1.7
million for the three months ended June 30, 1998 to $1.1 million for the three
months ended June 30, 1999. The net decrease was primarily attributable to a
decrease of $640,000 in the Company's proportionate share of net income from the
Manager. The comparative decrease in the income of the Manager was primarily due
to the gain on sale recorded in connection with the sale of the Oceanside
Distribution Center. The Oceanside Distribution Center property, which was owned
by the Manager, sold during the second quarter of 1998.

       Gains on Sale. Gains on sale decreased by $1.1 million, to $193,000, from
$1.3 million. During the three months ended June 30, 1998, the Company sold six
office properties containing 218,000 square feet. During the three months ended
June 30, 1999, the Company sold two industrial properties in the Los Angeles,
California area. It is the Company's strategy to obtain the maximum value from
each of its Properties, which is occasionally achieved through the sale of
properties.

       Minority Interests. Minority interests increased by $1.8 million, or
194.2%, from $909,000 for the three months ended June 30, 1998, to $2.7 million
for the three months ended June 30, 1999. The increase was primarily
attributable to the quarterly dividends paid in conjunction with the issuance by
the Operating Partnership of 1,900,000 Series B Perpetual Preferred Units (the
"Series B Perpetual Preferred Units") in June 1998. The increase is also
attributable to the issuance of Units in conjunction with Property acquisitions
subsequent to April 1, 1998.

Comparison of the Six Months Ended June 30, 1999 to the Six Months Ended June
30, 1998

     General. As a result of the Company's significant property transactions,
with respect to the comparison of the results of operations for the six months
ended June 30, 1999 to the six months ended June 30, 1998, the following should
be considered:

 .  124  Properties that consolidated into the Company's results of operations
         were owned and fully operational at January 1, 1998 and remained in the
         Company's portfoli o at June 30, 1999;
 .  8    Properties, including the Broadmoor Austin Properties and the recently
         acquired Burnett Plaza Property, are accounted for using the equity
         method of accounting;
 .  85   Properties, including Burnett Plaza, were acquired subsequent to
         January 1, 1998 and remained in the Company's portfolio at June 30,
         1999;
 .  31   properties were sold subsequent to January 1, 1998;
 .  1    Property, the World Savings Center Property, the economics of which
         were owned during the comparative periods, was converted to real estate
         from a mortgage note receivable in December 1998;
 .  5    Properties that were developed by the Company became operational
         subsequent to January 1, 1998 and remained in the portfolio at June 30,
         1999; and
 .  12   Properties were in various stages of development or in various stages
         of lease-up at June 30, 1999.

                                       16
<PAGE>

     Rental Revenue. Rental revenues increased by $40.1 million, or 38.6%, to
$144.1 million from $104.0 million primarily as a result of Properties acquired
or development Properties becoming operational subsequent to January 1, 1998,
offset by properties that were sold subsequent to January 1, 1998. Rental income
for the 124 Properties that were owned and fully operational at January 1, 1998
and remained in the Company's portfolio at June 30, 1999 increased by $1.3
million, or 1.5%, from $86.2 million for the six months ended June 30, 1998 to
$87.5 million for the six months ended June 30, 1999. The increase for such 124
Properties was attributable to the Company's six regions as follows:

 .    20  Properties in the Mid-Atlantic Region increased $992,000, or 5.1%;
 .    22  Properties in the Midwest Region increased $72,000, or .4%;
 .    15  Properties in the Northeast Region increased $470,000, or 5.2%;
 .    10  Properties in the Southeast Region decreased $134,000, or 2.4%;
 .    20  Properties in the Southwest Region decreased $166,000, or .8%; and
 .    37  Properties in the West Region increased $59,000, or .4%.


     Property Operating and Maintenance. Property operating and maintenance
increased by $9.2 million, or 39.2%, to $32.8 million from $23.6 million
primarily as a result of Properties acquired or development Properties becoming
operational subsequent to January 1, 1998, offset by properties that were sold
subsequent to January 1, 1998. Property operating and maintenance for the 124
Properties that were owned and fully operational at January 1, 1998 and remained
in the Company's portfolio at June 30, 1999 increased by $920,000, or 4.1%, from
$22.2 million for the six months ended June 30, 1998 to $23.2 million for the
six months ended June 30, 1999. The increase for such 124 Properties was
attributable to the Company's six regions as follows:


 .    20  Properties in the Mid-Atlantic Region increased $403,000, or 7.8%;
 .    22  Properties in the Midwest Region increased $736,000, or 21.7%;
 .    15  Properties in the Northeast Region increased $83,000, or 3.9%;
 .    10  Properties in the Southeast Region decreased $181,000, or 7.6%;
 .    20  Properties in the Southwest Region increased $156,000, or 2.7%; and
 .    37  Properties in the West Region decreased $277,000, or 7.8%.


     Real Estate Taxes. Real estate taxes increased by $6.1 million, or 54.0%,
to $17.4 million from $11.3 million primarily as a result of Properties acquired
or development Properties becoming operational subsequent to January 1, 1998,
offset by properties that were sold subsequent to January 1, 1998. Real estate
taxes for the 124 Properties that were owned and fully operational at January 1,
1998, and remained in the Company's portfolio at June 30, 1999 increased by
$890,000, or 9.5%, from $9.4 million for the six months ended June 30, 1998, to
$10.2 million for the six months ended June 30, 1999. The increase for such 124
Properties was attributable to the Company's six regions as follows:


 .    20  Properties in the Mid-Atlantic Region increased $133,000, or 8.8%;
 .    22  Properties in the Midwest Region increased $113,000, or 4.4%;
 .    15  Properties in the Northeast Region decreased $69,000, or 8.5%;
 .    10  Properties in the Southeast Region decreased $14,000, or 3.5%;
 .    20  Properties in the Southwest Region increased $792,000, or 28.7%; and
 .    37  Properties in the West Region decreased $65,000, or 5.0%.


