<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                               -----------------

                                   FORM 10-K

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

                  For the fiscal year ended December 31, 1998

                          Commission File No. 0-17808

                       NEW ENGLAND PENSION PROPERTIES V;
                       A REAL ESTATE LIMITED PARTNERSHIP

            (Exact name of registrant as specified in its charter)

        Massachusetts                                        04-2940131    
(State or other jurisdiction of                           (I.R.S. Employer 
incorporation or organization)                           Identification No) 


    225 Franklin Street, 25th FL.
      Boston, Massachusetts                                      02110     
(Address of principal executive offices)                       (Zip Code)      

              Registrant's telephone number, including area code:
                                (617) 261-9000

          Securities registered pursuant to Section 12(b) of the Act:
                                     None

          Securities registered pursuant to Section 12(g) of the Act:
                     Units of Limited Partnership Interest

                               (Title of Class)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                                     Yes  X            No 
                                                         ----              ----
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

         No voting stock is held by nonaffiliates of the Registrant.


                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------
 
                                      None
<PAGE>
 
                                     PART I


 Item 1.  Business.

         New England Pension Properties V; A Real Estate Limited Partnership
 (the "Partnership") was organized under the Uniform Limited Partnership Act of
 the Commonwealth of Massachusetts on October 23, 1986, to invest primarily in
 to-be-developed, newly-constructed and existing income-producing real
 properties.

         The Partnership was initially capitalized with contributions of $2,000
 in the aggregate from Fifth Copley Corp. (the "Managing General Partner") and
 ECOP Associates Limited Partnership (the "Associate General Partner")
 (collectively, the "General Partners") and $10,000 from Copley Real Estate
 Advisors, Inc. (the "Initial Limited Partner"). The Partnership filed a
 Registration Statement on Form S-11 (the "Registration Statement") with the
 Securities and Exchange Commission on November 12, 1986, with respect to a
 public offering of 60,000 units of limited partnership interest at a purchase
 price of $1,000 per unit (the "Units") with an option to sell up to an
 additional 60,000 Units (an aggregate of $120,000,000). The Registration
 Statement was declared effective on January 9, 1987.

         The first sale of Units occurred on July 23, 1987, at which time the
 Initial Limited Partner withdrew its contribution from the Partnership.
 Investors were admitted to the Partnership thereafter at monthly closings; the
 offering terminated and the last group of subscription agreements was accepted
 by the Partnership on December 31, 1987. As of January 31, 1988, a total of
 83,291 Units had been sold, a total of 12,900 investors had been admitted as
 limited partners (the "Limited Partners") and a total of $82,761,530 had been
 contributed to the capital of the Partnership. The remaining 36,709 Units were
 de-registered on March 17, 1988.

         The Partnership makes available 2% of Cash Flow, as defined in the
 Partnership's Amended and Restated Agreement of Limited Partnership dated July
 23, 1987, for the purpose of repurchasing Units. See Note 1 of the Financial
 Statements in Item 8 hereof.

         At December 31, 1998, the Partnership owned the five real property
 investments described in A., B., D., E., and F. below. Two investments were
 sold in 1994 and two investments were sold in 1997 (see C. & G. below). Sales
 proceeds were distributed in the amount of $48 per Unit in 1994, $28 per Unit
 in 1995, and $308 per Unit in 1997, after the Partnership made certain
 strategic decisions on projects yet to be developed. The Partnership has no
 current plan to renovate, improve or further develop any of its real property.
 In the opinion of the Managing General Partner, the properties are adequately
 covered by insurance.

         The Partnership has no employees. Services are performed for the
 Partnership by the Managing General Partner and affiliates of the Managing
 General Partner.

        A.     Land in Germantown, Maryland ("Waters Landing II").
               --------------------------------------------------

         On May 26, 1987, the Partnership acquired a 60% interest in a joint
 venture with Waters Landing Two - Oxford Limited Partnership ("Oxford"). As of
 April 1, 1996, the Partnership had contributed $1,403,112 to the capital of the
 joint venture out of a maximum commitment of $4,682,400. The joint venture
 agreement entitles the Partnership to receive a monthly preferred return on its
 invested capital at the rate of 10.5% per annum. Prior to December 1, 1994,
 such monthly preferred return was permitted to accrue to the extent that the
 joint venture did not have sufficient cash to pay it. The joint venture
 agreement also entitles the Partnership to receive 60% of all remaining cash
 flow from operations and 60% of net sale and refinancing proceeds following the
 return of the Partnership's equity. The Partnership also committed to make a
 loan of up to $3,121,600 to Oxford for investment in the venture of which
 $935,408 had been funded as of April 1, 1996. Interest only on the loan was
 payable monthly at the rate of 10.5% per annum. The loan was due upon the sale
 of the joint venture's assets or the sale of Oxford's interest in the joint
 venture. Oxford was required to apply any cash flow received from operations of
 the joint venture to interest payments on the loan and to apply proceeds of
 financings or sales received from the joint venture to payments of the interest
 on and principal of the loan. The loan
<PAGE>
 
was secured by Oxford's interest in the joint venture. Effective April 1, 1996,
Oxford's ownership interest was transferred and assigned to the Partnership and
an affiliate.

         The joint venture owns approximately 8.5 acres of land in Germantown,
Maryland and originally intended to construct a 144-unit apartment complex
thereon. Development had been postponed due to the excess supply of apartment
units in the Germantown area. During 1995, after receiving a number of
feasibility studies of alternative development proposals for the site, the
Managing General Partner determined development would not yield a sufficient
return to justify the investment risk. In early November, 1998, a Purchase and
Sale Agreement was executed by the Partnership to sell the Waters Landing II
investment. Although there can be no assurance that this sale will occur, it is
expected to be concluded during the second quarter of 1999.

         B.     Warehouse Building in Fontana, California ("Dahlia").
                ----------------------------------------------------

         On September 21, 1987, the Partnership acquired a 60% interest in a
joint venture formed with an affiliate of Investment Building Group. As of
December 31, 1998, the Partnership had contributed $7,081,593 to the capital of
the joint venture out of a maximum commitment of $7,250,000. The joint venture
agreement entitles the Partnership to receive a monthly preferred return on its
invested capital at the rate of 10% per annum. The joint venture agreement also
entitles the Partnership to receive 60% of the remaining cash flow and 60% of
sale and refinancing proceeds following the return of the Partnership's equity.
On September 1, 1995, the joint venture was converted into a limited partnership
with the Partnership as the general partner and the affiliate of Investment
Building Group as the limited partner.

         The limited partnership owns approximately 12.9 acres of land in
Fontana, California and has completed construction thereon of a one-story
warehouse building containing approximately 278,220 square feet of space. As of
December 31, 1998, the building was 100% leased.

         C.     Office/Warehouse Buildings in Phoenix, Arizona 
                -----------------------------------------------  
                ("University Business Park").
                ----------------------------

         On September 30, 1987, the Partnership acquired a 60% interest in a
joint venture formed with an affiliate of The Hewson Company. The Partnership
contributed $7,976,784 to the capital of the joint venture out of a maximum
commitment of $9,450,000. The joint venture agreement entitled the Partnership
to receive a monthly preferred return on its invested capital at the rate of 10%
per annum. The joint venture agreement also entitled the Partnership to receive
60% of the remaining cash flow and 60% of sale and refinancing proceeds
following return of the Partnership's equity. Effective January 1, 1996, the
joint venture was dissolved and ownership of the joint venture assets consisting
of approximately 8.5 acres of land in Phoenix, Arizona improved with five
warehouse buildings containing approximately 109,930 square feet of space, was
assigned to the Partnership.

         On May 28, 1997, the property was sold at which time the Partnership
received net proceeds of $7,994,130. On June 30, 1997, the Partnership made a
capital distribution of $7,579,696 ($92 per limited partnership Unit) from sale
proceeds.

         D.     Office/Research and Development Buildings in Columbia, 
                ------------------------------------------------------  
                Maryland ("Columbia Gateway Corporate Park").
                --------------------------------------------

         On December 21, 1987, the Partnership acquired a 33% interest in
a joint venture formed with New England Life Pension Properties IV; A Real
Estate Limited Partnership, an affiliate of the Partnership (the "Affiliate"),
which had a 17% interest, and M.O.R. Gateway 51 Associates Limited
Partnership.

         As of April 20, 1989, the joint venture agreement was amended and
restated to reflect a decrease in the Partnership's interest in the joint
venture to 15.25% and an increase in the Affiliate's interest in the joint
venture to 34.75%. In addition, the amended and restated joint venture
agreement increased the Affiliate's maximum obligation to contribute capital
to the joint venture and reallocated the capital contributed to the joint
venture by the Partnership and the Affiliate. As of December 31, 1998, the
Partnership had contributed $6,181,690 to the capital of the joint venture out
of a maximum commitment of $6,402,000.
<PAGE>
 
         The joint venture agreement entitles the Partnership and the Affiliate
to receive a preferred return on their respective invested capital at the rate
of 10.5% per annum. Such preferred return will be payable currently until the
Partnership and the Affiliate have received an aggregate of $8,865,000;
thereafter, if sufficient cash flow is not available therefor, the preferred
return will accrue and bear interest at the rate of 10.5% per annum, compounded
monthly. The joint venture agreement also entitles the Partnership to receive
15.25% of cash flow following payment of the preferred return and 15.25% of the
net proceeds of sales and refinancings following return of the Partnership's and
the Affiliate's equity. Ownership of the joint venture has been restructured
whereby the Partnership and the Affiliate obtained full control over the
business of the joint venture effective January 1, 1998.

         The joint venture owns approximately 20.85 acres of land in the
Columbia Gateway Corporate Park in Columbia, Maryland. The intended development
plan for this land was for a two-stage development of seven office and research
and development buildings. The first phase of this development was completed in
1992 and included the construction of four, one-story office and research and
development buildings containing 142,545 square feet. The second phase of this
development commenced in the spring of 1994 in which a 46,000 square-foot
building was constructed and leased to a single tenant for a lease term of ten
years. As of December 31, 1998 the property was 100% leased.

         E.     Industrial Building in Brea, California ("Puente Street").
                --------------------------------------------------------

         On April 28, 1988, the Partnership acquired a 60% interest in a joint
venture formed with an affiliate of The Muller Company. In April, 1990, the
Partnership increased its commitment to the joint venture by $625,000 to
$13,725,000 of which $13,475,000 had been contributed as of June 1, 1991. The
joint venture agreement entitled the Partnership to receive a monthly preferred
return on its invested capital at the rate of 10.5% per annum. The joint venture
agreement also entitled the Partnership to receive 60% of the remaining cash
flow and 60% of sale and refinancing proceeds following the return of the
Partnership's equity. As of June 1, 1991, because of the developer partner's
inability to fund its share of capital contributions, the Partnership assumed
100% ownership of the joint venture's assets.

         The Partnership owns approximately 16.75 acres of land in Brea,
California and has completed renovation of an existing building thereon
containing 181,200 square feet. Construction of an approximately 37,320 square
foot addition was completed during the first quarter of 1989. During the last
quarter of 1998, a 53,000 square-foot build-to-suit facility was completed on
Partnership land. A 10-year lease for this facility commenced in November 1998.
As of December 31, 1998, the other existing building was also 100% leased to two
tenants.

         On December 8, 1995, the Partnership was named as a defendant in a
complaint filed in the Superior Court of the State of California for the County
of Orange by an existing tenant, Bridgeport Management Services, Inc. alleging
breach of lease. On January 17, 1996, the Partnership filed an answer denying
the allegations presented by the plaintiff. A settlement was reached with
Bridgeport Management, resulting in its agreement to transfer its leasehold
interest to 20th Century Plastics, the other tenant, no later than February 1,
1998. Bridgeport Management then sub-leased the space from 20th Century Plastics
until June 1, 1998, at which time it vacated the premises.

         F.     Shopping Center in Salinas, California ("Santa Rita
                ---------------------------------------------------  
                Plaza").
                -------

         On February 1, 1989, the Partnership acquired a 60% interest in a joint
venture formed with Rodde McNellis/Salinas. On July 20, 1990, the Partnership
committed to increase its maximum contribution from $9,500,000 to $11,350,000,
of which $6,500,000 is characterized as Senior Capital and $4,850,000 is
characterized as Junior Capital. As of December 31, 1998, the Partnership had
contributed $11,211,380 to the capital of the joint venture. The joint venture
agreement entitles the Partnership to receive a monthly preferred return on its
Senior Capital at the rate of 10.5% per annum during months 1-24 of the joint
venture's operations and a monthly preferred return to reduce its outstanding
Senior Capital, together with a return at the rate of 10.5% per annum, based on
a 27-year amortization schedule, during months 25-120 of the joint venture's
operations. The entire outstanding Senior Capital is due and payable ten years
after the date of the Partnership's first investment of Senior Capital. The
joint venture agreement also entitles the Partnership to receive a priority
return payment on its Junior Capital at the rate of 10.5% per annum. Such junior
priority return payment will accrue and bear interest at the rate of 10.5% per
annum, if sufficient cash is not available therefor. At such time as
<PAGE>
 
the aggregate of accrued junior priority return payments total $1,000,000, all
junior priority return payments and the return on the accrued junior priority
return payments will thereafter be paid currently; provided, however, that the
$1,000,000 threshold will be increased by each dollar of Junior Capital which
the Partnership elects not to contribute to fund its return. The Junior Capital
will be due and payable after the fifteenth year of the joint venture's
operations. On August 1, 1995 the joint venture was converted into a California
limited partnership with the Partnership as the general partner with a 63%
ownership interest and an affiliate of Rodde/McNellis Salinas as the limited
partner with a 37% interest. The joint venture agreement also entitles the
Partnership to receive 63% of cash flow remaining after payment of the preferred
return and 63% of sale and refinancing proceeds following the return of the
Partnership's equity.

         The limited partnership has a leasehold interest in approximately 10.56
acres of land in Salinas, California (the "Land") and has completed construction
thereon of five one-story retail buildings containing a total of approximately
125,247 square feet. The ground lease has a term of 75 years with two options to
extend, for ten years each. Under the ground lease, fixed rent of $390,000 per
annum is payable. A percentage rent equal to 11.55% of rents in excess of
$1,400,000 received by the ground lessee from subtenants, excluding expense
reimbursements, is also payable. As of December 31, 1998, the buildings were 98%
leased.

         On August 1, 1995 the Partnership made a $1,750,000 loan to Nielsen
Properties, Ltd., which is the ground lessor, for a term of 15 years. The loan
earns interest at the rate of 8.75% per annum and the Partnership can require
full payment of the note on or after August 1, 2000. The note is secured by a
deed of trust on the Land. In conjunction with this loan, Nielsen Properties,
Ltd. repaid the limited partnership $1,299,052, representing full payment of two
outstanding notes receivable.

         G.     Office/Retail/Industrial Buildings in Las Vegas, Nevada
                -------------------------------------------------------  
                ("Palms Business Center III and IV").
                ------------------------------------
  
         On March 7, 1988, the Partnership acquired a 60% interest in a joint
venture formed with an affiliate of B.H. Miller Companies. As of January 1,
1995, the Partnership had contributed $11,589,888 to the capital of the joint
venture out of a maximum commitment of $11,700,000. The joint venture agreement
entitled the Partnership to receive a monthly preferred return at the rate of
11% per annum on the daily balance of its invested capital during each month, of
which 9.5% per annum was to be paid currently and up to 1.5% per annum was to be
deferred if sufficient cash was not available therefor. All invested capital,
monthly payments of preferred return and deferred monthly payments of preferred
return were due and payable at the end of the tenth year of the joint venture's
operations. The joint venture agreement also entitled the Partnership to receive
60% of net cash flow and 60% of sale and refinancing proceeds following the
return of the Partnership's equity capital. Effective January 1, 1995, the joint
venture partner's ownership interest was transferred and assigned to the
Partnership.

         The Partnership owned approximately 11.75 acres of land in Las Vegas,
Nevada improved with twelve single-story office/industrial buildings and one
single-story retail building containing a total of approximately 173,574 square
feet.

