UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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 Number 0-21849
                ------------------------------------------------


                          METROPOLIS REALTY TRUST, INC.
             (Exact name of Registrant as specified in its charter)

          MARYLAND                                     13-3910684
(State or other jurisdiction of                        (IRS Employer
incorporation or organization)                        Identification No.)
                                   
                                  
                                605 Third Avenue
                                   26th Floor
                            New York, New York 10016
          (Address of principal executive offices, including zip code)

                                 (212) 655-0220
              (Registrant's telephone number, including area code)

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

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

                                 Title of Class
                                 --------------
                Class A Common Stock, par value $10.00 per share
                Class B Common Stock, par value $10.00 per share


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 / /

809954.6


<PAGE>




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/

Of the Company's 12,970,646 shares of Common Stock outstanding, 9,330,410 shares
are held by affiliates of the Registrant and 3,640,236 of the Company's shares
are held by non-affiliates of the Registrant. The Common Stock is not listed on
any exchange; the Company does not intend to list the Common Stock on any
exchange in the near term; there is not currently a public market for the Common
Stock; and there can be no assurance that an active trading market for the
Common Stock will develop or be sustained.

As of March 29, 1999, there were 12,970,646 shares of the Registrant's Common
Stock issued and outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:

        The Exhibits to the Company Registration Statement on Form 10, as
            amended, are hereby incorporated by reference in Item 14
                       of this Annual Report on Form 10-K.

                                       ii

809954.6
                                    
<PAGE>


<TABLE>

                                TABLE OF CONTENTS



<S>                                                                                                        <C>
PART I   ...................................................................................................1
         ITEM 1.   BUSINESS.................................................................................1
         ITEM 2.   PROPERTIES...............................................................................5
         ITEM 3.   LEGAL PROCEEDINGS.......................................................................11
         ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................11

PART II  ..................................................................................................12
         ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                    STOCKHOLDER MATTERS....................................................................12
         ITEM 6.   SELECTED FINANCIAL DATA.................................................................13
         ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS....................................................14
         ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................17
         ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................18
         ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                    ACCOUNTING AND FINANCIAL DISCLOSURE....................................................34

PART III...................................................................................................35
         ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................35
         ITEM 11.  EXECUTIVE COMPENSATION..................................................................37
         ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                     MANAGEMENT............................................................................38
         ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................41
         ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                    ON FORM 8-K............................................................................44

</TABLE>

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



             CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
           PROVISIONS OF THE SECURITIES LITIGATION REFORM ACT OF 1995

            WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS  "BELIEVES,"
"ANTICIPATES,"  "EXPECTS"  AND  SIMILAR  EXPRESSIONS  ARE  INTENDED  TO IDENTIFY
FORWARD-LOOKING  STATEMENTS.  STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR"  PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN  RISKS AND  UNCERTAINTIES  WHICH  COULD CAUSE  ACTUAL  RESULTS TO DIFFER
MATERIALLY,  INCLUDING,  BUT NOT  LIMITED TO,  THOSE SET FORTH IN  "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS"  AND
"BUSINESS -- QUALIFICATION AS A REIT."  READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE  FORWARD-LOOKING  STATEMENTS,  WHICH SPEAK ONLY AS OF THE DATE
HEREOF OR THEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE
FORWARD-LOOKING  STATEMENTS TO REFLECT EVENTS OR  CIRCUMSTANCES  OCCURRING AFTER
THE DATE  HEREOF OR TO REFLECT  THE  OCCURRENCE  OF  UNANTICIPATED  EVENTS.  THE
COMPANY'S   ACTUAL  RESULTS  OR  OUTCOMES  MAY  DIFFER   MATERIALLY  FROM  THOSE
ANTICIPATED.

                                      iii

809954.6


<PAGE>



                                     PART I


ITEM 1.       BUSINESS

              Overview

              Metropolis  Realty  Trust,  Inc.,  a  Maryland   corporation  (the
"Company"), is a real estate investment trust (a "REIT"). The Company was formed
on May 13, 1996 to facilitate the  consummation of the Second Amended Joint Plan
of Reorganization  of 237 Park Avenue  Associates,  L.L.C.  ("237 LLC") and 1290
Associates, L.L.C. ("1290 LLC" and, together with 237 LLC, the "Debtors"), dated
September 20, 1996 (as amended, the "Plan"), and, thereby, acquire the interests
of 237 LLC and 1290 LLC in the  properties  located in New York City at 237 Park
Avenue  (the  "237  Property")  and  1290  Avenue  of the  Americas  (the  "1290
Property," and together with the 237 Property,  the  "Properties").  The Debtors
were  two  of  the  many  companies,   partnerships   and  joint  ventures  that
collectively  constituted  the United  States  operations  of the Olympia & York
("O&Y")  group of  companies.  The  transactions  contemplated  by the Plan were
consummated on October 10, 1996 (the "Effective Date").