     General and Administrative and Personnel Costs, Net. General and
administrative and personnel costs increased by $531,000, or 13.7%, form $3.9
million to $4.4 million primarily due to one-time severance and travel costs and
cash bonuses paid during the second quarter of 1999. The bonuses related to
specific performance and were not included in the Company's December 31, 1998
payroll accrual.

     Interest Expense. Interest expense increased by $11.4 million, or 68.4%, to
$28.1 million from $16.7 million primarily as a result of the increase of the
debt on real estate from $420.0 million at January 1, 1998 to $883.6 million at
June 30, 1999. The increase in debt on real estate during the period resulted
primarily from the significant property transactions occurring between January
1, 1998 and June 30, 1999.

                                       17
<PAGE>

       Depreciation and Amortization. Depreciation and amortization increased by
$7.3 million, or 40.3%, to $25.5 million from $18.2 million primarily as a
result of Properties acquired or development Properties becoming operational
subsequent to January 1, 1998, offset by properties that were sold subsequent to
January 1, 1998. Depreciation and amortization for the 124 Properties that were
owned and fully operational at January 1, 1998 and remained in the Company's
portfolio at June 30, 1999 increased by $1.1 million, or 7.5%, from $14.2
million for the six months ended June 30, 1998 to $15.2 million for the six
months ended June 30, 1999. The increase for such 124 Properties was
attributable to the Company's six regions as follows:


 .    20  Properties in the Mid-Atlantic Region increased $208,000, or 6.3%;
 .    22  Properties in the Midwest Region increased $180,000, or 6.6%;
 .    15  Properties in the Northeast Region increased $166,000, or 11.4%;
 .    10  Properties in the Southeast Region decreased $69,000, or 5.5%;
 .    20  Properties in the Southwest Region increased $300,000, or 9.4%; and
 .    37  Properties in the West Region increased $282,000, or 12.7%.


       Equity in Income of Joint Ventures and Unconsolidated Subsidiary. Equity
in income of joint ventures and unconsolidated subsidiary decreased from $2.9
million for the six months ended June 30, 1998 to $2.2 million for the six
months ended June 30, 1999. The net decrease was attributable to a decrease of
$1.0 million in the Company's proportionate share of net income from the
Manager, offset by an increase of $372,000 of the Company's proportionate share
of the net income, before extraordinary items, of the Broadmoor Austin
Properties. The decrease in the income of the Manager is due to the gain on sale
recorded in connection with the Oceanside Distribution Center property in the
second quarter of 1998. Additionally, certain third-party properties were
transferred from the Manager to Prentiss Properties Trust which decreased
management fees for the Manager. Such fees are the primary reason for the
comparative period increase in consolidated management and other fees

       Gains on Sale. Gains on sale decreased by $3.5 million, to $289,000, from
$3.8 million. During the six months ended June 30, 1998, the Company sold 7
office properties containing 336,000 square feet. During the six months ended
June 30, 1999, the Company sold a 12.6 acre parcel of land in the Chicago,
Illinois area and two industrial properties, containing 288,000 square feet, in
the Los Angeles, California area. It is the Company's strategy to obtain the
maximum value from each of its Properties, which is occasionally achieved
through the sale of a property.

       Minority Interests. Minority interests increased by $3.2 million, or
147.6%, from $2.2 million for the six months ended June 30, 1998, to $5.4
million for the six months ended June 30, 1999. The increase was primarily
attributable to the quarterly and year to date dividends paid in conjunction
with the issuance by the Operating Partnership of 1,900,000 Series B Perpetual
Preferred Units (the "Series B Perpetual Preferred Units") in June 1998, offset
by the conversion in February 1998 of 2,432,541 and 113,500 Operating
Partnership units ("Units") into common shares. The increase is also
attributable to the issuance of Units in conjunction with Property acquisitions
subsequent to January 1, 1998.

       Extraordinary Items. During the six months ended June 30, 1998, the
Company had extraordinary items totaling $8.9 million, resulting from two
significant transactions during 1998, including (i) the Company's recognition of
its 50% proportionate share of Broadmoor Austin's $12.9 million, or $6.45
million, of prepayment penalties and unamortized financing during the period;
and (ii) the distribution of 113,500 Operating Partnership Units by an affiliate
of the Company to certain employees of the Company resulting in a non-cash
charge to the Company of $3.1 million. The transactions were recorded net of the
minority interest holders' proportionate share of each charge totaling $406,000
and $193,000, respectively.

Liquidity and Capital Resources

     Cash and cash equivalents were $11.8 million and $11.3 million at June 30,
1999 and June 30, 1998, respectively. The increase in cash and cash equivalents
is primarily a result of cash flows provided by operating and financing
activities exceeding those used in investing activities. Net cash provided by
operating activities was $44.0 million for the six months ended June 30, 1999
compared to $55.2 million for the six months ended June 30, 1998.

                                       18
<PAGE>

     Net cash used in investing activities decreased from $379.2 million for the
six months ended June 30, 1998 to $58.9 million for the six months ended June
30, 1999.  This decrease is due primarily to fewer acquisitions of real estate
in 1999 than 1998.

     Net cash provided by financing activities of $21.2 million for the six
months ended June 30, 1999 decreased from $328.3 million for the six months
ended June 30, 1998. This decrease is primarily attributable to proceeds from
securities offerings, mortgage loans and other indebtedness incurred to fund the
1998 acquisitions exceeding the proceeds raised from such sources in 1999.