         On October 24, 1997, the Partnership sold the Palms Business Center
property for $18,000,000. The Partnership received net proceeds of $17,823,259.
On November 25, 1997, the Partnership made a capital distribution of $17,784,576
($216 per limited partnership Unit) from the sale proceeds.
<PAGE>
 
Item 2. Properties
        ----------
    
        The following table sets forth the annual realty taxes for the
Partnership's properties and information regarding tenants who occupy 10% or
more of gross leasable area (GLA) in the Partnership's properties.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                       Estimated   Number of                                           
                         1998       Tenants                                  Annual                                                
                        Annual       with                    Square Feet    Contract                                               
                        Realty    10% or More   Name(s) of      of Each       Rent         Lease      Renewal    Line of Business  
  Property               Taxes      of GLA      Tenant(s)       Tenant     Per Square    Expiration   Options  of Principal Tenants 
                                                                             Foot
-----------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>       <C>          <C>           <C>           <C>            <C>          <C>      <C>       
Office/R&D Bldgs in 
 Columbia, MD           $211,966     4         Wiltel              27,480     $13.19      12/2007    Two for   Telecommunications
                                                                                                      5 Years
                                               Columbia                                                                         
                                               National            45,951      $11.07      8/2004    Two for   Home Mortgages   
                                               EVI, Inc.           38,225      $12.01      2/2006     5 Years  Environmental/Testing
                                                                                                     One for
                                                                                                      5 Years

                                               Avnet               21,991      $ 9.97     10/1999    One for   Telecommunications
                                                                                                      5 Years
Land in Germantown, MD  $ 18,191    N/A        N/A                   N/A         N/A       N/A         N/A     N/A
Warehouse Bldg. in 
 Fontana, CA            $ 84,960     3         M.W. Kasch         157,460      $ 3.54      5/2003    One for   Distribution
                                                                                                      5 Years
                                               Controlled
                                                Warehouse          35,000      $ 3.78     10/2001      None   Distribution          

                                               General Garden 
                                                and Pet            86,100      $ 3.05      6/2004    One for 
                                                                                                      5 Years  Distribution
Industrial Bldg. in 
 Brea, CA                                      20th Century 
                                                 Plastics (two           
                        $117,540     2           leases)           218,520     $ 3.73     4/1999 and Two for   Plastics Manuf./ 
                                                                                           3/2004     5 Years   Assembler       
                                               Nature's Best        52,750     $ 5.04     12/2008    Two for   Health Food
                                                                                                      5 Years    Distributor
Shopping Ctr in 
 Salinas, CA            $137,569     2         Food Maxx            51,008     $ 7.30      8/2010    Three for Supermarket 
                                                                                                      5 Years  
                                               Ross Dress for 
                                                Less                17,068     $11.03      1/2001    Three for Apparel Retailer 
                                                                                                      5 Years  
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
 
         The following table sets forth for each of the last five years the
gross leasable area, occupancy rates, rental revenue, and net effective rent for
the Partnership's properties:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
               Property                  Gross Leasable   Year-End      Rental     Net Effective
                                              Area        Occupancy    Revenue         Rent
                                                                      Recognized    ($/sf/yr)*
--------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>         <C>          <C>    
Office/ R&D Buildings in Columbia, MD
                 1994                       188,649          92%     $1,496,175       $ 9.61
                 1995                       188,649          92%     $1,870,329       $10.78
                 1996                       188,649          94%     $1,959,621       $11.23
                 1997                       188,649          98%     $1,953,724       $10.70
                 1998                       188,649         100%     $2,328,501       $12.34

Land in Germantown, MD
                 1994                         N/A            N/A           N/A          N/A
                 1995                         N/A            N/A           N/A          N/A
                 1996                         N/A            N/A           N/A          N/A
                 1997                         N/A            N/A           N/A          N/A
                 1998                         N/A            N/A           N/A          N/A

Warehouse Building in Fontana, CA
                 1994                       278,220         100%      $990,796        $ 3.77
                 1995                       278,220         100%     $1,001,121       $ 3.60
                 1996                       278,220         100%     $1,019,558       $ 3.66
                 1997                       278,220         100%     $1,012,957       $ 3.66
                 1998                       278,220         100%     $1,196,456       $ 4.30

Industrial Building in Brea, CA          
                 1994                       218,520         100%       $882,870       $ 4.75
                 1995                       218,520         100%       $949,389       $ 4.34
                 1996                       218,520         100%       $930,938       $ 4.26
                 1997                       218,520         100%       $946,719       $ 4.33
                 1998**                     271,520         100%      $1,211,235      $ 4.46

Shopping Center in Salinas, CA
                 1994                       125,247          90%      $1,874,676      $16.45
                 1995                       125,247          91%      $1,657,425      $14.31
                 1996                       125,247          98%      $1,718,737      $14.56
                 1997                       125,247          95%      $1,759,594      $14.60
                 1998                       125,247          98%      $1,818,936      $14.97

--------------------------------------------------------------------------------------------------
</TABLE>

Note: N/A for commercial properties indicates property was not constructed as of
this date.

*  Net Effective Rent calculation is based on average occupancy during the
respective years.

**  Rental revenue from the new building is annualized.
<PAGE>
 
         Following is a schedule of lease expirations for each of the next ten
years for the Partnership's properties based on the annual contract rent in
effect at December 31, 1998:

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------- 
                                            TENANT AGING REPORT
-------------------------------------------------------------------------------------------------- 

   Property                               # of Lease      Total          Total      Percentage of  
                                         Expirations   Square Feet  Annual Contract  Gross Annual 
                                                                         Rent          Rental*     
------------------------------------------------------------------------------------------------- 
<S>                                      <C>           <C>          <C>             <C>     

Office/R&D Buildings in Columbia, MD                                                   
     1999                                   2            32,570        $387,685          15%         
     2000                                   1            14,825        $180,611           8%  
     2001                                   0                 0              $0           0%  
     2002                                   2            14,787        $214,003          10%  
     2003                                   0                 0              $0           0%  
     2004                                   2            60,932        $711,192          31%  
     2005                                   0                 0              $0           0%  
     2006                                   1            38,225        $459,023          20%  
     2007                                   1            27,480        $362,598          16%  
     2008                                   0                 0              $0           0%  
                                                                  
Land in Germantown, MD                                            
     1999                                 N/A               N/A             N/A          N/A  
     2000                                 N/A               N/A             N/A          N/A  
     2001                                 N/A               N/A             N/A          N/A  
     2002                                 N/A               N/A             N/A          N/A  
     2003                                 N/A               N/A             N/A          N/A  
     2004                                 N/A               N/A             N/A          N/A  
     2005                                 N/A               N/A             N/A          N/A  
     2006                                 N/A               N/A             N/A          N/A  
     2007                                 N/A               N/A             N/A          N/A  
     2008                                 N/A               N/A             N/A          N/A  
                                                                  
Warehouse Building in Fontana, CA                                 
     1999                                   0                 0              $0           0% 
     2000                                   0                 0              $0           0%
     2001                                   1            35,000        $132,300          13%
     2002                                   0                 0              $0           0%
     2003                                   1           157,460        $610,236          59%
     2004                                   1            86,100        $291,600          28%
     2005                                   0                 0               0           0%
     2006                                   0                 0              $0           0%
     2007                                   0                 0              $0           0%
     2008                                   0                 0              $0           0% 
------------------------------------------------------------------------------------------------- 
</TABLE> 
<PAGE>
 
<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------- 
<S>                                      <C>           <C>          <C>             <C>     
Industrial Building in Brea, CA
     1999                                   1           65,944         $245,316          22% 
     2000                                   0                0               $0          0% 
     2001                                   0                0               $0          0% 
     2002                                   0                0               $0          0% 
     2003                                   0                0               $0          0% 
     2004                                   1          152,576         $570,984          53%
     2005                                   0                0               $0          0% 
     2006                                   0                0               $0          0% 
     2007                                   0                0               $0          0% 
     2008                                   1           52,750         $267,120          25% 
                                                                     
Shopping Center in Salinas, CA                                       
     1999                                   4            5,150          $80,301          5% 
     2000                                   7           18,513         $440,140          27%
     2001                                   8           35,148         $565,283          34%
     2002                                   0                0               $0          0%
     2003                                   2            4,322          $78,792          5%
     2004                                   0                0               $0          0%
     2005                                   0                0               $0          0%
     2006                                   0                0               $0          0%
     2007                                   0                0               $0          0%
     2008                                   0                0               $0          0% 
------------------------------------------------------------------------------------------------- 
</TABLE>

*  Does not include expenses paid by tenants.
Note: N/A denotes that the disclosure is not applicable
based on the nature of the property.
<PAGE>
 
         The following table sets forth for each of the Partnership's properties
the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of
depreciation, (iv) life claimed, and (v) accumulated depreciation, with respect
to each property or component thereof for purposes of depreciation:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------

                                                                 Rate of                           Life       Accumulated
         Entity / Property                 Tax Basis          Depreciation          Method       in years    Depreciation

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

Office/Research and Development
Buildings,
Columbia, MD
-------------------------------------
Land Improvements                           $    94,022             N/A           150% DB            15        $   40,586
Land Improvements                             3,955,863            2.56%               SL            39           147,059
Building  & Improvements                      7,829,962            3.18%               SL          31.5         2,152,425
                                            -----------                                                        ----------  
Total Depreciable Assets                     11,879,847                                                         2,340,070
                                                                                               
Warehouse Building, Fontana, CA                                                                
-------------------------------------                                                          
Building & Improvements                       5,333,698            2.50%               SL            40         1,109,294
                                            -----------                                                        ----------  
Total Depreciable Assets                      5,333,698                                                         1,109,294
                                                                                               
Industrial Building, Brea, CA                                                                  
-------------------------------------                                                          
Building & Improvements                       7,976,123            3.18%               SL          31.5         2,567,957
Building Improvements                         2,695,217            2.56%               SL            39           107,868
                                            -----------                                                        ----------  
Total Depreciable Assets                     10,671,340                                                         2,675,825
                                                                                               
Land, Germantown, MD                                                                           
-------------------------------------                                                          
No Depreciable Property                              0             0.00%                                               0
                                                     --                                                                -
Total Depreciable Assets                              0                                                                 0
                                                                                               
                                                                                               
Shopping Center, Salinas, CA                                                                   
-------------------------------------                                                          
Building  & Improvements                        305,868             2.5%               SL            40            20,168
Building  & Improvements                      9,157,310            3.18%               SL          31.5         2,263,222
                                            -----------                                                        ----------  
Total Depreciable Assets                      9,463,178                                                         2,283,390
                                                                                               
Total Depreciable Assets                    $37,348,063                                                        $8,408,579
                                            -----------                                                        ----------  

-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

SL=  Straight Line
DB=  Declining Balance
<PAGE>
 
         Following is information regarding the competitive market conditions
for each of the Partnership's properties. This information has been gathered
from sources deemed reliable. However, the Partnership has not independently
verified the information and, as such, cannot guarantee its accuracy or
completeness.

Industrial Buildings in Brea, California
----------------------------------------

The property is located within the North Orange County industrial market. The
North Orange County market, which represents 43% of the Orange County market,
includes 2,492 industrial buildings totaling approximately 104 million square
feet. New industrial supply in the Orange County market totaled approximately
3.9 million square feet, up from 3.7 million square feet at year-end 1997.
Demand for industrial space increased approximately 2.7% during 1998, compared
to a 6.7% increase in 1997. Year-end 1998 industrial vacancy increased to 7.2%
from 6.5% at year-end 1997. Brea continues to be a desirable industrial location
due to its close proximity to Los Angeles County and the central portion of
Orange County.

Shopping Center in Salinas, California
--------------------------------------

The city of Salinas has a population of approximately 120,000 people. Due to the
fact that most of the city's growth is occurring in north Salinas, the north end
of the city is the focus of most major retailers. Santa Rita Plaza is in the
heart of the Salinas retail core, however, it must compete for tenants with
power centers such as the Northridge Mall (1.2 million square feet), the Harden
Ranch Plaza (680,000 square feet) and the recently constructed Westridge Center
(652,000 square feet).

Office/Research and Development Buildings in Columbia, Maryland
---------------------------------------------------------------

The property is located within the Howard County R&D submarket. Employment in
Howard County increased approximately 6.9% over 1997. Due to the limited
availability of space in the marketplace, tenants are moving from Washington, DC
to the Baltimore suburbs in search of space that will accommodate their future
growth needs. The Columbia flex submarket contains approximately seven million
square feet of space and had 4.9% vacancy at year-end 1998. Approximately
110,000 square feet of new R&D product came on the Columbia market during the
year. Rents for the Columbia flex market ranged between $9.50 and $11.00 per
square foot during 1998.

Warehouse Building in Fontana, California
-----------------------------------------

The property is located within the Inland Empire metropolitan industrial market,
which consists of approximately 21.8 million square feet of space. Riverside's
economy continues to expand, as part of the area's strength has been derived
from population migration out of Los Angeles and Orange Counties. During 1998,
employment expanded approximately 4%, and for the first time since 1990 the
jobless rate dipped below 6%. Year-end 1998 industrial vacancy was 7.8%, a
slight increase from 7.5% at year-end 1997.

Item 3.  Legal Proceedings.
         -----------------

         The Partnership is not a party to, nor are any of its properties
subject to, any material pending legal proceedings.

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

         No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this Annual Report on Form
10-K.
<PAGE>
 
                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.
         ---------------------------------------------------------------------

         There is no active market for the Units. Trading in the Units is
sporadic and occurs solely through private transactions.

         As of December 31, 1998, there were 12,281 holders of Units.

         The Partnership's Amended and Restated Agreement of Limited Partnership
dated July 23, 1987, as amended to date (the "Partnership Agreement"), requires
that any Distributable Cash (as defined therein) be distributed quarterly to the
Partners in specified proportions and priorities. There are no restrictions on
the Partnership's present or future ability to make distributions of
Distributable Cash. Cash distributions paid in 1998 or distributed after year
end with respect to 1998 to the Limited Partners as a group totaled $4,0156,393.
Cash distributions paid in 1997 or distributed after year end with respect to
1997 to the Limited Partners as a group totaled $30,179,538, including
$25,364,272 of returned capital from the proceeds of property sales.

         Cash distributions exceeded net income in 1998 and, therefore, resulted
in a reduction of partners' capital. Operating cash distributions exceeded net
cash provided by operating activities. Reference is made to the Partnership's
Statement of Partners' Capital (Deficit) and Statement of Cash Flows in Item 8
hereof.
<PAGE>
 
Item 6.  Selected Financial Data
         -----------------------
        
<TABLE>
<CAPTION>


                         For Year             For Year             For Year         For Year            For Year
                         Ended or             Ended or             Ended or         Ended or            Ended or
                           as of                as of                as of            as of               as of
                         12/31/98            12/31/97(1)           12/31/96        12/31/95(2)         12/31/94(3)
                      -------------        -------------         -------------    -------------       -------------  
<S>                   <C>                  <C>                   <C>               <C>                 <C>

Revenues              $  5,174,753            $17,197,366         $ 7,716,609      $ 5,522,086         $ 6,096,743
                                                                                                        
Net Income            $  2,175,480            $13,153,920         $ 3,392,534      $ 2,248,715         $ 3,375,406
                                                                                                        
Net Income                                                                                              
per Weighted                                                                                            
Average                                                                                                 
Limited                                                                                                 
Partnership                                                                                             
Unit                  $    26.17              $    158.07         $     40.72      $     26.96         $     40.42
                                                                                                        
Total Assets          $40,737,607             $42,788,822         $59,590,134      $60,535,231         $64,530,075
                                                                                                        
Total Cash                                                                                              
Distributions                                                                                           
per Limited                                                                                             
Partnership                                                                                             
Unit outstanding                                                                                        
for the entire                                                                                          
period, including                                                                                       
amounts distributed                                                                                     
after year end with                                                                                     
respect to                                                                                              
such year             $    48.78              $  366.45           $     55.44      $     77.36         $     87.44
</TABLE>

 
          (1)  During 1997, net income includes a gain of $10,176,990 recognized
               on the sale of two investments. Cash distributions include a
               return of capital of $308 per Unit.

          (2)  During 1995, the Partnership recorded a valuation provision on
               one property totaling $600,000 ($7.19 per Weighted Average
               Limited Partnership Unit). Cash distributions include a return of
               capital of $28 per Unit.

          (3)  During 1994, the Partnership recorded a valuation provision on
               one property totaling $1,400,000 ($16.76 per Weighted Average
               Limited Partnership Unit). Net income also includes a gain of
               $1,790,470 recognized on the sale of two investments. Cash
               distributions include a return of capital of $48 per Unit.
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
         of Operations
         -------------

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

         The Partnership completed its offering of units of limited partnership
interest in December 1988. A total of 83,291 units were sold. The Partnership
received proceeds of $74,895,253, net of selling commissions and other offering
costs, which have been used for investment in real estate, for the payment of
related acquisition costs and for working capital reserves. The Partnership made
the real estate investments described in Item 1 herein. Four investments have
been sold, one in each of June 1994, August 1994, May 1997 and October 1997.

          As a result of the sales, capital of $31,646,076 has been returned to
the limited partners through December 31, 1998. The adjusted capital
contribution was reduced to $952 from $1,000 per Unit in 1994, then to $924 in
July 1995, then to $616 in 1997. A portion of the sales proceeds was used to pay
previously accrued, but deferred, management fees to the advisor ($447,745 in
1997, $183,426 in 1995 and $1,259,988 in 1994).

         At December 31, 1998, the Partnership had $7,220,155 in cash and cash
equivalents, of which $735,899 was used for cash distributions to partners on
January 28, 1999; the remainder will be used to complete the funding of real
estate investments or be retained as working capital reserves. The source of
future liquidity or cash distributions to partners will be cash generated by the
Partnership's invested cash and cash equivalents and real estate investments.
Quarterly distributions of cash from operations relating to 1998 were made at
the annualized rate of 5.75% on the adjusted capital contribution of $616. A
special distribution from operating reserves of $1,109,457 was also made in
1998. Quarterly distributions of cash from operations relating to 1997 were made
at the annualized rate of 6.25% on the adjusted capital contribution of $924 for
the first and second quarter, of $832 for the third quarter, and on the weighted
average adjusted contribution of $748 for the fourth quarter.

         The Partnership maintains a fund for the purpose of repurchasing
limited partnership units pursuant to the terms and conditions set forth in the
Partnership Agreement. Two percent of cash flow, as defined, is designated for
this fund which had a balance of $124,302 and $96,937 at December 31, 1998 and
1997, respectively. Through December 31, 1998 the Partnership had repurchased
and retired 1,063 limited partnership units for an aggregate cost of $942,188.