              As  depicted  in  the  following  chart,  the  Company  owns a 95%
partnership  interest,  as general  partner,  in 237/1290 Lower Tier Associates,
L.P., a Delaware  limited  partnership  (the "Lower Tier  Limited  Partnership")
which owns a 99% partnership  interest,  as limited partner, in each of 237 Park
Partners,  L.P.,  a  Delaware  limited  partnership  (the "237  Property  Owning
Partnership") and 1290 Partners, L.P., a Delaware limited partnership (the "1290
Property  Owning  Partnership,"  and  together  with  the  237  Property  Owning
Partnership,   the  "Property   Owning   Partnerships").   The  Property  Owning
Partnerships  own the  Properties.  The  remaining  1%  interest  in each of the
Property Owning Partnerships is owned by one of two wholly-owned subsidiaries of
the Company (the "GP Corps"),  as general partner.  The remaining 5% interest in
the Lower Tier Limited  Partnership  (the "LP  Interest")  is owned by a limited
partnership  (the  "Upper  Tier  Limited  Partnership")  which is  owned  almost
entirely by JMB/NYC Office Building Associates, L.P. ("JMB LP"), a former holder
of equity interests in the Debtors,  as limited  partner.  The 5% LP Interest is
subordinated  to the 95%  partnership  interest of the Company  with  respect to
certain  priority  distributions  from the Lower Tier Limited  Partnership.  The
Upper Tier  Limited  Partnership,  the Lower Tier  Limited  Partnership  and the
Property Owning Partnerships are hereinafter referred to,  collectively,  as the
"Partnerships."

809954.6
                                        1

<PAGE>



              The following  chart depicts the Company's  indirect  ownership of
the Properties as described above. [GRAPHIC OMITTED]





809954.6
                                        2

<PAGE>




              Business

              The  Company's  principal  assets  consist of its interests in the
Partnerships  through which it owns the 1290  Property and the 237 Property,  as
described below under "ITEM 2. -- PROPERTIES." The Company's  principal business
objective  is to operate  the  Properties  in a manner  that will  maximize  the
Properties'  revenues and value and in turn maximize  funds from  operations and
stockholder value. The Company may acquire additional  properties in the future,
although  it  has  no  present  plans  to do  so.  As  further  described  under
"MANAGEMENT  OF THE COMPANY -- Asset  Management  Agreement" and " -- Management
and Leasing  Agreements,"  the Property  Owning  Partnerships  have retained 970
Management,  LLC (the "Asset  Manager"),  an affiliate of Victor  Capital Group,
L.P. ("VCG"), to serve as asset manager and Tishman Speyer Properties, L.P. (the
"Property Manager/Leasing Agent"), to serve as property manager/leasing agent to
manage the day-to-day operations of the Properties.

              Competition

              Numerous office building  properties in New York City compete with
the  Properties in attracting  tenants to lease space.  Some of these  competing
properties are newer or better located than the Properties.  The amount of space
available in competitive  commercial  properties in the New York City area could
have a material  effect on the Property  Owning  Partnerships'  ability to lease
space in the Properties and on the rents charged.  However, the 1290 Property is
currently 98% leased,  with leases  aggregating  approximately  19% of the total
rentable  square feet  expiring over the next five years and the 237 Property is
currently 99% leased,  with leases  aggregating  approximately  21% of the total
rentable  square  feet  expiring  over  the  next  five  years.  See  "Item 2 --
Properties."

              Employees

              The  Company  does not have any  employees.  The  Property  Owning
Partnerships  assumed  the  Debtors'  labor  agreements  with  respect  to union
employees  employed at the Properties.  The Property  Manager/Leasing  Agent has
employed such union employees on behalf of the Property Owning Partnerships. The
Company believes that there are no unfunded retiree benefits  liabilities  under
the  pension  plans  established  pursuant to the labor  agreements  referred to
above.

              Qualification as a REIT

              The Company has elected to be taxed as a REIT under  Sections  856
through 860 of the  Internal  Revenue Code of 1986,  as amended  (the  "Internal
Revenue  Code"),  commencing with its taxable year ended December 31, 1996. As a
REIT, the Company (subject to certain exceptions) will not be subject to federal
income  taxation at the corporate level on income it distributes to stockholders
so long as it distributes at least 95% of its REIT taxable income.  For any year
in which the Company does not meet the  requirements  for qualifying to be taxed
as a REIT, it will be taxed as a corporation. Although the Company believes that
it will  operate  in such a  manner  so as to  qualify  to be  taxed  as a REIT,
qualification as a REIT involves the application of highly technical and complex
Internal  Revenue Code  provisions for which there are only limited  judicial or
administrative interpretations. The determination of various factual matters and
circumstances  not entirely within the Company's  control may affect its ability
to qualify and to continue to qualify as a REIT.  Moreover,  no assurance can be
given that legislation, new regulations, administrative interpretations or court
decisions will not change the tax laws with respect to  qualification  as a REIT
or the Federal income tax consequences of such qualification.

