SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 1998

                                       OR

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                  For the transition period from _____ to _____

                           Commission File No. 1-7003

                             PROPERTY CAPITAL TRUST
                             ----------------------
             (Exact name of registrant as specified in its charter)

          Massachusetts                                        04-2452367
          -------------                                        ----------
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                            Identification No.)

     177 Milk Street, Suite 14B
        Boston, Massachusetts                                  02109-3404
     --------------------------                                ----------
(Address of principal executive offices)                       (Zip Code)

       Registrant's telephone number, including area code: (617) 482-4081


Securities registered pursuant to          Common Shares, without par value
Section 12(g) of the Act:                  Rights to purchase Common Shares


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 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. Yes [X] No [ ]

As of January 31, 1999, the aggregate market value of Common Shares held by
non-affiliates of the registrant was approximately $2,204,000.

As of January 31, 1999, there were 9,584,220 Common Shares outstanding.
<PAGE>

PART I

ITEM 1. BUSINESS
----------------

Property Capital Trust (the "Trust") is an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts pursuant to a
Declaration of Trust dated June 9, 1969, as amended. The Trust has qualified and
has elected to be taxed as a real estate investment trust ("REIT") under
Sections 856-860 of the Internal Revenue Code since 1969.

Since 1995, the Trust has operated under a business plan (the "Business Plan")
which provided for the orderly disposition of all of the Trust's investments. At
the Trust's Annual Meeting of Shareholders held on December 15, 1995, the
Trust's shareholders ratified the Business Plan and approved certain amendments
to the Trust's Declaration of Trust necessary for its implementation. During
1998, the Trust disposed of its last two real estate investments. The Trust has
utilized net sales proceeds from the sale of its properties to pay its
indebtedness, make distributions to shareholders and satisfy its cash needs.
Through December 31, 1998 distributions to shareholders from proceeds of sales
have aggregated $13.65 per share.

No properties were sold to persons deemed to be affiliates of the Trust. Each
offer to purchase Trust assets was acted upon by the Board of Trustees, which
Board is currently comprised of six Trustees, five of whom are unaffiliated with
the Trust.

In the summer of 1997, when it was apparent that the Business Plan would be
successfully completed, management and the Trustees considered alternatives for
terminating the Trust in an orderly manner. One alternative was to organize a
liquidating trust after the Trust had completed the disposition of its real
estate investments, fund the liquidating trust with cash sufficient to meet
unknown contingent liabilities of the Trust and, after a period of time deemed
sufficient by the Trustees for any such liabilities to surface, distribute the
remaining cash held by the liquidating trust, net of expenses of such trust and
any payments made in respect of contingent liabilities, to the former
shareholders of the Trust. However, management and the Trustees decided to
pursue a more favorable alternative for the shareholders - namely a merger with
another entity which would assume all of the Trust's contingent liabilities and
enable the Trust to distribute to its shareholders all of its remaining assets
without delay and without diminution by the cost of operating a liquidating
trust or satisfying any such liabilities. Management and the Trustees determined
that a merger on these terms would be in the best interests of its shareholders.
Accordingly, management had discussions with several parties with respect to
such a merger and in June 1998, the Trust announced that it had entered into an
agreement to merge with an affiliate of The Beal Companies, LLP, a Boston based
real estate development and investment company. The merger is subject to
approval of the Trust's shareholders and, if approved, is now expected to occur
in May 1999. If approved, immediately prior to the closing the Trust expects to
declare a final distribution to the Trust's then existing shareholders equal to
substantially all of the Trust's net worth, which is estimated to be between
$.25 and $.26 per share. This is inclusive of funds to be received by the Trust
pursuant to the settlement reached in February 1999, of the litigation with the
Florida Department of Transportation regarding certain land that was condemned
at Loehmann's Fashion Island, one of the Trust's former properties. The
distribution is also inclusive of the payment of $.01 per share to be made to
redeem the rights outstanding pursuant to the Trust's Shareholder Rights Plan.
While such existing shareholders will retain an interest in the merged entity,
it is believed that such interest will be without value at the time of the
merger and may not have any value in the future. See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Special Note Regarding Forward-Looking Statements."

In the event the merger does not occur, the Trust will distribute a portion of
its assets to its shareholders and will transfer the remainder of its assets to
a liquidating trust to satisfy any known and contingent liabilities of the
Trust. Shareholders of the Trust, at the time of its dissolution, will become
holders of beneficial interests in the liquidating trust. These beneficial
interests will not be transferable except by operation of law. The transfer of
assets into the liquidating trust is a taxable event to the beneficial owners.
If this alternative is utilized, the Trust believes that the liquidating trust
will make a final distribution of its assets within one year after its
establishment, net of expenses to maintain the trust (estimated at $100,000) and
any payments made to satisfy any liabilities which amount cannot be estimated at
this time.

Trading of Shares

As a result of the disposition of all of the Trust's real estate investments,
the American Stock Exchange ("AMEX") halted trading in its shares at the close
of business on July 10, 1998 and delisted the shares on October 29, 1998. The
Trust is now traded on NASDAQ's over-the-counter Bulletin Board (symbol "PCTG").

                                        2
<PAGE>

ITEM 1.  BUSINESS (continued)

Real Estate Investments

At December 31, 1998, the Trust had no real estate investments. During 1998, the
Trust disposed of its last two investments, which were both classified as Assets
Held for Sale directly by the Trust. One investment was Park Place, an office
building which was previously classified as an Owned Property held directly by
the Trust, and the other was an investment in the Cincinnati Marriott Inn, which
was previously classified as a Structured Transaction held directly by the
Trust.

The Trust's investments were originally either made directly (including through
wholly owned subsidiaries) or through limited partnerships (classified as and
referred to herein as "Investment Partnerships") in which the Trust or its
subsidiary was general partner and other institutional investors were limited
partners. The Trust's investments in the two assets disposed of in 1998 were
made directly by the Trust.

Investments in land leasebacks and/or mortgage loans were classified as
Structured Transactions. Investments representing ownership of improved income
producing properties were classified as Owned Properties. Owned Properties
involved operation and management responsibility with property management
delegated to independent contractors. For financial reporting purposes, the
Trust categorized its investments into four groups, Owned Properties held
directly by the Trust (which included investments held by wholly owned
subsidiaries), Structured Transactions held directly by the Trust, Assets Held
for Sale directly by the Trust and interests in Investment Partnerships.

For additional information, see Item 2, Item 7, Note 2 of the Notes to
Consolidated Financial Statements of the Trust and Schedule III.

Government Regulations

Under various Federal, state, and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances released on,
under or in its property. The costs of such removal or remediation can be
substantial. Such laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the release or presence of
such hazardous or toxic substances. Management is not aware of any material
violation of applicable environmental requirements with respect to its former
investments, nor does it contemplate having to make any material expenditures in
order to comply with any current environmental laws or regulations.

Borrowings

At December 31, 1998, the Trust had no debt.

For additional information, see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and Note 3 of the Notes to
Consolidated Financial Statements of the Trust.

Year 2000

The Trust announced early in 1998 that it had signed an agreement, subject to
shareholder ratification, for the acquisition of the Trust by an affiliate of
The Beal Companies, LLP. The Trust has also announced that in the event the
shareholders do not approve of the transaction the Trustees intend to dissolve
the Trust in 1999. As one or the other of these alternatives will occur in 1999
and, therefore, the Trust will not be in existence in the year 2000, management
has concluded that a discussion of the year 2000 issue is not warranted.

ITEM 2. PROPERTIES
------------------

At December 31, 1998, the Trust had no real estate investments.

ITEM 3. LEGAL PROCEEDINGS
-------------------------

The Trust was involved in litigation with the Florida Department of
Transportation to determine full compensation for certain land that was
condemned at Loehmann's Fashion Island prior to its sale. In February 1999, a
settlement was reached which provides that the State will pay the Trust $271,700
for the land and as reimbursement for certain expenses incurred by it. This
payment should be received by March 30, 1999 and is in addition to the $328,300
payment from the Florida Department of Transportation that was received by the
Trust and distributed to shareholders in 1998.

                                        3
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------

No matters were submitted to a vote of the Trust's security holders during the
last quarter of its calendar year ended December 31, 1998.

ITEM 4a. EXECUTIVE OFFICERS OF THE TRUST
----------------------------------------

Name    Age    Principal Occupations and Affiliations During the Past Five Years
--------------------------------------------------------------------------------

[See Part III, Item 10, incorporated herein by reference]

                                        4
<PAGE>

PART II

ITEM 5. MARKET FOR THE TRUST'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS
--------------------------------------------------------------------------------

(a) Price Range of Common Shares

    The Trust's Common Shares were traded on the AMEX until the close of
    business on July 10, 1998 when trading was halted. As a result of the
    successful consummation of the Business Plan, the Trust ceased to satisfy
    the AMEX's listing guidelines and the Common Shares of the Trust were
    delisted on October 29, 1998. The Trust's shares are now traded on the
    NASDAQ's over-the-counter Bulletin Board (symbol PCTG). The close, high and
    low prices on the AMEX and the Bulletin Board for each quarter during the
    past two calendar years and dividends declared in respect of such quarters
    are shown below.


                                                   Calendar 1998
                                    --------------------------------------------
                                                                      Dividends
      Quarter                       Close        High        Low       Declared
      --------------------------------------------------------------------------
      First                        $11/16      $1 1/2     $  5/8        $   .35
      Second                        15/16       1 1/8      11/16            .80
      Third(1)                      1 1/8       1 1/8      15/16              -
      Fourth(2)                      .215       .3125       .125              -
                                                                        -------
                                                                        $  1.15*
                                                                        =======
      (1) Represents trading on the AMEX from July 1 to July 10, 1998, when
      trading was halted.

      (2) Trading commenced on the NASDAQ's over-the-counter Bulletin Board on
      November 2, 1998.

                                                   Calendar 1997
                                    --------------------------------------------
                                                                      Dividends
      Quarter                       Close        High        Low       Declared
      --------------------------------------------------------------------------
      First                     $ 5 11/16     $ 8 3/4  $ 5 11/16        $  2.26
      Second                        6 3/8       7 3/8      5 1/4            .06
      Third                       5 15/16       7 3/8     5 9/16           3.71
      Fourth                        1 1/8       6 1/2        3/4           2.90
                                                                        -------
                                                                        $  8.93*
                                                                        =======

      *Special dividends totaling $1.15 and $8.75 were paid respectively during
      the calendar years 1998 and 1997 representing proceeds from dispositions
      of certain of the Trust's investments.

(b) Approximate Number of Equity Security Holders


                                                   Approximate Number of Holders
      Title of Class                                  as of December 31, 1998
      --------------------------------------------------------------------------
      Common Shares                                            5,000

(c) Dividends Declared on Common Shares

    To maintain its status as a REIT, the Trust is required each calendar year
    to distribute to its shareholders at least 95% of its taxable income
    (excluding net capital gains and after certain other adjustments). In
    addition, the Trust will be subject to a 4% nondeductible excise tax on the
    amount, if any, by which certain distributions paid by it with respect to
    any calendar year are less than the sum of 85% of its ordinary income for
    the calendar year, 95% of its capital gain income for the calendar year, and
    any amount of such income that was not distributed in prior years. The Trust
    did not incur any such excise tax liability with respect to calendar 1998 or
    1997.

    Pursuant to the Business Plan, the Trust declared special dividends from the
    proceeds of its disposition of investments. As a result, the dividends paid
    in calendar 1998 and 1997 and fiscal year July 31, 1996 significantly
    exceeded the Trust's net income. All of the Trust's real estate investments
    have been disposed of and, accordingly, the Trust's revenues have been
    significantly reduced. As a consequence, management does not anticipate that
    there will be any further regular quarterly dividends.

                                        5
<PAGE>

ITEM 5. MARKET FOR THE TRUST'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS
        (continued)
--------------------------------------------------------------------------------

Listed below is the Federal income tax classification for dividends paid during
calendar year ended December 31, 1998.

 Record   Ex-Dividend   Payment    Total Amount   Ordinary   Capital   Return of
  Date       Date        Date     Paid Per Share   Income     Gain      Capital
--------------------------------------------------------------------------------
02/13/98   03/02/98    02/27/98       $  .35      $    -     $    -     $  .35
07/01/98   07/13/98    07/10/98          .80           -          -        .80
                                      ------      ------     ------     ------  
         Total 1998 Dividends         $ 1.15*     $    -     $    -     $ 1.15
                                      ======      ======     ======     ======
* Special dividends paid pursuant to the Trust's Business Plan.

                                        6
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
-------------------------------
<TABLE>
<CAPTION>
                                                                                     Five Months
                                                          Years Ended                   Ended                   Years Ended
                                                      -------------------        -------------------        -------------------
                                                   December 31, December 31,         December 31,       July 31,  July 31,  July 31,
(Dollars in thousands, except per share data)          1998         1997                 1996*            1996      1995      1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>                  <C>             <C>       <C>       <C>     
Summary of Operations
Revenues                                             $  2,643     $ 14,717             $  8,187        $ 21,799  $ 22,619  $ 21,623
Expenses                                                1,309       11,232                6,651          21,506    20,603    20,044
                                                     --------     --------             --------        --------  --------  --------
Income before Gain on Sale of Real
  Estate Investments and Extraordinary Item             1,334        3,485                1,536             293     2,016     1,579
Gain on Sale of Real Estate Investments                 4,083       27,812                  832           6,094     3,209     2,510
                                                     --------     --------             --------        --------  --------  --------
Income before Extraordinary Item                        5,417       31,297                2,368           6,387     5,225     4,089
Extraordinary (Loss) Gain from   
  Extinguishment of Debt                                    -            -                    -            (473)       88         -
                                                     --------     --------             --------        --------  --------  --------
Net Income                                           $  5,417     $ 31,297             $  2,368        $  5,914  $  5,313  $  4,089
                                                     ========     ========             ========        ========  ========  ========

Per Share Data
Basic Net Income
  Income before Gain on Sale of Real
    Estate Investments and Extraordinary Item        $   0.14     $   0.36             $   0.16        $   0.03  $   0.23  $   0.17

  Gain on Sale of Real Estate Investments                0.43         2.91                 0.09            0.67      0.35      0.28
                                                     --------     --------             --------        --------  --------  --------
  Income before Extraordinary Item                       0.57         3.27                 0.25            0.70      0.58      0.45
  Extraordinary (Loss) Gain from
    Extinguishment of Debt                                  -            -                    -           (0.05)     0.01         -
                                                     --------     --------             --------        --------  --------  --------

  Basic Net Income per Share                         $   0.57     $   3.27             $   0.25        $   0.65  $   0.59  $   0.45
                                                     ========     ========             ========        ========  ========  ========

Diluted Net Income per Share                         $   0.57     $   3.27             $   0.25        $   0.64  $   0.59  $   0.45
                                                     ========     ========             ========        ========  ========  ========

Dividends Declared per Share                         $   1.15     $   8.93             $   1.18        $   3.23  $   0.41  $   0.30
                                                     ========     ========             ========        ========  ========  ========

Average Shares Outstanding                              9,584        9,567                9,353           9,097     9,044     9,030
                                                     ========     ========             ========        ========  ========  ========

Financial Position at Year-End
Total Assets                                         $  3,285     $ 21,183             $103,294        $112,619  $169,439  $176,833
Net Real Estate Investments                                 -       15,077               98,708         106,912   160,963   172,461
Total Debt Outstanding                                      -        8,345               36,650          36,889    71,816    81,479
Shareholders' Equity                                    2,526        6,814               61,372          70,076    93,709    91,703
</TABLE>

* The Trust's fiscal year changed from one which ended on July 31st to one which
ends on December 31st.

                                        7
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Trust has reviewed its short-term and long-term liquidity needs in view of
the completion of its Business Plan. The Trust's liquidity needs are to fund
normal operating expenses and to satisfy any contingent liabilities. The Trust
expects to fund these liquidity needs from cash on hand. At December 31, 1998,
the Trust's principal asset was $3,233,000 of cash and cash equivalents.

The Trust had no debt at December 31, 1998 as compared to $8,345,000 at December
31, 1997.

Review of Real Estate Investments

The Trust's last two real estate investments, Park Place and Cincinnati Marriott
Inn, were sold during calendar year 1998. Set forth below is a discussion of the
last portfolio sales during the year.

Office Building

On January 29, 1998, the Trust sold its only office investment, Park Place,
located in Clayton, Missouri, for $14,145,000. The Trust received net sales
proceeds of approximately $4,700,000 after deduction of the first mortgage
balance and payment of closing expenses. The first mortgage on the property was
assumed by the purchaser. The Trust realized a gain on the sale of this property
of $3,067,000. On August 1, 1996, the Trust allocated $1,239,000 of its former
allowance for possible investment losses to this investment.

Hotel

On June 17, 1998, the Trust's Cincinnati Marriott Inn $2,000,000 land investment
was purchased by the Trust's lessee for $2,000,000 and the Trust's related
leasehold mortgages were prepaid at their face amount of $4,316,000. On August
1, 1996, the Trust had allocated $1,016,000 of its former allowance for possible
investment losses to these mortgages. As a consequence, the repayment resulted
in a gain to the Trust of $1,016,000.


RESULTS OF OPERATIONS - Calendar Year Ended December 31, 1998 vs. 1997

During 1998, the Trust disposed of its last two investments in accordance with
the Business Plan. As a result, the Trust's revenues, expenses and resulting net
income decreased significantly.

Revenues

Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursements) decreased 96% for the year ended December 31, 1998, as compared
to the prior year, primarily due to the sale, in January 1998, of the Park Place
office building, the Trust's last Owned Property which was classified as an
Asset Held for Sale directly by the Trust, and from the write-off of
approximately $152,000 of previously recorded revenues from Loehmann's Fashion
Island, which had been sold in December 1997.

Base income from Structured Transactions held directly by the Trust (land rent
and mortgage interest) decreased 5% for the year ended December 31, 1998, as
compared to the prior year, due to the sale of all but one of the Trust's
Structured Transactions held directly by the Trust prior to calendar 1998 offset
by the receipt in June 1998, of $1,600,000 of land rent and mortgage interest
(earned between 1991 and 1994 but subsequently written off) from the Cincinnati
Marriott Inn. Overage income from Structured Transactions held directly by the
Trust decreased 91% for the year ended December 31, 1998, as compared to the
prior year, primarily due to the sale of all but one of the Trust's Structured
Transactions held directly by the Trust prior to calendar 1998. The receipt and
recognition of base and overage income in the Cincinnati Marriott Inn
transaction occurred in conjunction with the disposition of these investments,
the Trust's last Structured Transaction, which was classified as an Asset Held
for Sale directly by the Trust.

Interest income decreased 70% for the year ended December 31, 1998, as compared
to the prior year. Interest income is earned on net proceeds received by the
Trust from the sale of its investments, which proceeds are invested until they
are distributed to shareholders in the form of special dividends.

                                        8
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
--------------------------------------------------------------------------------

Expenses

Total expenses decreased 88% for the year ended December 31, 1998, as compared
to the prior year, primarily due to the sale of the Trust's last two real estate
investments in the first and second quarters of 1998. Included in total expense
decreases were decreases in professional fees of 90% for the year ended December
31, 1998, as compared to the prior year, due to the downward revision of
approximately $140,000 accrued for estimated liabilities for legal and similar
fees payable that were, in fact, not incurred. General and administrative
expenses also decreased by 58% for the year ended December 31, 1998, as compared
to the prior year, primarily due to the reduction of the Trust's management and
support staff.