         The carrying value of real estate investments in the financial
statements at December 31, 1998 is at depreciated cost, or if the investment's
carrying value is determined not to be recoverable through expected undiscounted
future cash flows, the carrying value is reduced to estimated fair market value.
The fair market value of such investments is further reduced by the estimated
cost of sale for properties held for sale. Carrying value may be greater or less
than current appraised value. At December 31, 1998, the appraised value of
certain investments exceeded the related carrying values by an aggregate of
approximately $4,306,000, and the remaining investments had carrying values
which exceeded their appraised values by a total of approximately $235,000. The
current appraised value of real estate investments has been estimated by the
Managing General Partner and is generally based on a combination of traditional
appraisal approaches performed by the Partnership's advisor and independent
appraisers. Because of the subjectivity inherent in the valuation process, the
estimated current appraised value may differ significantly from that which could
be realized if the real estate were actually offered for sale in the
marketplace.

Year 2000 Readiness Disclosure
------------------------------

         The Year 2000 Issue is a result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that have date-sensitive

 
<PAGE>
 
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in normal business operations.

         The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of AEW Real Estate Advisors, Inc., to generate
financial information and to provide other services which are dependent on the
use of computers. The Partnership has obtained assurances from AEW Capital
Management that:


   .     AEW Capital Management has developed a Year 2000 Plan (the "Plan")
         consisting of five phases: inventory, assessment, testing,
         remediation/repair and certification.

   .     As of September 30, 1998, AEW Capital Management had completed the
         inventory and assessment phases of this Plan and had commenced the
         testing and remediation/repair of internal systems.

   .     AEW Capital Management expects to conclude the internal testing,
         remediation/repair and certifications of its Plan no later than June
         30, 1999.


         The Partnership also relies on joint venture partners and/or property
managers to supply financial and other data with respect to its real properties.
The Partnership is in the process of surveying these third party providers and
assessing their compliance with Year 2000 requirements. To date, the Partnership
is not aware of any problems that would materially impact its results of
operations, liquidity or capital resources. However, the Partnership has not yet
obtained written assurances that these providers would be Year 2000 compliant.

         The Partnership currently does not have a contingency plan in the event
of a particular provider or system not being Year 2000 compliant. Such a plan
will be developed if it becomes clear that a provider (including AEW Capital
Management) is not going to achieve its scheduled compliance objectives by June
30, 1999. The inability of one of these providers to complete its Year 2000
resolution process could materially impact the Partnership. In addition, the
Partnership is also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failures and related service interruptions. Given the nature of its 
operations, the Partnership will not incur any costs associated with Year 2000 
compliance. All such costs are borned by AEW Capital Management and the property
managers.


Results of Operations
---------------------

         Form of Real Estate Investments

         Effective January 1, 1996, the University Business Park joint venture
was dissolved and ownership of the joint venture assets was assigned to the
Partnership. This property was sold during 1997. Effective April 1, 1996, the
Waters Landing II joint venture was restructured and the venture partner's
ownership interest was assigned to the Partnership. Effective January 1, 1995,
the Palms Business Center joint venture was restructured and the venture
partner's ownership interest was assigned to the Partnership. This property was
also sold during 1997. Effective August 1, 1995 and September 1, 1995,
respectively, the Santa Rita Plaza and Dahlia joint venture investments were
restructured to grant the Partnership control over management decisions.
Accordingly, these investments have been accounted for as wholly-owned
properties since those dates. The Puente Street investment is also a wholly-
owned property. The remaining investment in the portfolio, Columbia Gateway
Corporate Park, which was originally structured as a joint venture with a real
estate development/management firm and
<PAGE>
 
an affiliate of the Partnership, has been restructured whereby the Partnership
and the affiliate of the Partnership obtained full control over the business of
joint venture effective January 1, 1998.

         Operating Factors

         As mentioned above, the University Business Park was sold on May 28,
1997 and the Partnership recognized a gain of $2,160,404. The property was 100%
leased at the time of sale, consistent with December 31, 1996.

         Overall occupancy at the Columbia Gateway Corporate Park was 100% at
December 31, 1998, an increase from both 98% at December 31, 1997 and 94% at
December 31, 1996. Ownership of the Columbia Gateway Corporate Park joint
venture has been restructured whereby the Partnership and its affiliate obtained
additional control over the business of the joint venture. This restructuring
was effective January 1, 1998. Three leases totalling 41,451 square feet or
approximately 22% of the space expire during 1999. One tenant that currently
occupies 8,781 square feet of this space has signed a letter of intent to extend
its lease for another three years and one tenant that currently occupies 21,991
square feet of this space has exercised its renewal option to lease for another
five years.

         Occupancy at Puente Street has been 100% since the first quarter of
1994. Operations will increase due to the completion of a 53,000 square-foot
build-to-suit facility during the fourth quarter of 1998 on Partnership land. A
10-year lease for this facility commenced in November, 1998. The other lease at
Puente Street is not due to expire until March, 2004. As a result of a
settlement of previous litigation, a former tenant of Puente Street assigned its
lease to the other existing tenant at the time on February 1, 1998. The former
tenant sub-leased the space from the existing tenant until June 1, 1998, at
which time it vacated the premises. There was no material effect on the
Partnership's financial position or results of operations as a result of this
lease assignment.

         In early November, 1998, a Purchase and Sale agreement was executed by
the Partnership to sell the Waters Landing II investment. Although there can be
no assurance that this sale will occur, it is expected to be concluded during
the second quarter of 1999.

         As mentioned above, the Palms Business Center was sold on October 24,
1997 and the Partnership recognized a gain of $8,016,586. At the time of the
sale, the property was 100% leased compared to 98% at December 31, 1996.

         Occupancy at the Dahlia property has been 100% since the first quarter
of 1994. The lease of a tenant that had occupied approximately 30% of the space
expired in May, 1998 and has been fully re-leased to two new tenants for
40-month and 72-month leases. The Partnership had previously received an
interest in land located in Arizona as a rent settlement from a former tenant.
During the first quarter of 1996, upon liquidation of this interest in land, the
Partnership received cash of approximately $332,000.

     Occupancy at Santa Rita Plaza was 98% at December 31, 1998, an increase
from 95% at December 31, 1997 and consistent with 98% at December 31, 1996.
Although occupancy is strong at this time, leases for another 12% of the space
will expire during 1999. Renewals for these leases are being actively pursued at
this time.
<PAGE>
 
         Investment Results
         ------------------

         Interest on short-term investments and cash equivalents decreased by
approximately $231,000 in 1998 as compared to 1997 as a result of lower average
investment balances due to the distribution of the sales proceeds from
University Business Park and the Palms Business Center that were received in May
1997 and October 1997, respectively. Interest on short-term investments and cash
equivalents increased by approximately $115,000 in 1997 as compared to 1996 as a
result of higher average investment balances due to the temporary investment of
proceeds from these 1997 sales.

                  1998 Compared to 1997

         Real estate operations decreased overall by approximately $692,000
between 1998 and 1997. This decrease is due to the fact that there are no 1998
operating results from both University Business Park and the Palms Business
Center because they were sold during 1997. 1997 operating results included
approximately $317,000 and $789,000 of partial-year operations from University
Business Parks and Palms Business Center. These decreases were offset by
increases in operating results during 1998 at all four operating investments of
the portfolio. Operations at Puente Street increased by approximately $113,000
as a result of a new lease at the property that commenced in early November,
coupled with lower litigation expenses and lower parking lot repairs. Operating
results at the Dahlia property increased by approximately $186,000, due
primarily to the receipt of $175,000 (including interest) from a bankrupt
tenant. Operating results at the Columbia Gateway Corporate Park increased by
approximately $97,000 due to higher occupancy, higher tenant reimbursements (due
to a 1997 adjustment), an increase in straight-line rental income as a result of
a new lease at the property, and also due to the 1997 abandonment of tenant
improvements. Operating results at Santa Rita Plaza also increased slightly by
approximately $66,000, primarily due to higher occupancy and late charges at the
property, off set by lower interest income and higher depreciation expense.

         Cash flow from operations decreased by approximately $560,000 between
1998 and 1997. This decrease is primarily due to the decrease in operating
results discussed above.

                  1997 Compared to 1996

         Real estate operations decreased by $506,603 between 1997 and 1996.
This decrease is primarily due to lower operating results from both University
Business Park and Palms Business Center due to the sale of these assets during
1997 (partial year operations in 1997 versus full year operations in 1998).
Operating results at Dahlia also decreased due to higher operating expenses in
1997 and the 1996 non-recurring gain on sale of land mentioned in Operating
Factors above.

         Exclusive of the proceeds from the settlement of past due tenant
receivables at Dahlia in 1996 ($332,000), and the payment of deferred management
fees in 1997 ($447,745), cash flow from operations decreased by $915,000 between
1997 and 1996. This decrease is due to the decrease in operating results
discussed above, along with an increase in working capital.


Portfolio Expenses

         The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the Managing General Partner. General and administrative expenses
consist primarily of real estate appraisal, printing, legal, accounting and
investor servicing fees.
<PAGE>
 
                  1998 Compared to 1997

         The Partnership management fee decreased due to a decrease in
distributable cash flow from operations as a result of the sale of two assets in
1997. General and administrative expenses decreased by approximately $43,000 or
14%, primarily due to lower legal expenses and lower out-of-pocket expenses
(expenses incurred due to special investor letters and mailings).

                  1997 Compared to 1996

         The Partnership management fee increased due to an increase in
distributable cash flow from operations. General and administrative expenses
were remained stable between the two periods.


Inflation
---------

         By their nature, real estate investments tend not to be adversely
affected by inflation. Inflation may result in appreciation in the value of the
Partnership's real estate investments over time if rental rates and replacement
costs increase. Declines in real property values during the period of
Partnership operations, due to market and economic conditions, have overshadowed
the positive effect inflation may have on the value of the Partnership's
investments.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk
         ----------------------------------------------------------
       
         The Partnership was not party to derivative financial instruments or
derivative commodity instruments at or during the year ended December 31, 1998.
The Partnership's only other financial instruments (as defined by Financial
Accounting Standards Board Statement No. 107) are its cash and cash equivalents
for which cost approximates market value.

Item 8.  Financial Statements and Supplementary Data.
         -------------------------------------------
       
               See the Financial Statements of the Partnership included as a
part of this Annual Report on Form 10-K.

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

         The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement disclosure.
<PAGE>
 
                                    PART III

Item 10. Directors and Executive Officers of the Registrant.
         --------------------------------------------------
       
         (a) and (b) Identification of Directors and Executive Officers.

         The following table sets forth the names of the directors and executive
officers of the Managing General Partner and the age and position held by each
of them as of December 31, 1998.

<TABLE>
<CAPTION>

Name                        Position(s) with the Managing General Partner                 Age
----                        ---------------------------------------------                 ---
<S>                         <C>                                                           <C>

J. Christopher Meyer, III   President, Chief Executive Officer and Director               51
Pamela J. Herbst            Vice President and Director                                   43
J. Grant Monahon            Vice President and Director                                   53
James J. Finnegan           Vice President                                                38
Karin J. Lagerlund          Treasurer and Principal Financial and Accounting Officer      34
</TABLE>


         (c) Identification of Certain Significant Employees.
             -----------------------------------------------
   
                  None.

         (d) Family Relationships.
             --------------------   

                  None.

         (e) Business Experience.
             -------------------                                  
   
         The Managing General Partner was incorporated in Massachusetts
on October 23, 1986. The background and experience of the executive officers and
directors of the Managing General Partner are as follows:

         J. Christopher Meyer, III. joined AEW Real Estate Advisors, Inc.
("AEW") , formerly known as Copley Real Estate Advisors, Inc., in 1987 and has
been an officer at AEW since then. AEW is a subsidiary of AEW Capital
Management, L.P. ("AEW Capital Management"), of which he is also a Director.
Prior to joining AEW, he had senior positions with several regional real estate
development concerns, including Chief Financial Officer of Ford Motor Land
Development Corporation. His career at AEW has included asset management
responsibility for the company's Eastern Region, and portfolio manager for
several commingled real estate funds. Presently, Mr. Meyer has overall
responsibility for all the partnerships advised by AEW whose securities are
registered under the Securities and Exchange Act of 1934, and for several
commingled funds. He received a B.A. in Statistics from Princeton University and
an MBA from the Wharton School of the University of Pennsylvania.

         Pamela J. Herbst directs AEW Capital Management's Institutional Real
Estate Services, with oversight responsibility for the asset and portfolio
management areas. Ms. Herbst is a member of AEW Capital Management's Investment
Policy Group and Management Committee. She came to AEW Capital Management in
December 1996 as a result of the firm's merger with Copley Real Estate Advisors,
Inc. where she held various senior level positions in asset and portfolio
management, acquisitions and corporate operations since 1982. Ms. Herbst is a
graduate of the University of Massachusetts (B.A.) and Boston University
(M.B.A.).

         J. Grant Monahon is AEW Capital Management's General Counsel and a
member of the firm's Management Committee and Investment Policy Group. He has
over 25 years of experience in real estate law and investments. Prior to joining
AEW the predecessor of Capital Management in 1987, Mr. Monahon 
<PAGE>
 
was a partner with a major Boston law firm. As the head of that firm's real
estate finance department, he represented a wide variety of institutional
clients, both domestic and international, in complex equity and debt
transactions. He is the former Chairman of the General Counsel section of the
National Association of Real Estate Investment Managers. Mr. Monahon is a
graduate of Dartmouth College (B.A.) and Georgetown University Law Center
(J.D.).

         James J. Finnegan is the Assistant General Counsel of AEW Capital
Management. Mr. Finnegan served as Vice President and Assistant General Counsel
of Aldrich, Eastman & Waltch, L.P., a predecessor to AEW Capital Management. Mr.
Finnegan has over ten years of experience in real estate law, including seven
years of experience in private practice with major New York City and Boston law
firms. Mr. Finnegan also serves as AEW's securities and regulatory compliance
officer. Mr. Finnegan is a graduate of the University of Vermont (B.A.) and
Fordham University School of law (J.D.).

         Karin J. Lagerlund directs the Institutional Real Estate Services
Portfolio Accounting Group at AEW Capital Management, overseeing portfolio
accounting, performance measurement and client financial reporting for AEW's
private equity investment portfolios. Ms. Lagerlund is a Certified Public
Accountant and has over ten years experience in real estate consulting and
accounting. Prior to joining AEW Capital Management in 1994, she was an Audit
Manager at EY/Kenneth Leventhal LLP. Ms. Lagerlund is a graduate of Washington
State University (B.A.).

         (f) Involvement in Certain Legal Proceedings.
             ----------------------------------------    

                 None.

Item 11. Executive Compensation.
         ----------------------
 
         Under the Partnership Agreement, the General Partners and their
affiliates are entitled to receive various fees, commissions, cash
distributions, allocations of taxable income or loss and expense reimbursements
from the Partnership. See Note 1, Note 2 and Note 6 of Notes to Financial
Statements.

The following table sets forth the amounts of the fees and cash distributions
and reimbursements for out-of-pocket expenses which the Partnership paid to or
accrued for the account of the General Partners and their affiliates for the
year ended December 31, 1998. Cash distributions to General Partners include
amounts distributed after year end with respect to 1998.

<TABLE>
<CAPTION>

                                                                    Amount of
                                                                Compensation and
Receiving Entity                    Type of Compensation          Reimbursement
----------------                    --------------------        -----------------        
<S>                                 <C>                         <C>

General Partners                    Share of Distributable Cash   $   40,560

AEW Real Estate Advisors, Inc.      Management Fees and              418,138
(formerly known as Copley Real      Reimbursement of Expenses
Estate Advisors, Inc.)

New England Securities Corporation  Servicing Fees plus out-of-
                                    pocket reimbursements             20,852
                                                                  ----------
                                    TOTAL                         $  479,550
                                                                  ==========
</TABLE>


         For the year ended December 31, 1998 the Partnership allocated $23,701
of taxable income to the General Partners.
<PAGE>
 
Item 12. Security Ownership of Certain Beneficial Owners and Management.

  (a) Security Ownership of Certain Beneficial Owners

               No person or group is known by the Partnership to be the
beneficial owner of more than 5% of the outstanding Units at December 31, 1998.
Under the Partnership Agreement, the voting rights of the Limited Partners are
limited and, in some circumstances, are subject to the prior receipt of certain
opinions of counsel or judicial decisions.

               Except as expressly provided in the Partnership Agreement, the
right to manage the business of the Partnership is vested exclusively in the
Managing General Partner.

(b) Security Ownership of Management.

               The General Partners of the Partnership owned no Units at
December 31, 1998.

(c) Changes in Control.

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

Item 13. Certain Relationships and Related Transactions.
         ----------------------------------------------
       
               The Partnership has no relationships or transactions to report
other than as reported in Item 11, above.


                                    PART IV

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

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

                       (1) Financial Statements--The Financial Statements listed
on the accompanying Index to Financial Statements and Schedule and Financial
Statements Index No. 2 are filed as part of this Annual Report.

                       (2) Financial Statement Schedule - The Financial
Statement Schedule listed on the accompanying Index to Financial Statements and
Schedule are filed as part of this Annual Report.

                       (3) Exhibits--The Exhibits listed in the accompanying
Exhibit Index are filed as a part of this Annual Report and incorporated in this
Annual Report as set forth in said Index.