              To obtain the favorable tax treatment accorded to a REIT under the
Internal  Revenue  Code,  the Company  generally  will be required  each year to
distribute to its  stockholders at least 95% of its taxable income.  The Company
will be subject to income tax on any of its undistributed taxable income and net
capital gains,  and to a 4% nondeductible  excise tax on the amount,  if any, by
which certain distributions paid by it with respect to any

809954.6
                                        3

<PAGE>



calendar  year are less than the sum of 85% of its  ordinary  income plus 95% of
its  capital  gain  net  income  for  the  calendar  year,   plus  100%  of  its
undistributed income from prior years.

              The Company intends to make  distributions  to its stockholders to
comply with the  distribution  provisions  of the  Internal  Revenue Code and to
avoid Federal  income taxes and the  nondeductible  4% excise tax. A substantial
portion of the  Company's  income  will  consist  of the income of the  Property
Owning  Partnerships  and the  Company's  cash flow will  consist  primarily  of
distributions  from the  Property  Owning  Partnerships  through  the Lower Tier
Limited Partnership.

              Differences  in timing  between  the  receipt  of  income  and the
payment of expenses in arriving at taxable income of the Company, the Upper Tier
Limited  Partnership,  the Lower Tier Limited Partnership or the Property Owning
Partnerships,  the effect of nondeductible capital expenditures, the creation of
reserves or required  debt  amortization  payments  could require the Company to
borrow  funds on a  short-term  or  long-term  basis  to meet  the  distribution
requirements  that are  necessary  to  continue  to qualify  as a REIT.  In such
circumstances,  the  Company  might need to borrow  funds to avoid  adverse  tax
consequences even if the Company's  management believes that the then prevailing
market  conditions  generally are not favorable for such borrowings or that such
borrowings are not advisable in the absence of such tax considerations. There is
no  assurance  that the  Company  will be able to continue to satisfy the annual
distribution requirement so as to qualify as a REIT.

              In order for the  Company to qualify as a REIT under the  Internal
Revenue Code, not more than 50% in value of its outstanding  stock may be owned,
directly or indirectly,  by five or fewer  individuals  (defined in the Internal
Revenue Code to include certain entities) during the last half of a taxable year
(other than the first year) (the "Five or Fewer  Requirement"),  and such shares
of stock must be  beneficially  owned by 100 or more persons during at least 335
days of a taxable  year of 12  months  (other  than the first  year) or during a
proportionate  part of a shorter  taxable  year. In order to protect the Company
against the risk of losing its status as a REIT on account of a concentration of
ownership among its stockholders, the Company's Amended and Restated Articles of
Incorporation (the "Charter"),  subject to certain exceptions,  provides that no
Person (as defined in the Charter) may beneficially  own, or be deemed to own by
virtue of the  attribution  provisions of the Internal  Revenue Code,  more than
7.9% (the "Ownership  Limit") of the aggregate value of the Company's  shares of
stock. The restrictions  contained in the Charter,  however, may not ensure that
the Company will be able to satisfy the Five or Fewer  Requirement in all cases.
If the Company fails to satisfy such requirement, the Company's status as a REIT
will terminate, and the Company will not be able to prevent such termination. If
the Company were to fail to qualify as a REIT in any taxable  year,  the Company
would be subject to Federal income tax  (including  any  applicable  alternative
minimum tax) on its taxable income at regular  corporate rates, and would not be
allowed a deduction in computing its taxable  income for amounts  distributed to
its  stockholders.  Moreover,  unless entitled to relief under certain statutory
provisions, the Company also would be ineligible for qualification as a REIT for
the four taxable years following the year during which  qualification  was lost.
Such disqualification would reduce the net earnings of the Company available for
investment  or  distribution  to its  stockholders  due to  the  additional  tax
liability of the Company for the years involved.

              Subject to certain  exceptions,  the  Charter  does not permit any
person to acquire or own (either actually or constructively under the applicable
attribution  rules of the Code) more than the Ownership  Limit. In addition,  no
holder  may  own  or  acquire  (either  actually  or  constructively  under  the
applicable  attribution  rules of the Code) shares of any class of the Company's
common stock, par value $10.00 per share (the "Common Stock"), if such ownership
or acquisition (i) would cause more than 50% in value of the outstanding  Common
Stock to be owned by five or fewer individuals or (ii) would otherwise result in
the  Company  failing  to  qualify  as a REIT.  The  Charter  provides  that the
foregoing ownership  restrictions will not apply to persons designated by Apollo
Real  Estate  Investment  Fund,  L.P.  ("Apollo")  provided  that the  aggregate
percentage by which all individuals  permitted,  by  designation,  to exceed the
Ownership Limit will not be greater than 10%.

              Any attempted acquisition (actual or constructive) of Common Stock
by a person who, as a result of such  acquisition,  would violate certain of the
limitations set forth in the Charter will cause the Common Stock

809954.6
                                        4

<PAGE>



purportedly  transferred  to be  automatically  transferred  to the trustee of a
trust for the benefit of a  charitable  beneficiary  and such shares will not be
entitled to voting rights or rights to distributions and the transfer  resulting
in such  violation  may be deemed void ab initio.  Violations  of the  ownership
limitations may result in a repurchase by the Company of shares in excess of the
Ownership Limit.