Gain on Sale of Real Estate Investments

Net income for the year ended December 31, 1998, included gains on the sale of
real estate investments of $4,083,000 ($.43 per share), comprised of $3,067,000
($.32 per share) from the sale of the Park Place office building in January 1998
and $1,016,000 ($.11 per share) from the prepayment of Cincinnati Marriott Inn's
leasehold mortgages at their face amount in June 1998. These mortgages had
previously been written down by this amount.

Dividends

Dividends declared in respect of calendar year 1998 were $1.15 per share as
compared to $8.93 per share for calendar 1997. Pursuant to its Business Plan,
beginning in fiscal year 1996 the Trust declared special dividends from the
proceeds of its disposition of investments. The Trust declared special dividends
of $1.15 per share and $8.75 per share during calendar years 1998 and 1997,
respectively. The Trust has now disposed of all of its investments. These
dispositions have caused the Trust's revenues to decline significantly.
Consequently, management does not anticipate that the Trust will declare any
regular quarterly dividends from operations in the future. In respect of
calendar year 1998, no regular quarterly dividends were declared as compared to
$.18 per share in calendar 1997.

Inflationary and Economic Factors

As the Trust has no real estate investments, inflation and economic factors
should have no effect on the Trust.

RESULTS OF OPERATIONS - Calendar Year Ended December 31, 1997 vs. Fiscal Year
Ended July 31, 1996

Revenues

Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursements) decreased 15%, primarily due to the Trust's sales of Citibank
Office Plaza - Oak Brook in January 1996, Citibank Office Plaza - Schaumburg in
July 1997, One Park West in October 1997 and Loehmann's Fashion Island in
December 1997.

Base income from Structured Transactions held directly by the Trust (land rent
and mortgage interest) decreased 27%, primarily due to the sales of Yorkshire in
December 1995, Bluffs II in May 1996, City Centre Holiday Inn in January 1997,
Lakeside Center in June 1997, Roseburg Valley Mall, Elm Creek and Sandpiper Cove
in September 1997, and Northbrook in October 1997.

Overage income from Structured Transactions held directly by the Trust decreased
50% primarily due to the sale of City Centre Holiday Inn in January 1997 and Elm
Creek and Sandpiper Cove in September 1997.

Income from unconsolidated Investment Partnerships decreased by 96% due to the
sales of Chimney Rock in September 1995, Crossroads Mall in October 1995,
College Hills 3 in March 1996, College Hills 8 and Financial Plaza in April
1996, the Lisle Hilton Inn (a mortgage repayment) in June 1996, Boardwalk and
St. Charles in June 1996, Canyon View II in August 1996, Plaza West Retail
Center in October 1996 and Telegraph Hill in June 1997.

Interest income increased 43% for the year ended December 31, 1997. Interest
income is earned on net proceeds received by the Trust from the sale of its
investments, which proceeds are invested until they are distributed to
shareholders in the form of special dividends. Advisory fee income decreased 88%
due to the sale of the investments held by Investment Partnerships noted above.

                                        9
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
--------------------------------------------------------------------------------

Expenses

Expenses on Owned Properties held directly by the Trust decreased 14% due to the
sale of the properties noted above. Interest expense decreased 45% primarily due
to the retirement of all of the Trust's remaining outstanding 10% and 9 3/4%
Convertible Subordinated Debentures prior to June 1996 and a $3,000,000
amortization payment made on the Loehmann's Fashion Island first mortgage in
June 1996. The decrease was also due to the sale of One Park West in October
1997 and Loehmann's Fashion Island in December 1997, both of which were
encumbered by first mortgages.

Depreciation decreased 70% due to the elimination of depreciation on Citibank
Office Plaza - Schaumburg and Loehmann's Fashion Island in March 1997 and One
Park West in July 1996 upon their reclassification to Assets Held for Sale
directly by the Trust prior to their sale.

General and administrative expenses decreased by 34% primarily due to the
accrual of severance arrangements in prior periods for certain of the Trust's
employees in conjunction with the implementation of the Business Plan.
Professional fees decreased by 66% primarily due to the reduced size of the
Trust's portfolio. Trustees' fees and expenses did not change significantly in
calendar 1997 from fiscal 1996.

During the fourth quarter of the fiscal year ended July 31, 1996, the Trust
wrote down its investment in Loehmann's Fashion Island by $5,612,000, of which
$3,000,000 was charged to operations and $2,612,000 was charged to the Trust's
previously established allowance for possible investment losses.

Gain on Sale of Real Estate Investments

Net income for the calendar year ended December 31, 1997 included a gain on the
sale of real estate investments of $27,812,000 ($2.91 per share) consisting of a
gain of $18,577,000 ($1.94 per share) from the sale of the land underlying City
Centre Holiday Inn, a gain of $857,000 ($.09 per share) from the sale of
Telegraph Hill, a gain of $1,944,000 ($.20 per share) from the sale of the land
underlying Lakeside Center, a gain of $4,750,000 ($.50 per share) from the sale
of the land underlying Elm Creek and Sandpiper Cove, a gain of $350,000 ($.04
per share) from the sale of the land underlying Northbrook and a gain of
$1,334,000 ($.14 per share) from the sale of One Park West.

Extraordinary Loss from Extinguishment of Debt

Net income for the fiscal year ended July 31, 1996 reflected an extraordinary
loss from extinguishment of debt of $473,000 related to the write-off of
capitalized issuance costs when the Trust redeemed its Convertible Subordinated
Debentures.

Dividends

Dividends declared in respect of calendar year 1997 were $8.93 per share
consisting of $.18 per share in regular quarterly dividends and $8.75 per share
in special dividends.

RESULTS OF OPERATIONS - Five Months Ended December 31, 1996 (the Transition
Period) vs. the Five Months Ended December 31, 1995

Revenues

Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursements) decreased 8% for the five-month Transition Period, as compared
to the same period in the prior year, primarily due to the sale of Citibank
Office Plaza - Oak Brook in January 1996, offset in part by $230,000 received
from the settlement of litigation with a former tenant of Loehmann's Fashion
Island and the inclusion of rents from One Park West which was reclassified to
an Asset Held for Sale directly by the Trust at July 31, 1996.

Base income from Structured Transactions held directly by the Trust (land rent
and mortgage interest) decreased 4% for the five months ended December 31, 1996
as compared to the same period in the prior year, primarily due to the sales of
the Yorkshire apartments investment in December 1995 and the Bluffs II
apartments investment in May 1996.

                                       10
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
--------------------------------------------------------------------------------

Overage income from Structured Transactions held directly by the Trust increased
108% for the five months ended December 31, 1996, as compared to the same period
in the prior year primarily due to increased overage income from the City Centre
Holiday Inn (which was sold by the Trust after the Transition Period) and
Sandpiper Cove investments.

The Trust's share of income from unconsolidated Investment Partnerships
decreased 96% for the five months ended December 31, 1996 as compared to the
same period in the prior year, primarily due to the dispositions of the Chimney
Rock apartments in September 1995, the Crossroads Mall investment in October
1995, the College Hills 3 investment in March 1996, the College Hills 8 and
Financial Plaza investments in April 1996, the St. Charles and Boardwalk
apartments investments in June 1996, the Canyon View II apartments investment in
August 1996 and the Plaza West Retail Center in October 1996, and the repayment
of the first mortgage investment in the Lisle Hilton Inn in June 1996.

Advisory fee income decreased 88% for the five months ended December 31, 1996,
as compared to the same period in the prior year, due to the sale of certain
investments held by the Investment Partnerships as noted above.

Expenses

Expenses on Owned Properties held directly by the Trust decreased 6% for the
five months ended December 31, 1996, as compared to the same period in the prior
year, due to the sale of Citibank Office Plaza - Oak Brook, offset in part by an
increase in real estate taxes at certain Owned Properties held directly by the
Trust.

Interest expense decreased 49% for the five months ended December 31, 1996, as
compared to the same period in the prior year, primarily due to the retirement
of all of the Trust's remaining outstanding 10% and 9 3/4% Convertible
Subordinated Debentures during the fiscal year ended July 31, 1996.

General and administrative expenses increased 7% for the five months ended
December 31, 1996, as compared to the same period in the prior year, primarily
due to the accrual of severance arrangements for certain of the Trust's
employees in conjunction with the implementation of the Business Plan.

Depreciation expense decreased 8% for the five months ended December 31, 1996,
as compared to the same period in the prior year, due to the elimination of
depreciation on One Park West upon its reclassification to an Asset Held for
Sale directly by the Trust in July 1996, offset in part by the write-off of
certain tenant improvements due to early lease terminations at Loehmann's
Fashion Island.

Professional fees decreased 36% for the five months ended December 31, 1996, as
compared to the same period in the prior year, primarily due to higher legal
fees in the prior year associated with the adoption of the Business Plan.
Trustees' fees and expenses did not change significantly from the prior year.

Gain on Sale of Real Estate Investments

Net income for the five months ended December 31, 1996 included a gain on the
sale of real estate investments of $832,000 from the sale of Canyon View II
apartments. For the five months ended December 31, 1995, net income included
gains on the sale of real estate investments of $3,811,000 from the sales of the
Crossroads Mall, the Yorkshire apartments and the Chimney Rock apartments
investments.

Extraordinary Loss from Extinguishment of Debt

Net income for the five months ended December 31, 1995 reflected an
extraordinary loss from extinguishment of debt of $186,000 related to the
write-off of original issuance costs when the Trust redeemed a portion of its
10% Convertible Subordinated Debentures at face value.

Dividends

Dividends declared in respect of the Transition Period were $1.18 per share.
Included in this amount was a special dividend of $1.00 per share from the
proceeds from sale of investments.

                                       11
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
--------------------------------------------------------------------------------

Special Note Regarding Forward-Looking Statements

Certain statements in Item 1 "Business" constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
(financial, operating or otherwise) or achievements of the Trust to be
materially different from any future results, performance (financial, operating
or otherwise) or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, among others,
management's estimates of future dividends, the likelihood and timing of the
merger and other factors noted in this report. As a result, no assurance can be
given as to future results, performance (financial, operating or otherwise) or
achievements of the Trust.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------------------

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

None.

                                       12
<PAGE>

PART III

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
----------------------------------------------------------

The information with respect to the Trustees and Executive Officers is set forth
below pursuant to General Instruction G of Form 10-K.

<TABLE>
<CAPTION>
                                               Principal Occupation
Trustee and Positions                            For Past 5 Years,
Held with Trust                                Affiliations and Age                                  Since
---------------------   ---------------------------------------------------------------------        -----
<S>                     <C>                                                                          <C>  
Walter M. Cabot .....   Senior Advisor of Standish, Ayer & Wood, Inc., Boston, MA; Director,         1982 
Trustee(1)(3)           Rockefeller Financial Services, New York, NY; Trustee and Treasurer, 
                        Wellesley College, Wellesley, MA; Member, Board of Trustees, Lifespan 
                        Corp., Providence, RI (Age 66).

John A. Cervieri Jr..   Chairman and President of Property Capital Associates, Inc., formerly        1969 
Managing Trustee (1)(5) known as Property Capital Advisors, Inc. (the "Advisor")(the former 
                        investment advisor to the Trust) and its affiliates, Boston, MA; 
                        Director of BankBoston, Boston, MA (1996-1998); Chairman and Chief 
                        Executive Officer of Americana Hotels and Realty Corporation, Boston, 
                        MA (Age 68).

Graham O. Harrison...   Manager and Investment Committee Chairman,  Swarthmore College,              1980  
Trustee (2)(3)          Swarthmore, PA; prior to May, 1994, Vice President and Chief
                        Investment Officer of the Howard Hughes Medical Institute, Chevy 
                        Chase, MD; Chairman, European Renaissance Fund (Age 75).

Walter F. Leinhardt..   Partner of Paul, Weiss, Rifkind, Wharton & Garrison, New York, NY,           1969
Trustee and Secretary   law firm (Age 66).
(2)(4)(5)                         

Robert M. Melzer.....   President and Chief Executive Officer of the Trust since 1996 and            1992
Trustee, President,     Chief Financial Officer since June 1998; prior to 1996, President, 
Chief Executive Officer Chief Executive Officer and Chief Financial Officer of the Trust; 
and Chief Financial     Director, Genesee & Wyoming Inc., Greenwich, CT; Trustee, MGI 
Officer (1)(5)          Properties, Boston, MA and Trustee, Beth Israel Deaconess Medical 
                        Center, Boston, MA (Age 58).

Glenn P. Strehle.....   Treasurer Emeritus and Advisor to the Chairman and President                 1993
Trustee (2)(3)          (since 1999), Vice President for Finance (from 1994 to 1998), 
                        Treasurer (from 1975 to 1998) and Vice President for resource 
                        development (from 1986 to 1994) of the Massachusetts Institute of 
                        Technology, Cambridge, MA; former ex-officio member of MIT Executive 
                        and Investment Committees; Chairman of the Trustees of the MIT 
                        Retirement Plan; Director of Liberty Mutual Insurance Companies and
                        Liberty Financial Companies, Boston, MA and BankBoston, Boston, MA 
                        (Age 63).
------------------------
</TABLE>

(1)   Member of the Executive Committee.

(2)   Member of the Audit Committee.

(3)   Member of the Compensation Committee.

(4)   Paul, Weiss, Rifkind, Wharton & Garrison performed legal services for the
      Trust during 1998 and is performing legal services for the Trust during
      the current calendar year. See Item 13 "Certain Relationships and Related
      Transactions."

(5)   There is no family relationship among any of the officers listed above,
      nor are there any arrangements or understandings between any such officers
      and any other person pursuant to which he was selected as an officer. Each
      officer will hold office until the termination of the Trust or its merger
      into an affiliate of The Beal Companies, LLP, one of which is expected to
      occur within the next several months.

                                       13
<PAGE>

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
----------------------------------------------------------------------

During 1998, there were six meetings of the Board of Trustees. The Trust has
standing Audit, Executive and Compensation Committees. The Audit Committee,
which during 1998 was composed of Messrs. Harrison, Leinhardt and Strehle, none
of whom is or was employed by the Trust ("Outside Trustees"), met once during
such year. The function of the Audit Committee is to supervise all relations
between the Trust and its independent auditors, including participating in the
planning for the annual audit and receiving and reviewing the results of that
audit.

The Executive Committee, which during 1998 was composed of Messrs. Cabot,
Cervieri and Melzer, is responsible, among other things, for addressing major
issues which arise between scheduled Trustees' meetings. During 1998, the
Executive Committee did not hold meetings, but its members discussed by
telephone from time to time matters concerning the Trust's business.

The Compensation Committee, which during 1998 was composed of three Outside
Trustees, Messrs. Cabot, Harrison and Strehle, did not hold meetings during
1998. The Compensation Committee is responsible for administering the 1992
Employee Stock Option Plan and for making decisions concerning the compensation
of Mr. Melzer, which is subject to ratification by the full Board of Trustees.

During 1999 the Audit and Compensation Committees will continue to be composed
entirely of Outside Trustees. The Trust does not have a standing Nominating
Committee. During 1998, each Trustee attended at least 67% of the meetings of
the Board and of each committee on which such Trustee served.

Compensation of Trustees

Each Trustee receives a base fee of $833 per month and each member of the
Executive Committee and each member of the Audit Committee receives a fee of
$417 per month. In addition, each Trustee receives $1,000 for each meeting
attended. Trustees' fees totaled $102,000 in 1998. The Trust also reimburses the
Trustees for their expenses incurred in attending meetings of the Trustees. For
1998, reimbursed expenses totaled $5,965. Mr. Melzer receives no compensation
for serving as a Trustee.

Amended and Restated Deferred Stock Plan for Non-Employee Trustees

Prior to February 19, 1998, under the Trustee Deferred Stock Plan, each
non-employee Trustee could elect, on an annual basis, to have fees that would
otherwise have been payable in cash to the Trustee credited to an account for
the Trustee's benefit. Until January 1, 1997, to the extent such fees were
deferred by a Trustee, (i) share units of the Trust's Common Shares were
allocated to such Trustee's account based upon the closing price for the Common
Shares on the AMEX as of the date the fees would have been paid, and (ii)
additional share units were allocated to reflect dividends that would have been
paid on a number of Common Shares equal to the number of share units in a
Trustee's account. The Trustees could also direct that their fees be invested in
cash equivalents. Subsequent to January 1, 1997, the non-employee Trustees
elected to invest their fees in mutual funds and cash equivalents. For calendar
1997, all of the non-employee Trustees elected to participate in the Trustee
Deferred Stock Plan with respect to all fees payable to them, except for Walter
F. Leinhardt, who elected to receive his fees in cash. On February 19, 1998, the
Trustee Deferred Stock Plan was terminated and all Common Shares and funds held
by the Trustee Deferred Stock Plan were distributed to the Trustees. In calendar
1998, all of the non-employee Trustees received all fees in cash. For calendar
1999 all of the non-employee Trustees will receive all fees payable to them in
cash.

1994 Stock Option Plan for Non-Employee Trustees

Under the Trustee Stock Option Plan, each Trustee who was not an employee of the
Trust or any of its affiliates was entitled to receive a grant of non-qualified
stock options for the purchase of 4,000 Common Shares upon the election or
reelection of such Trustee at an annual meeting of shareholders. The exercise
price of options under the Trustee Stock Option Plan was equal to the fair
market value of the underlying Common Shares on the date of grant, but not less
than $1.00 per share. Options vested on the day immediately preceding the next
annual meeting of shareholders to occur following the date of grant, except in
the event of death, disability or a change of control (as defined in the Trustee
Stock Option Plan) occurring prior to such annual meeting, in which case such
options immediately vested and became exercisable. On December 30, 1998, the
Trustee Stock Option Plan was terminated and all outstanding options were
canceled.

                                       14
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION
-------------------------------

Summary Compensation of Executive Officers

The following table sets forth the compensation awarded to, earned by or paid to
the Chief Executive Officer and the other most highly compensated executive
officers of the Trust during the calendar years ended December 31, 1998 and
1997, the five months ended December 31, 1996 (the Transition Period) and the
fiscal year ended July 31, 1996.