     As of June 30, 1999, the Company had outstanding total indebtedness,
including its pro rata share of joint venture debt and construction loans of
approximately $970.0 million, or approximately 46.41% of total market
capitalization based on a common share price of $23.63 per common share. As of
August 10, 1999, the Company had the approximate capacity to borrow up to an
additional $75.1 million under its debt limitation policy. The amount of
indebtedness that the Company may incur, and the policies with respect thereto,
are not limited by the Company's declaration of trust and bylaws, and are solely
within the discretion of the Company's board of trustees. Although it is the
Company's general policy to limit combined indebtedness plus its pro rata share
of joint venture debt and construction loans so that, at the time such debt is
incurred, it does not exceed 50% of the Company's total market capitalization,
the Company views ratios such as interest coverage and fixed charge coverage as
more stable and indicative measures of its ability to meet debt obligations. For
the three months ended June 30, 1999, the Company's interest coverage (earnings
before interest, taxes and depreciation and amortization over interest expense)
and fixed charge coverage (earnings before interest, taxes and depreciation and
amortization over interest expense and perpetual preferred distributions)
totaled 3.00 and 2.68 times, respectively.

     The Company has in place a $300 million unsecured line of credit with a
group of 12 banks (the "Line of Credit").  The Line of Credit has an interest
rate on borrowings of LIBOR plus 137.5 basis points.  The Line of Credit is
unsecured and matures on January 2, 2001.  Additionally, the Company is required
to pay an average daily unused commitment fee of 20 basis points per annum if
the daily unused portion of the Line of Credit is greater than the related daily
balance outstanding.  The fee is reduced to 15 basis points per annum if the
daily unused portion is less than the daily balance outstanding. The Company
made net payments to the Line of Credit during the three months ended June 30,
1999 of $11.2 million and had an outstanding balance of $216.1 million at June
30, 1999, resulting in an available balance of $83.9 million.  As stated
previously as of June 30, 1999, borrowings exceeding the Company's debt
limitation policy are executed at the discretion of the Company's board of
trustees.

     In September 1997, the Company entered into a seven-year interest rate swap
locking in cost of funds of 6.25% (before the spread over LIBOR) on $110
million. During the three months ended June 30, 1999, the Company entered into a
four-year interest rate swap locking in cost of funds of 6.16% (before the
spread over LIBOR) on $50 million (collectively, the "Interest Rate Swaps"). The
Interest Rate Swaps consist of three separate agreements intended to manage the
relative mix of the Company's debt between fixed and variable rate instruments.
The Interest Rate Swaps modify a portion of the interest characteristics of the
Company's variable rate debt, effectively converting variable rate debt to fixed
rate debt.  The fixed rates to be paid, the effective fixed rate and the
variable rate to be received by the Company, are summarized in the following
table:

<TABLE>
<CAPTION>

                                                               Swap Rate
                        Swap Rate Paid   Effective Fixed  Receivable (Variable)
   Notional Amount           Fixed            Rate          at June 30, 1999         Swap Maturity
   ---------------           -----            ----          ----------------        --------------
<S>                        <C>            <C>               <C>                    <C>

$50 million                 6.155%          7.53%                5.236%                June 30, 2003
$50 million                 6.253%          7.628%               5.236%           September 30, 2004
$60 million                 6.248%          7.623%               5.236%           September 30, 2004

</TABLE>

     The differences to be paid or received by the Company under the terms of
the Interest Rate Swaps are accrued as interest rates change and recognized as
an adjustment to interest expense by the Company pursuant to the terms of the
three agreements and will have a corresponding effect on its future cash flows.
Agreements such as these contain a credit risk that the counterparties may be
unable to meet the terms of the agreement. The Company minimizes that risk by
evaluating the creditworthiness of its counterparties, which is limited to major
banks and financial institutions, and does not anticipate non-performance by the
counterparties.

                                       19
<PAGE>

     The following table sets forth the Company's mortgage debt as of June 30,
1999:

<TABLE>
<CAPTION>
                                 Current
                                 Balance                      Interest                                Annual
Description                      (000s)       Amortization      Rate            Maturity             Interest
-----------                      ------       ------------      ----            --------             --------
<S>                             <C>           <C>            <C>            <C>                       <C>
Line of Credit                  $216,100        None         6.87%/(11)/      January 2, 2001         $14,847
Executive Center Del Mar          13,267        None         6.74%/(12)/    December 19, 2001 /(14)/      894
Burnett Plaza /(1)/                9,400        None         7.50%           February 1, 2002             705
Bank Term Facility               100,000        None         7.63%/(13)/     October 13, 2002           7,630
Bachman West                       2,998        25 yr        8.63%           December 1, 2003             259
Northeast Portfolio Loan /(2)/    60,000        None /(7)/   6.80%          December 10, 2003           4,080
One Westchase Center              25,141        25 yr        7.84%           February 1, 2004           1,970
Crescent Centre                   12,000        None         7.95%              March 1, 2004             954
Walnut Glen Tower                 35,000        None /(8)/   6.92%              April 1, 2005           2,422
Highland Court                     4,986        25 yr        7.27%              April 1, 2006             362
Westheimer Central Plaza           6,014        25 yr        8.38%             August 1, 2006             504
Oaklands Corporate Center /(3)/    1,339        20 yr        8.65%             August 1, 2006             116
Creamery Way /(3)/                 3,767        20 yr        8.30%         September 19, 2006             313
PPREFI Portfolio Loan /(4)/      180,100        None         7.58%          February 26, 2007          13,652
Oaklands Corporate Center /(3)/    6,344        25 yr        8.55%               July 1, 2007             542
Oaklands Corporate Center /(3)/    2,674        25 yr        8.40%           November 1, 2007             225
Natomas Corporate Center          37,875        30 yr        7.02%           February 1, 2009           2,659
Corporetum Office Campus          25,914        30 yr        7.02%           February 1, 2009           1,819
7101 Wisconsin Avenue             21,466        30 yr        7.25%              April 1, 2009           1,556
2500 Cumberland Parkway           14,500        None         7.46%/(10)/        July 15, 2009           1,082
Park West C2 /(5)/                35,526        30 yr        7.36%          November 10, 2010           2,615
One O'Hare Centre /(5)/           42,068        30 yr        7.03%           January 10, 2011           2,957
Broadmoor Austin /(6)/            77,000        None /(9)/   7.04%             April 10, 2011           5,421
3130 Fairview Park Drive          23,481        30 yr        7.00%             April 11, 2011           1,644
Southpoint (III) /(3)/             7,803        20 yr        7.75%             April 14, 2014             605
Other Corporate Debt               5,213        None         7.40%                    Various             386
                                --------                    ------                                    -------
Total Financing/Weighted        $969,976                     7.23%                                    $70,219
    Average Rate                ========                    ======                                    =======
</TABLE>