                 (b) Reports on Form 8-K.  None
<PAGE>
 
                      New England Pension Properties V; 

                      A Real Estate Limited Partnership 





                             Financial Statements


                                * * * * * * * *







                               December 31, 1998
<PAGE>
 
                        NEW ENGLAND PENSION PROPERTIES V;
                        ---------------------------------
                        A REAL ESTATE LIMITED PARTNERSHIP
                        ---------------------------------

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
                   ------------------------------------------     






Report of Independent Accountants

Financial Statements:

         Balance Sheets - December 31, 1998 and 1997

         Statements of Operations - Years ended December 31, 1998, 1997 and 1996

         Statements of Partners' Capital (Deficit) - Years ended December 31,
                1998, 1997 and 1996

         Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996

         Notes to Financial Statements

Financial Statement Schedule:

         Schedule III - Real Estate and Accumulated Depreciation at December
                31, 1998, 1997 and 1996
<PAGE>
 
                       Report of Independent Accountants
                       ---------------------------------


To the Partners

New England Pension Properties V;
A Real Estate Limited Partnership

In our opinion, based upon our audits and the reports of other auditors for the
years ended December 31, 1998, 1997 and 1996, the financial statements listed in
the accompanying index present fairly, in all material respects, the financial
position of New England Pension Properties V; A Real Estate Limited Partnership
(the "Partnership") at December 31, 1998 and 1997, and the results of its
operation and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Fifth Copley Corp., the
Managing General Partner of the Partnership; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Santa Rita Plaza, Palms Business Center III and IV,
Puente Street, University Business Park and Dahlia, wholly-owned properties, for
the year ended December 31, 1996 which statements reflect aggregated operating
income of $4,400,379. We also did not audit the financial statements of the
Partnership's Columbia Gateway Corporate Park joint venture investee for the
year ended December 31, 1996 which results of operations are recorded using the
equity method of accounting in the Partnership's financial statements. Equity in
joint venture income for this venture was $360,214 for the year ended December
31, 1996. Those statements were audited by other auditors whose reports thereon
have been furnished to us, and our opinion expressed herein, insofar as it
relates to the amounts included for operating income for Santa Rita Plaza, Palms
Business Center III and IV, Puente Street, University Business Park, and Dahlia
for the year ended December 31, 1996, and equity in joint venture income for
Columbia Gateway Corporate Park for the year ended December 31, 1996 is based
solely on the reports of the other auditors. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by the Managing General Partner, and
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors for the years ended December 31, 1998,
1997 and 1996 provide a reasonable basis for the opinion expressed above.






/s/ PricewaterhouseCoopers LLP
------------------------------
Boston, Massachusetts
March 9, 1999
<PAGE>
 
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP

BALANCE SHEETS
<TABLE>
<CAPTION>

                                                              December 31,              
                                               -------------------------------------------
                                                     1998                       1997 
                                               ----------------          -----------------
<S>                                            <C>                       <C>  
Assets

Real estate investments:
  Property, net                                $    27,181,777           $     27,287,367
  Joint ventures                                     4,843,933                  4,836,039
                                               ---------------           ----------------
                                                    32,025,710                 32,123,406

Property held for disposition, net                   1,491,742                          -

Cash and cash equivalents                            7,220,155                  6,303,386
Short-term investments                                       -                  4,362,030
                                               ---------------           ----------------

                                               $    40,737,607           $     42,788,822
                                               ===============           ================


Liabilities and Partners' Capital

Accounts payable                               $       122,505           $        129,158
Accrued management fees                                 36,391                     48,078
Deferred management and disposition fees             1,251,998                  1,106,292
                                               ---------------           ----------------
Total liabilities                                    1,410,894                  1,283,528
                                               ---------------           ----------------

Commitments to fund real estate investments

Partners' capital (deficit):
  Limited partners ($616 per unit;
    160,000 units authorized, 82,228 and
    82,336 issued and outstanding, respectively)      39,354,545                 41,511,957
  General partners                                       (27,832)                    (6,663)
                                                 ---------------           ----------------
Total partners' capital                               39,326,713                 41,505,294
                                                 ---------------           ----------------

                                                 $    40,737,607           $     42,788,822
                                                 ===============           ================
</TABLE>

               (See accompanying notes to financial statements)
<PAGE>
 
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>


                                                                         Year ended December 31,                     
                                                    -----------------------------------------------------------------
                                                                 1998                  1997                      1996 
                                                    ------------------    ------------------       -------------------
<S>                                                 <C>                  <C>                       <C>    
Investment Activity

Property rentals                                    $    4,103,360        $    5,775,821            $    6,566,057
Interest income on loan to ground lessor                   142,492               180,821                   185,379
Property operating expenses                               (949,126)           (1,559,211)               (1,775,678)
Ground rent expense                                       (390,000)             (390,000)                 (390,000)
Depreciation and amortization                           (1,003,722)           (1,315,384)               (1,403,481)
                                                    ---------------       --------------            ---------------
                                                         1,903,004             2,692,047                 3,182,277

Equity in joint venture earnings                           440,440               343,841                   360,214
                                                    --------------        --------------            --------------
   Total real estate operations                          2,343,444             3,035,888                 3,542,491

Gain on sales of property                                        -            10,176,990                    -         
                                                    --------------        --------------            ------------------

   Total real estate activity                            2,343,444            13,212,878                 3,542,491

Interest on cash equivalents
     and short-term investments                            488,461               719,893                   604,959

   Total investment activity                             2,831,905            13,932,771                 4,147,450
                                                    --------------        --------------            --------------

Portfolio Expenses

Management fee                                             401,138               481,045                   456,846
General and administrative                                 255,287               297,806                   298,070
                                                    --------------        --------------            --------------
                                                           656,425               778,851                   754,916
                                                    --------------        --------------            --------------

Net Income                                          $    2,175,480        $   13,153,920            $    3,392,534
                                                    ==============        ==============            ==============


Net income per weighted average limited
   partnership unit                                 $        26.17        $       158.07            $        40.72
                                                    ==============        ==============            ==============


Cash distributions per limited partnership
   unit outstanding for the entire year             $        51.61        $       368.62            $        53.73
                                                    ==============        ==============            ==============


Weighted average number of limited
   partnership units outstanding during
   the year                                                 82,309                82,385                    82,486
                                                    ==============        ==============            ==============
</TABLE>



               (See accompanying notes to financial statements)
<PAGE>
 
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)

<TABLE>
<CAPTION>
                                                                  Year ended December 31,                                
                              --------------------------------------------------------------------------------------------
                                          1998                             1997                            1996          
                              -----------------------------   -------------------------------  ---------------------------
                               General      Limited               General      Limited              General     Limited
                               Partners     Partners              Partners     Partners            Partners     Partners
<S>                           <C>           <C>               <C>             <C>              <C>          <C>

Balance at beginning of year   $   (6,663)  $    41,511,957   $      (87,745) $    58,916,206  $   (76,904) $   60,073,461

Repurchase of limited
  partnership units                     -           (61,776)               -          (67,176)        -            (84,104)

Cash distributions                (42,924)       (4,249,361)         (50,457)     (30,359,454)     (44,766)     (4,431,760)

Net income                         21,755         2,153,725          131,539       13,022,381       33,925       3,358,609
                               ----------   ---------------   --------------       ----------  -----------  --------------

Balance at end of year         $  (27,832)  $    39,354,545   $       (6,663) $    41,511,957  $   (87,745) $   58,916,206
                               ==========   ===============   ==============  ===============  ============ ==============

</TABLE>

               (See accompanying notes to financial statements)
<PAGE>
 
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION> 
                                                                             Year ended December 31, 
                                                            ---------------------------------------------------------------
                                                                   1998                  1997                  1996 
                                                            -----------------     -------------------   -------------------
<S>                                                         <C>                   <C>                   <C>

Cash flows from operating activities:
  Net income                                                $      2,175,480       $       13,153,920    $        3,392,534

  Adjustments to reconcile net income to net 
    cash provided by operating activities:
      Depreciation and amortization                                1,003,722                1,315,384             1,403,481
      Gain on sales of property                                            -              (10,176,990)                 -
      Increase in deferred lease commissions                        (224,692)                (106,319)             (126,625)
      Equity in joint venture earnings                              (440,440)                (343,841)             (360,214)
      Cash distributions from joint
        ventures                                                     430,606                  228,086               335,500
      Decrease (increase) in investment
        income receivable                                             64,217                   19,093               (36,107)
      Decrease (increase) in property
        working capital                                             (208,803)                (333,224)              350,402
      Payment of deferred management fee                                   -                 (447,745)                 -
      Increase in operating liabilities                              127,366                  179,100               222,999
                                                            ----------------       ------------------    ------------------
    Net cash provided by operating
      activities                                                   2,927,456                3,487,464             5,181,970
                                                            ----------------       ------------------    ------------------

Cash flows from investing activities:
  Net proceeds from sale of investments                                    -              25,026,889                  -

  Deferred disposition fees                                                -                 790,500                  -
  Investments in property                                         (2,027,390)               (249,274)              (334,973)
  Repayments received on loan to ground lessor                        72,951                   66,860                61,278
  Decrease in short-term
    investments, net                                               4,297,813                2,951,755               568,036
                                                            ----------------       ------------------    ------------------
  Net cash provided by investing activities                        2,343,374               28,586,730               294,341
                                                            ----------------       ------------------    ------------------

Cash flows from financing activities:
  Distributions to partners                                       (4,292,285)             (30,409,911)           (4,476,526)
  Repurchase of limited partnership units                            (61,776)                 (67,176)              (84,104)
                                                            ----------------       ------------------    -------------------
  Net cash used in financing activities                           (4,354,061)             (30,477,087)           (4,560,630)
                                                            ----------------       -------------------   -------------------

  Net increase in cash and cash
    equivalents                                                      916,769                1,597,107               915,681

Cash and cash equivalents:
  Beginning of year                                                6,303,386                4,706,279             3,790,598
                                                            ----------------       ------------------    ------------------

  End of year                                               $      7,220,155       $        6,303,386    $        4,706,279
                                                            ================       ==================    ==================
</TABLE> 

Supplemental Disclosure of non-cash transactions:

Two of the Partnership's joint venture investments were converted to
wholly-owned properties in 1996. The carrying value of these investments at
their respective conversion dates totaled $7,122,323.

               (See accompanying notes to financial statements)
<PAGE>
 
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND BUSINESS
----------------------------------

         General
         -------

         New England Pension Properties V; A Real Estate Limited Partnership
(the "Partnership") is a Massachusetts limited partnership organized for the
purpose of investing primarily in to-be-developed, newly constructed and
existing income-producing real properties. It primarily serves as an investment
for qualified pension and profit sharing plans and other entities intended to be
exempt from federal income tax. The Partnership commenced operations in May 1987
and acquired the five real estate investments it currently owns prior to the end
of 1989. It intends to dispose of its investments within twelve years of their
acquisition, and then liquidate.

     The Managing General Partner of the Partnership is Fifth Copley Corp., a
wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"), formerly
known as Copley Real Estate Advisors, Inc. ("Copley"). The associate general
partner is ECOP Associates Limited Partnership, a Massachusetts limited
partnership. Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by AEW pursuant to an advisory contract.

         On December 10, 1996, Copley's parent, New England Investment
Companies, Limited Partnership ("NEIC"), a publicly traded master limited
partnership, acquired certain assets subject to then existing liabilities from
Aldrich, Eastman & Waltch, Inc. and its affiliates and principals (collectively
"the AEW Operations"). Simultaneously, a new entity, AEW Capital Management
L.P., was formed into which NEIC contributed its interest in Copley and its
affiliates. As a result, the AEW Operations were combined with Copley to form
the business operations of AEW Capital Management, L.P.

         At year end 1997, NEIC completed a restructuring plan under which it
contributed all of its operations to a newly formed private partnership, NEIC
Operating Partnership, L.P., in exchange for a general partnership interest in
the newly formed entity. Accordingly, at December 31, 1997, AEW Capital
Management, L.P. was wholly owned by NEIC Operating Partnership, L.P. AEW is a
subsidiary of AEW Capital Management L.P. Effective April 1, 1998, NEIC changed
its name to Nvest, L.P. and NEIC Operating Partnership, L.P. changed its name to
Nvest Companies, L.P.

         Prior to August 30, 1996, New England Mutual Life Insurance Company
("The New England") was NEIC's principal unit holder and owner of all the
outstanding stock of NEIC's general partner. On August 30, 1996, The New England
merged with and into Metropolitan Life Insurance Company ("Met Life"). Met Life
is the surviving entity and, therefore, through a wholly-owned subsidiary,
became the owner of the units of partnership interest previously owned by The
New England and of the stock of NEIC's general partner.

         The Partnership maintains a repurchase fund for the purpose of
repurchasing limited partnership units. Two percent of cash flow, as defined, is
designated for this fund which had a balance of $124,302 and $96,937 at December
31, 1998 and 1997, respectively. As of December 31, 1998 and 1997, the
Partnership had cumulatively repurchased and retired 1,063 units and 955 units,
respectively.

         Management
         ----------

         AEW, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and the acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash flow from operations, as defined, before deducting such fees.
Payment of 50% of management fees is deferred until cash distributions to
limited partners exceed a specified rate or until payable from sales proceeds.
AEW is also reimbursed for expenses incurred in connection with administering
the Partnership ($17,000 in 1998, $17,004 in 1997, and $15,740 in 1996).
Acquisition 
<PAGE>
 
fees were based on 2% of gross proceeds from the offering. Disposition fees are
limited to the lesser of 3% of the selling price of property or 50% of the
standard real estate commission customarily charged by an independent real
estate broker. Payment of disposition fees are subject to the prior receipt by
the limited partners of their capital contributions plus a stipulated return
thereon. Deferred disposition fees were $1,058,215 at both December 31, 1998 and
1997, respectively.

         New England Securities Corporation, an indirect subsidiary of Met Life,
is engaged by the Partnership to act as its unit holder servicing agent. Fees
and out-of pocket expenses for such services totaled $20,852, $19,601 and
$18,733, in 1998, 1997 and 1996, respectively.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

         Accounting Estimates
         --------------------

         The preparation of financial statements in conformity with generally
accepted accounting principles requires the Managing General Partner to make
estimates affecting the reported amounts of assets and liabilities, and of
revenues and expenses. In the Partnership's business, certain estimates require
an assessment of factors not within management's control, such as the ability of
tenants to perform under long-term leases and the ability of the properties to
sustain their occupancies in changing markets. Actual results, therefore, could
differ from those estimates.

         Real Estate Joint Ventures
         --------------------------

         Investments in joint ventures, including loans made to venture
partners, which are in substance real estate investments, are stated at cost
plus (minus) equity in undistributed joint venture income (losses). Allocations
of joint venture income (losses) were made to the Partnership's venture partners
as long as they had substantial economic equity in the project. Currently, the
Partnership has one joint venture jointly owned by an affiliate of the
Partnership which has substantial economic equity in the project. Joint ventures
are consolidated with the accounts of the Partnership if, and when, the venture
partner no longer shares in the control of the business.

         Property
         --------

         Property includes land and buildings and improvements, which are stated
at cost, less accumulated depreciation, and other operating net assets
(liabilities). The initial carrying value of a property previously owned by a
joint venture equals the Partnership's carrying value of the predecessor
investment on the conversion date.


         Capitalized Costs, Depreciation, and Amortization
         -------------------------------------------------

         Maintenance and repair costs are expensed as incurred. Significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements. Leasing costs are also capitalized and amortized over the related
lease terms.

         Acquisition fees have been capitalized as part of the cost of real
estate investments. Amounts not related to land are amortized using the
straight-line method over the estimated useful lives of the underlying property.

         Tenant leases at the properties provide for rental increases over the
respective lease terms. Rental revenue is being recognized on a straight-line
basis over the lease terms.

         Realizability of  Real Estate Investments
         -----------------------------------------

         The Partnership considers a real estate investment to be impaired when
it determines the carrying value of the investment is not recoverable through
expected undiscounted cash flows generated from the operations and disposition
of property. The impairment loss is based on the excess of the investment's
carrying value over its estimated fair market value. For investments being held
for sale, the impairment 
<PAGE>
 
loss also includes estimated costs of sale. Property held for sale is not
depreciated during the holding period. The Waters Landing II investment was
reduced to its estimated fair market value, less costs of sale, during 1995.
(See Notes 3 and 4.)

         The carrying value of an investment may be more or less than its
current appraised value. At December 31, 1998 and 1997, the appraised values of
certain investments exceeded their related carrying values by an aggregate of
approximately $4,306,000 and $3,600,000, respectively, and the appraised values
of the remaining investments were less than their related carrying values by an
aggregate of approximately $235,000 and $40,000, respectively.

         The current appraised value of real estate investments has been
estimated by the Managing General Partner, and is generally based on a
combination of traditional appraisal approaches performed by the advisor and
independent appraisers. Because of the subjectivity inherent in the valuation
process, the estimated current appraised value may differ significantly from
that which could be realized if the real estate were actually offered for sale
in the marketplace.

         Cash Equivalents and Short-Term Investments
         -------------------------------------------

         Cash equivalents are stated at cost, plus accrued interest. The
Partnership considers all highly liquid debt instruments purchased with a
maturity of ninety days or less to be cash equivalents; otherwise, they are
classified as short-term investments.

         The Partnership has the positive intent and ability to hold all
short-term investments to maturity; therefore, short-term investments are
carried at cost plus accrued interest which approximates market value. At
December 31, 1997, all short-term investments were in commercial paper with less
than six months remaining to maturity.

         Deferred Disposition Fees
         -------------------------

         As discussed in Note 1, disposition fees due to AEW related to sales of
investments are included in the determination of gains or losses resulting from
such transactions. According to the terms of the advisory contract, payment of
such fees has been deferred until the limited partners first receive their
capital contributions, plus a stipulated return thereon.