                         Summary Compensation Table (1)

<TABLE>
<CAPTION>
                                                                                          Long-Term
                                                       Annual Compensation               Compensation
                                                  -------------------------------        ------------
                                                                     Other Annual          Options        All Other
                                                  Salary   Bonuses   Compensation          Granted      Compensation
Name and Principal Position        Period           $         $           $                   #              $
---------------------------        ------         ------   -------   ------------          -------      ------------
<S>                             <C>              <C>       <C>       <C>                   <C>          <C>
Robert M. Melzer...........     Y/E 12/31/98     216,259      0           0                   0           993,330(5)
 President, Chief Executive     Y/E 12/31/97     254,854      0           0                   0           749,471(6)
 Officer and Chief Financial    P/E 12/31/96(3)  105,462      0           0                   0             3,855(7)
 Officer                        Y/E 7/31/96      241,505      0           0                   0             9,701(8)

Michael I. Sucoff(2).......     Y/E 12/31/98      33,075(4) 33,787        0                   0           140,053(5)
 Former Vice President          Y/E 12/31/97     128,447    50,400        0                   0             8,665(6)
                                P/E 12/31/96(3)   53,123      0           0                   0             5,932(7)
                                Y/E 7/31/96      119,850    48,000        0                   0             8,234(8)

Robin W. Devereux(2).......     Y/E 12/31/98      40,342(4) 33,580        0                   0           108,042(5)
 Former Vice President and      Y/E 12/31/97     115,067    45,150        0                   0             8,422(6)
 Chief Financial Officer        P/E 12/31/96(3)   47,589      0           0                   0             6,149(7)
                                Y/E 7/31/96      107,327    43,000        0                   0             7,592(8)

Randolph L. Kazazian(2)....     Y/E 12/31/98       6,361(4) 18,827        0                   0            80,125(5)
 Former Vice President          Y/E 12/31/97     107,039    42,000        0                   0             8,413(6)
                                P/E 12/31/96(3)   44,269      0           0                   0             6,037(7)
                                Y/E 7/31/96       99,827    40,000        0                   0             6,966(8)
</TABLE>

(1) The columns designated by the Securities and Exchange Commission ("SEC") for
    the reporting of restricted stock awards and payouts of certain long-term
    compensation have been eliminated as being inapplicable during the period
    covered by the table.

(2) In connection with the Business Plan, the employment of certain executive
    officers was terminated; Mr. Sucoff on March 20, 1998, Ms. Devereux on May
    29, 1998 and Mr. Kazazian on January 2, 1998.

(3) In 1997 the Trust changed its fiscal year from one which ended on July 31st
    to one which ends on December 31st. This information is for the five months
    ended December 31, 1996.

(4) During calendar 1998, annual salaries of certain executive officers whose
    employment with the Trust terminated during the year were $132,300 for Mr.
    Sucoff, $118,519 for Ms. Devereux and $110,250 for Mr. Kazazian. The amounts
    listed on the table represent his/her salary through their date of
    termination.

                                       15
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (continued)
-------------------------------------------

(5) Represents (i) amounts contributed by the Trust (a) on a matching basis with
    contributions made by employees and (b) on a profit-sharing basis under the
    PCT 401(k) plan ($10,830 for Mr. Melzer, $13,637 for Mr. Sucoff and $13,716
    for Ms. Devereux), (ii) premiums paid by the Trust for term life insurance
    policies (in the aggregate face amount of $50,000 for Mr. Sucoff and Ms.
    Devereux) ($266 for Mr. Sucoff and $67 for Ms. Devereux), (iii) amounts paid
    by the Trust for (a) severence compensation as provided for by the Severence
    Plan plus (b) an additional payment based on his/her performance totaling
    ($126,150 for Mr. Sucoff, $94,259 for Ms. Devereux and $80,125 for Mr.
    Kazazian), and (iv) $982,500 paid by the Trust to Mr. Melzer as provided for
    in his Incentive Compensation Agreement (see below).

(6) Represents (i) amounts contributed by the Trust (a) on a matching basis with
    contributions made by employees and (b) on a profit-sharing basis under the
    PCT 401(k) plan ($8,147 for each of Messrs. Melzer, Sucoff, Kazazian and Ms.
    Devereux), (ii) premiums paid by the Trust for term life insurance policies
    (in the aggregate face amount of $50,000 for each executive officer) ($216
    for Mr. Melzer, $518 for Mr. Sucoff, $275 for Ms. Devereux and $266 for Mr.
    Kazazian), and (iii) $741,108 paid by the Trust to Mr. Melzer as provided
    for in his Incentive Compensation Agreement.

(7) Represents (i) amounts contributed by the Trust (a) on a matching basis with
    contributions made by employees and (b) on a profit-sharing basis under the
    PCT 401(k) plan ($3,735 for Mr. Melzer, $5,812 for Mr. Sucoff, $6,029 for
    Ms. Devereux and $5,917 for Mr. Kazazian), and (ii) premiums paid by the
    Trust for term life insurance policies (in the aggregate face amount of
    $50,000 for each executive officer) ($120 for each of Messrs. Melzer,
    Sucoff, Kazazian and Ms. Devereux).

(8) Represents (i) amounts contributed by the Trust (a) on a matching basis with
    contributions made by employees and (b) on a profit-sharing basis under the
    PCT 401(k) plan ($9,413 for Mr. Melzer, $7,946 for Mr. Sucoff, $7,304 for
    Ms. Devereux and $6,678 for Mr. Kazazian), and (ii) premiums paid by the
    Trust for term life insurance policies (in the aggregate face amount of
    $50,000 for each executive officer) ($288 for each of Messrs. Melzer,
    Sucoff, Kazazian and Ms. Devereux).

Incentive Compensation Agreement

The following sets forth certain information concerning the incentive
compensation arrangement with Robert M. Melzer.

              Long-Term Incentive Plan Awarded in Fiscal Year 1996
<TABLE>
<CAPTION>
                                                                               Estimated Future Payouts under
                                                                                 Non-Stock Price-Based Plans
                                                                               ------------------------------ 
                     Number of Shares, Units     Performance or Other Period
Name                     Or Other Rights          Until Maturation or Payout   Threshold    Target    Maximum
----                 -----------------------     ---------------------------   ---------    ------    -------
<S>                  <C>                         <C>                           <C>          <C>       <C>
Robert M. Melzer (1)...      250,000                          (1)                             N/A
</TABLE>

(1) As of August 25, 1995, the Trust entered into an incentive compensation
    agreement (the "Incentive Compensation Agreement") with Mr. Melzer. Under
    the Incentive Compensation Agreement, Mr. Melzer receives cash compensation
    equal to the amount he would have realized if he had purchased on May 24,
    1995 (the date of the adoption by the Trustees of the 1995 Business Plan),
    250,000 Common Shares of the Trust (the "Phantom Shares") at $6.75 per
    share, the market price of a Common Share on May 24, 1995, with the proceeds
    of a loan made to him by the Trust bearing interest at the rate of 10% per
    annum, compounding monthly (the "Phantom Loan"). Each dividend or other
    distribution paid on each Common Share subsequent to May 24, 1995 is deemed
    to have been simultaneously paid on the Phantom Shares, with such deemed
    dividends and other distributions being applied first to pay the interest on
    and principal of the Phantom Loan. Once the Phantom Loan has been
    discharged, Mr. Melzer is paid in cash an amount equal to all such deemed
    dividends and other distributions. Upon termination of Mr. Melzer's
    employment with the Trust, whether such termination results from Mr.
    Melzer's discharge by the Trust, his election to leave the Trust, death,
    disability or the termination of the Trust, the Trust will pay to Mr. Melzer
    an amount in cash equal to the excess of the market value of the Phantom
    Shares (which is equivalent to the then market value of a like amount of
    Common Shares) over the amount, if any, then due on the Phantom Loan. Mr.
    Melzer will not be entitled to any such payment if he voluntarily terminates
    his employment with the Trust and fails to give the Trust the requisite
    notice under his Termination Agreement or if the Trust terminates Mr.
    Melzer's employment for cause (as defined in Mr. Melzer's Termination
    Agreement). If the Trust merges or consolidates into or with another entity
    and the Trust is not the survivor of such merger or consolidation, then the
    surviving entity will be required to pay to Mr. Melzer an amount equal to
    the

                                       16
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (continued)
-------------------------------------------

    excess of the value of 250,000 Common Shares of the Trust in connection with
    such merger or consolidation over the amount then due on the Phantom Loan.
    As of December 31, 1998, the principal of the Phantom Loan was repaid
    together with unpaid interest thereon. In this regard, if the merger
    discussed above is consummated, Mr. Melzer will be paid an amount based on
    the final distribution to shareholders but will not be paid in respect to
    the value of the Common Shares of the Trust at the time of the merger. Mr.
    Melzer has received $1,723,608 in compensation, $982,500 paid in calendar
    1998 and $741,108 in calendar 1997, under this Incentive Compensation
    Agreement.


Stock Option Grants

During 1998 there were no grants of stock options to the executive officers. At
December 31, 1998, there were no outstanding options to acquire Trust shares.
The Trust does not grant stock appreciation rights ("SARs") of any kind.


Termination of Employment and Change of Control Arrangements

The Trust is a party to a termination agreement (the "Termination Agreement")
with Mr. Melzer, which Termination Agreement expires on October 19, 2000. During
the term of the Termination Agreement, upon the occurrence of a "change of
control" of the Trust, Mr. Melzer would be entitled to a payment from the Trust
equal to 150% of his annual base salary at the date of such change of control if
during the six months following such change of control he elects to terminate
his employment. Beginning October 19, 1997, the amount payable to Mr. Melzer
following such termination was reduced to 100% of his annual base salary at the
date of such change of control.

The Termination Agreement also provides for the Trust to make certain payments
to Mr. Melzer equal to 150% of annual base salary on the date of termination or
resignation if Mr. Melzer is terminated by the Trust other than for "cause" or
if he resigns for "good reason." Beginning October 19, 1997, the amount payable
to Mr. Melzer in such event was reduced to 100% of his annual base salary at the
date of such termination or resignation. The Termination Agreement provides that
termination for "cause" may occur if (i) Mr. Melzer engages in fraud,
misappropriation, embezzlement or any other conduct that either results in his
conviction for a felony under the laws of the United States or any State or is
designed to result, directly or indirectly, in improper gain or personal
enrichment of himself at the expense of the Trust, or any of its affiliates, or
(ii) in the reasonable opinion of the Trustees, has wilfully failed to perform
material duties of his office and such failure is not cured within a cure
period. The Termination Agreement provides that Mr. Melzer may resign for "good
reason" if (i) he is removed from his current position with the Trust (other
than if he is terminated for cause or receives an equivalent or more senior
position with the Trust), (ii) he is assigned duties materially inconsistent
with his position, responsibilities, reporting requirements and status or the
Trust takes any action which results in a material diminution of his position,
authority, duties, responsibilities, reporting requirements or status, subject
in each case to a cure right, (iii) his annual base salary is reduced or (iv)
the Trust relocates its current headquarters outside the greater metropolitan
Boston area. The Termination Agreement also requires that Mr. Melzer provide the
Trust with at least six months' written notice prior to a voluntary cessation of
employment with the Trust that does not qualify for payment of a termination
fee.

A "change of control" as defined in the Termination Agreement will have occurred
if (i) after the effective date of the Termination Agreement, any person becomes
a beneficial owner directly or indirectly of securities representing 25% or more
of the combined voting power of the then outstanding voting securities of the
Trust or (ii) a merger or consolidation of the Trust, a sale of all or
substantially all of the assets of the Trust or a contested election of
Trustees, or any combination of the foregoing, occurs and within two years after
the occurrence of any of the foregoing, the individuals who are Trustees
(excluding any employee of the Trust) immediately prior thereto shall cease to
constitute a majority of the Board of Trustees of the Trust or the Board of
Trustees or Directors of the Trust's successor.

Mr. Melzer is not entitled to any payment under his Termination Agreement if he
voluntarily leaves the employ of the Trust (other than for good reason or within
six months after a change of control) or if his employment terminates by reason
of his death or disability. In the event the proposed merger occurs, Mr. Melzer
will receive, as full payment pursuant to the Termination Agreement, the sum of
$262,500.

                                       17

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION (continued)
--------------------------------------------


Compensation Committee's Report on Compensation

The Trust had a standing Compensation Committee during 1998. The Committee has
traditionally reviewed compensation (salary and bonuses) in the spring of each
year in order to make adjustments effective August 1. In the case of Robert M.
Melzer, President, Chief Executive Officer and Chief Financial Officer of the
Trust, compensation is subject to ratification by the full Board of Trustees and
Mr. Melzer did not participate in discussions regarding his own compensation.

In early 1998, Mr. Melzer met with the full Board of Trustees and requested a
20% decrease in his salary, effective January 1, 1998, given the significantly
reduced activity of the Trust. This request was approved by the Board. In 1998
there were no subsequent adjustments to Mr. Melzer's salary nor was he awarded a
bonus. In addition, in 1998 no other executive officer of the Trust received a
salary adjustment.

In addition, the Board determined that Mr. Melzer's Incentive Compensation
Agreement, which was established in 1995, was adequate as an incentive to help
secure his continuing services and, as a consequence, no additional incentives
were recommended.




            By the 1998 Compensation Committee:

            Walter M. Cabot
            Graham O. Harrison
            Glenn P. Strehle

                                       18

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION (continued)
--------------------------------------------


Performance Graph

The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Trust's Common Shares against the cumulative
total return of the AMEX Market Index and the National Association of Real
Estate Investment Trust Total Return Index for Hybrid REITS (the "Hybrid Index")
for the period of five years commencing January 1, 1994 and ended on the last
day of the Trust's last completed year, December 31, 1998. The graph assumes an
investment of $100 on January 1, 1994, a reinvestment of dividends and actual
increase or decrease of the market value of the Trust's Common Shares relative
to an initial investment of $100. The Trustees believe that the Hybrid Index is
the most relevant index of a peer group for the Trust because the Trust's
portfolio consisted of wholly-owned properties, structured investments and
mortgages.


          COMPARISON OF CUMULATIVE TOTAL RETURN FOR PERIOD FROM 1/1/94
           THROUGH 12/31/98 AMONG PROPERTY CAPITAL TRUST, AMEX MARKET
              INDEX AND NAREIT TOTAL RETURN INDEX FOR HYBRID REITS


                            Total Return Performance



<TABLE>
<CAPTION>
                                                        Period Ended
                                                        ------------
Index                       1/1/94    12/31/94   12/31/95    12/31/96       12/31/97         12/31/98
-----                       ------    --------   --------    --------       --------         --------

<S>                         <C>          <C>       <C>         <C>            <C>              <C>
Property Capital Trust      100.00       95.30     148.34      218.70         315.56           696.18*
AMEX Market Index           100.00       90.90     114.91      122.25         148.28           150.83
NAREIT Hybrid Index         100.00      104.02     127.91      165.46         183.25           119.66
</TABLE>


                    ASSUMES $100 INVESTED ON JANUARY 1, 1994
                      ASSUMES DIVIDENDS REINVESTED THROUGH
                                DECEMBER 31, 1998


*    Total return for 1998 assumed that the dividend paid on July 10, 1998 was
     reinvested on November 2, 1998, the first day that trading in the Trust's
     shares resumed after the ex-dividend date.

The Trust believes the information provided in the above performance graph has
only limited relevance to an understanding of the Trust's compensation policies
during the indicated period as the Trust believes that the graph does not
reflect all matters appropriately considered by the Trust in developing its
compensation strategy.

                                       19

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------


The following table sets forth certain information regarding each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) known (based
solely upon filings with the Securities and Exchange Commission (the
"Commission") prior to such date pursuant to Sections 13(d) or 13(g) of the
Exchange Act) to own beneficially (as such term is defined in Rule 13d-3 under
the Exchange Act) more than 5% of the outstanding Common Shares. In accordance
with the rules promulgated by the Commission, such ownership includes shares
currently owned as well as shares of which the named person has the right to
acquire beneficial ownership within 60 days, including, but not limited to,
shares which the named person has the right to acquire through the exercise of
any option, warrant or right, or through the conversion of a security.
Accordingly, more than one person may be deemed to be a beneficial owner of the
same securities.

                                                                 Percent of
      Name and Address           Number of Shares Owned     Outstanding Shares
      ----------------           ----------------------     ------------------

      Warren E. Buffett . . . .        815,100                    8.5%
      1440 Kiewit Plaza
      Omaha, Nebraska 68131

The following table sets forth, as of December 31, 1998, information known to
the Trust with respect to the beneficial ownership of Common Shares by (i) each
Trustee of the Trust, (ii) each executive officer of the Trust named in the
Summary Compensation Table under "Executive Compensation" (other than Robin W.
Devereux, Randolph L. Kazazian and Michael I. Sucoff, whose employment with the
Trust terminated during calendar 1998) and (iii) all Trustees and executive
officers of the Trust as a group:

                                           Amount and Nature
                                             of Beneficial        Percent of
      Name and Address                        Ownership(1)          Class
      ----------------                        ------------          -----

      Walter M. Cabot . . . . . . . . . . . . . 22,165               (2)
      John A. Cervieri Jr.   . . . . . . . . . . . . 0                -
      Graham O. Harrison  . . . . . . . . . . . 57,720               (2)
      Walter F. Leinhardt . . . . . . . . . . . . . 40               (2)
      Robert M. Melzer  . . . . . . . . . . . . 57,000(3)            (2)
      Glenn P. Strehle  . . . . . . . . . . . . 20,110(4)            (2)
      All Trustees and executive officers
        as a group (6 persons) . . . . . . . . 157,035(5)            1.6%

(1)  Nature of beneficial ownership is sole voting and investment power except
     as indicated in subsequent notes.

(2)  Less than 1%.

(3)  Includes 41,000 Common Shares owned by Mr. Melzer and 16,000 Common Shares
     held through an Individual Retirement Account owned and controlled by Mr.
     Melzer.

(4)  Includes 20,110 Common Shares owned by Mr. Strehle. The Massachusetts
     Institute of Technology ("M.I.T.") owns 350,000 Common Shares with respect
     to which Mr. Strehle has voting and investment power by virtue of his
     position as Vice President for Finance and Treasurer of M.I.T., subject to
     the policies and procedures of the Investment Committee of M.I.T. of which
     Committee Mr. Strehle is an ex-officio member. In addition, the M.I.T.
     Retirement Plan owns 240,047 Common Shares with respect to which Mr.
     Strehle has voting and investment power by virtue of his position as
     Chairman of the Trustees of the M.I.T. Retirement Plan. Mr. Strehle
     disclaims beneficial ownership of the Common Shares owned by M.I.T. and the
     M.I.T. Retirement Plan.

(5)  Includes shares owned by members of the immediate families of certain
     Trustees and officers, as to which shares the relevant Trustee or officer
     disclaims beneficial ownership.

                                       20

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------


During calendar 1998, the Trust paid legal fees in the amount of $178,076
(exclusive of additional amounts, if any, paid by the Trust's lessees and
borrowers) to the law firm of Paul, Weiss, Rifkind, Wharton & Garrison, of which
Walter F. Leinhardt, Secretary and Trustee of the Trust, is a partner.

                                       21
<PAGE>

PART IV


ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
-----------------------------------------------------------------------------

(a)  1.    Consolidated Financial Statements

     The consolidated financial statements listed in the accompanying index to
     financial statements and financial statement schedules on Page 27 are filed
     as part of this Annual Report.

     2.    Consolidated Financial Statement Schedules

     The consolidated financial statement schedules listed in the accompanying
     index to financial statements and financial statement schedules on Page 27
     are filed as part of this Annual Report.

     3.   Exhibits

     The exhibits listed in the accompanying index to exhibits on Pages 23 and
     24 are filed as part of the Annual Report.