ITEM 2.       PROPERTIES

              The 1290 Property

              The 1290 Property  Owning  Partnership  holds the fee title to the
1290 Property and all  improvements  thereon.  The 1290  Property,  completed in
1963, is a 43-story,  first class commercial office building with  approximately
1,963,000  rentable square feet of space.  The building is centrally  located in
midtown Manhattan and is connected to the famed "Rockefeller Center" complex via
an underground passageway.

                        The average  occupancy  rates for the 1290  Property for
the years 1994 through 1998 were 94%, 78%, 90%, 97%, and 99%, respectively.

                        As  of  December  31,  1998,   the  1290   Property  was
approximately  98% leased and there were leases and license  agreements  with 36
tenants and 4 licensees covering approximately 1,931,000 rentable square feet of
space.  For the year ended December 31, 1998, the annual average rent (including
electricity  and  additional  rent  payable on account  of  operating  expenses,
porters wage,  and real estate tax  escalations)  for office space leased in the
building was  approximately  $40.89 per square foot. For the year ended December
31, 1998,  approximately  73,000  square feet of space was under lease to retail
tenants,  at an average annual rent  (including  electricity and additional rent
payable on account  of  operating  expenses,  porters  wage and real  estate tax
escalations)  of  approximately  $64.80 per rentable square foot. As of December
31, 1998,  approximately 32,000 rentable square feet of office and storage space
was available for rent.

              The building serves as the corporate headquarters of The Equitable
Life  Assurance  Society of the United  States  ("Equitable").  In  addition  to
Equitable,  the  building  houses a  variety  of  tenants,  including  financial
institutions, entertainment companies and law firms.

              The following table summarizes certain  information  regarding the
largest leases at the 1290 Property as of December 31, 1998:


<TABLE>
<CAPTION>
                                                                             Annual Base           Gross Rent        Date(s) of
                                                          Leased square     Rent per square        per square           Lease
Tenant                            Nature of Business       footage(1)       foot leased(2)       foot leased(3)      Expiration
------                            ------------------       -------         ----------------      -----------         ----------
<S>                               <C>                                                                                       
Equitable(4)                      Insurance/Financial      <C>                <C>                  <C>                <C>
                                  Services                 567,963             $36.48(5)            $39.01(5)         12/31/11
Warner Communications, Inc.       Entertainment            273,803             $40.03(6)            $43.08(6)         6/30/12(7)
The Bank of New York              Financial Services       189,340             $36.41(8)            $37.64(8)         12/31/10(9)
EMI Entertainment World, Inc.     Entertainment            144,981             $38.56(10)           $42.49(10)         9/30/02
Deutsche Bank, AG                 Financial Services       120,741             $41.15(11)           $42.00(11)         2/14/14(12)
Other Office and Retail           Various                  693,612(13)         $40.34               $45.05             1999-2014
Tenants                


</TABLE>

(1)   Leased square footage does not include approximately 19,800 square feet of
      storage and building space.


809954.6
                                        5

<PAGE>



(2)   Annual Base Rent means the amount contractually due (excluding adjustments
      related to recoveries from tenants for operating  expenses,  porters wage,
      real estate taxes,  utilities or other items and rent concessions) for the
      year ended  December 31, 1998.  The Company  believes  that base rent is a
      conservative   and  appropriate   measure  for  comparative   purposes  of
      commercial real estate rental revenue from office building properties that
      do not generate percentage rents based on sales.

(3)   Gross  Rent  means  Annual  Base Rent plus  recoveries  from  tenants  for
      operating expenses,  porters wage, real estate taxes,  utilities and other
      items.

(4)   As of December 31, 1998,  Equitable was in possession of 488,675  rentable
      square feet. Approximately 79,288 rentable square feet of space previously
      occupied by another  tenant,  was delivered to Equitable on March 1, 1999.
      Equitable  is entitled to a free rent period  through  December  1999 with
      respect to such space and to a credit against rent of up to  approximately
      $256,000 as reimbursement for the cost of certain tenant improvements made
      by and paid for by Equitable with respect to such space.

(5)   Does not  include  (i) 10,574  square  feet  leased in the  basement at an
      Annual  Base Rent of $20.00 per square foot and a Gross Rent of $21.00 per
      square foot, (ii) 203 square feet leased in the basement at an Annual Base
      Rent of $15.00 per square foot and a Gross Rent of $16.50 per square foot,
      and (iii) 2,864  square feet leased in the basement at an Annual Base Rent
      and a Gross Rent of $20.00 per square foot.

(6)   A block of space  consisting of 24,380  rentable square feet was delivered
      to Warner  Communications,  Inc.  ("Warner") on September  15, 1998,  with
      respect to which Warner is entitled to a free rent period through November
      1999.  Does not include  8,555 square feet of space leased in the basement
      at an Annual  Base  Rent of $20.00  per  square  foot and a Gross  Rent of
      $22.25 per square foot.