         Income Taxes
         ------------

         A partnership is not liable for income taxes and, therefore, no
provision for income taxes is made in the financial statements of the
Partnership. A proportionate share of the Partnership's income is reportable on
each partner's tax return.

         Per Unit Computations
         ---------------------

         Net income per unit is computed based on the weighted average number of
units of limited partnership interest outstanding during the year. The actual
per unit amount will vary by partner depending on the date of admission to, or
withdrawal from, the Partnership.

         Segment Data
         ------------

         Effective January 1, 1998, the Partnership adopted Financial Accounting
Standards Board Statement No. 131, "Disclosure about Segments on an Enterprise
and Related Information" (FAS 131). Based on the criteria established in FAS
131, the Managing General Partner has determined that the Partnership operates
in one operating segment which is investing in real estate properties which are
domiciled in the United States of America.


NOTE 3 - REAL ESTATE JOINT VENTURES
-----------------------------------

         The Partnership had invested in eight real estate joint ventures, each
organized as general partnerships with a real estate development/management firm
and, in two cases, with an affiliate of the Partnership. Two joint venture
projects were sold in 1994, three joint ventures were converted to wholly-owned
investments in 1995 and two joint ventures were converted to wholly-owned
investments 
<PAGE>
 
in 1996. Joint venture investments are in either of two forms. In one form, the
Partnership makes an equity contribution which is subject to preferential cash
distributions at a specified rate and to priority distributions with respect to
sale or refinancing transactions. In the second form of joint venture, the
Partnership makes an equity contribution to the venture, subject to preferential
returns, and also makes a loan to its venture partner which, in turn,
contributes the proceeds to the venture. The loans bear interest at a specified
rate, mature in full in ten years, and are secured by the venture partner's
interest in the venture. These loans have been accounted for as a real estate
investment due to the attendant risks of ownership. The joint venture agreements
provide for the funding of cash flow deficits in proportion to ownership
interests and for the dilution of ownership share in the event a venture partner
does not contribute proportionately.

         The respective real estate management/development firm is responsible
for day-to-day development and operating activities, although overall authority
and responsibility for the business is shared by the venturers. The real estate
development/management firms or their affiliates also provide various services
to the respective joint ventures for a fee.

         The following is a summary of cash invested in the Partnership's
remaining joint venture, net of returns of capital and excluding acquisition
fees:
<TABLE>
<CAPTION>

                         Original                        December 31,
  Investment/            Rate of         Ownership --------------------------
   Location           Return/Interest    Interest      1998          1997 
--------------       -----------------  ---------- ------------  ------------
<S>                  <C>                <C>        <C>           <C>

Columbia Gateway
 Corporate Park
  Columbia, MD             10.5%          15.25%    $5,517,497    $5,517,497

</TABLE>

         Waters Landing II
         -----------------

         On May 26, 1987, the Partnership entered into a joint venture with an
affiliate of Oxford Development Corporation to acquire land and develop an
apartment complex.

         The Waters Landing II joint venture was restructured, and the
investment is being accounted for as a wholly-owned property effective April 1,
1996. (See Note 4.)

         University Business Park
         ------------------------

         On September 30, 1987, the Partnership entered into a joint venture
agreement with an affiliate of The Hewson Company. Effective January 1, 1996,
the joint venture was dissolved and the venture partner's ownership interest was
assigned to the Partnership. (See Note 4.)

         Columbia Gateway Corporate Park
         -------------------------------

         On December 21, 1987, the Partnership entered into a joint venture
agreement with an affiliate of the Partnership and an affiliate of Manekin
Corporation to construct and operate seven research and development /office
buildings, of which six have been constructed to date. The Partnership committed
to make a $6,402,000 equity contribution to the joint venture. The Partnership
and its affiliate collectively had a 50% ownership interest in the joint
venture. Ownership of the Columbia Gateway Corporate Park joint venture has been
restructured whereby the Partnership and its affiliate obtained additional
control over the business of the joint venture effective January 1, 1998. The
minimum future rental payments to the venture under non-cancelable operating
leases are: $1,524,603 in 1999; $827,454 in 2000; $726,557 in 2001; $736,016 in
2002 and $745,758 in 2003.
<PAGE>
 
Summarized Financial Information
--------------------------------

         The following summarized financial information is presented in the
aggregate for Columbia Gateway Corporate Park joint venture :

                            Assets and Liabilities
                            ----------------------
<TABLE>
<CAPTION>
                                                                      December 31, 
                                                             -----------------------------
                                                                  1998            1997 
                                                             --------------  -------------
<S>                                                          <C>              <C>
Assets                                                
     Real property, at cost less                      
       accumulated depreciation of                    
       $1,829,627 and $1,506,022,                     
       respectively                                            $ 15,881,624   $ 15,781,399
     Other                                                          742,813        739,025
                                                               ------------   ------------
                                                                 16,624,437     16,520,424
                                                      
Liabilities                                                         264,579        192,816
                                                               ------------   ------------
                                                      
Net assets                                                     $ 16,359,858   $ 16,327,608
                                                               ============   ============

<CAPTION>

                              Result of Operations
                              --------------------
    
                                                    Year ended December 31,         
                                     ------------------------------------------------------
                                            1998               1997                   1996 
                                           ------             ------                 ------
<S>                                <C>                 <C>                 <C>                
Revenue               
      Rental income                 $       2,312,692   $     1,953,704      $       1,941,458
       Other income                            15,809                20                 18,163
                                    -----------------   ---------------      -----------------
                                            2,328,501         1,953,724              1,959,621
                                    -----------------   ---------------      -----------------
                      
Expenses              
       Operating expenses                     560,829           461,780                482,749
       Depreciation and amortization          323,605           364,595                295,841
                                    -----------------   ---------------      -----------------
                                              884,434           826,375                778,590
                                    -----------------   ---------------      -----------------
                      
Net Income                          $       1,444,067   $     1,127,349      $       1,181,031
                                    =================   ===============      =================
</TABLE>
                      
                      
                      
         Liabilities and expenses exclude amounts owed and attributable to the
Partnership and its affiliate on behalf of its various financing arrangements
with the joint venture.


NOTE 4 - PROPERTY
-----------------

        Palms Business Center III and IV
        --------------------------------

        Effective January 1, 1995, the Palms Business Center joint venture was
restructured and the venture partner's ownership interest was assigned to the
Partnership. The carrying value at conversion ($10,308,265) was allocated to
land, building and improvements and other net operating assets.

        The buildings and improvements (thirteen commercial buildings in Las
Vegas, Nevada) were being depreciated over 25 years, beginning January 1, 1995.

        On October 24, 1997, the Partnership sold the Palm Business Center III &
IV property for $18,000,000. The Partnership received net proceeds of
$17,823,259 and recognized a gain of $8,016,586 ($96.39 per limited partnership
unit at December 31, 1997). A disposition fee of $540,000 
<PAGE>
 
was accrued but not paid to AEW. On November 25, 1997, the Partnership made a
capital distribution of $17,784,576 ($216 per limited partnership unit) from the
sale proceeds. In addition, a portion of the proceeds was used to pay previously
accrued but deferred management fees to AEW of $59,424.

        Santa Rita Plaza
        ----------------

         Effective August 1, 1995, the Santa Rita Plaza joint venture was
restructured into a limited partnership, whereby the Partnership was granted
control over management decisions. Accordingly, the investment is being
accounted for as a wholly-owned property as of that date. The carrying value of
the joint venture investment at conversion ($10,216,659) was allocated to
building and improvements, mortgage loan receivable from the ground lessor and
other net operating assets. On this same date, the Partnership made a
fifteen-year loan in the amount of $1,750,000 to the ground lessor, which used a
portion of the proceeds to repay a loan from the Santa Rita venture which, in
turn, paid approximately $1,300,000 to the Partnership as a partial return of
its capital investment in the venture. The Partnership can require full payment
of the loan after August 1, 2000. The ground lease requires an annual base
payment of $390,000 per year through 2063, plus 11.55% of rents, as defined.

        The buildings and improvements (a shopping center in Salinas,
California) are being depreciated over 25 years beginning August 1, 1995. The
loan to the ground lessor bears interest at 8.75%, with payments to be made
monthly based on a 15 year amortization schedule, and is secured by the ground
lessor's interest in the Santa Rita Plaza land.

        Dahlia
        ------

         Effective September 1, 1995, the Dahlia joint venture was restructured
into a limited partnership, whereby the Partnership was granted control over
management decisions. Accordingly, the investment is being accounted for as a
wholly-owned property as of that date. The carrying value at conversion
($7,413,175) was allocated to land, building and improvements, and other net
operating assets. During 1993, the joint venture agreed to a settlement with a
former tenant for past due rent. This settlement was secured by an attachment on
36 acres of land in Arizona. During the first quarter of 1996, the land was
liquidated. The Partnership received $332,489, which exceeded the carrying value
of the receivable by approximately $32,000.

        The buildings and improvements (a warehouse facility in Fontana,
California) are being depreciated over 25 years beginning September 1, 1995.

        Puente Street
        -------------

        Effective June 1, 1991, the Partnership assumed total ownership of this
property due to the venture partner's inability to fund its proportionate share
of operating deficits. The property originally included an industrial building,
together with a parking lot and storage area in Brea, California. During the
fourth quarter of 1998, a 53,000 square-foot build-to-suit facility was
completed on Partnership land.

         The Managing General Partner determined that the carrying value of the
original investment exceeded its estimated net realizable value because of the
effect of depressed market conditions on rental rates. Accordingly, the carrying
value was reduced to its estimated net realizable value by $2,900,000 prior to
January 1, 1995.

         The original building and improvements are being depreciated over 30
years beginning June 1, 1991. The depreciation of the new building is also over
a 30-year period, commencing during the fourth quarter of 1998.

         In 1995, the Partnership was named as a defendant in a complaint filed
in the Superior Court of the State of California for the County of Orange by an
existing tenant, Bridgeport Management Services, Inc. alleging breach of lease.
The Partnership filed an answer denying the allegations presented by the
plaintiff. This litigation was settled during the second quarter of 1997. The
settlement provided for this tenant to assign its lease to the other existing
tenant, 20th Century Plastics. This transfer has occurred and Bridgeport
Management Services, Inc. is now sub-leasing the space from 20th Century
Plastics.
<PAGE>
 
         University Business Park
         ------------------------

         Effective January 1, 1996, the University Business Park joint venture
was dissolved and the venture partner's ownership interest was assigned to the
Partnership. The carrying value of the joint venture investment at conversion
($5,630,581) was allocated to land, building and improvements and other net
operating assets.

         The building and improvements (five industrial buildings in Phoenix,
Arizona) are being depreciated over 25 years, beginning January 1, 1996.

         The University Business Park property was sold on May 28, 1997. The
Partnership received net proceeds of $7,994,130 and recognized a gain of
$2,160,404 ($25.96 per limited partnership unit at June 30, 1997). A disposition
fee of $250,500 was accrued but not paid to AEW. On June 30, 1997, the
Partnership made a capital distribution of $7,579,696 ($92 per limited
partnership unit) from the proceeds. In addition, a portion of the proceeds was
used to pay previously accrued but deferred management fee to AEW of $388,320.

         Waters Landing II
         -----------------

         In the second quarter of 1996, the Waters Landing II joint venture was
restructured and the venture partner's ownership interest was assigned to the
Partnership. Since April 1, 1996, the investment has been accounted for as a
wholly-owned property. The carrying value of the joint venture investment at
conversion ($1,491,742) was allocated to land and the investment valuation
allowance.

         During the second quarter of 1995, the Managing General Partner
determined that it was not in the best interest of the limited partners to
develop the Waters Landing II site, which is located in Germantown, Maryland.
Accordingly, the carrying value of the joint venture investment was reduced to
its estimated net fair market value with the recognition of an investment
valuation allowance of $600,000.

         In early November, 1998, a Purchase and Sale agreement was executed by
the Partnership to sell the Waters Landing II investment. Although there can be
no assurance that this sale will occur, it is expected to be concluded during
the second quarter of 1999.


         The following is a summary of the Partnership's four investments in
property:
<TABLE>
<CAPTION>

                                                      December 31,   
                                           -----------------------------------
                                                 1998               1997    
                                           ---------------    ----------------
<S>                                        <C>               <C>

         Land                              $     5,953,466   $       7,445,208
         Buildings and improvements             24,964,136          22,936,747
         Accumulated depreciation               (3,664,791)         (2,805,296)
         Impairment provision                   (3,500,000)         (3,500,000)
         Loan to ground lessor                   1,524,916           1,597,866
         Lease commissions and
             other assets, net                   1,576,883           1,388,391
         Accounts receivable                       551,538             515,182
         Accounts payable                         (224,371)           (290,731)
         Property held for disposition           1,491,742                   -
                                           ---------------    ----------------
                                           $    28,673,519   $      27,287,367
                                           ===============   =================
</TABLE>

         Tenant leases provide for minimum rents, subject to periodic
adjustment. Tenants are also generally obligated to reimburse their pro-rata
share of operating expenses. The minimum rents due under non-cancelable
operating leases at all of the Partnership's properties are as follows:
$3,340,099 in 1999; $3,179,588 in 2000; $2,714,784 in 2001; $2,412,203 in 2002;
$2,070,795 in 2003 and $4,840,237 thereafter.
<PAGE>
 
NOTE 5 - INCOME TAXES
---------------------

         The Partnership's income for federal income tax purposes differs from
that reported in the accompanying statement of operations as follows:

<TABLE>
<CAPTION>
                                                             Year ended December 31,           
                                       --------------------------------------------------------- 
                                             1998                 1997                1996 
                                       ----------------    -----------------   -----------------
<S>                                    <C>                 <C>                 <C>

Net income per financial statements    $       2,175,480   $      13,153,920   $      3,392,534
Timing differences:
  Joint venture earnings                          77,713              48,147             87,002
  Property rentals                                34,398             (11,223)           (77,972)
  Expenses                                       147,427            (258,142)           230,364
  Depreciation and amortization                  (64,957)            (51,506)           (61,668)

  Investment valuation allowances                      -                   -                  -
  Gain on sale                                         -            (614,595)                 -
                                       -----------------   ------------------  ----------------

Taxable income                         $       2,370,061   $      12,266,601     $    3,570,260
                                       =================   =================     ==============
</TABLE>



NOTE 6 - PARTNERS' CAPITAL
--------------------------

         Allocation of net income from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partners. Cash distributions are made
quarterly.

         Net sale proceeds and financing proceeds are allocated first to limited
partners to the extent of their contributed capital plus a stipulated return
thereon, as defined, second to pay disposition fees, and then 85% to the limited
partners and 15% to the general partners. The adjusted capital contribution per
limited partnership unit was reduced from $1,000 to $952 in 1994, then to $924
in 1995, and further reduced to $616 in 1997, as a result of the return of
capital from the sale of four investments. No capital distributions have been
made to the general partners. Income from a sale is allocated in proportion to
the distribution of related proceeds, provided that the general partners are
allocated at least 1%. Income or losses from a sale, if there are no residual
proceeds after the repayment of the related debt, will be allocated 99% to the
limited partners and 1% to the general partners.