(b)  Reports on Form 8-K

     None

                                       22
<PAGE>

(Item 14(a)) INDEX TO EXHIBITS
------------------------------

<TABLE>
<CAPTION>

Exhibit Number                         Description
--------------                         -----------

<S>  <C>                                                                            <C>
3.1  Declaration of Trust as currently in effect except for the five Amendments
     below is incorporated herein by reference to Exhibit 4.1 of the May 13,
     1983 Form S-2 Registration Statement (Registration No. 2-83624).                N/A

3.2  Amendment, dated October 1, 1987, to the Declaration of the Trust is
     incorporated herein by reference to the exhibit to the Trust's Form 10-K
     Annual Report for the fiscal year ended July 31, 1987.                          N/A


3.3  Amendment, dated August 21, 1992, to the Declaration of the Trust is
     incorporated herein by reference to Exhibit 3.3 of the Trust's Form 10-K
     for the fiscal year ended July 31, 1992.                                        N/A


3.4  Amendment, dated December 29, 1992, to the Declaration of Trust is
     incorporated by reference to Exhibit 3.4 or the Trust's Form 10-K for the
     fiscal year ended July 31, 1993.                                                N/A


3.5  Amendment, dated February 26, 1993, to the Declaration of Trust as to the
     number and identity of Trustees is incorporated herein by reference to
     Exhibit 3.5 of the Trust's Form 10-K for the fiscal year ended July 31,
     1993.                                                                           N/A


3.6  Amendment, dated June 19, 1996, to the Declaration of Trust as to the New
     Business Plan.                                                                  N/A


3.7  By-Laws of the Trust as currently in effect are incorporated herein by
     reference to Exhibit 3.3 of the Trust's Form 10-K for the fiscal year ended
     July 31, 1992.                                                                  N/A


4.3  Form of Certificate representing shares of Beneficial Interest of the Trust
     incorporated herein by reference to Exhibit 4 of the Trust's Annual Report
     on Form 10-K for the fiscal year ended July 31, 1990.                           N/A


4.4  Shareholder Rights Plan, incorporated herein by reference to the Trust's
     Form 8-K report dated October 12, 1990.                                         N/A


10.1 Termination Agreement dated as of October 19, 1992 between Robert M. Melzer
     and the Trust is incorporated herein by reference to Exhibit 10.1 of the
     Trust's Form 10-K for the fiscal year ended July 31, 1992.                      N/A


10.2 Amendment, dated as of August 25, 1995, to Termination Agreement, dated
     October 19, 1992 between Robert M. Melzer and the Trust is incorporated
     herein by reference to Exhibit 10.2 of the Trust's Form 10-K for the fiscal
     year ended July 31, 1995.                                                       N/A

                                       23
<PAGE>

(Item 14(a)) INDEX TO EXHIBITS (continued)
------------------------------------------

Exhibit Number                         Description
--------------                         -----------


10.3 Termination Agreement, dated as of October 19, 1992, between William A.
     Bonn and the Trust is incorporated herein by reference to Exhibit 10.3 of
     the Trust's Form 10-K for the fiscal year ended July 31, 1995.                  N/A


10.4 Amendment, dated as of August 16, 1995, to Termination Agreement, dated
     October 19, 1992 between William A. Bonn and the Trust is incorporated
     herein by reference to Exhibit 10.4 of the Trust's Form 10-K for the fiscal
     year ended July 31, 1995.                                                       N/A


10.5 Property Capital Trust 1992 Employee Stock Option Plan, as Amended (the
     "1992 Plan") is incorporated herein by reference to Exhibit 10.3 of the
     Trust's Form 10-Q for the quarter ended October 31, 1992.                       N/A


10.6 Subcontract and Option Agreement dated August 1, 1992 between Property
     Capital Trust and PCA Institutional Advisors is incorporated herein by
     reference to Exhibit 10.6 of the Trust's Form 10-K for the fiscal year
     ended July 31, 1995.                                                            N/A


10.7 Property Capital Trust Amended and Restated Deferred Stock Plan for
     Non-Employee Trustees is incorporated herein by reference to Exhibit 10.7
     of the Trust's Form 10-K for the fiscal year ended July 31, 1995.               N/A


10.8 Property Capital Trust 1994 Stock Option Plan for Non-Employee Trustees is
     incorporated herein by reference to Exhibit 10.8 of the Trust's Form 10-K
     for the fiscal year ended July 31, 1995.                                        N/A


10.9 Incentive Compensation Agreement, dated August 25, 1995, between Robert M.
     Melzer and the Trust is incorporated herein by reference to Exhibit 10.9 of
     the Trust's Form 10-K for the fiscal year ended July 31, 1995.                  N/A


21   List of the Trust's subsidiaries.                                               82


27   Financial Data Schedule.                                                        84
</TABLE>

                                       24

<PAGE>

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Trust has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

PROPERTY CAPITAL TRUST
(Registrant)



By   /s/ Robert M. Melzer
     --------------------
     Robert M. Melzer                                         March 25, 1999
     President, Chief Executive Officer                            Date
      and Chief Financial Officer

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 Trust and in the
capacities and on the dates indicated:



/s/ John A. Cervieri Jr.          Managing Trustee               March 25, 1999
------------------------
John A. Cervieri Jr.



/s/ Robert M.Melzer               Trustee, President,            March 25, 1999
-------------------               Chief Executive Officer    
Robert M. Melzer                  and Chief Financial Officer
                                  (Principal Executive and
                                  Financial Officer)



/s/ Walter M. Cabot               Trustee                        March 25, 1999
-------------------
Walter M. Cabot



/s/ Graham O. Harrison            Trustee                        March 25, 1999
----------------------
Graham O. Harrison



/s/ Walter F. Leinhardt           Trustee                        March 25, 1999
-----------------------
Walter F. Leinhardt



/s/ Glenn P. Strehle              Trustee                        March 25, 1999
--------------------
Glenn P. Strehle

                                       25

<PAGE>

                           ANNUAL REPORT ON FORM 10-K
                     ITEM 8 and ITEM 14(a) (1), (2) and (d)




        INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES,

                            FINANCIAL STATEMENTS AND

                          FINANCIAL STATEMENT SCHEDULES






                             PROPERTY CAPITAL TRUST
                              Boston, Massachusetts
                          Year Ended December 31, 1998


                                       26

<PAGE>

ITEM 14(a) (1) and (2) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
----------------------------------------------------------------------------

                                           Page

Property Capital Trust
The following consolidated financial statements of Property Capital Trust are
included in Item 8:

<TABLE>
<CAPTION>

<S>                                                                                     <C>
   Consolidated balance sheets at December 31, 1998 and 1997                            29
   Consolidated statements of income for the years ended December 31, 1998, 
     December 31, 1997 and July 31, 1996                                                30
     and for the five-month period ended December 31, 1996 and 1995 (unaudited)         31
   Consolidated statements of cash flows for the years ended December 31, 1998,
     December 31, 1997 and July 31, 1996                                               32
     and for the five-month period ended December 31, 1996 and 1995 (unaudited)        33
   Consolidated statements of shareholders' equity for the years ended December
     31, 1998, December 31, 1997 and July 31, 1996 and for the five-month
     period ended December 31, 1996                                                    34
   Notes to consolidated financial statements                                       35-53
   Consolidated Quarterly Financial Data (unaudited)                                   54

The following consolidated financial statement schedules of Property Capital
Trust are included in Item 14(d):

 II - Allowance for possible investment losses                                         55
III - Investments - Assets Held for Sale directly by the Trust                         56

The following separate financial statements are required pursuant to Rule 3-09
of Regulation S-X:

Property Capital Midwest Associates, L.P.
The following financial statements of Property Capital Midwest Associates, L.P.
are included in Item 8:

   Balance sheet at December 31, 1996                                                  59
   Statements of income for the ten-month period ended October 31, 1997 and for 
     the year ended December 31, 1996                                                  60
   Statements of cash flows for the ten-month period ended October 31, 1997 and 
     for the year ended December 31, 1996                                              61
   Statements of changes in partners' equity for the ten-month period ended 
     October 31,1997 and for the year ended December 31, 1996                          62
   Notes to financial statements                                                       63

PCA Canyon View Associates Limited Partnership
The following financial statements of PCA Canyon View Associates Limited
Partnership are included in Item 8:

   Balance sheet at December 31, 1996                                                  66
   Statements of operations for the nine-month period ended September 30, 1997 
     and for the year ended December 31, 1996                                          67
   Statements of cash flows for the nine-month period ended September 30, 1997 
     and for the year ended December 31, 1996                                          68
   Statements of changes in partners' equity for the nine-month period ended 
     September 30, 1997 and for the year ended December 31, 1996                       69
   Notes to financial statements                                                       70
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
instructions or are inapplicable and therefore have been omitted.

                                       27
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Trustees and Shareholders
Property Capital Trust

We have audited the accompanying consolidated balance sheets of Property Capital
Trust (a real estate investment trust) as of December 31, 1998 and 1997, and the
related consolidated statements of income, cash flows, and shareholders' equity
for the years ended December 31, 1998 and 1997, and July 31, 1996 and the
five-month period ended December 31, 1996. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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 consolidated financial position of Property Capital
Trust at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1998 and 1997,
and July 31, 1996 and the five-month period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.


                                                               ERNST & YOUNG LLP


Boston, Massachusetts
February 18, 1999

                                       28
<PAGE>

Property Capital Trust
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        December 31,               December 31,
                                                                            1998                       1997
                                                                            ----                       ----
<S>                                                                    <C>                        <C>      
Assets
Real Estate Investments
  Assets Held for Sale directly by the Trust                           $         -                $  15,077,000

Cash and cash equivalents                                                  3,233,000                  3,160,000
Interest and rents receivable                                                    -                      280,000
Other assets                                                                  52,000                  2,666,000
                                                                       -------------              -------------
                                                                       $   3,285,000              $  21,183,000
                                                                       =============              =============
Liabilities and Shareholders' Equity
Liabilities
  Accounts payable, accrued expenses and other                         $     759,000              $   5,983,000
  Accrued interest                                                               -                       41,000
  Mortgage notes payable                                                         -                    8,345,000
                                                                       -------------              -------------
                                                                             759,000                 14,369,000
                                                                       -------------              -------------
Shareholders' Equity
  Common Shares (without par value, unlimited shares
   authorized, 9,584,220 issued and 9,584,220
   and 9,397,369 outstanding, respectively)                              108,568,000                108,568,000
  Accumulated deficit                                                   (106,042,000)              (100,438,000)
                                                                       -------------              -------------

                                                                           2,526,000                  8,130,000
  Less cost of Treasury Shares                                                   -                   (1,316,000)
                                                                       -------------              -------------
  Total Shareholders' Equity                                               2,526,000                  6,814,000
                                                                       -------------              -------------
                                                                       $   3,285,000              $  21,183,000
                                                                       =============              =============
</TABLE>

                             See accompanying notes

                                       29
<PAGE>

Property Capital Trust
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                                          Years Ended
                                                                                          -----------
                                                                      December 31,       December 31,          July 31,
                                                                          1998               1997                1996
                                                                          ----               ----                ----

<S>                                                                  <C>                 <C>                 <C>         
Revenues
Rents from Owned Properties held directly by the Trust               $    470,000        $ 10,746,000        $ 12,641,000
Structured Transactions held directly by the Trust
  Base income                                                           1,853,000           1,956,000           2,664,000
  Overage income                                                          107,000           1,153,000           2,297,000
Income from unconsolidated Investment Partnerships                            -               120,000           3,326,000
                                                                     ------------        ------------        ------------
                                                                        2,430,000          13,975,000          20,928,000

Interest income                                                           206,000             695,000             486,000
Other income                                                                7,000                 -                   -
Advisory fee income                                                           -                47,000             385,000
                                                                     ------------        ------------        ------------
                                                                        2,643,000          14,717,000          21,799,000
                                                                     ------------        ------------        ------------

Expenses
General and administrative expenses                                       963,000           2,316,000           3,518,000
Expenses on Owned Properties held directly by the Trust                   211,000           4,773,000           5,569,000
Trustees' fees and expenses                                               108,000             108,000             137,000
Professional fees                                                          17,000             162,000             474,000
Interest                                                                   10,000           2,653,000           4,800,000
Depreciation                                                                  -             1,220,000           4,008,000
Write-down of real estate investment                                          -                   -             3,000,000
                                                                     ------------        ------------        ------------
                                                                        1,309,000          11,232,000          21,506,000
                                                                     ------------        ------------        ------------
Income before Gain on Sale of Real Estate
  Investments and Extraordinary Item                                    1,334,000           3,485,000             293,000
Gain on Sale of Real Estate Investments                                 4,083,000          27,812,000           6,094,000
                                                                     ------------        ------------        ------------
Income before Extraordinary Item                                        5,417,000          31,297,000           6,387,000
Extraordinary Loss from Extinguishment of Debt                                -                   -              (473,000)
                                                                     ------------        ------------        ------------
Net Income                                                           $  5,417,000        $ 31,297,000        $  5,914,000
                                                                     ============        ============        ============

Net Income per Share

Income before Gain on Sale of Real Estate
  Investments and Extraordinary Item                                 $       0.14        $       0.36        $       0.03
Gain on Sale of Real Estate Investments                                      0.43                2.91                0.67
                                                                     ------------        ------------        ------------
Income before Extraordinary Item                                             0.57                3.27                0.70
Extraordinary Loss from Extinguishment of Debt                                -                   -                 (0.05)
                                                                     ------------        ------------        ------------
Basic Net Income per Share                                           $       0.57        $       3.27        $       0.65
                                                                     ============        ============        ============
Diluted Net Income per Share                                         $       0.57        $       3.27        $       0.64
                                                                     ============        ============        ============
Average Shares Outstanding                                              9,584,220           9,567,000           9,097,000
                                                                     ============        ============        ============

</TABLE>
                             See accompanying notes

                                       30
<PAGE>

Property Capital Trust
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>


                                                                                 Five Months Ended
                                                                                 -----------------
                                                                        December 31,            December 31,
                                                                            1996                   1995
                                                                            ----                   ----
                                                                                                (Unaudited)
<S>                                                                    <C>                     <C>        
Revenues
Rents from Owned Properties held directly by the Trust                 $ 5,152,000             $ 5,581,000
Structured Transactions held directly by the Trust
  Base income                                                            1,103,000               1,144,000
  Overage income                                                         1,678,000                 808,000
Income from unconsolidated Investment Partnerships                          67,000               1,778,000
                                                                       -----------             -----------
                                                                         8,000,000               9,311,000

Interest income                                                            165,000                 170,000
Advisory fee income                                                         22,000                 189,000
                                                                       -----------             -----------
                                                                         8,187,000               9,670,000
                                                                       -----------             -----------
Expenses
General and administrative expenses                                      1,446,000               1,357,000
Expenses on Owned Properties held directly by the Trust                  2,314,000               2,472,000
Trustees' fees and expenses                                                 65,000                  62,000
Professional fees                                                          154,000                 240,000
Interest                                                                 1,267,000               2,474,000
Depreciation                                                             1,405,000               1,532,000
                                                                       -----------             -----------
                                                                         6,651,000               8,137,000
                                                                       -----------             -----------
Income before Gain on Sale of Real Estate
  Investments and Extraordinary Item                                     1,536,000               1,533,000
Gain on Sale of Real Estate Investments                                    832,000               3,811,000
                                                                       -----------             -----------
Income before Extraordinary Item                                         2,368,000               5,344,000
Extraordinary Loss from Extinguishment of Debt                                 -                  (186,000)
                                                                       -----------             -----------
Net Income                                                             $ 2,368,000             $ 5,158,000
                                                                       ===========             ===========

Net Income per Share

Income before Gain on Sale of Real Estate
  Investments and Extraordinary Item                                   $      0.16             $      0.17
Gain on Sale of Real Estate Investments                                       0.09                    0.42
                                                                       -----------             -----------
Income before Extraordinary Item                                              0.25                    0.59
Extraordinary Loss from Extinguishment of Debt                                 -                     (0.02)
                                                                       -----------             -----------
Basic Net Income per Share                                             $      0.25             $      0.57
                                                                       ===========             ===========
Diluted Net Income per Share                                           $      0.25             $      0.57
                                                                       ===========             ===========
Average Shares Outstanding                                               9,353,000               9,054,000
                                                                       ===========             ===========
</TABLE>

                             See accompanying notes

                                       31
<PAGE>

Property Capital Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                              Years Ended
                                                                                              -----------
                                                                     December 31,        December 31,           July 31,
                                                                        1998                1997                  1996
                                                                        ----                ----                  ----
<S>                                                                  <C>                <C>                  <C>        
Operating Activities
Net Income                                                         $  5,417,000        $ 31,297,000        $  5,914,000
Adjustments to Net Income
  Gain on sale of real estate investments                            (4,083,000)        (27,812,000)         (6,094,000)
  Extraordinary loss from extinguishment of debt                            -                   -               473,000
  Depreciation and amortization                                             -             1,398,000           4,205,000
  Write-down of real estate investment                                      -                   -             3,000,000
  Income from unconsolidated Investment Partnerships                        -              (120,000)         (3,326,000)
  Distributions of income from Investment Partnerships                      -               121,000           3,326,000
  Changes in assets and liabilities
   Decrease in interest and rents receivable                            280,000           1,478,000             435,000
   Decrease (increase) in other assets, net                           2,614,000          (1,664,000)           (137,000)
   (Decrease) increase in accounts payable, accrued
     expenses and other liabilities and accrued interest             (3,949,000)            798,000           1,418,000
                                                                   -------------       -------------       ------------
Net Cash Provided by Operating Activities                               279,000           5,496,000           9,214,000
                                                                   -------------       -------------       ------------
Investing Activities
Owned Properties held directly by the Trust
  Dispositions                                                        4,564,000          36,288,000          10,828,000
  Additions                                                             (65,000)         (3,992,000)         (1,075,000)
Structured Transactions held directly by the Trust
  Dispositions/repayments                                             6,316,000          47,500,000           5,101,000
  Additions                                                                 -                   -              (600,000)
Investment Partnerships
  Distributions in excess of income                                         -             2,384,000          38,883,000
                                                                   -------------       -------------       ------------
Net Cash Provided by Investing Activities                            10,815,000          82,180,000          53,137,000
                                                                   -------------       -------------       ------------
Financing Activities
Cash dividends paid                                                 (11,021,000)        (86,416,000)        (29,774,000)
Redemption/repurchase of Convertible Subordinated Debentures                -                   -           (31,645,000)
Prepayment of mortgage notes payable                                        -                   -            (3,000,000)
Scheduled amortization of mortgage notes payable                            -              (263,000)           (256,000)
Proceeds from exercise of stock options                                     -               515,000             112,000
                                                                   -------------       -------------       ------------
Net Cash Used in Financing Activities                               (11,021,000)        (86,164,000)        (64,563,000)
                                                                   -------------       -------------       ------------
Net Increase (Decrease) in Cash and Cash Equivalents                     73,000           1,512,000          (2,212,000)

Cash and Cash Equivalents at Beginning of Year                        3,160,000           1,648,000           5,209,000
                                                                   -------------       -------------       ------------
Cash and Cash Equivalents at End of Year                           $  3,233,000        $  3,160,000        $  2,997,000
                                                                   =============       =============       ============
</TABLE>