(7)   Leases with Warner expire February 28, 2000 (with respect to 28,056 square
      feet and 8,555  square  feet in the  basement);  September  30, 2004 (with
      respect to 79,801 square feet); and June 30, 2012 (with respect to 157,391
      square feet).

(8)   Does not include 11,633 square feet of space leased in the basement at an
      Annual Base Rent and a Gross Rent of $43.33 per square foot.

(9)   The Bank of New York lease  expires April 30, 2003 (with respect to 31,402
      square feet and 11,633 square feet in the basement); and December 31, 2010
      (with  respect to 146,305  square  feet).  The Bank of New York lease also
      provides  that the Bank of New York has the option to terminate  its lease
      with  respect  to  100,159  square  feet on the  third  floor  of the 1290
      Property  effective  as of December  31, 2006 by giving the 1290  Property
      Owning  Partnership  notice on  December  31,  2005 and by paying a fee of
      $1,000,000.

(10)  Does not include (i) 720 square feet of space leased in the basement at an
      Annual  Base Rent of $16.00 per square foot and a Gross Rent of $17.02 per
      square foot,  (ii) an additional  1,533 square feet of space leased in the
      basement at an Annual Base Rent of $32.50 per square foot and a Gross Rent
      of $36.21 per square foot,  and (iii) an additional 203 square feet in the
      basement at an Annual Base rent of $22.00 per square foot and a Gross Rent
      of $23.04 per square foot.

(11)  Deutsche Bank is entitled to a free rent period through January 1999
      with respect to 26,303 square feet and through  February 1999 with respect
      to 74,077 square feet.

(12)  The lease with Deutsche Bank expires on March 31, 1999 with respect to 
      20,361 square feet and on February 14, 2014 with respect to 100,380 square
      feet.

(13)  Other  Office and Retail  Tenants  includes  79,288  square  feet of
      office  space that was  occupied by other  tenants on December  31,  1998,
      which was delivered to Equitable on March 1, 1999 as disclosed in footnote
      (4).

809954.6
                                        6

<PAGE>



              Expenditures  for capital  projects for the 1290  Property in 1998
aggregated   approximately   $2,044,000   and  related   primarily  to  (i)  the
continuation of the elevator modernization program; (ii) the continuation of the
conversion of a  refrigeration  machine (in  accordance  with the 1992 Clean Air
Act);  (iii)  removal  of  asbestos  in  certain   mechanical  rooms;  and  (iv)
replacement of the 17th floor roof setback. Anticipated expenditures for capital
projects for the 1290 Property in 1999 are  approximately  $1,510,000 and relate
primarily to: (i) the  completion of the elevator  modernization  program;  (ii)
removal of asbestos in several mechanical rooms; and (iii) installation of a 200
ton cooling tower.

              An environmental report prepared for the Properties indicates that
the 1290 Property contains asbestos or asbestos containing  materials in several
mechanical rooms and certain other locations. The remaining cost of removing the
asbestos in accordance  with the  operations and  maintenance  plan for the 1290
Property  is  estimated  to  be  approximately   $190,000  and  the  removal  is
anticipated to be completed in 1999.

              The following  table shows  anticipated  lease  expirations  on an
aggregate  basis for each calendar  year from 1999 through and  including  2008.
Such  chart  assumes  that  there are no early  terminations  of leases and that
leases expire without extension by existing tenants pursuant to lease options.


<TABLE>
<CAPTION>
                                                                                                               Percentage of Total
                                                                                                               1290 Property Owning
                                                                 Rentable Square        Annual Base Rent        Partnership Annual
      Year of Lease                  Number of                   Feet Subject to         Represented by        Base Rent Represented
        Expiration                Leases Expiring                Expiring Leases         Expiring Leases        by Expiring Leases
       ------------               ---------------                ---------------        -----------------      -------------------

<S>        <C>                           <C>                         <C>           <C>                               <C>  
           1999                          3                           24,215           $     952,812                  1.38%
           2000                          4                           45,333           $   1,067,494                  2.13%
           2001                          3                            5,803           $     157,716                   .21%
           2002                          3                          238,802           $  10,217,340                 14.32%
           2003                          3                           47,003           $   2,039,799                  3.23%
           2004                          4                          253,347           $  12,099,120                 21.16%
           2005                          6                           51,345           $   2,647,308                  5.05%
           2006                          2                           91,042           $   3,811,656                  7.75%
           2007                          -                              -                     -                        -
           2008                          2                          113,015           $   6,158,100                 13.21%
</TABLE>


              Annual real estate taxes  assessed  against the 1290  Property for
the fiscal  years ended June 30,  1999,  1998,  1997 and 1996 were  $17,964,180,
$17,152,000,  $17,300,250  and  $19,023,178,  respectively,  which  amounts were
calculated  on  assessed  values  of  approximately  $175,500,000, $168,750,000,
$168,750,000 and $189,000,000,  respectively. See -- "Tax Certiorari Proceedings
and Tenant Reimbursement Claims."