     /(1)/  The Company, through the Operating Partnership, owns a 20% non-
            controlling partnership interest in the entity that owns the Burnett
            Plaza Property, which interest is accounted for using the equity
            method of accounting. The amount shown reflects the Company's
            proportionate share of the mortgage indebtedness collateralized by
            the Property.
     /(2)/  The Northeast Portfolio Loan is collateralized by the following 11
            Properties: Valleybrooke (five Properties), Lake Center (two
            Properties), certain of the Southpoint Properties (two Properties),
            and certain of the Woodland Falls Properties (two Properties).
     /(3)/  The mortgage loan is collateralized by certain of the Properties in
            the respective office Property grouping.
     /(4)/  The PPREFI Portfolio Loan is collateralized by the following 38
            Properties: certain of the Los Angeles Industrial Properties (18
            Properties), certain of the Kansas City Industrial Properties (six
            Properties), certain of the Chicago Industrial Properties (four
            Properties), Park West E1 and E2 (two Properties), One Northwestern
            Plaza, 3141 Fairview Park Drive, O'Hare Plaza II, 1717 Deerfield
            Road, 2411 Dulles Corner Road, 4401 Fair Lakes Court, the WestPoint
            Office Building and the PacifiCare Building.
     /(5)/  Includes the effect of the settlement cost of $4.3 million on the
            $49.25 million treasury lock agreement that was terminated on
            October 6, 1998. The settlement cost related to $35.75 million of
            the treasury lock is being amortized over the 12-year term of the
            Park West C2 loan, with the remaining $13.5 million amortized over
            the 12-year term of the One O'Hare Centre loan.
     /(6)/  The Company, through the Operating Partnership, owns a 50% non-
            controlling partnership interest in the entity that owns the
            Broadmoor Austin Properties, which interest is accounted for using
            the equity method of accounting. The amount shown reflects the
            Company's proportionate share of the mortgage indebtedness
            collateralized by the Properties.
     /(7)/  The loan, which was entered into in December 1997, has no principal
            amortization during the first 24 months of the loan term. Principal
            and interest are payable for the remaining loan term based on a 25-
            year amortization.
     /(8)/  The loan, which was entered into in March 1998, has no principal
            amortization during the first 24 months of the loan term. Principal
            and interest are payable for the remaining loan term based on a 30-
            year amortization.
     /(9)/  The loan, which was entered into in March 1998, has no principal
            amortization during the first 36 months of the loan term. Principal
            and interest are payable for the remaining loan term based on a
            16.25-year amortization.
     /(10)/ The loan, which was entered into in May 1999, has no principal
            amortization during the first 58 months of the loan term. Principal
            and interest are payable for the remaining loan term. All repayments
            are based on a 30-year amortization.
     /(11)/ Represents the weighted average interest rate for $10 million of the
            $60 million Interest Rate Swap at an effective rate of 7.623% and
            the $50 million Interest Rate Swap at an effective interest rate of
            7.53%. The remaining, unhedged balance of $156.1 million is assessed
            interest at a variable rate equal to LIBOR + 1.375%; on June 30,
            1999, LIBOR was equal to 5.24%.
     /(12)/ Represents a variable rate equal to LIBOR+ 1.50%; on June 30, 1999,
            LIBOR was equal to 5.24%.
     /(13)/ Represents the weighted average interest rate for the Interest Rate
            Swap of $50 million at an effective rate of 7.628% and $50 million
            of the $60 million Interest Rate Swap at an effective rate of
            7.623%.
     /(14)/ December 19, 2001 represents a maturity date based on the Company's
            anticipated execution of its option to extend the term of the loan
            one year beyond the original maturity date of December 19, 2000.


                                       20
<PAGE>

     The Company's Properties require periodic investments of capital for
tenant-related capital expenditures and for general capital improvements. For
the three months ended June 30, 1999, the Company's recurring non-incremental
revenue-generating capital expenditures totaled $5.4 million. The Company's
recurring non-incremental revenue-generating capital expenditures were
attributable to the Company's six regions as follows: (1) Mid-Atlantic-$611,000;
(2) Midwest-$196,000; (3) Northeast-$454,000; (4) Southeast-$694,000; (5)
Southwest-$578,000; and (6) West-$2,874,000.

    The Company has considered its short-term liquidity needs and the adequacy
of adjusted estimated cash flows and other expected liquidity sources to meet
these needs. The Company believes that its principal short-term liquidity needs
are to fund normal recurring expenses, debt service requirements and the minimum
distribution required to maintain the Company's REIT qualification under the
Internal Revenue Code. The Company anticipates that these needs will be fully
funded from the Company's cash flows provided by operating activities and, when
necessary, to fund shortfalls resulting from the timing of collections of
accounts receivable in the ordinary course of business, from the Line of Credit,
the leasing, development and construction business and from the Manager. The
Manager's sole sources of income are fees generated by its office and industrial
real estate management, leasing, development and construction business.

     The Company expects to meet its long-term liquidity requirements for the
funding of activities such as development, property acquisitions, scheduled debt
maturities, major renovations, expansions and other non-recurring capital
improvements through long-term secured and unsecured indebtedness and through
the issuance of additional debt and equity securities. The Company also intends
to use proceeds from the Line of Credit to fund property acquisitions,
development, redevelopment, expansions and capital improvements on an interim
basis.