                             See accompanying notes

                                       32

<PAGE>

Property Capital Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      Five Months Ended
                                                                                      -----------------
                                                                            December 31,           December 31,
                                                                                1996                   1995
                                                                                ----                   ----
                                                                                                   (Unaudited)
<S>                                                                      <C>                     <C>         
Operating Activities
Net Income                                                               $  2,368,000            $  5,158,000
Adjustments to Net Income
  Gain on sale of real estate investments                                    (832,000)             (3,811,000)
  Extraordinary loss from extinguishment of debt                                  -                   186,000
  Depreciation and amortization                                             1,480,000               1,619,000
  Income from unconsolidated Investment Partnerships                          (67,000)             (1,778,000)
  Distributions of income from Investment Partnerships                         45,000               1,477,000
  Changes in assets and liabilities
    (Increase) decrease in interest and rents receivable                      (14,000)                133,000
    (Increase) decrease in other assets, net                                 (289,000)                294,000
    (Decrease) increase in accounts payable, accrued
      expenses and other liabilities and accrued interest                    (222,000)                 95,000
                                                                         -------------           ------------
Net Cash Provided by Operating Activities                                   2,469,000               3,373,000
                                                                         -------------           ------------

Investing Activities
Owned Properties held directly by the Trust
  Additions                                                                  (702,000)               (481,000)
Structured Transactions held directly by the Trust
  Dispositions/repayments                                                       5,000               2,949,000
Investment Partnerships
  Distributions in excess of income                                         8,350,000               8,763,000
                                                                         -------------           ------------
Net Cash Provided by Investing Activities                                   7,653,000              11,231,000
                                                                         -------------           ------------
Financing Activities
Cash dividends paid                                                       (11,346,000)             (2,174,000)
Redemption/repurchase of Convertible Subordinated Debentures                      -               (12,000,000)
Prepayment of mortgage notes payable                                         (163,000)                    -
Scheduled amortization of mortgage notes payable                              (76,000)                (69,000)
Proceeds from exercise of stock options                                       114,000                     -
                                                                         -------------           ------------
Net Cash Used in Financing Activities                                     (11,471,000)            (14,243,000)

Net (Decrease) Increase in Cash and Cash Equivalents                       (1,349,000)                361,000

Cash and Cash Equivalents at Beginning of Period                            2,997,000               5,209,000
                                                                         -------------           ------------
Cash and Cash Equivalents at End of Period                               $  1,648,000            $  5,570,000
                                                                         =============           ============
</TABLE>

                             See accompanying notes

                                       33
<PAGE>


Property Capital Trust
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                             Common Stock             Accumulated                Treasury
                                                    Number of Shares   Amount          Deficit                    Shares 
                                                    ----------------   ------          -------                    ------ 

<S>                                                 <C>            <C>               <C>                      <C>          
Balance at August 1, 1995                           9,053,881      $106,190,000      $ (12,481,000)           $           -


Common Shares issued in payment of deferred
  Trustees' compensation                              199,542         1,344,000
Stock options exercised                                23,640           112,000
Conversion of Convertible Subordinated Debentures       1,198            26,000
Net income                                                                               5,914,000
Cash dividends paid ($3.23 per share)                                                  (29,774,000)
Purchase of 184,639 Treasury Shares included in
  Rabbi Trust for the benefit of Trustees                                                                        (1,255,000)
                                                    ---------       -----------        ------------           --------------
Balance at July 31, 1996                            9,278,261       107,672,000        (36,341,000)              (1,255,000)


Common Shares issued in payment of deferred
  Trustees'compensation                                31,499           267,000
Stock options exercised                                91,100           114,000
Net income                                                                               2,368,000
Cash dividends paid ($1.21 per share)                                                  (11,346,000)
Purchase of 31,499 Treasury Shares included in
  Rabbi Trust for the benefit of Trustees                                                                          (267,000)
Distribution to Trustees of 22,211 Treasury Shares
  included in Rabbi Trust for the benefit of Trustees
                                                                                                                    160,000
                                                    ---------       -----------        ------------           --------------
Balance at December 31, 1996                        9,400,860       108,053,000         (45,319,000)             (1,362,000)


Stock options exercised                               183,360           515,000
Net income                                                                               31,297,000
Cash dividends paid ($9.02 per share)                                                   (86,416,000)
Distribution to Trustees of 7,076 Treasury Shares
  included in Rabbi Trust for the benefit of Trustees
                                                                                                                     46,000
                                                    ---------       -----------        ------------           -------------
Balance at December 31, 1997                        9,584,220       108,568,000        (100,438,000)             (1,316,000)


Net income                                                                                5,417,000
Cash dividends paid ($1.15 per share)                                                   (11,021,000)
Distribution to Trustees of 186,851 Treasury
  Shares included in Rabbi Trust for the
  benefit of Trustees                                                                                             1,316,000
                                                    ---------       -----------        ------------           -------------
Balance at December 31, 1998                        9,584,220      $108,568,000       $(106,042,000)             $        -
                                                    =========       ===========        ============           =============

</TABLE>
                             See accompanying notes

                                       34
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------------------

Business Plan

Since 1995, the Trust has operated under a business plan (the "Business Plan")
which provided for the orderly disposition of all of the Trust's investments on
a property-by-property basis. As of December 31, 1998, the Trust had disposed of
all of its real estate investments and had as its principal asset approximately
$3 million in cash.

In the summer of 1997, management of the Trust and the Trustees began to
consider possible alternatives for terminating the Trust once its assets had
been sold. In June 1998, after discussions with several groups, the Trust
announced that it had entered into an agreement to merge with and into Maryland
Property Capital Trust, Inc. (the "Corporation"). Simultaneously with the
execution of the merger agreement, the Corporation entered into a series of
related agreements (the "Related Transactions") with affiliates of The Beal
Companies, LLP, a Boston based real estate development and investment company.
Due to changes in market conditions in the summer and fall of 1998, however, the
parties renegotiated the terms of the proposed merger and the Related
Transactions in October 1998. As a result of a restructuring of the merged
entity's capitalization, the interests of Property Capital Trust's shareholders
will be junior to certain interests of affiliates of The Beal Companies, LLP in
the merged entity and will be without value. The Beal Companies, LLP has paid a
$350,000 deposit to the Trust, which is reflected in accounts payable, accrued
expenses and other in the accompanying balance sheet. Just prior to the closing
of the merger, the Trustees intend to declare a final distribution to the
Trust's shareholders equal to all of the Trust's remaining net worth (which is
currently estimated to be between $.25 and $.26 per share). This is inclusive of
the settlement reached in February 1999, of the litigation with the Florida
Department of Transportation regarding certain land that was condemned at
Loehmann's Fashion Island, one of the Trust's former properties. The
distribution is also inclusive of the payment of $.01 per share to be made to
redeem the rights outstanding pursuant to the Trust's Shareholder Rights Plan.

The merger is subject to the approval of the Trust's shareholders and, if
approved, would eliminate the need to establish a liquidating trust to hold
reserves to meet contingent liabilities of the Trust and the expenses related
thereto (which expenses, net of interest income, are estimated to be $100,000).

Consolidation

The consolidated financial statements of the Trust include the accounts of its
wholly owned subsidiaries and of a trust which was established to hold certain
assets of the Deferred Stock Plan as described in Note 8 (the "Rabbi Trust").
All significant intercompany accounts and transactions have been eliminated in
consolidation.

Federal Income Taxes

The Trust has qualified and has elected to be taxed as a real estate investment
trust under Sections 856-860 of the Internal Revenue Code. The trust intends to
continue to qualify as a real estate investment trust. Accordingly, no provision
has been made for Federal income taxes in the consolidated financial statements.

Cash and Cash Equivalents

For purposes of the Statements of Cash Flows, the Trust considers all highly
liquid investments with an initial maturity of three months or less to be cash
equivalents.

Investment Partnerships

Certain of the Trust's investments were made through partnerships or a
participation agreement in which the Trust or one of its subsidiaries was the
general partner or lead lender and other institutional investors were limited
partners or participating lenders ("Investment Partnerships"). Based upon
generally accepted accounting principles, the Trust applied the equity method to
account for its Investment Partnerships.

                                       35

<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------------------------------------------

Valuation of Real Estate Investments

Real estate investments were carried at cost, net of accumulated depreciation
and any impairment losses. On August 1, 1996, the Trust adopted FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which required impairment losses to be recorded on
specific long-lived assets used in operations where indicators of impairment
were present and the undiscounted cash flows (net realizable value) estimated to
be generated by those assets were less than the assets' carrying amount. Prior
to August 1, 1996, the Trust's real estate investments were carried net of an
allowance for possible investment losses. The Trust's allowance for possible
investment losses was based upon management's estimate of the net realizable
value of each investment, and to the extent this was less than the carrying
value of an investment, an allowance for possible investment losses was
established. The adoption of Statement No. 121 did not have any effect on the
Trust's financial position or results of operations. However, the carrying
values of certain real estate assets were written down against available
reserves.

Depreciation and amortization were calculated under the straight-line method,
based upon the estimated useful lives of the assets. Properties and property
improvements were depreciated over 25 to 39 years. Leasing commissions and
tenant improvements were amortized under the straight-line method over the terms
of the related leases. Expenditures for maintenance, repairs and betterments
which did not materially prolong the normal useful life of an asset have been
charged to operations as incurred.

Assets Held for Sale

The Trust defined an "Asset Held for Sale" as an asset that had been approved
for sale by the Trustees and, if applicable, the Investment Partnership and
either was being marketed for sale or was soon to be marketed. Assets Held for
Sale were written down to the lower of cost or net realizable value and, in the
case of investments held directly by the Trust, were classified separately on
the balance sheet. Depreciation was not recorded on these assets. The revenues
and expenses of an Asset Held for Sale were not reclassified, and continued to
be recorded as they were prior to the reclassification.

Mortgage Loans

The Trust accounted for its mortgage loans under the provisions of FASB
Statement No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by FASB Statement 118. This statement required impairment losses to be
recorded when it was probable that a creditor would be unable to collect all
amounts due according to the contractual terms of the loan agreement. The
statement required impaired loans to be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if collateral dependent.

Stock Options

The Trust accounts for its stock compensation arrangements under the provisions
of APB 25, "Accounting for Stock Issued to Employees."

Change in Fiscal Year

In January 1997, the Trustees authorized a change in the Trust's fiscal year
from one which ended on July 31st to one which ends on December 31. The
five-month period ended December 31, 1996 (the "Transition Period"), together
with unaudited comparative data for the five-month period ended December 31,
1995, is presented within the body of the Trust's financial statements.

Revenue Recognition

For financial reporting purposes, the Owned Properties held directly by the
Trust were accounted for on a one-month lag. Certain space leases provided for
free rent periods and stepped minimum rents which were accounted for on a
straight-line basis over the terms of the leases. Rental income recognized under
the straight-line method was less than rent received or receivable by the Trust
for financial reporting purposes by $54,000 and $119,000 for the years ended
December 31, 1997 and July 31, 1996, respectively, and $24,000 and $77,000
(unaudited) for the five-month periods ended December 31, 1996 and 1995,
respectively. Rental income recognized in calendar 1998 equaled rent received or
receivable by the Trust in calendar 1998.

                                       36
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------------------------------------------

Net Income Per Share

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." FASB Statement 128 replaced the calculation of primary and
fully diluted net income per share with basic and diluted net income per share.
Unlike primary net income per share, basic net income per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted net
income per share is very similar to the previously reported fully diluted net
income per share. All net income per share amounts for all periods have been
presented and, where appropriate, restated to conform to the FASB Statement 128
requirements.

Basic net income per share is calculated by dividing net income by the weighted
average Common Shares outstanding during the year. Basic net income per share on
a quarterly basis may not total to the annual basic net income per share due to
rounding.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Reclassification

Certain items in the December 31, 1997 and July 31, 1996 financial statements
have been reclassified to conform to the December 31, 1998 presentation.


NOTE 2.  REAL ESTATE INVESTMENTS

As of December 31, 1998, the Trust had no real estate investments.

The Trust's real estate investments consisted primarily of equity investments in
completed, income-producing properties located throughout the United States. The
Trust's portfolio of real estate investments consisted of Structured
Transactions and Owned Properties.

Land leasebacks and/or mortgage loans were classified as Structured
Transactions. Land leasebacks consisted of land purchased under income-producing
properties and leased back under long-term net lease arrangements. The leases
required fixed monthly base rental payments and generally also provided for
overage rental payments, which were typically computed as a percentage of
property gross receipts in excess of base amounts. The mortgage loan investments
were generally long-term loans that required fixed monthly base interest
payments and, when not payable on a self-amortizing basis, principal payments at
maturity.

Operating properties were classified as Owned Properties. Owned Properties
(which included those held in wholly owned subsidiaries) included land,
buildings, tenant improvements, and other. Tenant improvements represented the
cost of constructing or finishing tenant space under the terms of a lease for
that space. Material disbursements that constituted new assets or improvements
to existing assets that extended their useful lives and/or substantially
increased their value were capitalized.

The Trust categorized its Structured Transactions and Owned Properties into four
groups, Structured Transactions held directly by the Trust, Owned Properties
held directly by the Trust, Assets Held for Sale directly by the Trust
(investments formerly classified as Structured Transactions held directly by the
Trust and Owned Properties held directly by the Trust), and Investment
Partnerships (inclusive of Structured Transactions, Owned Properties, and Assets
Held for Sale).

                                       37

<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.  REAL ESTATE INVESTMENTS (continued)
--------------------------------------------

Assets Held for Sale directly by the Trust

At December 31, 1998, there were no Assets Held for Sale directly by the Trust.
During 1998, the Trust sold its two remaining real estate investments both of
which were classified as Assets Held for Sale directly by the Trust. Subsequent
to year end, the Trust reached a settlement agreement with the Florida
Department of Transportation regarding certain land that was condemned at
Loehmann's Fashion Island, one of the Trust's former properties.

On June 17, 1998, the Trust's Cincinnati Marriott Inn $2,000,000 land investment
was purchased by the Trust's lessee for $2,000,000 and the Trust's related
leasehold mortgages were prepaid at their face amount of $4,316,000. In August
1996, the Trust had allocated $1,016,000 of its former allowance for possible
investment losses to these mortgages. As a consequence, the repayment resulted
in a gain to the Trust of $1,016,000. In addition, the Trust received $1,600,000
of land rent and mortgage interest, earned in 1991 through 1994, which had
previously been written off.

In January 1998, the Trust sold Park Place to an unrelated party for
$14,145,000, resulting in a gain to the Trust of $3,067,000. Previously, in
August 1996, the Trust had allocated $1,239,000 of its former allowance for
possible investment losses to this investment. The property's $8,345,000 first
mortgage was assumed by the buyer.

At December 31, 1997, the Trust had two Assets Held for Sale directly by the
Trust, Park Place, an office building previously classified as an Owned Property
held directly by the Trust, and the Trust's investments in the Cincinnati
Marriott Inn, a hotel previously classified as a Structured Transaction held
directly by the Trust. These two remaining real estate investments had an
aggregate net book value of $15,077,000 at December 31, 1997. Park Place,
located in Clayton, Missouri, was acquired by a wholly owned subsidiary of the
Trust in fiscal 1991, subject to a non-recourse first mortgage of $8,600,000.
Upon the Trust's adoption of FASB Statement No. 121 in August 1996, the Trust
allocated $1,239,000 of its former allowance for possible investment losses to
this investment. At December 31, 1997, Park Place had a net book value of
$9,777,000. The Trust's investments in the Cincinnati Marriott Inn, located in
Cincinnati, Ohio, consisted of a land leaseback and mortgage loans. During
fiscal year ended July 31, 1996, the Trust loaned an additional $600,000 to its
lessee/mortgagor, secured by a junior leasehold mortgage, to make certain
approved capital improvements to the hotel. Upon the Trust's adoption of FASB
Statement No. 121 in August 1996, the Trust allocated $1,016,000 of its former
allowance for possible investment losses to these investments. At December 31,
1997, Cincinnati Marriott Inn investments had an aggregate net book value of
$5,300,000.

During calendar year 1997, the Trust sold three Assets Held for Sale directly by
the Trust, Loehmann's Fashion Island, One Park West and Citibank Office Plaza -
Schaumburg. In December 1997, the Trust sold Loehmann's Fashion Island shopping
center to an unrelated party for $37,300,000, resulting in no gain or loss to
the Trust. Previously, in August 1996, the Trust allocated $869,000 from its
former allowance for possible investment losses to this investment. In addition,
during the quarter ended July 31,1996, the Trust wrote down its investment in
Loehmann's Fashion Island by $5,612,000, of which $3,000,000 was charged to
earnings and the balance was charged to the Trust's previously established
allowance for possible investment losses. In October 1997, the Trust sold the
One Park West office building to an unrelated party for $20,685,000, resulting
in a gain of approximately $1,334,000. In March 1993, a wholly owned subsidiary
of the Trust acquired the equity interest of its lessee in One Park West,
subject to a first mortgage loan of $10,227,000. Upon acquisition the Trust
utilized a portion of its former allowance for possible investment losses to
write down this investment by $6,000,000. In addition at July 31, 1996, the
Trust wrote down its investment in this property by $1,519,000 when the Trust
reclassified One Park West to an Asset Held for Sale directly by the Trust, this
write-down was charged against the Trust's former allowance for possible
investment losses. In August 1996, the Trust allocated $936,000 of its former
allowance for possible investment losses to the Citibank Office Plaza -
Schaumburg investment. In July 1997, the Trust sold Citibank Office Plaza -
Schaumburg to an unrelated third party for $9,640,000, resulting in no gain or
loss to the Trust.

At July 31, 1996, the Trust had one Asset Held for Sale directly by the Trust,
the One Park West office building. This investment, which had a net book value
of $18,457,000, had previously been classified as an Owned Property held
directly by the Trust. At July 31, 1996, the Trust wrote down its investment in
this property by $1,519,000 to $16,938,000. This loss was charged against the
Trust's former allowance for possible investment losses. In addition, during
fiscal 1996, the Trust sold the Citibank Office Plaza - Oak Brook building to an
unrelated third party for $11,380,000, resulting in a gain of approximately
$470,000. In fiscal 1995, this investment, which had a net book value of
$11,156,000, had previously been classified as an Owned Property held directly
by the Trust. During the quarter ended July 31, 1995, the Trust wrote down its
investment in this property by $971,000 to $10,185,000. This loss was charged
against the Trust's former allowance for possible investment losses.

                                       38
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.  REAL ESTATE INVESTMENTS (continued)
--------------------------------------------

Owned Properties held directly by the Trust

At December 31, 1998 and 1997, the Trust had no real estate investments
classified as Owned Properties held directly by the Trust. During the calendar
year ended December 31, 1997, the Trust reclassified three real estate
investments, Citibank Office Plaza - Schaumburg, Loehmann's Fashion Island and
Park Place to Assets Held for Sale directly by the Trust.

During fiscal year ended July 31, 1996, the Trust reclassified One Park West to
an Asset Held for Sale directly by the Trust.