              The 237 Property

              The 237 Property Owning Partnership holds the fee title to the 237
Property and all  improvements  thereon.  The 237 Property is a 21-story,  first
class commercial office building with  approximately  1,142,000  rentable square
feet of space. The building was completed in 1981 as a comprehensive  renovation
of an existing  structure  and now  features an interior  layout of an open full
atrium. The building, centrally located in midtown Manhattan, is situated off of
one of New York City's  prestigious  thoroughfares and is within close proximity
to Grand Central Station, a transportation hub.

              The average  occupancy  rates for the 237 Property for each of the
years 1994 through 1998 were 98%, 98%, 98%, 98% and 99%.

              As of December 31, 1998,  the 237 Property was  approximately  99%
leased  and there were  leases  and  license  agreements  with 17 tenants  and 3
licensees covering approximately 1,126,000 rentable square feet of space.

                                        7

809954.6

<PAGE>



For the year ended  December  31,  1998,  the  annual  average  rent  (including
additional rent on this space payable on account of operating expenses,  porters
wage and real estate tax  escalations)  for office  space leased in the building
was approximately  $44.23 per square foot. For the year ended December 31, 1998,
approximately  28,000 square feet of space was under lease to retail tenants, at
an average  annual  rent  (including  additional  rent on this space  payable on
account of operating expenses,  porters wage and real estate tax escalations) of
approximately  $57.33  per  rentable  square  foot.  As of  December  31,  1998,
approximately  13,000  rentable  square feet of retail space was  available  for
rent.

              The following table summarizes certain  information  regarding the
largest leases at the 237 Property as of December 31, 1998:

<TABLE>
<CAPTION>
                                                                           Annual Base Rent       Gross Rent            Date(s) of
                                                        Leased Square      per square            per square               Lease
Tenant                         Nature of Business        Footage(1)        foot leased(2)       foot leased(3)         Expiration
------                         ------------------        ----------        --------------       --------------         ----------

<S>                            <C>                         <C>                <C>               <C>                      <C>  
J. Walter Thompson             Advertising                 456,132            $22.39            $32.88                   8/31/06
Company(4)

Swiss Reinsurance                                                                                                       
Company, U.S. Branch                                                                                                    
(and certain of its            Insurance/Financial                                                                      
affiliates)(5)                 Services                    279,906            $36.09            $58.50                   8/31/01

E.M. Warburg Pincus &                                                                                                  
Co., LLC(5)                    Financial Services          167,788            $47.33(6)         $53.52                  10/31/09

Champion International         Pulp and Paper                                                                          
Corporation                    Industry                    110,800            $39.20            $44.96                   9/30/11

Other Office and Retail
Tenants                        Various                     108,862            $42.41            $43.40                 1999-2014

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

(1)    Leased square footage does not include approximately 2,100 square feet of
       storage space.

(2)    Annual  Base  Rent  means  the  amount   contractually   due   (excluding
       adjustments  related to recoveries  from tenants for operating  expenses,
       porters wage, real estate taxes or other items and rent  concessions) for
       the year ended December 31, 1998. The Company  believes that base rent is
       a  conservative  and  appropriate  measure  for  comparative  purposes of
       commercial  real estate rental  revenue from office  building  properties
       that do not generate percentage rents based on sales.

(3)    Gross Rent means Annual Base Rent plus recoveries from tenants for 
       operating expenses, porters wage, real estate taxes and other items.

(4)    J. Walter Thompson  Company ("JWT") has the option to terminate its lease
       on September 30, 2000 with respect to up to 110,607  rentable square feet
       of space on the 8th Floor and the 9th Floor if JWT's subtenant  exercises
       its option to terminate its sublease.  JWT must provide notice to the 237
       Property Owning Partnership with respect to such termination at least one
       year in advance of such date.

(5)    Pursuant to an agreement with the Company, Swiss Reinsurance Company must
       vacate the entire 13th floor (55,907 square feet) on or before October 1,
       1999. E.M. Warburg Pincus & Co., LLC ("Warburg  Pincus") has entered into
       a lease and will take possession of such space through October 31, 2009.

(6)    The lease agreement with Warburg Pincus provides that fixed rent shall be
       abated in full with respect to 77,238 rentable square feet for the months
       of September and October 1999.

              Expenditures  for capital  projects  for the 237  Property in 1998
aggregated  approximately  $613,000 and related primarily to roof repairs and an
upgrade of the condenser  water  system.  Anticipated  expenditures  for capital
projects for the 237 Property in 1999 are  approximately  $1,760,000  and relate
primarily to an upgrade of the building's electrical capacity system.


809954.6
                                        8

<PAGE>



              The following table sets forth anticipated lease expirations on an
aggregate  basis for each calendar  year from 1999 through and  including  2008.
This  chart  assumes  that  there are no early  terminations  of leases and that
leases expire without extension by existing tenants pursuant to lease options.