     The Company expects to make distributions to its shareholders primarily
based on its distributions from the Operating Partnership. The Operating
Partnership's income will be derived primarily from lease revenues from the
Properties and, to a limited extent, from fees generated by its office and
industrial real estate management service business.

Funds from Operations

     "Funds from Operations" as defined by NAREIT, means net income, computed in
accordance with GAAP excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. The Company believes that Funds
from Operations is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flow from operating activities, financing
and investing activities, it provides investors with an indication of the
ability of the Company to incur and service debt, to make capital expenditures
and to fund other cash needs. The Company's Funds from Operations is not
comparable to Funds from Operations reported by other REITs that do not define
that term using the current NAREIT definition. The Company believes that in
order to facilitate a clear understanding of its operating results, Funds from
Operations should be examined in conjunction with net income as presented in the
audited Consolidated Financial Statements of the Company. Funds from Operations
does not represent cash generated from operating activities in accordance with
GAAP and should not be considered as an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity or ability to make distributions.

<TABLE>
<CAPTION>
(in thousands)                                                       Three Months    Three Months     Six Months      Six Months
                                                                         Ended           Ended           Ended           Ended
                                                                     June 30, 1999   June 30, 1998   June 30, 1999   June 30, 1998
                                                                     --------------  --------------  --------------  --------------
<S>                                                                  <C>             <C>             <C>             <C>
      Funds from Operations
      Net income...................................................     $16,401         $19,051         $33,656         $28,547
      Add:
        Real estate depreciation and amortization..................      13,325           9,644          25,460          18,159
        Real estate depreciation and amortization of
          unconsolidated joint ventures............................         633             559           1,165           1,132
        Minority interests/(1)/....................................       2,635             877           5,322           2,116
        Extraordinary items........................................           -               -               -           8,908
     Less:
        Gains on sale..............................................        (193)         (1,269)           (289)         (3,824)
        Dividend on perpetual preferred units......................      (1,971)           (131)         (3,943)           (131)
                                                                        -------         -------         -------         -------
     Funds from Operations.........................................     $30,830         $28,731         $61,371         $54,907
                                                                        =======         =======         =======         =======
</TABLE>

     /(1)/  Represents the minority interests applicable to the common and
            preferred Unit holders of the Operating Partnership.


                                       21
<PAGE>

     Funds from Operations increased by $2.1 million and $6.5 million for the
three and six months ended June 30, 1999 from the three and six months ended
June 30, 1998, respectively, as a result of the factors discussed in the
analysis of operating results.

Impact of the Year 2000 Issue

     The Year 2000 ("Y2K") compliance problem is the result of computer programs
designed to use two-digit rather than four digit years. Thus, the year 1999 is
represented as 99 and the year 2000 would be represented as 00. This could be
interpreted as either 1900 or 2000. Systems that have Y2K-related issues, may
perceive time to have reverted back 100 years. Systems, equipment and software
with exposure to Y2K-related problems exist not only in computerized Information
Systems but also in building operating systems such as elevators, alarm systems,
energy management systems, phone systems, and numerous other systems and
equipment. Failure to adequately identify and correct Y2K-related problems could
result in a Systems failure or malfunction with potential adverse effects
including personal injury, property damage, and disruption of operations. Any or
all of these failures could materially and adversely affect the Company's
business, financial condition, or results of operations.

     Due to the exposure and potential liabilities inherent in both the Systems
used internally by the Company and those Systems used by third parties to
conduct business with the Company, in September 1997, the Company created the
Y2K Committee (the "Y2K Committee") headed by the Vice President of Information
Systems and co-chaired by the Vice President of National Property Operations.
Due to the national presence of the Company, the Y2K Committee appointed
approximately 85 employees (the "Y2K Coordinators") designated as either Y2K
property coordinators ("Y2K Property Coordinators") or Y2K corporate office
coordinators ("Y2K Corporate Office Coordinators").  The purpose of the Y2K
Committee was to develop a plan to assess and mitigate the Company's exposure to
potential Y2K-related problems (the "Company's Y2K Plan").  In order to
implement the Company's Y2K Plan in a timely and uniform manner, during August
1998 the Y2K Committee held classes to educate the Y2K Coordinators on the steps
to be taken to implement the Company's Y2K Plan. Due to the risks associated
with inadequate assessment and remediation of the Systems, the Company engaged
various independent sources to assist in the review of the Company's Y2K Plan,
including:

 . An embedded systems specialist to focus on building Systems
 . A Big 5 Accounting firm to focus on financial Systems
 . A legal firm specializing in Y2K issues
 . Computer Sciences Corporation ("CSC") to perform an overall review

Additional Internal Review

     During April 1999 the Y2K Committee, in cooperation with the Company's
Property Managers, performed internal reviews on each of the Company's
buildings. This effort was to further assure that remediation and progress to
date is on track by reviewing for full compliance with the Company's Y2K Plan.
During the internal reviews, no significant issues were found.

General Approach

     The Company's general approach is the same whether it is for a building or
an office environment.

     The steps involved are:

     1)     Communication with clients (owners, tenants, and asset managers)
            regarding the potential for Y2K problems inherent in the Internal
            Systems.
     2)     Communication with vendors regarding the potential for Y2K problems
            inherent in their Third-Party Systems.
     3)     Inventory and prioritization of the Internal Systems.
     4)     Initial assessment of the inventoried Internal Systems.
     5)     Contingency plan for the inventoried Internal Systems.
     6)     Test inventoried Internal Systems.
     7)     Prioritize resolution of any problems discovered with inventoried
            Internal Systems. The resolution will include additional testing of
            the solutions.
     8)     Review and revise, if necessary, contingency plans for inventoried
            Internal Systems.

                                       22
<PAGE>

     9)     Review vendor responses regarding their Third-Party Systems and take
            necessary action accordingly.