The operating results of Owned Properties held directly by the Trust (inclusive
of Owned Properties classified as Assets Held for Sale directly by the Trust)
are reflected in the consolidated statements of income as Rents from Owned
Properties held directly by the Trust and Expenses on Owned Properties held
directly by the Trust. Rents from Owned Properties held directly by the Trust
represent base rents and expense reimbursements from tenants.
Expenses on Owned Properties held directly by the Trust are as follows:


<TABLE>
<CAPTION>
                                                                              Years Ended
                                                                              -----------
                                                        December 31,            December 31,             July 31,
                                                            1998                    1997                   1996
                                                            ----                    ----                   ----
<S>                                                     <C>                     <C>                     <C>       
Repairs and maintenance                                 $   32,000              $1,474,000              $1,819,000
Real estate taxes                                              -                 1,157,000               1,295,000
Utilities                                                   32,000                 655,000               1,002,000
General and administrative                                 103,000               1,006,000                 836,000
Management fees                                             37,000                 396,000                 448,000
Insurance                                                    7,000                  85,000                 169,000
                                                        ----------              ----------              ----------
Expenses on Owned Properties held
 directly by the Trust                                  $  211,000              $4,773,000              $5,569,000
                                                        ==========              ==========              ==========
</TABLE>

                                                      Five Months Ended
                                                      -----------------
                                                December 31,       December 31,
                                                   1996                1995
                                                   ----                ----
                                                                  (Unaudited)
Repairs and maintenance                     $     662,000     $     776,000
Real estate taxes                                 726,000           583,000
Utilities                                         338,000           496,000
General and administrative                        368,000           322,000
Management fees                                   147,000           221,000
Insurance                                          73,000            74,000
                                            -------------     -------------
Expenses on Owned Properties held 
  directly by the Trust                     $   2,314,000     $   2,472,000
                                            =============     =============
                                       39
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.  REAL ESTATE INVESTMENTS (continued)
--------------------------------------------

Structured Transactions held directly by the Trust

At December 31, 1998 and 1997, the Trust had no real estate investments
classified as Structured Transactions held directly by the Trust. During
calendar year 1997, the Trust reclassified Cincinnati Marriott Inn to an Asset
Held for Sale directly by the Trust and disposed of six Structured Transactions
held directly by the Trust. The Trust's $2,000,000 City Centre Holiday Inn land
investment was purchased by the Trust's lessee for $20,577,000, resulting in a
gain to the Trust of $18,577,000. The Trust's $350,000 Lakeside Center land
investment was purchased by the Trust's lessee for $2,350,000, resulting in a
gain to the Trust of $1,944,000 after closing costs. The Trust's $400,000
Northbrook apartments land investment was purchased by the Trust's lessee for
$750,000, resulting in a gain to the Trust of $350,000. The Trust's land and
mortgage investments in Roseburg Valley Mall were sold to the Trust's
lessee/mortgagor for $3,950,000, resulting in no gain or loss to the Trust. The
Trust's lessee/mortgagor of its $5,400,000 Sandpiper Cove apartments land
investment, its $2,230,000 Elm Creek apartments land investment and its
$7,540,000 Elm Creek apartments mortgage loan investment purchased the
investments, with an aggregate carrying value of $15,170,000, for $20,000,000,
resulting in a gain to the Trust of $4,750,000 after closing costs.

During fiscal year ended July 31, 1996, the Trust disposed of three Structured
Transactions held directly by the Trust. The Trust's $825,000 Bluffs II land
investment was purchased by the Trust's lessee for $2,150,000, resulting in a
gain to the Trust of $1,320,000 after closing costs. The Trust's $135,000
Yorkshire land investment was purchased by an unrelated third party for
$460,000, resulting in a gain to the Trust of $310,000 after closing costs. The
Trust's $2,000,000 Grosvenor Airport Inn land investment was purchased by the
Trust's lessee for $2,000,000 and the Trust's related $2,000,000 mortgage loan
was prepaid for $500,000, with the resulting loss of $1,500,000 being charged
against the Trust's allowance for possible losses.

Investments in unconsolidated Investment Partnerships

As of December 31, 1998 and 1997, neither the Trust nor its subsidiaries had
investments in unconsolidated Investment Partnerships. These former investments
had been accounted for on the equity method. The Investment Partnerships
provided for the allocation of profits and losses and cash distributions in
proportion to ownership as shown below:

                                                         Percent Owned by Trust
                                                         ----------------------

      Property Capital Midwest Associates, L.P.                  53.30%
      PCA Southwest Associates Limited Partnership               45.45%
      PCA Canyon View Associates Limited Partnership             23.81%
      Lisle Hilton Inn Loan Participation                        41.67%
      PCA Crossroads Associates, Ltd.                            25.00%

                                       40
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.  REAL ESTATE INVESTMENTS (continued)
--------------------------------------------

      Investment Partnerships
      Condensed Combined Statements of Income

<TABLE>
<CAPTION>

                                                                                               Years Ended
                                                                                               -----------
                                                                      December 31,             December 31,       July 31,
                                                                           1998                   1997              1996
                                                                           ----                   ----              ----

<S>                                                              <C>                         <C>             <C>         
Revenues                                                         $             -             $  1,996,000    $ 22,146,000
Expenses                                                                       -                1,768,000      14,817,000
                                                                 ---------------             ------------    ------------
Income before Gain (Loss) on Real Estate Investments                           -                  228,000       7,329,000

Gain (Loss) on Real Estate Investments
  Gain on sale of real estate investments                                      -                1,885,000      14,944,000
  Write-down of real estate investments                                        -                        -     (11,051,000)
                                                                 ---------------             ------------    ------------
Net Income                                                       $             -             $  2,113,000    $ 11,222,000
                                                                 ===============             ============    ============

Income before Gain (Loss) on Real Estate Investments 
Trust's share of income before gain (loss) on real estate
  investments                                                    $             -             $    120,000    $  3,326,000
Limited Partners' share of income before
  gain (loss) on real estate investments                                       -                  108,000       4,003,000

Gain (Loss) on Real Estate Investments
Trust's share of gain on sale of real estate investments                       -                  857,000       3,994,000
Limited Partners' share of gain on sale of real estate
  investments                                                                  -                1,028,000      10,950,000
Trust's share of write-down of real estate investments
  (previously recorded by the Trust)                                           -                        -      (3,810,000)
Limited Partners' share of write-down of real estate investments               -                        -      (7,241,000)
                                                                 ---------------             ------------    ------------
Net Income                                                       $             -             $  2,113,000    $ 11,222,000
                                                                 ===============             ============    ============

</TABLE>

                                       41
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2. REAL ESTATE INVESTMENTS (continued)
-------------------------------------------

Investment Partnerships
Condensed Combined Statements of Income

<TABLE>
<CAPTION>

                                                                                   Five Months Ended
                                                                                   -----------------
                                                                         December 31,             December 31,
                                                                           1996                        1995
                                                                           ----                        ----
                                                                                                  (Unaudited)

<S>                                                                    <C>                      <C>         
Revenues                                                               $  2,869,000             $ 11,332,000
Expenses                                                                  2,716,000                7,292,000
                                                                       ------------             ------------
Income before Gain (Loss) on Real Estate Investments                        153,000                4,040,000

Gain (Loss) on Real Estate Investments
  Gain on sale of real estate investments                                 3,495,000               14,002,000
  Write-down of real estate investments                                  (1,178,000)              (7,134,000)
                                                                       ------------             ------------
Net Income                                                             $  2,470,000             $ 10,908,000
                                                                       ============             ============

Income before Gain (Loss) on Real Estate Investments
Trust's share of income before gain (loss) on real estate
  investments                                                          $     67,000             $  1,778,000
Limited Partners' share of income before
  gain (loss) on real estate investments                                     86,000                2,262,000

Gain (Loss) on Real Estate Investments
Trust's share of gain on sale of real estate investments                    832,000                3,501,000
Limited Partners' share of gain on sale of real estate
  investments                                                             2,663,000               10,501,000
Trust's share of write-down of real estate investments
  (previously recorded by the Trust)                                       (576,000)              (1,845,000)
Limited Partners' share of write-down of real estate
  investments                                                              (602,000)              (5,289,000)
                                                                       ------------             ------------
Net Income                                                             $  2,470,000             $ 10,908,000
                                                                       ============             ============

</TABLE>

                                       42
<PAGE>



Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2. REAL ESTATE INVESTMENTS (continued)
-------------------------------------------

The Trust's share of net income (loss) (including gain on sales) from
unconsolidated Investment Partnerships was as follows:



<TABLE>
<CAPTION>
                                                                         Years Ended
                                                                         -----------
                                                        December 31,    December 31,   July 31,
                                                            1998           1997          1996
                                                            ----           ----          ----

<S>                                                     <C>           <C>            <C>        
Property Capital Midwest Associates, L.P. (1)           $       -     $   110,000    $ 2,277,000
PCA Southwest Associates Limited Partnership (2)                -         868,000        721,000
PCA Canyon View Associates Limited Partnership (3)              -          (1,000)       153,000
Lisle Hilton Inn Loan Participation                             -               -        566,000
PCA Crossroads Associates, Ltd.                                 -               -      3,603,000
                                                        ---------     -----------    -----------
                                                        $       -     $   977,000    $ 7,320,000
                                                        =========     ===========    ===========
</TABLE>

(1)  Net of the Trust's share of depreciation of $21,000 for the year ended July
     31, 1996. No depreciation was recorded in calendar 1997.

(2)  Net of the Trust's share of depreciation of $52,000 and $372,000 for the
     years ended December 31, 1997 and July 31, 1996, respectively.

(3)  Net of the Trust's share of depreciation of $80,000 for the year ended July
     31,1996. No depreciation was recorded in calendar 1997. This property
     converted from a Structured Transaction to an Owned Property in August
     1995.

<TABLE>
<CAPTION>
                                                                    Five Months Ended
                                                                    -----------------
                                                              December 31,      December 31,
                                                                 1996             1995
                                                                 ----             ----
                                                                               (Unaudited)

<S>                                                          <C>                <C>
Property Capital Midwest Associates, L.P. (1)                $   53,000         $1,066,000
PCA Southwest Associates Limited Partnership (2)                  3,000            218,000
PCA Canyon View Associates Limited Partnership (3)              843,000            125,000
Lisle Hilton Inn Loan Participation                                 -              275,000
PCA Crossroads Associates, Ltd.                                     -            3,595,000
                                                             ----------         ----------
                                                             $  899,000         $5,279,000
                                                             ==========         ==========
</TABLE>


(1)  Net of the Trust's share of depreciation of $17,000 for the five-month
     period ended December 31, 1995. No depreciation was recorded in 1996.

(2)  Net of the Trust's share of depreciation of $103,000 and $228,000 for the
     five-month periods ended December 31, 1996 and 1995, respectively.

(3)  Net of the Trust's share of depreciation of $29,000 for the five-month
     period ended December 31, 1995. No depreciation was recorded in 1996. This
     property converted from a Structured Transaction to an Owned Property in
     August 1995.

                                       43

<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. REAL ESTATE INVESTMENTS (continued)
-------------------------------------------

Cash distributions received by the Trust from the unconsolidated Investment
Partnerships were as follows:

<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                                                     -----------
                                                                December 31,        December 31,            July 31,
                                                                    1998                1997                  1996
                                                                    ----                ----                  ----

<S>                                                             <C>                 <C>                   <C>        
Property Capital Midwest Associates, L.P.                       $     -             $   654,000           $19,506,000
PCA Southwest Associates Limited Partnership                          -               1,718,000             7,274,000
PCA Canyon View Associates Limited Partnership                        -                 133,000               256,000
Lisle Hilton Inn Loan Participation                                   -                     -               9,547,000
PCA Crossroads Associates, Ltd.                                       -                     -               5,626,000
                                                                ---------           -----------           -----------
                                                                $     -             $ 2,505,000           $42,209,000
                                                                =========           ===========           ===========
</TABLE>

<TABLE>
<CAPTION>


                                                                 Five Months Ended
                                                                 -----------------
                                                        December 31,             December 31,
                                                            1996                   1995
                                                            ----                   ----
                                                                                (Unaudited)

<S>                                                    <C>                    <C>        
Property Capital Midwest Associates, L.P.              $ 5,889,000            $   765,000
PCA Southwest Associates Limited Partnership               161,000              3,410,000
PCA Canyon View Associates Limited Partnership           2,345,000                184,000
Lisle Hilton Inn Loan Participation                            -                  279,000
PCA Crossroads Associates, Ltd.                                -                5,602,000
                                                       -----------            -----------
                                                       $ 8,395,000            $10,240,000
                                                       ===========            ===========
</TABLE>

                                       45
<PAGE>



Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2. REAL ESTATE INVESTMENTS (continued)
-------------------------------------------

In August 1996, the Trust allocated a portion of its former allowance for
possible investment losses in the amount of $576,000 to the Investment
Partnerships. During fiscal year ended July 31, 1996, the Trust's Investment
Partnerships reclassified certain of their real estate investments to Assets
Held for Sale and wrote down these assets by $2,970,000 (the Trust's share). In
addition, PCA Southwest Associates Limited Partnership and PCA Canyon View
Associates Limited Partnership each wrote off an investment resulting in losses
to the Trust of $307,000 and $533,000 (the Trust's share), respectively. The
Trust charged these losses against its former allowance for possible investment
losses as follows:

<TABLE>
<CAPTION>
                                                                             Years Ended
                                                                             -----------
                                                             December 31,      December 31,          July 31,
                                                                1998               1997                1996
                                                                ----               ----                ----

<S>                                                      <C>                <C>                    <C>       
Property Capital Midwest Associates, L.P.                $         -        $         -            $1,255,000
PCA Southwest Associates Limited Partnership                       -                  -             1,017,000
PCA Canyon View Associates Limited Partnership                     -                  -             1,538,000
                                                         -----------        -----------            ----------
                                                         $         -        $         -            $3,810,000
                                                         ===========        ===========            ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                   Five Months Ended
                                                        December 31,              December 31,
                                                            1996                    1995
                                                                                 (Unaudited)

<S>                                                    <C>                       <C>       
Property Capital Midwest Associates, L.P.              $  276,000                $        -
PCA Southwest Associates Limited Partnership              300,000                   307,000
PCA Canyon View Associates Limited Partnership                -                   1,538,000
                                                       ----------                ----------
                                                       $  576,000                $1,845,000
                                                       ==========                ==========
</TABLE>

The Structured Transactions held by Investment Partnerships were similar to
those held directly by the Trust. The land leaseback leases required fixed
monthly base rental payments to the Investment Partnerships and also provided
for overage rental payments. The mortgage loans held by Investment Partnerships
were generally long-term loans that required fixed monthly base interest
payments and, when not payable on a self-amortizing basis, required principal
payments at maturity. Except for the Lisle Hilton Inn loan participation,
mortgage loans were owned in conjunction with land leaseback transactions and
were subordinate to and had cross-default provisions with the land leasebacks.
The Lisle Hilton Inn loan participation, although not owned in conjunction with
a land leaseback transaction, also required overage interest payments similar to
the land leasebacks.

During calendar year 1997, the Trust's last remaining Investment Partnership,
PCA Southwest Associates Limited Partnership ("Southwest"), reclassified its
Telegraph Hill apartments investment from an Owned Property to an Asset Held for
Sale and, in June 1997, sold the investment to an unrelated third party for
$13,750,000. The Trust realized a gain of $857,000 on this sale. During the
Transition Period ended December 31, 1996, the Trust allocated a portion of its
former allowance for possible investment losses to the Telegraph Hill investment
in the amount of $300,000. The Trust, through a wholly owned subsidiary, had a
45.45% general partner interest in Southwest. During the year, the Trust has
received its final distributions from Southwest, PCA Canyon View Associates
Limited Partnership ("Canyon View") and Property Capital Midwest Associates,
L.P. ("Midwest"). At December 31, 1997, the Trust had no investments in
Investment Partnerships.

During the Transition Period ended December 31, 1996, two Investment
Partnerships each sold an investment which was classified as an Asset Held for
Sale at July 31, 1996. Canyon View, an Investment Partnership which owned the
Canyon View II apartments in San Ramon, California, sold this property in August
1996 to a third party. In fiscal 1996 the Trust wrote down its share of the
investment in this property by $1,005,000 and at July 31, 1996, Phase II was
reclassified from an Owned Property to an Asset Held for Sale. The sale resulted
in a gain to the Trust in the amount of $832,000. The Trust had a 23.81% general
partner interest in Canyon View. Midwest, an Investment Partnership which owned
the Plaza West Retail Center, reclassified this investment from an Owned
Property to an Asset

                                       45
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2. REAL ESTATE INVESTMENTS (continued)
-------------------------------------------

Held for Sale in fiscal year ended July 31, 1995, and at that time wrote down
the investment to its estimated net realizable value. During the Transition
Period ended December 31, 1996, the Trust allocated a portion of its former
allowance for possible investment losses to this investment in the amount of
$276,000. In October 1996, Plaza West was sold to an unrelated third party at no
gain or further loss to the Trust. The Trust had a 53.3% general partner
interest in Midwest.

During fiscal year ended July 31, 1996, certain of the Trust's Investment
Partnerships disposed of three Structured Transactions. PCA Crossroads
Associates, Ltd. ("Crossroads"), an Investment Partnership which owned the land
underlying the Crossroads Mall in Boulder, Colorado, sold the land to its
lessee, resulting in a gain to the Trust of $3,500,000 on its investment of
$2,000,000. The Trust had a 25.0% general partner interest in Crossroads. The
first mortgage held by the Lisle Hiton Inn loan participation ("Lisle"), secured
by the Lisle Hilton Inn located in Lisle, Illinois, was prepaid at par. The
Trust had a 41.6% interest in Lisle and received $8,942,000 from the prepayment.
Canyon View, an Investment Partnership which held Structured Transactions in
Phases I and II of the Canyon View apartments in San Ramon, California, settled
certain litigation. As a result, the Investment Partnership received $300,000
from the first mortgagee of Phase I for permitting it to foreclose on Phase I
and the Investment Partnership took title to Phase II and received the proceeds
from two letters of credit aggregating $1,750,000. At that time, the Trust wrote
down its investment in this partnership by $1,538,000. This write-down was
charged against the Trust's allowance for possible investment losses. At July
31, 1996, Phase II was reclassified from an Owned Property to an Asset Held for
Sale.

During fiscal 1996, two Investment Partnerships sold six Assets Held for Sale,
three of which were classified as Assets Held for Sale at July 31, 1995 and
three were reclassified to Assets Held for Sale during fiscal 1996. Southwest,
an Investment Partnership which owned 2,848 apartments in Houston, Texas at July
31, 1995, sold the Chimney Rock complex to an unrelated party resulting in a
gain to the Trust of $1,000. Two additional properties, St. Charles and
Boardwalk, were reclassified during fiscal 1996 to Assets Held for Sale
resulting in a write-down by the Trust of $710,000. This write-down was charged
against the Trust's previously established allowance for possible investment
losses. These investments were sold in June 1996 to an unrelated third party
resulting in a gain to the Trust of $50,000. Southwest also disposed of its
Telegraph Hill - Phase B investment (259 units) by allowaing the first mortgage
lender to foreclose on the property and, as a result, the Trust wrote off its
$307,000 net invesment in this property against the Trust's allowance for
possible investment losses. Midwest, an Investment Partnership which owned four
investments in Overland Park, Kansas, reclassified its investment in College
Hills 3 to an Asset Held for Sale in fiscal 1996. In addition, Midwest's
Financial Plaza investment, which was previously reclassified to an Asset Held
for Sale, was further written down by the Trust by $1,255,000. Financial Plaza,
College Hills 3 and College Hills 8 were sold to unrelated third parties and the
net sales prices of these properties resulted in a gain to the Trust aggregating
$443,000.


NOTE 3. INDEBTEDNESS

The Trust had no debt at December 31, 1998.