<TABLE>
<CAPTION>

                                                                                           Percentage of Total
                                                                                           237 Property Owning
                                             Rentable Square       Annual Base Rent        Partnership Annual
                            Number of        Feet Subject           Represented            Base Rent Represented
      Year of Lease       Leases/Licenses     to Expiring           by Expiring            by Expiring
        Expiration          Expiring         Leases/Licenses       Leases/Licenses         Leases/Licenses
        ----------          --------         ---------------       ---------------         ---------------

<S>        <C>                <C>              <C>                 <C>                           <C>  
           1999               1                  3,372              $      269,760                 .75%
           2000               1                  3,450              $      196,656                 .54%
           2001               2                225,839              $   10,867,028               32.86%
           2002               -                      -                          -                    - 
           2003               1                  2,050              $      187,740                 .71%
           2004               2                  9,693              $      350,332                1.32%
           2005               -                      -                          -                    - 
           2006               1                456,132              $   10,898,364               47.24%
           2007               1                    713              $      105,372                 .65%
           2008               1                  6,110              $      238,296                1.48%
                                   
</TABLE>

              Annual real estate taxes assessed against the 237 Property for the
fiscal  years  ended  June 30,  1999,  1998,  1997 and  1996  were  $10,140,242,
$9,826,626,   $9,835,307  and  $9,511,807,   respectively,  which  amounts  were
calculated  on  assessed  values of  approximately  $109,594,500,  $108,805,000,
$110,250,000 and $108,450,000,  respectively. See -- "Tax Certiorari Proceedings
and Tenant Reimbursement Claims."

              Other Assets

              Tenant Notes Receivable

              The  Company  is the  holder  of a note (the  "Robinson  Silverman
Note") issued by Robinson  Silverman Pearce & Aronsohn  ("Robinson  Silverman"),
dated April 1, 1989,  in the face amount of  $6,500,000  and a maturity  date of
September  1,  1999,  which  note  was  executed  in  connection  with  Robinson
Silverman's  lease at the 1290 Property.  In 1991 and 1992,  Robinson  Silverman
claimed certain  concessions  regarding the payment terms of such note. Although
1290 LLC was  unable to locate  any  records  evidencing  an  agreement  to such
concessions,  Robinson  Silverman has made payments  reflecting such concessions
and such  payments  were not rejected by 1290 LLC and have not been  rejected by
the 1290 Property Owning Partnership. Without the Company expressing any opinion
with regard thereto,  if such concessions were granted,  the Robinson  Silverman
note would have an  outstanding  principal  balance as of  December  31, 1998 of
$3,843,102,  would  bear  interest  at 7.5% per annum and  would  require  level
monthly payments of interest and principal of $75,000.  If such concessions were
not granted,  then the Robinson  Silverman  Note would bear interest at 10% and,
based on the monthly payments of $75,000 received from Robinson  Silverman,  the
outstanding balance as of December 31, 1998 would be approximately $5,418,666.

              The Company is the holder of a note (the  "Warburg  Pincus  Note,"
and together with the Robinson  Silverman Note, the "Tenant  Notes"),  issued by
Warburg Pincus,  dated August 20, 1985, in the face amount of $4,354,758,  which
note was executed in connection  with Warburg Pincus' lease at the 237 Property.
The note is payable on October 31, 1999 and does not bear interest  prior to its
maturity.





809954.6
                                        9

<PAGE>

              JMB Notes

              Certain   notes  (the  "JMB   Notes")  were  issued  by  JMB  LP's
predecessor  in interest to an affiliate of O&Y in 1984 in  connection  with the
admission of such predecessor as a partner of the predecessor of the Debtors and
an affiliate of the Debtors which owned the property located at 2 Broadway,  New
York,  New York  (the "2  Broadway  Property").  The  amount  outstanding  on an
aggregate  basis  under  all  the  JMB  Notes,  as of the  Effective  Date,  was
$83,918,815.  On  the  Effective  Date,  the  JMB  Notes  and  related  security
agreements were assigned by such O&Y affiliate to the Company. Immediately prior
to such assignment,  the Company entered into a Participation  Agreement with an
affiliate of JMB LP pursuant to which the Company or its  designee  will receive
the first $750,000 of payments made pursuant to, or in respect of, the JMB Notes
and the JMB LP affiliate will receive all further payments in respect of the JMB
Notes.  Amounts,  if any,  distributable  to JMB LP from the Upper Tier  Limited
Partnership,  including  pursuant to the Company's  purchase option and JMB LP's
put option as  provided  for in the Upper Tier  Limited  Partnership  Agreement,
would  first be applied to the  prepayment  of the JMB Notes.  On the  Effective
Date, the JMB Notes were restated. The JMB Notes, as restated,  bear interest at
12.75% per annum and have a maturity date of January 1, 2001.  The JMB Notes are
non-recourse  and are payable  solely out of the  distributions  JMB LP receives
from the Upper Tier Limited Partnership.