     With respect to assets existing at June 30, 1999, the Company has completed
its Y2K inventory and assessment of Internal Systems and has substantially
completed the testing phase of the Y2K effort. The results of these tests
minimize the doubt as to whether or not the inventoried Internal Systems have
any Y2K issues. These findings have enabled the Company to reasonably determine
the remaining financial commitment necessary to remedy the Y2K problems for
existing Internal Systems.

     In some cases, Systems that demonstrate Y2K-related problems have
previously been scheduled for replacement or remediation as a normal course of
business irrespective of Y2K-related problems. Alternatively, certain Systems
that may have originally been scheduled for replacement after the January 1,
2000 must have their replacements accelerated due to Y2K-related problems.

Information Systems

     The Company has inventoried its Information Systems according to reasonable
man standards relative to exposure. The majority of the Company's software is
off-the-shelf with a minimum amount of proprietary code. The Company's primary
financial software is from CTI Limited, Inc., which runs on an IBM AS/400
server. Assurances from both vendors, accompanied by thorough testing, have
resulted in a minimal amount of remediation necessary on proprietary
modifications made to the software over the years. These modifications have been
completed and will be implemented upon final acceptance testing by the users.

     The Company uses a number of personal computers and networks in the course
of its operations. Employees use off-the-shelf software such as Microsoft Word,
Microsoft Excel and Lotus Notes for productivity purposes. Personal computer
hardware is tested using software distributed by the National Software Testing
Laboratory. The desktop software applications require software updates that were
to be distributed Company-wide in the second quarter of 1999. While preparing
CD's for distribution in June, the Company received word from Microsoft
regarding an upcoming update to the Microsoft Year 2000 Resource CD. As a
result, the Company deferred shipping the updates. The Company received the new
Microsoft Year 2000 Resource CD on August 1, 1999. The Company is preparing the
new CD's for shipment by August 31, 1999. Server operating systems that
demonstrated Y2K-related problems were upgraded as scheduled by June 30, 1999.

Non-Information Technology Systems

     Non-Information Technology Systems at Properties owned as of June 30, 1999
have been substantially assessed with respect to date-sensitive operating
controls in order to quantify the Y2K exposure. Assessments will continue as the
Company acquires additional properties. An evaluation of Y2K exposure has been
incorporated into the Company's normal acquisition due diligence process. The
Company's investment committee formally considers the Y2K status of each
investment during the approval process.

     The methodology for assessing and testing building Systems will vary by
equipment and is typically dictated by the building type. In 1998 the Company
used an outside embedded systems specialist firm to benchmark and review its
methodology in representative samples of each building type in the Company's
portfolio (i.e., low-rise/industrial, mid-rise office, and high-rise office).

     Although building Systems may be similar from building to building within a
given building type, implementations can vary. Therefore, testing for compliance
is necessary where possible. Testing is substantially complete for the known
building Systems on assets owned as of June 30, 1999. The Company's staff,
outside vendors, or a combination of both have performed these tests.

Third-Party Systems

     In addition to the Company's Y2K Plan with respect to Internal Systems, it
is also taking proactive steps to determine the impact on the Company of Y2K-
related issues with Third-Party Systems.

     The Company has been identifying and contacting critical suppliers, service
providers, contractors, and clients to determine the extent to which the
Company's operations could be impacted as a result of third parties' failure to
remedy their own Y2K-related problems. The Company substantially completed this
process for assets

                                       23
<PAGE>

owned as of June 30, 1999. To the extent the Y2K readiness responses of the
critical suppliers, service providers, contractors and clients are
unsatisfactory, the Company will evaluate the impact of this relationship.
Should this relationship prove materially detrimental, the Company will make
every effort to change to a critical supplier, service provider, contractor, or
client that demonstrates Y2K readiness. The Company is not currently aware of
any such situations, but the inability to locate an alternative supplier,
service provider, contractor, or client in a timely manner could materially and
adversely affect the Company's business, financial condition or results of
operations.

Estimate of Financial Impact

     The Y2K Committee has assessed and continues to assess the financial impact
of the Company's Y2K remediations on the financial statements of the Company.
The total costs associated with required modifications to become Y2K compliant
are not expected to be material to the Company's financial position. The Company
currently estimates the total Y2K readiness costs are between $500,000 and
$600,000. The costs incurred to date are consistent with the various stages of
completion of the three categories as follows:

<TABLE>
<CAPTION>
Category                             Low       High    Q4/98   Q1/99   Q2/99   Q3/99   Q4/99
                                     ---       ----    -----   -----   -----   -----   -----
<S>                                <C>       <C>       <C>     <C>     <C>     <C>     <C>
     Non-Information Technology
        Systems                    $400,000  $475,000      8%     66%     10%     16%
     Information Systems             40,000    50,000     20%     70%     10%
     Y2K Committee                   60,000    75,000     80%     10%      5%      5%
                                   --------  --------
     Total                         $500,000  $600,000
                                   ========  ========
</TABLE>

     These costs are net of the Company's personnel costs that are considered to
be part of normal operating costs. A significant portion of the Non-Information
Technology Systems costs are expected to be capitalized and recovered from
tenants through building operations, while the balance will be expensed in the
period incurred. Much of the Information Systems costs are version upgrades that
will be expensed as incurred. The Y2K Committee costs consist largely of
consulting charges that are expensed as incurred.

     The Company's readiness program is an ongoing process, and the estimates of
costs and completion dates for the various categories described above are
subject to material change.

Potential Risks of Inadequate Remediation

     Failure to correct a material Y2K problem could result in an interruption
in, or a failure of, certain normal business activities or operations that could
materially and adversely affect the Company's results of operations, liquidity,
and financial position. Much of the uncertainty lies with the ability of
critical suppliers, service providers, contractors, and clients to fully remedy
their Y2K problems. The Company's Y2K Plan should significantly reduce the
Company's level of uncertainty regarding the Y2K problem.

     The most reasonable and likely worst case scenario might be the failure of
an energy management system in a building. This could adversely affect the
environmental conditions of the occupied space, thus creating discomfort and
inconvenience to the tenants until the condition could be manually corrected.
Persistence of this problem for a long period of time could result in an
increase in operating costs for the building until the energy management system
is restored to proper operations.