Both of the real estate investments owned on December 31, 1997, Park Place
office building and Cincinnati Marriott Inn, were subject to long-term first
mortgage financing which aggregated $18,399,000. $10,054,000 of this long- term
first mortgage financing represented debt on the Cincinnati Marriott Inn which
was not reflected on the Trust's balance sheet because the obligation to pay
such debt was that of the Trust's lessee/mortgagor. $8,345,000 of this long-term
first mortgage financing represented debt on the Park Place office building
located in Clayton, Missouri, and was reflected on the Trust's balance sheet.
This debt had an annual effective interest rate of 5.65% which was payable
semi-annually. During 1998, Park Place was sold and its first mortgage was
assumed by the buyer.

During calendar 1998 and 1997, fiscal year ended July 31, 1996 and the
five-month periods ended December 31, 1996 and 1995, cash paid for interest on
all of the Trust's debt was $128,000, $2,704,000, $5,044,000, $1,252,000 and
$2,277,000, respectively.

                                       46
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4. RENTAL EXPENSE

In September 1998, the Trust's prior space lease expired and the Trust moved its
office to 177 Milk Street, Boston, Massachusetts, and entered into a lease that
expires in March 1999. Rental expense was $93,000, $116,000, and $152,000 in
calendar 1998 and 1997 and fiscal year July 31, 1996, respectively. Rental
expense was $44,000 and $63,000 for the five-month periods ended December 31,
1996 and 1995, respectively. Future minimum rental payments will be $600 per
month in 1999.


NOTE 5. ADVISORY SERVICES

Effective August 1, 1992 the Trust entered into an agreement with PCA
Institutional Advisors ("PCAIA") pursuant to which the Trust assumed
responsibility for rendering services under advisory agreements (the "Advisory
Agreements") between PCAIA and the five former Investment Partnerships.

The Trust received annually the first $150,000 of amounts payable pursuant to
the Advisory Agreements as compensation for providing such services, which
amount generally corresponded to the additional expenses incurred by the Trust
in performance of such tasks, plus 50% of additional amounts payable pursuant to
the Advisory Agreements, which additional amounts aggregated $235,000 in fiscal
year ended July 31, 1996. No additional amount was received in calendar 1997 or
1998. PCAIA received the remaining 50% of such payments in excess of $150,000.
Excluded from the foregoing arrangement was the termination fee provided for in
the PCA Crossroads Associates, Ltd. ("Crossroads") advisory agreement, which fee
was paid in fiscal 1996 solely to PCAIA. No amount was payable in 1998 or 1997
or for the five months ended December 31, 1996.


NOTE 6. RELATED PARTY TRANSACTIONS

During calendar 1998 and 1997, the fiscal year ended July 31, 1996, and the
five-month periods ended December 31, 1996 and 1995, the Trust incurred legal
fees in the amount of $178,000, $145,000, $262,000, $136,000 and $150,000,
respectively (exclusive of additional amounts paid by the Trust's lessees and
borrowers, if any), from the law firm of Paul, Weiss, Rifkind, Wharton &
Garrison, of which Walter F. Leinhardt, Secretary and Trustee of the Trust, is a
partner. Not included in the above amount is the Trust's share of legal fees
incurred by the Investment Partnerships in the amount of $0, $2,000, $66,000,
$20,000 and $5,000 for those same periods, respectively.

The Trust is a party to a termination agreement with its chief executive officer
under which he will be entitled to a payment equal to 100% of his base salary in
the event of a change in control or termination of his employment, without
cause, prior to October 2000.

                                       47
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7. DILUTED NET INCOME PER SHARE
------------------------------------

The following table sets forth the computation of diluted net income per share.
The calculation is presented for the July 31, 1996 period only. The effect of
stock options and convertible debt was antidilutive for all other periods.


                                                                     Year Ended
                                                                       July 31,
                                                                         1996
                                                                         ----
   Numerator:
      Net Income                                                      $5,914,000
                                                                      ----------
      Numerator for diluted net income per share - income available
      to common stockholders after assumed conversions                $5,914,000
                                                                      ==========
   Denominator:
      Denominator for basic net income per share - weighted -
      average shares                                                   9,097,000

      Effective of dilutive securities:
         Stock options                                                   104,000
                                                                      ----------
      Denominator for diluted net income per share - adjusted
      weighted - average shares and assumed conversions                9,201,000
                                                                      ==========
   Basic net income per share                                              $0.65
                                                                           =====
   Diluted net income per share                                            $0.64
                                                                           =====

                                       48
<PAGE>



Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8. SHAREHOLDERS' EQUITY
----------------------------

1992 Employee Stock Option Plan

The Property Capital Trust 1992 Employee Stock Option Plan (the "Plan") for key
employees of the Trust and its subsidiaries is a plan under which options for
400,000 shares may be granted to purchase Common Shares for a purchase price
equal to, at a minimum, the fair market value of the shares on the date of
grant, subject to certain adjustments. The Compensation Committee of the Board
of Trustees administers the Plan and is responsible for selecting the
individuals eligible to receive options and for determining the number of
options to be granted to such individuals and the purchase price of the shares.
While the Plan is still in effect, no options have been granted since 1995 and
the Compensation Committee of the Board of Trustees does not intend to grant any
further options. Under the plan 20% of the options become exercisable on each
anniversary of the date of grant and all options vest once the option price
declines below $2.00 per share. The options are subject to termination under
certain circumstances. Changes in options outstanding during the period were as
follows:

                                                                     Average
                                                          Number   Option Price
                                                          of Shares   Per Share

Granted - 1993                                             107,750       $3.750*
Canceled - 1993                                             (4,000)      $3.750
                                                           -------
Shares under option at July 31, 1993                       103,750       $3.750
                                                           -------
Granted - 1994                                              68,850       $6.375*
Exercised - 1994                                            (2,000)      $3.750
                                                           -------
Shares under option at July 31, 1994                       170,600       $4.809
                                                           -------
Granted - 1995                                              82,500       $6.140*
Exercised - 1995                                            (3,000)      $4.625
                                                           -------
Shares under option at July 31, 1995                       250,100       $5.251
                                                           -------
Exercised - 1996                                           (23,640)      $4.751
                                                           -------
Shares under option at July 31, 1996                       226,460       $5.303
                                                           -------
Exercised - Transition Period ended December 31, 1996      (91,100)      $1.256
                                                           -------
Shares under option at December 31, 1996                   135,360       $3.593
                                                           -------
Exercised - calendar 1997                                 (135,360)      $2.683
                                                           -------
Shares under option at December 31, 1997 and 1998              -
                                                           =======
Options exercisable at December 31, 1998                       -
                                                           =======
Options available for grant at beginning of year           144,900
                                                           =======
Options available for grant at December 31, 1998           144,900
                                                           =======

*    The option price was reduced as a result of distributions made in excess of
     funds from operations as provided for in the Plan.

                                       49

<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8. SHAREHOLDERS' EQUITY (continued)
----------------------------------------

1994 Stock Option Plan for Non-Employee Trustees

The Property Capital Trust 1994 Stock Option Plan for Non-Employee Trustees,
approved by the shareholders of the Trust in November 1994, was a plan under
which options for 100,000 shares could be granted to purchase Common Shares for
a purchase price equal to the fair market value of such Common Shares at the
time the option was granted, subject to certain adjustments.

Each non-employee Trustee received automatically upon election or re-election as
a Trustee at an Annual Meeting of Shareholders an option to purchase 4,000
Common Shares. The option vested on the day immediately preceding the Annual
Meeting of Shareholders next succeeding the date of grant of such option. On
December 30, 1998, the 1994 Stock Option Plan for Non-Employee Trustees was
terminated and all outstanding options were canceled.

<TABLE>
<CAPTION>
                                                                          Average
                                                           Number      Option Price
                                                          of Shares      Per Share
                                                          ---------      ---------

<S>                                                        <C>             <C>    
Options granted on November 30, 1994
  and outstanding at July 31, 1995                         24,000          $6.125*
Options granted on December 15, 1995                       24,000          $8.563*
                                                           ------
Options outstanding July 31, 1996                          48,000          $7.344
Options granted on December 17, 1996                       20,000          $8.063*
                                                           ------
Options outstanding at December 31, 1996                   68,000          $5.685*
Exercised - 1997                                          (48,000)         $3.151
                                                           ------
Options outstanding at December 31, 1997                   20,000          $4.043*
Cancellation of options upon termination of plan          (20,000)
                                                           ------
Options outstanding at December 31, 1998                      - 
                                                           ======
</TABLE>

*    The option price was reduced as a result of distributions made in excess of
     funds from operations as provided for in the Plan.


Amended and Restated Deferred Stock Plan for Non-Employee Trustees

In November 1994, the Amended and Restated Deferred Stock Plan for Non-Employee
Trustees (the "Deferred Stock Plan") was approved by the shareholders of the
Trust. If a Trustee elected to defer payment of Trustee fees, share units were
allocated to such Trustee's account based upon the closing price for the Common
Shares on the date the fees would have been earned. Share units were also
allocated to reflect dividends that would have been paid on such share units.
There were 250,000 Common Shares available under this Deferred Stock Plan. This
Deferred Stock Plan replaced a previous plan, the share units of which were
transferred to this Deferred Stock Plan on November 30, 1994.

In 1994, the Trust entered into a Trust Agreement with BankBoston, N.A.
(formerly BayBank), a Massachusetts corporation, whereby BankBoston, N.A. agreed
to hold the Common Shares (and dividends thereon) that were issued under the
Deferred Stock Plan (an arrangement commonly known as a "Rabbi Trust"). During
the fiscal year ended July 31, 1996, the Rabbi Trust was funded with Common
Shares equal to the share units allocated under the Deferred Stock Plan. Under
accounting rules, assets of a Rabbi Trust must be accounted for as assets of the
Trust.

                                       50
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8. SHAREHOLDERS' EQUITY (continued)
----------------------------------------

In January 1998, the Deferred Stock Plan was terminated by the Trustees and all
assets held in the Rabbi Trust were distributed to the participating Trustees.
The Common Shares held by the Rabbi Trust had been reflected at cost as
"treasury stock," the other assets of the Rabbi Trust had been reflected as
"other assets" and the claim of the participating Trustees had been reflected as
"accounts payable and accrued expenses" in the accompanying consolidated balance
sheets.


Share units transferred November 30, 1994                             118,385
Share units issued fiscal 1995                                         30,983
Share units exercised fiscal 1995                                     (20,296)
                                                                      -------
Share units outstanding July 31, 1995                                 129,072
Share units issued fiscal 1996                                         20,922
Share units exercised fiscal 1996                                     (14,903)
Share units outstanding prior to transfer to Rabbi Trust              135,091
Share units issued in Property Capital Trust Common Shares and
     transferred to the Rabbi Trust                                  (135,080)
                                                                      -------
Share units outstanding July 31, 1996                                      11
Share units issued Transition Period                                    6,671
Common shares issued and transferred to the Rabbi Trust                (6,680)
                                                                      -------
Share units outstanding December 31, 1996                                   2
Cumulative fractional share units cashed-out and 
     invested by the Rabbi Trust                                           (2)
                                                                      -------
Share units outstanding December 31, 1997 and 1998                          -
                                                                      =======

Common Shares issued and transferred to the Rabbi Trust               135,080 
Dividends reinvested in Common Shares issued and 
     transferred to the Rabbi Trust                                    49,559
                                                                      -------
Total Common Shares in the Rabbi Trust July 31, 1996                  184,639
Common Shares issued and transferred to the Rabbi Trust                 6,680
Dividends reinvested in Common Shares issued and 
     transferred to the Rabbi Trust                                    24,819
Distribution of Common Shares from the Rabbi Trust 
     to retired Trustees                                              (22,211)
                                                                      -------
Total Common Shares in the Rabbi Trust December 31, 1996              193,927
Distribution of Common Shares from the Rabbi Trust 
     to retired Trustee                                                (7,076)
                                                                      -------
Total Common Shares in the Rabbi Trust December 31, 1997              186,851
Distribution of Common Shares from the Rabbi Trust to retired Trustee  (3,981)
Distribution of Common Shares from the Rabbi Trust to
     participating Trustees upon termination of plan                 (182,870)
                                                                      -------
Total Common Shares in the Rabbi Trust December 31, 1998                    -
                                                                      =======

                                       51
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8. SHAREHOLDERS' EQUITY (continued)
----------------------------------------

Shareholder Rights Plan

On September 28, 1990 (the "Declaration Date"), the Trustees adopted a
Shareholder Rights Plan (the "Rights Plan") and, in connection therewith,
declared a dividend distribution of one right for each of the Trust's
outstanding Common Shares to shareholders of record at the close of business on
October 12, 1990. Each right entitles the holder thereof, upon the occurrence of
certain events making such rights exercisable, to exercise the right to buy one
Common Share at a purchase price of $27.00. The rights become exercisable (i) 10
business days following the announcement that a person or group of persons has
acquired or obtained the right to acquire 9.8% or more of the Common Shares
(with certain exceptions for persons who were shareholders on the Declaration
Date) or (ii) upon the closing of a tender offer resulting in ownership of 9.8%
or more of the Common Shares (any person acquiring in excess of 9.8% of the
Common Shares being an "Acquiror"). On the twenty-first business day after the
acquisition of 9.8% or more of the Common Shares by an Acquiror, or upon the
closing of a tender offer for 9.8% or more of the Common Shares by an Acquiror,
each right will entitle its holder to purchase, at the right's exercise price,
that number of Common Shares having a market value at that time of twice the
right's exercise price. Each right will also become exercisable to purchase
Common Shares at a 50% discount in the event that an Acquiror engages in
self-dealing transactions with the Trust. If, at any time after the rights
become exercisable, the Trust is involved in a merger or other business
combination in which the Trust is not the surviving entity, each right will
entitle its holder to purchase, at the right's exercise price, that number of
shares of the acquiring company's common stock having a market value at that
time of twice the right's exercise price. The rights will expire on the earlier
of (i) September 28, 2000 or (ii) their redemption by the Trustees at any time
prior to the date that they become exercisable, as described above, at a price
of $.01 per right.

The Trustees intend to redeem the rights issued and outstanding, prior to the
consummation of the merger, at the redemption price of $.01 per right.

                                       52
<PAGE>

Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9. DIVIDENDS
-----------------

The Trust paid quarterly dividends approximately 55 days following each fiscal
quarter, normally equal to at least 100% of income before gains (losses) on real
estate investments. Because all of the Trust's real estate investments have been
disposed of and revenues have declined significantly, no further quarterly
dividends will be paid. Pursuant to its Business Plan, the Trust has declared
special dividends from the proceeds of its disposition of investments which, to
date, have totaled $13.65 per share. In respect of calendar years ended 1998 and
1997, fiscal year ended July 31, 1996 and the five-month period ended December
31, 1996, the Trust declared special dividends of $1.15 per share, $8.75 per
share, $2.75 per share and $1.00 per share, respectively.

If the merger is ratified by shareholders, it is the current intention of the
Trustees to declare a final distribution from the remaining assets of the Trust
immediately prior to the consummation of the merger. If the merger is not
consummated, the Trust intends to dissolve and distribute a portion of its
assets to its shareholders and transfer the remainder to a liquidating trust in
order to satisfy any known and contingent liabilities of the Trust. It is then
anticipated that a final distribution from the liquidating trust will be made
within one year thereafter.


                                                          Years Ended
                                                          -----------
                                          December 31,  December 31,  July 31,
                                              1998          1997        1996
                                              ----          ----        ----

Quarterly dividends declared               $   -          $  .18      $  .48
Special dividends declared                   1.15           8.75        2.75
                                           ------         ------      ------
Total dividends declared                   $ 1.15         $ 8.93      $ 3.23
                                           ======         ======      ======

                                            Five Months Ended
                                            -----------------
                                               December 31,
                                            1996          1995
                                            ----          ----
                                                      (Unaudited)

Quarterly dividends declared              $ .18        $ .24
Special dividends declared                 1.00            -
                                          -----        -----
Total dividends declared                  $1.18        $ .24
                                          =====        =====

In order to qualify as a real estate investment trust, Property Capital Trust
must distribute substantially all of its taxable income to shareholders not
later than twelve months following the end of its fiscal year.

                                       53
<PAGE>

Property Capital Trust
CONSOLIDATED QUARTERLY FINANCIAL DATA (unaudited)

<TABLE>
<CAPTION>
                                                                                                        Quarters Ended
                                                                                                        --------------
                                                                           March 31,       June 30,     September 30,  December 31,
                                                                           ---------       --------     -------------  ------------

<S>                                                                     <C>            <C>             <C>              <C>        
Calendar 1998
Revenues                                                                $   869,000    $ 1,635,000     $    99,000      $    40,000
Expenses                                                                    715,000        312,000         198,000           84,000
                                                                        -----------    -----------     -----------      -----------
Income (Loss) before Gain on Sale of Real Estate Investments                154,000      1,323,000         (99,000)         (44,000)
Gain on Sale of Real Estate Investments                                   3,067,000      1,016,000             -                -
                                                                        -----------    -----------     -----------      -----------
Net Income (Loss)                                                       $ 3,221,000 $    2,339,000     $   (99,000)     $   (44,000)
                                                                        ===========    ===========     ===========      ===========

Net Income (Loss) per Share
Income (Loss) before Gain on Sale of Real Estate Investments            $      0.02     $     0.13     $     (0.01)        $    -
Gain on Sale of Real Estate Investments                                        0.32           0.11             -                -
                                                                        -----------    -----------     -----------      -----------
Basic and Diluted Net Income (Loss) per Share                           $      0.34     $     0.24     $     (0.01)        $    -
                                                                        ===========    ===========     ===========      ===========
Average Shares Outstanding                                                9,584,220      9,584,220       9,584,220        9,584,220
                                                                        ===========    ===========     ===========      ===========

Calendar 1997
Revenues                                                                $ 4,138,000     $4,135,000     $ 3,738,000      $ 2,706,000
Expenses                                                                  3,616,000      2,907,000       2,676,000        2,033,000
                                                                        -----------    -----------     -----------      -----------
Income before Gain on Sale of Real Estate Investments                       522,000      1,228,000       1,062,000          673,000
Gain on Sale of Real Estate Investments                                  18,577,000      2,801,000       4,750,000        1,684,000
                                                                        -----------    -----------     -----------      -----------
Net Income                                                              $19,099,000    $ 4,029,000     $ 5,812,000      $ 2,357,000
                                                                        ===========    ===========     ===========      ===========
Net Income per Share
Income before Gain on Sale of Real Estate Investments                   $      0.05     $     0.13     $      0.11      $      0.07
Gain on Sale of Real Estate Investments                                        1.95           0.29            0.50             0.18
                                                                        -----------     ----------     -----------      -----------
Basic and Diluted Net Income per Share                                  $      2.00     $     0.42     $      0.61      $      0.25
                                                                        ===========     ==========     ===========      ===========
Average Shares Outstanding                                                9,520,000      9,579,000       9,584,000        9,584,000
                                                                        ===========    ===========     ===========      ===========
</TABLE>

                                       54
<PAGE>



Property Capital Trust
SCHEDULE II


Allowance for Possible Investment Losses

<TABLE>
<CAPTION>

                                           Five Months Ended               Year Ended
                                           -----------------               ----------
                                             December 31,                    July 31,
                                                 1996                         1996
                                                 ----                         ----

<S>                                          <C>                       <C>          
Balance at beginning of period               $ 4,636,000               $  14,077,000
Allocation to specific investments (1)        (4,636,000)                          -
Property write-downs                                   -                  (9,441,000)
                                             -----------               -------------
Balance at end of period                     $         -               $   4,636,000
                                             ===========               =============
Allowance as a % of Real Estate Investments 
 (before allowance for possible investment 
 losses and Asset Held for Sale directly by the Trust)                        4.9%
                                                                              ===
</TABLE>

(1)  In August 1996, the allowance for possible investment losses was allocated
     to specific investments per FASB Statement No. 121. For further information
     see Note 1, "Basis of Presentation and Significant Accounting Policies,
     Valuation of Real Estate Investments."