NOTE 7 - SUBSEQUENT EVENT
-------------------------

         Distributions of cash from operations relating to the quarter ended
December 31, 1998 were made on January 28, 1999 in the aggregate amount of
$735,899 ($8.86 per limited partnership unit).
<PAGE>
 
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
              SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AT DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                        Initial Cost to
                                                                        the Partnership
                                                   -------------------------------------------------------------------
                                                                                 Lease Comm.
                                                                   Buildings &     & Other            Other Net
Description                                          Land         Improvements   Capital Costs    Assets (Liabilities)
-------------------------------------------------  -------------------------------------------------------------------
<S>                                                <C>            <C>            <C>              <C>

Brea, CA.
 - Puente Street (See Note A)                      $3,985,498      $8,542,701     $1,273,000            ($619)

Las Vegas, NV.
 - Palms Business Center III and IV (See Note A)    2,195,482       7,783,981        115,493          213,309
                                                
Fontana, CA.                                                                                                 
 - Dahlia (See Note A)                              1,367,969       5,471,878        227,625          345,703
 
Salinas, CA.
 - Santa Rita Plaza (See Note A)                            0       8,056,722        196,574        1,963,363
 
Germantown, MD
 - Waters Landing II (See Note A)                   2,091,742               0              0                0

Phoeniz, AZ
 - University Business Park                         1,834,355        3,724,297        86,200          (14,271)
                                                 ============================================================
Total Wholly-Owned Property                       $11,475,046      $33,579,579    $1,898,892       $2,507,485
                                                 ============================================================
                                                      
15.25% interest in Columbia
Gateway Corporate Park                           
                                                 ------------------------------------------------------------
                                                      
Partnership. Develop and operate                      
office/R & D bldgs. in Columbia, MD.
                                                      
                                                 ------------------------------------------------------------
         Total Joint Ventures
                                                 ------------------------------------------------------------
</TABLE> 

<TABLE> 
<CAPTION> 
                                                                                 Costs Subsequent
                                                                                  to Acquisition
                                                  ----------------------------------------------------------------------------------

                                                                                             
                                                                               Write off of
                                                  Buildings    Write off of  Lease Commissions                       Change in     
                                                     and          Tenant          & Other       Write down           Other Net      

Description                                      Improvements  Improvements      Cap. Costs     of Property     Assets (Liabilities)

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

<S>                                              <C>            <C>             <C>            <C>              <C>
Brea, CA.                                                                                                                          
 - Puente Street (See Note A)                     $2,709,518     ($409,228)     ($1,273,000)   ($2,900,000)        $1,244,996    
                                                                                                                                   
Las Vegas, NV.                                                                                                                     
 - Palms Business Center III and IV (See Note A)      65,573             0                0              0            (75,052)   
                                                                                                                                   
Fontana, CA.                                                                                                                        

 - Dahlia (See Note A)                               194,540             0                0              0            (75,501)   
                                                                                                                                   
Salinas, CA.                                                                                                                       
 - Santa Rita Plaza (See Note A)                     398,005             0                0              0            209,571    
                                                                                                                                   
Germantown, MD                                                                                                                     
 - Waters Landing II (See Note A)                          0             0                0       (600,000)                 0   
                                                                                                                                   
Phoeniz, AZ                                                                                                                        
 - University Business Park                          121,932             0                0              0            113,041       

                                                  ==================================================================================

Total Wholly-Owned Property                       $3,489,568     ($409,228)     ($1,273,000)   ($3,500,000)        $1,417,055 
                                                  ==================================================================================

                                                                                                             
15.25% interest in Columbia                                                 
Gateway Corporate Park                                                           See Note B
                                                  -------------------------------------------------------
Partnership. Develop and operate                                            
office/R & D bldgs. in Columbia, MD.                                        
                                                  -------------------------------------------------------
                                                                            
         Total Joint Ventures                                               
                                                  -------------------------------------------------------
</TABLE> 

<TABLE> 
<CAPTION> 
                                                                               Balance at end of year
                                                   ---------------------------------------------------------------------------------

                                                                                                                      Accumulated   

                                                               Buildings &       Other      Disposal                  Depreciation  

Description                                            Land    Improvements   Net Assets    of Asset    Total       and Amortization

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

<S>                                                 <C>        <C>          <C>            <C>          <C>         <C>
Brea, CA.                                                                                                                         
 - Puente Street (See Note A)                       $3,985,498  $7,942,991  $1,244,377           $0      $13,172,866   $(2,031,636)
                                                                                                                   
Las Vegas, NV.                                                                                                              
 - Palms Business Center III and IV (See Note A)     2,195,482   7,849,554     253,750  (10,298,786)               0             0
                                                                                                                            
Fontana, CA.                                                                                                       
 - Dahlia (See Note A)                               1,367,969   5,666,418     497,827            0        7,532,214      (851,415)
                                                                                                                            
Salinas, CA.                                                                                                                  
 - Santa Rita Plaza (See Note A)                             0   8,454,727   2,369,508            0       10,824,235    (1,475,835) 
                                                                                                                            
Germantown, MD                                                                                                              
 - Waters Landing II (See Note A)                    1,491,742           0           0            0        1,491,742             0
                                                                                                                            
Phoeniz, AZ                                                                                                                 
 - University Business Park                          1,834,354   3,846,230     184,970   (5,854,206)          11,348(1)          0
                                                    ================================================================================

Total Wholly-Owned Property                         $10,875,04  $33,759,920 $4,550,432 ($16,152,992)     $33,032,405   $(4,358,886)
                                                    ================================================================================

15.25% interest in Columbia                                                 
Gateway Corporate Park                                                                                    $4,843,933      N/A
                                                    --------------------------------------------------------------------------------

Partnership. Develop and operate                              
office/R & D bldgs. in Columbia, MD.                          
                                                              
                                                    --------------------------------------------------------------------------------

         Total Joint Ventures                                                                             $4,843,933 
                                                    --------------------------------------------------------------------------------

</TABLE> 

<TABLE> 
<CAPTION> 
                                                         Date of         Date         Depreciable
Description                                           Construction     Acquired          Life
---------------------------------------------------  -------------  --------------  --------------
<S>                                                  <C>            <C>             <C>                            
Brea, CA.                                       
 - Puente Street (See Note A)                             1989        6/1/91            30 Years 
                                                        
Las Vegas, NV.                                   
 - Palms Business Center III and IV (See Note A)        Lease-up      3/7/88            25 Years 
                                                
Fontana, CA.                                            
 - Dahlia (See Note A)                                    1990       9/21/87            25 Years 
                                                
Salinas, CA.                                             
 - Santa Rita Plaza (See Note A)                          1990        2/1/89            25 Years 
                                                
Germantown, MD                                          To be                                 
 - Waters Landing II (See Note A)                    Constructed     5/26/87              Land 
                                                
Phoeniz, AZ                                    
 - University Business Park                               1991       9/30/87            30 Years 
                                                
Total Wholly-Owned Property                     
                                                         


15.25% interest in Columbia
Gateway Corporate Park                          Phase I - 1990      12/21/87            50 Years
                                                      
Partnership. Develop and operate                Phase II - Under Construction
office/R & D bldgs. in Columbia, MD.
                                                      
         Total Joint Ventures
</TABLE> 
                                                      
(1)  Represents remaining working capital  at 12/31/98

                                       57
<PAGE>
 

NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------------------------------------------
NOTE   A TO SCHEDULE III

<TABLE>
<CAPTION>
                                        Balance    Conversion to Additions to  Additons/                   Change in    
                                        as of      Wholly-Owned     Lease     Deletions to Write Down  Property Working  Disposal
Description                            12/31/95      Property    Commissions    Property   of Property      Capital      of Asset
-------------------------------------- ----------- ------------- ------------ ------------ ----------- ---------------- ----------
<S>                                    <C>         <C>           <C>          <C>          <C>         <C>              <C>
Brea, CA.                                                                                                               
 - Puente Street                       $10,992,487            $0  $58,848              $0          $0        $42,589           $0

Las Vegas, NV.                                                                                                          
 - Palms Business Center III and IV     10,213,358             0   18,908          16,908           0         63,181            0

Fontana, CA.                                                                                                            
 - Dahlia                                7,376,162             0    1,860               0           0       (290,044)           0

Salinas, CA.                                                                                                            
 - Santa Rita Plaza                     10,421,259             0   27,868         253,368           0       (156,141)           0

Germantown, MD                                                                                                          
 - Waters Landing II                             0     1,491,742        0               0           0              0            0

Phoenix, AZ                                                                                                             
 - University Business Park                      0     5,630,581   19,141          64,697           0        (71,265)           0
                                       ----------- ------------- ------------ ------------ ----------- -------------- -----------
Total Wholly-Owned Property            $39,003,266    $7,122,323 $126,625        $334,973          $0      ($411,680)          $0
                                       =========== ============= ============ ============ =========== ============== ============

<CAPTION>
                                                     12/31/95          1996              1996                   12/31/96        
                                      Balance      Accumulated     Depreciation      Depreciation              Accumulated      
                                       as of     Depreciation and and Amortization and Amortization Disposal Depreciation and   
Description                           12/31/96     Amortization       Expense          Subtotal     of Asset   Amortization     
-----------------------------------   --------   ---------------- ---------------- ---------------- -------- ---------------    
<S>                                   <C>        <C>              <C>              <C>              <C>      <C>               
Brea, CA.                                                                                                
 - Puente Street                     $11,093,924     $1,267,937     ($248,209)        $1,516,146       $0       $1,516,146 
                                                                                                                           
Las Vegas, NV.                                                                                                             
 - Palms Business Center III and IV   10,312,355        395,448      (346,036)          $741,484        0         $741,484 
                                                                                                                           
Fontana, CA.                                                                                                               
 - Dahlia                              7,087,978         42,908      (258,685)          $301,593        0         $301,593 
                                                                                                                           
Salinas, CA.                                                                                                               
 - Santa Rita Plaza                   10,546,354        238,920      (365,154)          $604,074        0         $604,074 
                                                                                                                           
Germantown, MD                                                                                                             
 - Waters Landing II                   1,491,742              0             0                 $0        0               $0 
                                                                                                                           
Phoenix, AZ                                                                                                                
 - University Business Park            5,643,154              0      (183,456)          $183,456        0         $183,456 
                                     -----------    ------------ ------------- ------------------ --------- ---------------
Total Wholly-Owned Property          $46,175,507     $1,945,213   ($1,401,540)        $3,346,753       $0       $3,346,753 
                                     ===========    ============ ============= ================== ========= =============== 

-----------------------------------------------------------------------------
<CAPTION> 

                                      Balance    Conversion to Additions to Additions/                   Change in    
                                      as of      Wholly-Owned     Lease     Deletions to Write Down  Property Working Disposal
Description                          12/31/96      Property    Commissions    Property   of Property      Capital     of Asset
------------------------------------ ----------- ------------- ------------ ------------ ----------- ---------------- ----------
<S>                                    <C>          <C>           <C>          <C>         <C>          <C>              <C>
Brea, CA.                           
 - Puente Street                     $11,093,924            $0      $88,482     $261,312         $0         ($19,065)           $0

Las Vegas, NV.                                                                                                        
 - Palms Business Center III and IV   10,312,355             0        5,011            0          0          (23,572)  (10,298,786)

Fontana, CA.                                                                                                          
 - Dahlia                              7,087,978             0            0        6,727          0           30,597             0

Salinas, CA.                                                                                                          
 - Santa Rita Plaza                   10,546,354             0        5,273      (76,000)         0           94,266             0

Germantown, MD                                                                                                        
 - Waters Landing II                   1,491,742             0            0            0          0                0             0

Phoenix, AZ                                                                                                           
 - University Business Park            5,643,154             0        7,553       57,235          0          184,137    (5,854,206)
                                     ------------ ------------- ------------ ------------ ----------- --------------- --------------
Total Wholly-Owned Property          $46,175,507            $0     $106,319     $249,274         $0         $266,363  ($16,152,992)
                                     ============ ============= ============ ============ =========== ================ =============






<CAPTION> 
                                                   12/31/96          1997              1997                            12/31/97
                                    Balance      Accumulated     Depreciation      Depreciation                      Accumulated
                                     as of     Depreciation and and Amortization and Amortization     Disposal     Depreciation and
Description                         12/31/97     Amortization       Expense          Subtotal         of Asset       Amortization
----------------------------------- ---------- ---------------- ---------------- ---------------- ---------------- -----------------
<S>                                 <C>        <C>              <C>              <C>              <C>              <C>           
Brea, CA.                                                                                                          
 - Puente Street                    $11,424,653      $1,516,146     ($248,140)        $1,764,286                        $1,764,286

Las Vegas, NV.                                                                                                     
 - Palms Business Center III and IV      (4,992)(1)     741,484      (290,629)        $1,032,113     (1,032,113)                 0

Fontana, CA.                                                                                                       
 - Dahlia                             7,125,302         301,593      (258,789)          $560,382                           560,382

Salinas, CA.                                                                                                       
 - Santa Rita Plaza                  10,569,893         604,074      (428,362)        $1,032,436                         1,032,436

Germantown, MD                                                                                                     
 - Waters Landing II                  1,491,742               0             0                 $0                                 0

Phoenix, AZ                                                                                                        
 - University Business Park              37,873(1)      183,456       (87,524)          $270,980         (270,980)               0
                                    -----------   ------------- --------------   ---------------  ---------------- ---------------
Total Wholly-Owned Property         $30,644,671      $3,346,753   ($1,313,444)        $4,660,197      ($1,303,093)      $3,357,104
                                    ===========   ============= ==============   ================ ================ ================


(1)  Represents remaining working capital  at 12/31/97
                                                                      66860Salinas ground lease, in investing activity on c/f
                                                           -----------------
                                                                  $333,223 subtotal
                                                                    333,224increase in w/c per c/f
                                                                        -1 variance
                                                            ================


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

<CAPTION> 
                                        Balance    Conversion to Additions to  Additions/                  Change in    
                                        as of      Wholly-Owned     Lease     Deletions to Write Down  Property Working Disposal
Description                            12/31/97      Property    Commissions    Property   of Property      Capital     of Asset
-------------------------------------------------- ------------- ------------ ------------ ----------- ---------------- ----------
<S>                                    <C>          <C>           <C>          <C>         <C>          <C>              <C>
Brea, CA.
 - Puente Street                       $11,424,653           $0       $73,988   $1,671,440          $0           $2,785         $0

Las Vegas, NV.                                                                                                          
 - Palms Business Center III and IV         (4,992)           0             0            0           0            4,992          0

Fontana, CA.                                                                                                            
 - Dahlia                                7,125,302            0       129,939      187,813           0           89,160          0

Salinas, CA.                                                                                                            
 - Santa Rita Plaza                     10,569,893            0        20,765      168,137           0           65,440          0

Germantown, MD                                                                                                          
 - Waters Landing II                     1,491,742            0             0            0           0                0          0

Phoenix, AZ                                                                                                             
 - University Business Park                 37,873            0             0            0           0          (26,525)         0
                                       -----------  ------------ ------------ ------------- ----------- ---------------- ---------
Total Wholly-Owned Property            $30,644,471           $0      $224,692   $2,027,390          $0         $135,852         $0
                                       ============ ============ ============ ============= =========== ================ =========


<CAPTION> 
                                                   12/31/97          1998              1998                            12/31/98
                                    Balance      Accumulated     Depreciation      Depreciation                      Accumulated
                                     as of     Depreciation and and Amortization and Amortization     Disposal     Depreciation and
Description                         12/31/98     Amortization       Expense          Subtotal         of Asset       Amortization
----------------------------------- ---------- ---------------- ---------------- ---------------- ---------------- -----------------
<S>                                 <C>        <C>              <C>              <C>              <C>              <C>           
Brea, CA.                                                                                                                    
 - Puente Street                    $13,172,866   $1,764,286        ($276,350)      $2,031,636         $0              $2,031,636

Las Vegas, NV.                                                                                                               
 - Palms Business Center III and IV           0            0                0                0          0                       0

Fontana, CA.                                                                                                                 
 - Dahlia                             7,532,214      560,382         (291,033)         851,415          0                 851,415

Salinas, CA.                                                                                                                 
 - Santa Rita Plaza                  10,824,235    1,032,436         (443,399)       1,475,835          0               1,475,835

Germantown, MD                                                                                                               
 - Waters Landing II                  1,491,742            0                0                0          0                       0

Phoenix, AZ                                                                                                                  
 - University Business Park              11,348(1)         0                0                0          0                       0
                                    -----------   ----------      ------------      ----------    --------------       ---------- 
Total Wholly-Owned Property         $33,032,405   $3,357,104      ($1,001,782)      $4,358,886         $0              $4,358,886
                                    ============  ==========      ============      ==========    ==============       ==========
</TABLE> 

(1) Represents remaining working capital  at 12/31/98

                      72,951 Salinas ground lease, in investing activity on c/f
                    --------
                    $208,803 subtotal
                     208,803 increase in w/c per c/f
                           0 variance
                    ========

<PAGE>
 

NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------
NOTE B TO SCHEDULE III

<TABLE> 
<CAPTION> 
                                                                                                              CASH
                                                BALANCE         CASH       EQUITY IN  1996 AMORTIZATION   DISTRIBUTED              
                                 PERCENT OF      AS OF     INVESTMENTS IN   INCOME/     OF DEFERRED         FROM        WRITE-DOWN 
DESCRIPTION                      OWNERSHIP     12/31/95    JOINT VENTURES   (LOSS)    ACQUISITION FEES   JOINT VENTURE  OF PROPERTY
-------------------------------  ----------  -----------  --------------  ----------  -----------------  -------------  -----------
<S>                              <C>         <C>          <C>             <C>        <C>                <C>             <C> 
Waters Landing II (2)                  60%   $ 1,491,742           $0      $      0               $0        $      0          $0 
                                                                                                                                 
University Business Park (1)           60%     5,630,581            0             0                0               0           0 
                                                                                                                                 
Columbia Gateway Corporate Park     15.25      4,699,450            0       360,214           (1,941)       (335,500)          0 
                                             -----------  --------------  ---------  -----------------  -------------  -----------
                                             $11,821,773           $0      $360,214          $(1,941)      ($335,500)         $0  
                                             ===========  ==============  =========  =================  =============  ===========

<CAPTION> 
                                 CONVERSION TO    BALANCE     
                                 WHOLLY-OWNED      AS OF      
                                   PROPERTY      12/31/96     
                                 -------------  ----------
<S>                              
Waters Landing II (2)             ($1,491,742)  $        0 
                                                                                                                          
University Business Park (1)       (5,630,581)           0
                                                 
Columbia Gateway Corporate Park             0    4,722,223 
                                  -----------   ----------  
                                  ($7,122,323)  $4,722,223                                                               
                                  =========  ============= 
</TABLE> 
(1) Effective January 1, 1996 converted to wholly-owned property.
(2) Effective April 1, 1996 converted to wholly-owned property.