     The Company is making substantial effort to eliminate the exposure to any
Y2K issues; however, no one can accurately predict how many Y2K problem-related
failures will occur or the severity, duration, or financial consequences of
these potential failures, especially with regard to Third-Party Systems. As a
result, a significant number of operational inconveniences and inefficiencies
for the Company and its clients may occur that could divert management's time,
attention, financial resources, and human resources from its ordinary business
activities; and a lesser number of serious system failures may occur that could
require significant efforts by the Company and its clients to prevent or
alleviate material business disruption.

Contingency Plans

     The Company has been developing contingency plans to be implemented as part
of its efforts to identify and correct Y2K issues. The Company has substantially
completed the contingency plans for assets owned as of June 30, 1999. These
contingency plans range from manual overrides, as described in the
aforementioned example, to

                                       24
<PAGE>

alternative processes such as building lock-downs in the event of a long-term
power failure. Fortunately, most buildings currently have contingency plans in
place for natural disasters such as earthquakes, floods, ice storms, and the
like, which provide a basis for the Y2K contingency plans. These plans may also
include short-term use of backup equipment and software, increased work hours
for Company personnel or use of contract personnel, and orderly shut-down of the
building on December 31, 1999 and January 1, 2000 in order to perform tests of
critical systems.

Disclaimer

     The Company's Y2K readiness program is an ongoing process and the estimates
of costs and completion dates for various components of the Company's Y2K
readiness program described above are subject to change. The Company's Y2K Plan
will also be applied to assets acquired or developed during 1999 and in future
years. Additionally, the Company's discussion of its Y2K readiness program
contains forward-looking statements that are based on assumptions as to future
events. There can be no guarantee as to the outcome of these future events.

Recently Issued Accounting Standards

     In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
No. 133"). FAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" ("FAS No.
137"). FAS No. 133 was originally effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. FAS No. 137 deferred the effective date of
FAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company believes that upon implementation, FAS No. 133 will not have a
material impact on the financial statements of the Company.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

     The Company's primary market risk exposure is to changes in interest rates
as a result of its line of credit and long-term debt.  At June 30, 1999, the
Company had outstanding total indebtedness, including its pro rata share of
joint venture debt and construction loans, of approximately $970.0 million, or
approximately 46.41% of total market capitalization.  The Company's interest
rate risk objective is to limit the impact of interest rate fluctuations on
earnings and cash flows and to lower its overall borrowing costs.  To achieve
this objective, the Company manages its exposure to fluctuations in market
interest rates for its borrowings through the use of fixed rate debt instruments
to the extent that reasonably favorable rates are obtainable with such
arrangements and may enter into derivative financial instruments such as
interest rate swaps, caps and treasury locks to mitigate its interest rate risk
on a related financial instrument or to effectively lock the interest rate on a
portion of its variable debt.  The Company does not enter into derivative or
interest rate transactions for speculative purposes.  Approximately 66% of the
Company's outstanding debt was subject to fixed rates with a weighted average
interest rate of 7.18% at June 30, 1999. An additional 11% of the Company's
outstanding debt at June 30, 1999 was effectively locked at an interest rate of
7.63% through an interest rate swap agreement for a notional amount of $110.0
million. Further, 5% of the Company's debt at June 30, 1999 was effectively
locked at a rate of 7.53% through an interest rate swap agreement for a notional
amount of $50.0 million. The Company regularly reviews interest rate exposure on
its outstanding borrowings in an effort to minimize the risk of interest rate
fluctuations.

     The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates, including interest
rate swaps and debt obligations.  For debt obligations outstanding at June 30,
1999, the table presents principal cash flows and related weighted average
interest rates by expected maturity dates including the Company's pro rata share
of joint venture debt totaling $86.4 million. For interest rate swaps, the table
presents notional amounts and weighted average interest rates by expected
contractual maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. Weighted average
variable rates are based on implied forward rates in the yield curve as of June
30, 1999.

                                       25
<PAGE>

<TABLE>
<CAPTION>
                                                          Expected Maturity Date
                                                               (in thousands)
                                  --------------------------------------------------------------------------------
                                                                                                             Fair
                                  1999      2000       2001       2002     2003     Thereafter    Total      Value
                                  ----      ----       ----       ----     ----     ----------    -----      -----
<S>                            <C>       <C>        <C>        <C>         <C>      <C>          <C>        <C>

        Liabilities
Long-Term Debt:
   Fixed Rate                   $1,570    $8,535    $  8,022   $ 17,869    $67,624    $536,989   $640,609   $640,609
      Average Interest Rate       7.59%     7.10%       7.10%      7.10%      7.09%       7.18%
   Variable Rate                                    $229,367   $100,000                          $329,367   $329,367
      Average Interest Rate       6.62%     6.62%       6.62%      6.61%

       Interest Rate
        Derivatives
Interest Rate Swaps:
   Variable to Fixed                                                       $50,000    $110,000   $160,000   $160,000
      Avg. Pay Rate               6.22%     6.22%       6.22%      6.22%      6.16%       6.25%
      Avg. Receive Rate           5.24%     5.24%       5.24%      5.24%      5.24%       5.24%
</TABLE>

     The table incorporates only those exposures that exist as of June 30, 1999
and does not consider exposures or positions which could arise after that date.
In addition, because firm commitments are not represented in the table above,
the information presented therein has limited predictive value. As a result, the
Company's ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during the future period,
prevailing interest rates, and the Company's hedging strategies at that time.
There is inherent rollover risk for borrowings as they mature and are renewed at
current market rates. The extent of this risk is not quantifiable or predictable
because of the variability of future interest rates and the Company's financing
requirements.

                                    PART II
                               OTHER INFORMATION

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

     On May 4, 1999, the Company held its Annual Meeting of Shareholders.