The allowance for possible investment losses represented the excess of the
carrying value of individual real estate investments over their estimated net
realizable value. Based upon a review and evaluation of each real estate
investment in the Trust's portfolio, management believed the allowance was
adequate as of the date presented.

                                       55
<PAGE>



Property Capital Trust
SCHEDULE III
December 31, 1998


At December 31, 1998, the Trust had no real estate investments.

NOTES TO SCHEDULE III

Changes in the Trust's investments in Assets Held for Sale directly by the Trust
are summarized below (dollars in thousands).

<TABLE>
<CAPTION>

                                                                                                      Five Months
                                                                               Years Ended                Ended          Year Ended
                                                                               -----------                -----          ----------
                                                                        December 31,  December 31,      December 31,      July 31,
                                                                           1998          1997             1996              1996
                                                                           ----          ----             ----              ----
                                                                                                                        
<S>                                                                   <C>             <C>               <C>             <C>     
Balance at beginning of period                                        $   15,077      $ 16,984          $16,938         $ 10,185
Acquisitions and additions                                                    65         3,517               46              173
Sales to third parties                                                   (15,142)      (62,996)             -            (10,358)
Reclassified from Owned Properties held directly by the Trust                -          67,829              -             20,055
Reclassified from Structured Transactions held directly by the Trust         -           5,300              -                -
Investments written-down                                                     -             -                -             (1,519)
Write-off of accumulated depreciation                                        -         (15,557)             -             (1,598)
                                                                      ----------      --------          -------         --------
Balance at end of period                                              $      -        $ 15,077          $16,984         $ 16,938
                                                                      ==========      ========          =======         ========
</TABLE>

                                       56

<PAGE>

                           ANNUAL REPORT ON FORM 10-K
                              ITEM 8 and ITEM 14(d)




                              FINANCIAL STATEMENTS


                 For the Ten-Month Period Ended October 31, 1997
                                     and the
                          Year Ended December 31, 1996


                    PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
                              Boston, Massachusetts

<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Partners
Property Capital Midwest Associates, L.P.

We have audited the accompanying balance sheet of Property Capital Midwest
Associates, L.P. (the "Partnership") as of December 31, 1996, and the related
statements of income, cash flows, and partners' equity for the ten-month period
ended October 31, 1997 and the year ended December 31, 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 Property Capital Midwest
Associates, L.P. at December 31, 1996 and the results of its operations and its
cash flows for the ten-month period ended October 31, 1997 and for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.



                                                               ERNST & YOUNG LLP


Boston, Massachusetts
November 3, 1997

                                       58
<PAGE>

Property Capital Midwest Associates, L.P.
BALANCE SHEET

                                                            December 31,
                                                                1996
                                                                ----

Assets
Cash and cash equivalents                                 $  1,142,052
Rent receivable                                                 17,469
Other assets                                                     4,431
                                                          ------------
                                                          $  1,163,952
                                                          ============
Liabilities and Partners' Equity
Liabilities
  Real estate taxes payable                              $      88,195
  Accounts payable and accrued expenses                         55,005
                                                          ------------
                                                               143,200
                                                          ------------
Partners' Equity
  Capital contributions                                     11,095,815
  Accumulated deficit                                      (10,075,063)
                                                          ------------
  Total Partners' Equity                                     1,020,752
                                                          ------------
                                                          $  1,163,952
                                                          ============

                             See accompanying notes

                                       59
<PAGE>



Property Capital Midwest Associates, L.P.
STATEMENTS OF INCOME





                                            Ten Months Ended       Year Ended
                                              October 31,         December 31,
                                                  1997                1996
                                                  ----                ----

Revenues
Rental income                                 $  89,132            $ 3,799,329
Short-term interest income                       49,727                 52,816
                                              ---------            -----------
                                                138,859              3,852,145
                                              ---------            -----------

Property Expenses
Write-down of real estate investments               -                      -
Depreciation                                        -                      -
Real estate taxes                               (72,695)               555,725
Utilities                                           -                  567,887
Repairs and maintenance                             -                  162,946
Management                                          -                  148,103
Cleaning                                            -                  143,965
Roads and grounds                                   -                   86,658
Other                                               -                   73,225
Insurance                                           -                   43,653
Security                                            -                   12,161
                                              ---------            -----------
                                                (72,695)             1,794,323
                                              ---------            -----------
Partnership Expenses                                              
Advisory fee                                     13,816                 77,858
Administrative expense                           (8,173)               125,032
                                              ---------            -----------
                                                  5,643                202,890
                                              ---------            -----------
Net Operating Income                            205,911              1,854,932
                                                                  
Gain on sale of real estate investments             -                  446,449
                                              ---------            -----------
Net Income                                    $ 205,911            $ 2,301,381
                                              =========            ===========

                             See accompanying notes

                                       60
<PAGE>

Property Capital Midwest Associates, L.P.
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                       Ten Months Ended     Year Ended
                                                          October 31,       December 31,
                                                            1997               1996
                                                            ----               ----

<S>                                                     <C>              <C>        
Cash Flow From Operating Activities
Net income                                              $    205,911     $ 2,301,381
Adjustments to reconcile net income to
  net cash provided by operating activities:
  Gain on sale of real estate investments                        -          (446,449)
  Depreciation                                                   -               -
  Write-down of real estate investments                          -               -
  Changes in assets and liabilities
     Decrease in rent receivable                              17,469          45,240
     Decrease in prepaid insurance                               -            30,407
     Decrease in other assets                                  4,431          54,198
     Decrease in real estate taxes payable                   (88,195)       (649,702)
     Decrease in accounts payable and accrued expenses       (55,005)       (167,583)
     Decrease in prepaid rent                                    -          (122,882)
     Decrease in security deposits                               -          (201,872)
                                                        ------------     -----------
Net Cash Provided by Operating Activities                     84,611         842,738
                                                        ------------     -----------
Cash Flow From Investing Activities

Disposition of real estate investments                           -        46,522,707
Capital expenditures                                             -          (228,727)
                                                        ------------     -----------
Net Cash Provided by Investing Activities                        -        46,293,980
                                                        ------------     -----------
Cash Flow From Financing Activities

Distributions of operating income of invested capital       (226,663)     (2,130,000)
Distributions of invested capital                         (1,000,000)    (44,395,880)
                                                        ------------     -----------
Net Cash Used in Financing Activities                     (1,226,663)    (46,525,880)
                                                        ------------     -----------
Net (Decrease) Increase in Cash and Cash Equivalents      (1,142,052)        610,838

Cash and Cash Equivalents at Beginning of Period           1,142,052         531,214
                                                        ------------     -----------
Cash and Cash Equivalents at End of Period              $        -       $ 1,142,052
                                                        ============     ===========
</TABLE>

                             See accompanying notes

                                       61
<PAGE>



Property Capital Midwest Associates, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY


<TABLE>
<CAPTION>
                                             Beginning                     Distributions   Distributions            Ending
                              Ownership      Partners'      Net            of Operating     of Invested             Partners'
                              Percentage     Equity         Income           Income           Capital               Equity
                              ----------     ------         ------           ------           -------               ------


For the Year Ended
December 31, 1996

<S>                           <C>        <C>                <C>            <C>            <C>                 <C>          
Property Capital Trust,
  General Partner             53.2967%   $    24,114,228    $1,226,560     $(1,135,220)   $(23,661,539)       $     544,029

Limited Partners              46.7033         21,131,023     1,074,821        (994,780)    (20,734,341)             476,723
                             --------    ---------------    ----------     -----------    ------------        -------------
                             100.0000%   $    45,245,251    $2,301,381     $(2,130,000)   $(44,395,880)       $   1,020,752
                             ========    ===============    ==========     ===========    ============        =============

For the Ten Months Ended
October 31, 1997

Property Capital Trust,
  General Partner             53.2967%   $   544,029        $  109,744     $  (120,804)   $   (532,967)       $           -

Limited Partners              46.7033        476,723            96,167        (105,859)       (467,033)                   -
                             --------    ---------------    ----------     -----------    ------------        -------------
                             100.0000%   $ 1,020,752        $  205,911     $  (226,663)   $ (1,000,000)       $           -
                             ========    ===============    ==========     ===========    ============        =============
</TABLE>

                             See accompanying notes

                                       62

<PAGE>

Property Capital Midwest Associates, L.P.
NOTES TO FINANCIAL STATEMENTS


NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------

Organization

Property Capital Midwest Associates, L.P. (the "Partnership") was organized on
April 20, 1983 as a Delaware limited partnership (under the name PCA Executive
Hills Associates, L.P.) and was qualified to do business in the State of Kansas.
Property Capital Trust was the sole general partner (the "General Partner") of
the Partnership and six institutional investors were limited partners. The
Partnership made a final distribution to its Partners on October 29, 1997 and
filed a Certificate of Cancellation with the state of Delaware.

Basis of Presentation

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles.

Cash and Cash Equivalents

For purposes of the Statements of Cash Flows, the Partnership considered all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Income Taxes

The Partnership is not subject to Federal or state income taxes and,
accordingly, no provisions have been made for such taxes in the financial
statements.


NOTE 2. MANAGEMENT AGREEMENT
----------------------------

Services related to investment matters and day-to-day administration were
provided to the Partnership under a contract, dated May 24, 1989, with PCA
Institutional Advisors (the "Advisor"). The contract had an initial term of five
years and was extended automatically on a year-to-year basis unless terminated
by the Partnership or the Advisor. The contract provided for a base advisory fee
equal to 8% of the Partnership's cash flow (as defined) and for a disposition
fee equal to 8% of the gain from the sale of the Partnership's properties. The
Partnership paid PCA Institutional Advisors management fees aggregating $13,816
and $77,858 for the ten months ended October 31, 1997 and the year ended 1996,
respectively. Management fees payable was $10,000 at December 31, 1996.

Effective August 1, 1992, Property Capital Trust, the General Partner of the
Partnership, assumed responsibility for managing the affairs of the Partnership
pursuant to a subcontract and option agreement with PCA Institutional Advisors.
This change was approved by the Partners.


NOTE 3. DISTRIBUTIONS
---------------------

For the ten months ended October 31, 1997 and the year ended December 31, 1996,
the Partnership distributed $226,663 and $2,130,000, respectively, of operating
income and $1,000,000 and $44,395,880 of invested capital, respectively.

                                       63

<PAGE>

                           ANNUAL REPORT ON FORM 10-K
                              ITEM 8 and ITEM 14(d)


                              FINANCIAL STATEMENTS

                  For the Nine Months Ended September 30, 1997
                        and Year Ended December 31, 1996


                 PCA CANYON VIEW ASSOCIATES LIMITED PARTNERSHIP
                              Boston, Massachusetts

                                       64
<PAGE>

REPORT OF INDEPENDENT AUDITORS


To the Partners
PCA Canyon View Associates Limited Partnership


We have audited the accompanying balance sheet of PCA Canyon View Associates
Limited Partnership ("the Partnership") as of December 31, 1996, and the related
statements of operations, cash flows and changes in partners' equity for the
nine-month period ended September 30, 1997 and the year ended December 31, 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 PCA Canyon View Associates
Limited Partnership at December 31, 1996, and the results of its operations and
its cash flows for the nine-month period ended September 30, 1997 and year ended
December 31, 1996, in conformity with generally accepted accounting principles.


                                                               ERNST & YOUNG LLP


Boston, Massachusetts
October 31, 1997

                                       65
<PAGE>

PCA Canyon View Associates Limited Partnership
BALANCE SHEET

                                                           December 31,
                                                               1996
                                                               ----

Assets

Cash and cash equivalents                                   $   518,232
Other assets                                                     58,720
                                                            -----------
                                                            $   576,952
                                                            ===========

Liabilities and Partners' Equity

Accounts payable and accrued expenses                       $    16,070
                                                            -----------
Partners' Equity
  Contributed capital                                         3,506,176
  Undistributed net income                                   (2,945,294)
                                                            -----------
  Total Partners' Equity                                        560,882
                                                            -----------
                                                            $   576,952
                                                            ===========

                             See accompanying notes

                                       66
<PAGE>

PCA Canyon View Associates Limited Partnership
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                 Nine Months                    Year
                                                   Ended                        Ended
                                                September 30,                December 31,
                                                    1997                         1996
                                                    ----                         ----

<S>                                           <C>                          <C>       
Revenues
Real Estate Investments
  Rental income                               $       386                  $1,412,864
  Other income                                        -                        46,984
  Base income                                         -                           -
                                              -----------                  ----------
                                                      386                   1,459,848
Short-term interest income                         20,597                      64,800
                                              -----------                  ----------
                                                   20,983                   1,524,648

Property Expenses
Insurance                                          15,537                      54,902
Ground rent                                           -                       404,754
Real estate taxes                                     -                       161,513
Management                                            -                       109,760
Utilities                                             -                        74,976
Repairs and maintenance                               -                        58,025
Leasing                                               -                        55,781
Depreciation                                          -                       213,401
Roads and grounds                                     -                        53,839
Make ready                                            -                        49,593
Homeowners' association                               -                        37,297
                                              -----------                  ----------
                                                   15,537                   1,273,841
                                              -----------                  ----------

Partnership Expenses
Professional fees                                   3,344                      23,024
Administrative                                      1,370                      27,754
Management fee                                      2,016                      21,407
                                              -----------                  ----------
                                                    6,730                      72,185
                                              -----------                  ----------
Net Operating (Loss) Income                        (1,284)                    178,622

Gain on sale of real estate investments               -                     3,495,652
                                              -----------                  ----------
Net (Loss) Income                             $    (1,284)                 $3,674,274
                                              ===========                  ==========

</TABLE>

                             See accompanying notes

                                       67
<PAGE>

PCA Canyon View Associates Limited Partnership
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                           Nine Months                Year
                                                                              Ended                   Ended
                                                                           September 30,           December 31,
                                                                               1997                   1996
                                                                               ----                   ----

<S>                                                                        <C>                   <C>         
Cash Flow From Operating Activities
Net (loss) income                                                          $  (1,284)            $  3,674,274
Adjustments to reconcile net (loss) income to
  net cash provided by operating activities:
   Depreciation                                                                  -                    213,401
   Gain on sale of real estate investments                                       -                 (3,495,652)
   Decrease in rent receivable, net                                              -                        139
   Decrease (increase) in other assets                                        58,720                   (1,814)
   Decrease in accounts payable and accrued expenses                         (16,070)                 (55,199)
   Decrease in prepaid rent                                                      -                     (4,942)
   Decrease in security deposits                                                 -                    (71,215)
                                                                           ---------             ------------
Net Cash Provided by Operating Activities                                     41,366                  258,992
                                                                           ---------             ------------

Cash Flow From Investing Activities
Increase in real estate investments                                              -                   (567,809)
Disposition of real estate investment, net of closing costs                      -
                                                                                                    9,511,169
Proceeds from letters of credit and litigation settlement                        -                        -
                                                                           ---------             ------------

Net Cash Provided by Investing Activities                                        -                  8,943,360
                                                                           ---------             ------------

Cash Flow From Financing Activities
Distributions to partners:
   Return of invested capital                                               (500,000)              (9,667,865)
   Operating income                                                          (59,598)                (535,601)
   Partner loans, net                                                            -                        -
                                                                           ---------             ------------
Net Cash Used in Financing Activities                                       (559,598)             (10,203,466)
                                                                           ---------             ------------
Net Decrease in Cash and Cash Equivalents                                   (518,232)              (1,001,114)
                                                                           ---------             ------------

Cash and Cash Equivalents at Beginning of Period                             518,232                1,519,346

Cash and Cash Equivalents at End of Period                                 $     -               $    518,232
                                                                           =========             ============
</TABLE>

                             See accompanying notes

                                       68
<PAGE>

PCA Canyon View Associates Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' EQUITY

<TABLE>
<CAPTION>


                                             Beginning        Net          Distributions   Distributions            Ending
                              Ownership      Partners'      (Loss)         of Operating     of Invested             Partners'
                              Percentage     Equity         Income           Income           Capital               Equity
                              ----------     ------         ------           ------           -------               ------


For the Year Ended
December 31, 1996

<S>                           <C>            <C>            <C>             <C>             <C>                      <C>     
Property Capital Trust,
General Partner               23.80952%      $1,688,113     $   874,828     $(127,523)      $(2,301,873)             $133,545

Limited Partners              76.19048%       5,401,961       2,799,446      (408,078)       (7,365,992)              427,337
                             ---------       ----------     -----------     ---------       -----------              --------
                             100.00000%      $7,090,074     $ 3,674,274     $(535,601)      $(9,667,865)             $560,882
                             =========       ==========     ===========     =========       ===========              ========

For the Nine Months Ended
September 30, 1997

Property Capital Trust,
General Partner               23.80952%        $133,545     $      (306)     $(14,191)      $  (119,048)             $     -

Limited Partners              76.19048%         427,337            (978)      (45,407)         (380,952)                   -
                             ---------       ----------     -----------     ---------       -----------              --------
                             100.00000%        $560,882     $    (1,284)     $(59,598)      $(500,000)               $     -
                             =========       ==========     ===========     =========       ===========              ========
</TABLE>

                             See accompanying notes

                                       69

<PAGE>

PCA Canyon View Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS


NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------

Organization

PCA Canyon View Associates Limited Partnership (the "Partnership") was organized
on January 24, 1986 as a Massachusetts limited partnership. Property Capital
Trust was the sole general partner of the Partnership and thirteen institutional
investors were limited partners. The Partnership made a final distribution to
its Partners on September 30, 1997 and filed a Certificate of Cancellation of
Limited Partnership with the Commonwealth of Massachusetts.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Partnership considers all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Income Taxes

The Partnership is not subject to Federal or state income taxes and,
accordingly, no provisions have been made for such taxes in the financial
statements.


NOTE 2. MANAGEMENT AGREEMENT
----------------------------

Services related to investment matters and day-to-day administration were
provided to the Partnership under a contract, dated February 4, 1986, with PCA
Institutional Advisors (the "Advisor"). The contract had an initial term which
expired on July 29, 1993 and, thereafter, was extended automatically on a
year-to-year basis, unless terminated by the Partnership or the Advisor. The
contract provided for a base management fee equal to 8% of the Partnership's
cash flow (as defined) and for a disposition fee equal to 8% of the gain from
the sale of the Partnership's interests. No disposition fees were earned.

Effective August 1, 1992, Property Capital Trust, the General Partner of the
Partnership, assumed responsibility for managing the affairs of the Partnership
pursuant to a subcontract and option agreement with PCA Institutional Advisors.


NOTE 3. DISTRIBUTIONS
---------------------

For the nine months ended September 30, 1997 the Partnership distributed $59,598
from operating cash flow and $500,000 from invested capital. For the year ended
December 31,1996 the Partnership distributed $535,601 from operating cash flow,
and $9,667,865 from invested capital. There will be no further distributions as
the Partnership has been terminated.

                                       70