<TABLE>    
<CAPTION>  
                                                                                                              CASH                 
                                                BALANCE         CASH       EQUITY IN  1996 AMORTIZATION   DISTRIBUTED              
                                 PERCENT OF      AS OF     INVESTMENTS IN   INCOME/     OF DEFERRED         FROM        WRITE-DOWN 
DESCRIPTION                      OWNERSHIP     12/31/96    JOINT VENTURES   (LOSS)    ACQUISITION FEES   JOINT VENTURE  OF PROPERTY
-------------------------------  ----------  -----------  --------------  ----------  -----------------  -------------  -----------
<S>                              <C>         <C>          <C>             <C>        <C>                <C>             <C>        
Columbia Gateway Corporate Park     15.25%    4,722,223               0      343,841           (1,939)       (228,086)           0 
                                             -----------  --------------  ----------  -----------------  -------------  -----------
                                             $4,722,223              $0     $343,841          $(1,939)      ($228,086)          $0 
                                             ===========  ==============  ==========  =================  =============  ========== 
                                                                                                                                   
<CAPTION>                                                                                                                          
                                 CONVERSION TO    BALANCE                                                                          
                                 WHOLLY-OWNED      AS OF                                                                           
DESCRIPTION                        PROPERTY      12/31/97                                                                          
-------------------------------  -------------  ----------                                                                         
<S>                                                                                                                                
Columbia Gateway Corporate Park             0    4,836,039                                                                         
                                 -------------  ----------                                                                         
                                           $0   $4,836,039                                                                         
                                 =============  ==========                                                                          
</TABLE> 
<TABLE> 
<CAPTION>
                                                                                                              CASH                 
                                                BALANCE         CASH       EQUITY IN  1998 AMORTIZATION   DISTRIBUTED              
                                 PERCENT OF      AS OF     INVESTMENTS IN   INCOME/     OF DEFERRED         FROM        WRITE-DOWN 
DESCRIPTION                      OWNERSHIP     12/31/97    JOINT VENTURES   (LOSS)    ACQUISITION FEES   JOINT VENTURE  OF PROPERTY
-------------------------------  ----------  -----------  --------------  ----------  -----------------  -------------  -----------
<S>                              <C>         <C>          <C>             <C>        <C>                <C>             <C>        
Columbia Gateway Corporate Park     15.25%    4,836,039               0      440,440           (1,940)       (430,606)           0 
                                             -----------  --------------  ----------  -----------------  -------------  -----------
                                             $4,836,039              $0     $440,440          $(1,940)      ($430,606)          $0 
                                             ===========  ==============  ==========  =================  =============  ========== 
                                                                                                                                   
<CAPTION>                                                                                                                          
                                 CONVERSION TO    BALANCE                                                                          
                                 WHOLLY-OWNED      AS OF                                                                           
DESCRIPTION                        PROPERTY      12/31/98
-------------------------------  -------------  ----------                                                                         
<S>                                                                                                                                
Columbia Gateway Corporate Park             0    4,843,933                                                                         
                                 -------------  ----------                                                                         
                                           $0   $4,843,933                                                                         
                                 =============  ==========                                                                          

</TABLE> 

<PAGE>
 
                             FINANCIAL STATEMENTS
                                  INDEX NO. 2

                   Auditor's Report and Financial Statements

                           of Gateway 51 Partnership






   Independent Auditor's Report of Wolpoff and Company, LLP

   Balance Sheet - December 31, 1998 and 1997

   Statement of Income - For the Years ended December 31, 1998, 1997 and 1996

   Statement of Partners' Capital - For the Years ended December 31,
   1998, 1997 and 1996

   Statement of Cash Flows - For the Years ended December 31, 1998, 1997
   and 1996

   Notes to Financial Statements

                                       37
<PAGE>
 
                             GATEWAY 51 PARTNERSHIP
                        (A MARYLAND GENERAL PARTNERSHIP)

                                FINANCIAL REPORT

                               DECEMBER 31, 1998

                                       38
<PAGE>
 
                             GATEWAY 51 PARTNERSHIP
                             ----------------------
                        (A MARYLAND GENERAL PARTNERSHIP)
                        --------------------------------

                                    CONTENTS
                                    --------
    
                               DECEMBER 31, 1998
                               ----------------- 

<TABLE>
<S>                                                    <C>    

INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS                    1


FINANCIAL STATEMENTS

         Balance Sheet                                                  2 - 3

         Statement of Income                                            4

         Statement of Partners' Capital                                 5

         Statement of Cash Flows                                        6

         Notes to Financial Statements                                  7 - 10


INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION               11


SUPPLEMENTARY INFORMATION

         Schedule of Partners' Capital                                  12

         Schedule of Changes in Partners' Capital - Income Tax Basis    13
</TABLE>

                                       39
<PAGE>
 
                    [LETTERHEAD OF WOLPOFF & COMPANY, LLP]

To the Partners
Gateway 51 Partnership (A Maryland General Partnership)
Columbia, Maryland


              INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
              ----------------------------------------------------


We have audited the balance sheet of Gateway 51 Partnership (A Maryland General
Partnership) as of December 31, 1998 and 1997, and the related statements of
income, partners' capital, and cash flows for each of the three years in the
period ended December 31, 1998, 1997, and 1996. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gateway 51 Partnership (A
Maryland General Partnership) as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, 1997, and 1996, in conformity with generally accepted
accounting principles.


                                        /s/ Wolpoff & Company, LLP
                                        -------------------------- 
                                        WOLPOFF & COMPANY, LLP


Baltimore, Maryland
January 13, 1999

                                       40
<PAGE>
 
                             GATEWAY 51 PARTNERSHIP
                             ----------------------
                        (A MARYLAND GENERAL PARTNERSHIP)
                        --------------------------------

                                  BALANCE SHEET
                                  -------------
      

                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                                     December 31,
                                                        ---------------------------------------
                                                              1998                  1997
                                                        -----------------     -----------------
<S>                                                     <C>                   <C>
PROPERTY, AT COST - Note 1
      Land                                                   $ 4,966,738           $ 4,966,738
      Building and Improvements                               11,892,943            11,614,717
      Preliminary Development Costs                               42,247                42,247
      Deferred Costs - Note 3                                    809,323               663,719
                                                        -----------------     -----------------
                                                              17,711,251            17,287,421
      Less Accumulated Depreciation and Amortization           1,984,627             1,630,022
                                                        -----------------     -----------------

              PROPERTY, NET                                   15,726,624            15,657,399
                                                        -----------------     -----------------

OTHER ASSETS
      Cash and Cash Equivalents - Note 1                         421,833               558,136
                                                        -----------------     -----------------
      Receivables From Tenants
          Rents and Expense Billings                             106,282                   -0-
          Deferred Rent Receivable - Note 1                      202,228                73,447
          Allowance for Doubtful Accounts                        (95,174)                  -0-
                                                        -----------------     -----------------
                                                                 213,336                73,447
                                                        -----------------     ----------------- 
      Prepaid Expenses                                           107,644               107,442
                                                        -----------------     -----------------
              TOTAL OTHER ASSETS                                 742,813               739,025
                                                        -----------------     -----------------
                                                            $ 16,469,437          $ 16,396,424
                                                        =================     =================
</TABLE>

_______________

The notes to financial statements are an integral part of this statement.

                                     - 2 -
<PAGE>
 
                             GATEWAY 51 PARTNERSHIP
                             ----------------------
                        (A MARYLAND GENERAL PARTNERSHIP)
                        --------------------------------

                                  BALANCE SHEET
                                  -------------


                        LIABILITIES AND PARTNERS' CAPITAL
                        ---------------------------------
<TABLE>
<CAPTION>
                                                             December 31,
                                                ---------------------------------------
                                                      1998                  1997
                                                -----------------     -----------------
<S>                                             <C>                   <C>
LIABILITIES
      Accounts Payable and Accrued Expenses             $ 67,398              $ 34,935
      Tenant Security Deposits                           150,000                15,193
      Prepaid Tenant Reimbursements                       47,181               142,688
                                                -----------------     -----------------
          TOTAL LIABILITIES                              264,579               192,816
PARTNERS' CAPITAL - Notes 1 and 2                     16,204,858            16,203,608
                                                -----------------     -----------------
                                                    $ 16,469,437          $ 16,396,424
                                                =================     =================
</TABLE>

_______________

The notes to financial statements are an integral part of this statement.

                                     - 3 -
<PAGE>
 
                             GATEWAY 51 PARTNERSHIP
                             ----------------------
                        (A MARYLAND GENERAL PARTNERSHIP)
                        --------------------------------

                               STATEMENT OF INCOME
                               -------------------

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                     --------------------------------------------------------
                                                          1998                1997                1996
                                                     ----------------    ----------------    ----------------
<S>                                                  <C>                 <C>                 <C>
REVENUE - Notes 1 and 5
      Gross Rent Potential                               $ 1,943,734         $ 1,775,359         $ 1,684,997
      Less Vacancies and Free Rent                            72,135              80,444             108,412
                                                     ----------------    ----------------    ----------------
          Net Rental Income                                1,871,599           1,694,915           1,576,585
      Expense Reimbursements From Tenants                    441,093             258,789             364,873
      Other Income                                            15,809                  20              18,163
                                                     ----------------    ----------------    ----------------
              TOTAL REVENUE                                2,328,501           1,953,724           1,959,621
                                                     ----------------    ----------------    ----------------
OPERATING EXPENSES
      Real Property Taxes                                    211,009             211,967             207,855
      Building and Grounds Maintenance                       144,004             142,678             157,314
      Bad Debts                                               95,174                 -0-                 -0-
      Management Fees - Note 3                                62,338              61,036              57,542
      Utilities                                               26,165              27,297              24,890
      General and Administrative                              17,966              12,229              25,856
      Insurance                                                4,173               6,573               9,292
                                                     ----------------    ----------------    ----------------
              TOTAL OPERATING EXPENSES                       560,829             461,780             482,749
                                                     ----------------    ----------------    ----------------
OPERATING INCOME                                           1,767,672           1,491,944           1,476,872
                                                     ----------------    ----------------    ----------------
ADJUSTMENTS TO ARRIVE AT NET INCOME
      Depreciation and Amortization                         (354,605)           (315,417)           (302,585)
      Abandonment of Tenant Improvements - Note 1                -0-             (80,178)            (24,256)
                                                     ----------------    ----------------    ----------------
                                                            (354,605)           (395,595)           (326,841)
                                                     ----------------    ----------------    ----------------
NET INCOME - Note 4                                      $ 1,413,067         $ 1,096,349         $ 1,150,031
                                                     ================    ================    ================
</TABLE> 
_______________

The notes to financial statements are an integral part of this statement.

                                     - 4 -
<PAGE>
 
                             GATEWAY 51 PARTNERSHIP
                             ----------------------
                        (A MARYLAND GENERAL PARTNERSHIP)
                        --------------------------------

                         STATEMENT OF PARTNERS' CAPITAL
                         ------------------------------

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                          -------------------------------------------------------------
                                                1998                  1997                  1996
                                          ------------------    -----------------     -----------------
<S>                                       <C>                   <C>                   <C>
CAPITAL CONTRIBUTIONS - Note 2
      Prior Years                              $ 20,267,826         $ 20,267,826          $ 20,267,826
                                          ------------------    -----------------     -----------------
CAPITAL PLACEMENT FEE - Notes 1 and 2
      Prior Years                                  (202,678)            (202,678)             (202,678)
                                          ------------------    -----------------     -----------------
DISTRIBUTIONS
      Prior Years                                (8,796,724)          (8,048,893)           (6,948,893)
      Current Year                               (1,411,817)            (747,831)           (1,100,000)
                                          ------------------    -----------------     -----------------
                                                (10,208,541)          (8,796,724)           (8,048,893)
                                          ------------------    -----------------     -----------------
ACCUMULATED INCOME
      Prior Years                                 4,935,184            3,838,835             2,688,804
      Current Year                                1,413,067            1,096,349             1,150,031
                                          ------------------    -----------------     -----------------
                                                  6,348,251            4,935,184             3,838,835
                                          ------------------    -----------------     -----------------
 TOTAL PARTNERS' CAPITAL                       $ 16,204,858         $ 16,203,608          $ 15,855,090
                                          ==================    =================     =================
</TABLE>

_______________

The notes to financial statements are an integral part of this statement.

                                     - 5 -
<PAGE>
 
                             GATEWAY 51 PARTNERSHIP
                             ----------------------
                        (A MARYLAND GENERAL PARTNERSHIP)
                        --------------------------------

                             STATEMENT OF CASH FLOWS
                             -----------------------

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                           -------------------------------------------------
                                                                               1998             1997              1996
                                                                           --------------   --------------   ---------------
<S>                                                                        <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Income                                                               $1,413,067       $1,096,349        $1,150,031
                                                                           --------------   --------------   ---------------
     Adjustments to Reconcile Net Income to
         Net Cash Provided by Operating Activities
             Depreciation and Amortization                                       354,605          315,417           302,585
             Abandonment of Tenant Improvements                                      -0-           80,178            24,256
             Change in Receivables From Tenants                                 (139,889)           8,667           (41,033)
             Increase in Prepaid Expenses                                           (202)         (64,870)           (6,302)
             Change in Accounts Payable and Accrued Expenses                      32,463           (6,176)           16,526
             Change in Prepaid Tenant Reimbursements                             (95,507)         142,688               -0-
                                                                           --------------   --------------   ---------------
                 Total Adjustments                                               151,470          475,904           296,032
                                                                           --------------   --------------   ---------------
                     Net Cash Provided by Operating Activities                 1,564,537        1,572,253         1,446,063
                                                                           --------------   --------------   ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Building and Improvement Costs                                             (278,227)        (359,189)         (258,309)
     Leasing Costs                                                              (145,603)        (116,524)          (80,786)
     Increase in Tenant Security Deposits                                        134,807           12,784               -0-
     Decrease in Tenant Improvement Loans                                            -0-              688            32,057
                                                                           --------------   --------------   ---------------
                     Net Cash Used by Investing Activities                      (289,023)        (462,241)         (307,038)
                                                                           --------------   --------------   ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Distributions to Partners                                                (1,411,817)        (747,831)       (1,100,000)
                                                                           --------------   --------------   ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            (136,303)         362,181            39,025

CASH AND CASH EQUIVALENTS, BEGINNING                                             558,136          195,955           156,930
                                                                           --------------   --------------   ---------------
CASH AND CASH EQUIVALENTS, ENDING                                              $ 421,833        $ 558,136         $ 195,955
                                                                           ==============   ==============   ===============
</TABLE>

_______________

The notes to financial statements are an integral part of this statement.

                                     - 6 -
<PAGE>
 
                            GATEWAY 51 PARTNERSHIP
                            ----------------------
                       (A MARYLAND GENERAL PARTNERSHIP)
                       --------------------------------

                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------

                               DECEMBER 31, 1998
                               -----------------


Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization
         ------------
         Gateway 51 Partnership (A Maryland General Partnership) (the
         Partnership) was formed on December 21, 1987, under the Maryland
         Uniform Partnership Act. The agreement was amended and restated in 1989
         to reflect changes in partner ownership percentages.

         The partnership agreement was amended and restated effective January 1,
         1998, whereby M.O.R. Gateway 51, Limited Partnership (M.O.R.)
         transferred 34.055% and 14.945% to New England Life Pension Properties
         IV (NELPP IV) and New England Pension Properties V (NEPP V),
         respectively. Subsequently, NELPP IV transferred a 0.695% partnership
         interest, NEPP V transferred a 0.305% partnership interest, and M.O.R.
         transferred a 1% partnership interest to NE/Gateway 51 Limited
         Partnership (NE/Gateway), bringing the ownership as of January 1, 1998,
         to the following:

         NELPP IV          68.11%
         NEPP V            29.89%
         NE/Gateway         2.00%

         Property
         --------
         The Partnership owns 21 acres of land in Howard County, Maryland. The
         property has been developed with six office/research buildings. Plans
         call for a seventh building with approximately 15,000 square feet of
         space. 

         All property is recorded at cost. Information regarding the buildings
         is as follows:


<TABLE>
<CAPTION>

                                                                                  Occupancy
                                                                     ------------------------------------
                Square       Date Placed
 Building       Footage      Into Service           Tenants           12/31/98     12/31/97    12/31/96
------------  ------------  ---------------  ----------------------  -----------  -----------  ----------
<S>           <C>           <C>              <C>                     <C>          <C>          <C>

     A             46,840       3/1/91             Multiple              100%           92%          92%
     B             21,991       9/1/90               AVNET               100%          100%         100%
     C             38,225      7/15/91             EVI, Inc.             100%          100%         100%
     F             35,812       2/1/92             Multiple              100%          100%          82%
    D-E            45,951       8/8/94         Columbia National         100%          100%         100%
              ------------
                  188,819                                                100%           98%          94%
              ============
</TABLE>

         Carrying costs, operating expenses, and depreciation begin as a charge
         against operations on the date the buildings were placed into service.

                                     - 7 -
<PAGE>
 
Note 1 - During 1997, tenant improvements completed in prior years were
(Cont.)  demolished in order to build out the space for new tenants. The loss on
         abandonment of tenant improvements is calculated as follows:

<TABLE> 
              <S>                                    <C>
              Cost                                       $ 127,688
              Accumulated Depreciation                     (47,510)
                                                     --------------
              Abandonment of Tenant Improvements          $ 80,178
                                                     ==============
</TABLE> 

         Use of Estimates
         ----------------
         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect certain reported amounts and disclosures.
         
         Cash and Cash Equivalents
         -------------------------
         The Partnership considers all highly liquid debt instruments purchased
         with a maturity of 3 months or less to be cash equivalents.

         The majority of the Partnership's cash is held in financial
         institutions with insurance provided by the Federal Deposit Insurance
         Corporation (FDIC) up to $100,000. Periodically during the year, the
         balance may have exceeded the FDIC insurance limitation.

         Depreciation
         ------------
         Building costs are being depreciated using the straight-line method
         over the estimated useful lives of 50 years. Beginning in January 1998,
         the Partnership changed depreciation methods for tenant improvements.
         Tenant improvements are being depreciated using the straight-line
         method over the life of the tenants' lease; in prior years, the
         improvements were depreciated over 50 years.

         Rental Income
         -------------
         Rental income for major leases is being recognized on a straight-line
         basis over the terms of the leases. The excess of the rental income
         recognized over the amount stipulated in the lease is shown as deferred
         rent receivable.