     At the meeting, three Class III Trustees, Thomas J. Hynes, Jr., Barry J.C.
Parker, and Michael V. Prentiss were elected to serve as Trustees until the 2002
Annual Meeting of the Shareholders, and until each respective successor is duly
elected and qualified. Thomas F. August, Dr. Leonard M. Riggs, Jr., Ronald G.
Steinhart, and Lawrence A. Wilson, the remaining trustees, have terms that
continued after the Annual Meeting and did not, therefore, stand for election at
the 1999 Annual Meeting of Shareholders.

     The votes cast for the Trustees were:

     Thomas J. Hynes, Jr.
          Votes for:         31,541,762
          Votes withheld:       193,962

     Barry J.C. Parker
          Votes for:         31,541,962
          Votes withheld:       193,762

     Michael V. Prentiss
          Votes for:         31,515,862
          Votes withheld:       219,862

     In addition, the Shareholders approved an amendment to the Company's
Trustees' Share Incentive Plan (the "Trustees Plan") to fix the maximum number
of Common Shares issuable under the Trustees Plan at 200,000 with 27,321,957
shares voting in favor, 4,347,616 shares voting against and 66,151 shares
abstaining.

                                       26
<PAGE>

Item 5.   Other Information

          Not applicable.

Item 6.   Exhibits and Reports on Form 8-K

(a)       Exhibits

          EXHIBIT NO.  DESCRIPTION
          -----------  -----------

              3.1      -- Form of Amended and Restated Declaration of Trust of
                       the Registrant (filed as Exhibit 3.1 to the Company's
                       Registration Statement on Amendment No. 1 of Form S-11,
                       File No. 333-09863, and incorporated by reference
                       herein).
              3.2      -- Bylaws of the Registrant (filed as Exhibit 3.2 to the
                       Company's Registration Statement on Amendment No. 1 of
                       Form S-11, File No. 333-09863, and incorporated by
                       reference herein).
              3.3      -- Articles Supplementary, dated December 18, 1997,
                       Classifying and Designating a Series of Preferred Shares
                       of Beneficial Interest as Series A Cumulative Convertible
                       Redeemable Preferred Shares of Beneficial Interest and
                       Fixing Distribution and Other Preferences and Rights of
                       Such Shares (filed as Exhibit 3.1 to the Company's
                       Current Report on Form 8-K, filed January 15, 1998, File
                       No. 001-14516).
              3.4      -- Articles Supplementary, dated February 17, 1998,
                       Classifying and Designating a Series of Preferred Shares
                       of Beneficial Interest as Junior Participating Cumulative
                       Convertible Redeemable Preferred Shares of Beneficial
                       Interest, Series B, and Fixing Distribution and Other
                       Preferences and Rights of Such Shares (filed as an
                       Exhibit to the Company's Registration Statement on Form
                       8-A filed on February 17, 1998, File No. 000-23813).
              3.5      -- Articles Supplementary, dated June 25, 1998,
                       Classifying and Designating a Series of Preferred Shares
                       of Beneficial Interest as Series B Cumulative Redeemable
                       Perpetual Preferred Shares of Beneficial Interest and
                       Fixing Distribution and Other Preferences and Rights of
                       Such Shares (filed as an exhibit to the Company's Form
                       10-Q filed on August 12, 1998, File No. 001-14516).
              4.1      -- Form of Common Share Certificate (filed as Exhibit 4.1
                       to the Company's Registration Statement on Amendment No.
                       1 of Form S-11, File No. 333-09863, and incorporated by
                       reference herein).
              4.2      -- Rights Agreement, dated February 6, 1998, between the
                       Company and First Chicago Trust Company of New York, as
                       Rights Agent (filed as an Exhibit 4.1 to the Company's
                       Registration Statement on Form 8-A filed on February 17,
                       1998, File No. 000-23813).
              4.3      -- Form of Rights Certificate (included as Exhibit A to
                       the Rights Agreement (Exhibit 4.2)).
              4.4      -- Form of Series A Preferred Share Certificate (filed as
                       Exhibit 4.2 to the Company's Registration Statement on
                       Form S-3, filed on October 16, 1998, File No. 333-65793).
             27.1*     -- Financial Data Schedule.
             -----     ---------------------------

          * Filed herewith.

(b)       Reports on Form 8-K

               On April 1, 1999, the Company filed with the SEC Amendment No. 3,
          which amends the Current Report of Form 8-K filed with the SEC on
          October 9, 1998 and amended by Amendments No. 1 and No. 2

                                       27
<PAGE>

          filed with the SEC on December 24, 1998 and January 25, 1999,
          respectively. The Current Report relates to the acquisition of a
          single Class A suburban office Property in the Oakland, California
          area (the "Ordway Property") and two Class A office Properties in the
          suburban Washington, D.C. area (the "Willow Oaks Properties"). Such
          report also contains updated Risk Factors of the Company.

               On April 1, 1999, the Company filed with the SEC Amendment No. 1
          which amends the Current Report of Form 8-K filed with the SEC on
          February 16, 1999. The Current Report relates to the acquisition in
          1998 of a single Class A office Property in the Chicago, Illinois area
          (the "One O'Hare Centre Property") and seven Class A office Properties
          in the Houston, Texas area (the "Fidinam Office Portfolio"). Such
          report also included information with respect to the acquisitions
          during 1997 of four Class A office Properties in the suburban
          Washington, D.C. area (the "Calverton Office Park Properties" and the
          "7101 Wisconsin Avenue Property").

                                       28
<PAGE>

                                   SIGNATURE
                                   ---------


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                              PRENTISS PROPERTIES TRUST



Date:  August 12, 1999        By:        /s/ Thomas P. Simon
                                 ----------------------------------------
                                 Thomas P. Simon
                                 Senior Vice President and Chief Accounting
                                 Officer (Principal Accounting Officer and Duly
                                 Authorized Officer of the Company)

                                       29