         Amortization
         ------------
         Deferred costs are amortized as follows:

                                                                Amortization
                                                Amount             Period
                                             -------------     ----------------

Organization Costs                                $13,555         Complete
Leasing Costs and Commissions                     795,767        Lease Terms
                                             -------------
                                                 $809,322
                                             =============

                                     - 8 -
<PAGE>
 
Note 1 - Income Taxes
         ------------
(Cont.)  Partnerships, as such, are not subject to income taxes. The partners
         are required to report their respective shares of partnership income
         and other tax items on their income tax returns (see Note 4).

         Capital Placement Fee
         ---------------------
         Costs incurred for arranging the Partnership's equity have been treated
         as a reduction of partners' capital (see Note 2).

Note 2 - PARTNERS' CAPITAL

         Capital Investment
         ------------------        
         NELPP IV and NEPP V have agreed to provide equity of $14,598,000 and
         $6,402,000, respectively, totaling $21,000,000. As of December 31,
         1998, 1997, and 1996, total capital contributions amounted to
         $20,267,826.

         Cumulative Priority Return
         --------------------------
         NELPP IV and NEPP V are entitled to cumulative priority returns of
         10.5%, compounded monthly on capital invested. The Partnership paid
         priority returns totaling $1,411,817, $747,831, and $1,100,000 during
         1998, 1997, and 1996, respectively. As of December 31, 1998, 1997, and
         1996, unpaid priority returns amounted to $10,855,114, $9,127,936, and
         $6,888,115, respectively.

         Capital Placement Fee
         ---------------------
         The Partnership incurred fees of $202,678 with Paine Webber Mortgage
         Finance, Inc. with respect to capital raised by the Partnership. This
         amount has been charged against partners' capital.

Note 3 - RELATED PARTY TRANSACTIONS

         Management Fees
         ---------------
         The Partnership has entered into an agreement with Manekin Corporation,
         a related entity, to act as management agent for the property. The
         management agreement provides for a management fee equal to 3% of rent
         and tenant expense billings.

         Leasing Commissions
         -------------------
         Leasing commissions in the amount of $145,603, $105,387, and $80,786
         were paid to related parties during 1998, 1997, and 1996, respectively.

                                     - 9 -
<PAGE>
 
Note 4 - TAX ACCOUNTING

         Tax accounting differs from financial accounting as follows:

<TABLE>
<CAPTION>
                                           Current Year       Prior Years           Total
                                          ---------------    ---------------    ---------------
<S>                                       <C>                <C>                <C>
Financial Income                              $1,413,067         $4,935,184         $6,348,251
Additional Depreciation                          (87,820)          (757,466)          (845,286)
Lease-Up Period Items
    Capitalized for GAAP                             -0-              4,264              4,264
Allowance for Doubtful Accounts                   95,174                -0-             95,174
Deferred Rent Receivable                        (128,781)           (73,447)          (202,228)
Prepaid Property Taxes                              (956)          (105,026)          (105,982)
Prepaid Tenant Reimbursements                    (95,507)           142,688             47,181
                                          ---------------    ---------------    ---------------
        Taxable Income                        $1,195,177         $4,146,197         $5,341,374
                                          ===============    ===============    ===============
</TABLE>

Note 5 - LEASES

         The following is a schedule of future minimum lease payments to be
         received under noncancelable operating leases at December 31, 1998:

         Year Ending December 31, 1999                 $1,524,603
                                  2000                    827,454
                                  2001                    726,557
                                  2002                    736,016
                                  2003                    745,758
                                                   ---------------

                                                       $3,814,630
                                                   ===============

                                    - 10 -
<PAGE>
 
To the Partners
Gateway 51 Partnership (A Maryland General Partnership)
Columbia, Maryland


           INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
           ---------------------------------------------------------

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information contained on pages 12 and 13 is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements. Such information has not been subjected to the auditing procedures
applied in the audits of the basic financial statements, and accordingly, we
express no opinion on it.


                                        /s/ Wolpoff & Company, LLP
                                        --------------------------
                                        WOLPOFF & COMPANY, LLP


Baltimore, Maryland
January 13, 1999

                                    - 11 -
<PAGE>
 
                             GATEWAY 51 PARTNERSHIP
                             ----------------------
                        (A MARYLAND GENERAL PARTNERSHIP)
                        --------------------------------

                          SCHEDULE OF PARTNERS' CAPITAL
                          -----------------------------

                          YEAR ENDED DECEMBER 31, 1998
                          ----------------------------

<TABLE>
<CAPTION>
                                                                                    NE/           M.O.R. 51
                                             New England      New England       Gateway 51         Gateway
                                            Life Pension        Pension           Limited          Limited
                                            Properties IV     Properties V      Partnership      Partnership          Total
                                           ----------------  ---------------  ----------------  ---------------  ----------------
<S>                                        <C>               <C>              <C>               <C>              <C>
OWNERSHIP PERCENTAGE
    Through December 31, 1997                  34.75%            15.25%            0.00%            50.00%           100.00%
                                           ================  ===============  ================  ===============  ================
     As of January 1, 1998                     68.11%            29.89%            2.00%            0.00%            100.00%
                                           ================  ===============  ================  ===============  ================

CAPITAL CONTRIBUTIONS
     Prior Years                               $14,086,139      $ 6,181,687             $ -0-            $ -0-       $20,267,826
                                           ----------------  ---------------  ----------------  ---------------  ----------------

CAPITAL PLACEMENT FEE
     Prior Years                                  (106,427)         (96,251)              -0-              -0-          (202,678)
                                           ----------------  ---------------  ----------------  ---------------  ----------------

DISTRIBUTIONS - Note 2
     Prior Years                                (5,969,698)      (2,827,026)              -0-              -0-        (8,796,724)
     Current Year                                 (981,211)        (430,606)              -0-              -0-        (1,411,817)
                                           ----------------  ---------------  ----------------  ---------------  ----------------
                                                (6,950,909)      (3,257,632)              -0-              -0-       (10,208,541)
                                           ----------------  ---------------  ----------------  ---------------  ----------------

ACCUMULATED INCOME
     Prior Years                                 3,429,956        1,505,228               -0-              -0-         4,935,184
     Current Year                                  982,082          430,985               -0-              -0-         1,413,067
                                           ----------------  ---------------  ----------------  ---------------  ----------------
                                                 4,412,038        1,936,213               -0-              -0-         6,348,251
                                           ----------------  ---------------  ----------------  ---------------  ----------------


PARTNERS' CAPITAL, 12/31/98                    $11,440,841      $ 4,764,017             $ -0-            $ -0-       $16,204,858
                                           ================  ===============  ================  ===============  ================

</TABLE>

_______________

See Independent Auditor's Report on Supplementary Information.

                                    - 12 -
<PAGE>
 
                            GATEWAY 51 PARTNERSHIP
                            ----------------------
                       (A MARYLAND GENERAL PARTNERSHIP)
                       --------------------------------

          SCHEDULE OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS
          -----------------------------------------------------------

                         YEAR ENDED DECEMBER 31, 1998
                         ----------------------------

<TABLE>
<CAPTION>

                                                                                    NE/           M.O.R. 51
                                             New England      New England       Gateway 51         Gateway
                                            Life Pension        Pension           Limited          Limited
                                            Properties IV     Properties V      Partnership      Partnership          Total
                                           ----------------  ---------------  ----------------  ---------------  ----------------
<S>                                        <C>               <C>              <C>               <C>              <C>

OWNERSHIP PERCENTAGE
    Through December 31, 1997                  34.75%            15.25%            0.00%            50.00%           100.00%
                                           ================  ===============  ================  ===============  ================
     As of January 1, 1998                     68.11%            29.89%            2.00%            0.00%            100.00%
                                           ================  ===============  ================  ===============  ================

CAPITAL CONTRIBUTIONS
     Prior Years                               $14,086,139      $ 6,181,687             $ -0-            $ -0-       $20,267,826
                                           ----------------  ---------------  ----------------  ---------------  ----------------

CAPITAL PLACEMENT FEE
     Prior Years                                  (106,427)         (96,251)              -0-              -0-          (202,678)
                                           ----------------  ---------------  ----------------  ---------------  ----------------

DISTRIBUTIONS - Note 2
     Prior Years                                (5,969,698)      (2,827,026)              -0-              -0-        (8,796,724)
     Current Year                                 (981,211)        (430,606)              -0-              -0-        (1,411,817)
                                           ----------------  ---------------  ----------------  ---------------  ----------------
                                                (6,950,909)      (3,257,632)              -0-              -0-       (10,208,541)
                                           ----------------  ---------------  ----------------  ---------------  ----------------

ACCUMULATED INCOME
     Prior Years                                 2,883,779        1,262,418               -0-              -0-         4,146,197
     Current Year                                  830,648          364,529               -0-              -0-         1,195,177
                                           ----------------  ---------------  ----------------  ---------------  ----------------
                                                 3,714,427        1,626,947               -0-              -0-         5,341,374
                                           ----------------  ---------------  ----------------  ---------------  ----------------

PARTNERS' CAPITAL, 12/31/98                    $10,743,230      $ 4,454,751             $ -0-            $ -0-       $15,197,981
                                           ================  ===============  ================  ===============  ================
</TABLE>


_______________

See Independent Auditor's Report on Supplementary Information.

                                    - 13 -
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
<TABLE> 
<CAPTION> 
  Exhibit                                                            Page
  Number                                                             Number
  -------                                                            ------
  <C>      <S>                                                       <C>
  10A.     Joint Venture Agreement of Waters Landing                    *
           Partners Two, dated as of May 26, 1987 between
           the Partnership and Waters Landing Two-Oxford
           Limited Partnership, a Maryland limited partnership
           ("Oxford").

  10B.     Promissory Note dated May 26, 1987 from Oxford               *
           to the Partnership in the original principal
           amount of $3,121,600.

  10C.     Joint Venture Interest Pledge and Security                   *
           Agreement, dated as of May 26, 1987, between the
           Partnership and Oxford.

  10D.     Joint Venture Agreement of Graham Road Joint                 *
           Venture, dated as of June 30, 1987, between the
           Partnership and Connell-Scott Ventures V.

  10E.     General Partnership Agreement of IBG Dahlia                  *
           Associates, dated as of September 21, 1987,
           between the Partnership and 20 Dahlia
           Partnership.

  10F.     General Partnership Agreement of Hewson University           *
           Associates, dated as of September 30, 1987, between
           Hewson Properties, Inc. and the Partnership.

  10G.     General Partnership Agreement of Gateway 51                  *
           Partnership, dated as of December 21, 1987,
           among M.O.R. Gateway 51 Associates Limited
           Partnership, the Partnership and New England
           Life Pension Properties IV; A Real Estate
           Limited Partnership.

  10H.     Ground Lease dated January 23, 1988 between                  *
           Nielson Properties, LTD., a California
           limited partnership ("Landlord"), and Rodde
           McNellis/Salinas, a California general partnership
           ("Tenant").

  10I.     Leasehold Indenture dated February 12, 1988 by               *
           Rodde McNellis/Salinas, Borrower, to Santa
           Clara Land Title Company, Trustee, for New
           England Pension Properties V, A Real Estate
           Limited Partnership ("NEPP V"), Beneficiary.
</TABLE> 

                                       53
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
<TABLE> 
<CAPTION> 
  Exhibit                                                            Page
  Number                                                             Number
  -------                                                            ------
  <C>      <S>                                                       <C>

  10J.     Promissory Note dated February 12, 1988 in the               *
           principal amount of $1,800,000 by Rodde
           McNellis/Salinas to NEPP V.

  10K.     Pledge of Note and Security Agreement dated as               *
           of February 12, 1988 by and between Rodde
           McNellis/Salinas and NEPP V.

  10L.     R/M Salinas Predevelopment Agreement dated                   *
           February 12, 1988 by and between NEPP V and Rodde
           McNellis/Salinas.

  10M.     Joint Venture Agreement of Rancho Road                       *
           Associates II dated as of March 7, 1988 by and
           between NEPP V and Commerce Centre Partners.

  10N.     Pledge and Security Agreement dated as of March              *
           7, 1988 by and between Commerce Centre Partners
           and NEPP V.

  10O.     General Partnership Agreement of Muller Brea                 *
           Associates dated as of April 29, 1988 between Tar
           Partners and the Registrant.

  10P.     Lakewood Associates General Partnership                      *
           Agreement dated August, 1988 between EW
           Lakewood Limited Partnership, Copley Pension
           Properties VI; A Real Estate Limited Partnership
           and Registrant.

  10Q.     First Amendment to Rancho Road Associates II                 *
           Joint Venture Agreement dated as of May 31,
           1988 by and between the Registrant and Commerce
           Centre Partners.

  10R.     First Amendment to Pledge and Security Agreement             *
           dated as of May 31, 1988 by and between the
           Registrant and Commerce Centre Partners.

  10S.     Joint Venture Agreement of R/M Salinas Venture               *
           dated as of February 1, 1989 by and between New
           England Pension Properties V; A Real Estate
           Limited Partnership and Rodde McNellis/Salinas.
</TABLE> 

                                       54
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
<TABLE> 
<CAPTION> 
  Exhibit                                                            Page
  Number                                                             Number
  -------                                                            ------
  <C>      <S>                                                       <C>
  10T.     First Amendment to Joint Venture Agreement of R/M            *
           Salinas Venture dated as of February 1, 1989
           by and between New England Pension Properties V;
           A Real Estate Limited Partnership and Rodde
           McNellis/Salinas.

  10U.     Amended and Restated General Partnership Agreement           *
           of Gateway 51 Partnership dated as of April 20,
           1989 between M.O.R. Gateway 51 Associates
           Limited Partnership, New England Life Pension
           Properties IV; a Real Estate Limited Partnership
           and New England Pension Properties V; a Real
           Estate Limited Partnership.

  10V.     Second Amendment to Pledge and Security                      *
           Agreement dated as of June 20, 1990 by and
           between Commerce Centre Partners, a
           California general partnership and
           Registrant.

  10W.     Second Amendment to Rancho Road Associates II                *
           Joint Venture Agreement dated as of June 20, 1990
           by and between Registrant and Commerce Centre
           Partners.

  10X.     Second Amendment to Joint Venture Agreement of               *
           R/M Salinas Venture dated as of July 20, 1990 by
           and between the Registrant and Rodde McNellis/
           Salinas.


  10Y.     Agreement for Dissolution, Distribution and                  *
           Winding-up of Muller Brea Associates dated May
           31, 1991 by and between TAR Partners, a
           California partnership, and the Registrant.

  10Z.     Property Management Agreement effective as of                *
           May 31, 1991 by and between TAR Partners, a
           California general partnership, and the
           Registrant.
</TABLE> 

                                       55
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
<TABLE> 
<CAPTION> 
  Exhibit                                                            Page
  Number                                                             Number
  -------                                                            ------
  <C>      <S>                                                       <C>
  10AA.    Asset Contribution Agreement by and among Evans              *
           Withycombe Residential, Inc., a Maryland Corporation,             
           and Evans Withycombe Residential, L.P., a Delaware
           limited partnership, as Purchasers and Lakewood
           Associates, an Arizona limited Partnership composed of
           Registrant, Copley Pension Properties VI and EW
           Lakewood L.P., as Sellers dated June 9, 1994.

  10BB.    Purchase and Sale Agreement between Graham Road              *
           Joint Venture and Prentiss Properties Atlanta
           Industrial Properties, L.P., dated June 17, 1994.


  10CC.    $1,750,000 note secured by Deed of Trust between             *
           the Partnership, as Lender, and Nielsen
           Properties, Ltd, as Borrower dated August 1,
           1995.

  10DD.    Third Amendment to Agreement of Lease dated                  *
           August 1, 1995 by and between Nielsen
           Properties, Ltd., a California limited
           partnership, R/M Salinas Venture, a California
           general partnership, and R/M Salinas, L.P., a
           California limited partnership.

  10EE.    R/M Salinas L.P. Limited Partnership Agreement               *
           dated August 1, 1995 between Rodde
           McNellis/Salinas, a California general
           partnership and Registrant.

  10FF.    Limited Partnership Agreement of IBG Dahlia                  *
           Associates dated September 1, 1995 between
           Registrant and 20 Dahlia Partnership, a
           California limited partnership.

  27.      Financial Data Schedule
</TABLE> 


-----------------------------------------------------------------
*  Previously filed and incorporated herein by reference.

                                       56
<PAGE>
 
                                  SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) 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.

                                          NEW ENGLAND PENSION PROPERTIES V;
                                          A REAL ESTATE LIMITED PARTNERSHIP



Date:    March 25, 1999           By: /s/ J. Christopher Meyer, III      
                                      -----------------------------------
                                      J. Christopher Meyer, III
                                      President of the
                                      Managing General Partner



         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

         Signature                         Title                     Date
         ---------                         -----                     ----
                                    President
/s/ J. Christopher Meyer, III       Chief Executive Officer     March 25, 1999
-----------------------------       and Director
    J. Christopher Meyer, III        


                                    Vice President
/s/ Pamela J. Herbst                and Director                March 25, 1999
---------------------------
    Pamela J. Herbst

                                    Vice President
/s/ J. Grant Monahon                and Director                March 25, 1999
---------------------------
    J. Grant Monahon


/s/ James J. Finnegan               Vice President              March 25, 1999
---------------------------
    James J. Finnegan

                                    Treasurer and Principal
                                    Financial and
/s/ Karin J. Lagerlund              Accounting Officer          March 25, 1999
---------------------------
    Karin J. Lagerlund

                                       60