              Tax Certiorari Proceedings and Tenant Reimbursement Claims

             2  Broadway  Associates,  L.P.  ("2  Broadway  LP")  commenced  tax
certiorari  proceedings  against  the City of New York  for  over-assessment  of
property  taxes for the tax years ended June 30, 1988 through June 30, 1995 with
respect to the 2 Broadway Property. The rights to the proceeds of the 2 Broadway
Property tax certiorari proceedings were assigned to the Company pursuant to the
Plan. The Company settled such proceedings with the City of New York on July 14,
1998 and received net proceeds of approximately $8,342,000, after reimbursements
to tenants and $2,238,000 of fees and expenses  incurred in connection with such
proceedings.  Such net  proceeds  were  approximately  $3,280,000  in  excess of
estimated  net proceeds and are included in  miscellaneous  income in 1998.  Tax
certiorari  proceedings have been commenced which remain outstanding against the
City of New York, for over-assessment of property taxes for the tax years ending
June 30, 1995 through June 30, 1998 with respect to the 237 Property and for the
tax years  ending June 30, 1991  through  June 30, 1998 with respect to the 1290
Property.  The Company has reflected  real estate tax proceeds of $3,175,000 and
the corresponding tenant reimbursements, fees and expenses of $2,800,000 related
to the 1290 Property in the balance sheet as of December 31, 1998.

              Priority Utility Tax Claims

              Pursuant  to the  reorganization  plan  related  to the 2 Broadway
Property  (the  "2  Broadway  Plan"),  and  an  Assumption  and  Indemnification
Agreement,  dated as of the Effective  Date (i) the Company  assumed any and all
remaining  obligations  of 1290 LLC and 2  Broadway  LP in  connection  with any
claims  reserved  pursuant to section 9.3 of the 2 Broadway  Plan,  and (ii) the
Company  received all amounts  remaining in the 2 Broadway claims  reserve.  The
obligations  assumed,  and amounts  remaining in the 2 Broadway claims,  related
primarily to settlement of potential utility tax claims against 2 Broadway LP by
the  taxing  authorities  of the City and  State  of New York  (the "2  Broadway
Utility Tax Claims").  In December 1997,  the Company  entered into a resolution
with the City of New York Department of Finance  settling the 2 Broadway Utility
Tax Claims  with  respect to New York City  utility  taxes for an  aggregate  of
$236,000.

              The  taxing  authorities  of the City and  State of New York  also
filed claims in the Debtors  bankruptcy  cases  alleging  nonpayment of New York
City and New York State utility taxes in respect of the 1290 and 237  Properties
(the "Priority  Utility Tax Claims").  Pursuant to the Plan, the Company has the
exclusive  right  to  compromise  and  settle  such  claims;  provided,  that in
connection  with any such  compromise or settlement,  the Company is required to
indemnify  the  previous  holders of equity  interests in the Debtors (and their
successors  and assigns)  from all claims which may be made by the City or State
of New York in respect of utility taxes,  interest and penalties  related to the
1290 and 237  Properties  unless  such  settlement  includes  a release  of such
holders  from all such claims.  At such time as the Priority  Utility Tax Claims
are  disallowed  or  allowed  (as  determined  by  either a court  of  competent
jurisdiction  or by  agreement  between  the  Company  and the  relevant  taxing
authority), the

809954.6
                                       10

<PAGE>



Company  will pay any such allowed  claims from cash held in the claims  reserve
and any  amount  held in the  claims  reserve  in excess  of the  amount of such
allowed  claims will be retained by the Company.  In December  1997, the Company
entered  into a  resolution  with  the City of New York  Department  of  Finance
settling the  Priority  Utility Tax Claims with respect to New York City utility
taxes for an aggregate of $34,000.

              As of December 31, 1998, $2,707,000 is being held in trust for the
benefit of holders of Priority Utility Tax Claims and the 2 Broadway Utility Tax
Claims  pending   determination  of  their  entitlement   thereto  (the  "Claims
Reserve").  The Company  believes  that  amounts in the Claims  Reserve  will be
sufficient  to pay in full  all such  claims.  If any  cash  held in the  Claims
Reserve   remains  after  all  claims  have  been  allowed  or  disallowed   and
distributions  have been  made in  accordance  with the Plan,  such cash will be
retained by the Company.

ITEM 3.       LEGAL PROCEEDINGS

              There  are no  material  pending  legal  proceedings,  other  than
ordinary routine litigation  incidental to the business of the Company,  against
or involving the Company, the Partnerships or the Properties.

              Retention of Jurisdiction by Bankruptcy Court

              In July 1997, the Bankruptcy  Court entered a final decree closing
the reorganization cases of the Debtors.

              The  Bankruptcy  Court  may  retain   jurisdiction,   and  if  the
Bankruptcy  Court  exercises its retained  jurisdiction,  it will have exclusive
jurisdiction  of all matters  arising out of, and related to, the Plan and,  for
among  other  things,  the  following  purposes:  (a) to  determine  any and all
adversary  proceedings,  applications  and  contested  matters;  (b) to allow or
disallow any disputed claim,  including Tenant Reimbursement Claims, in whole or
in part; (c) to issue such orders in aid of execution of the Plan, to the extent
authorized  by section 1142 of the  Bankruptcy  Code;  (d) to cure any defect or
omission,  or reconcile any  inconsistency in any order of the Bankruptcy Court,
including the  Confirmation  Order (as such term is defined in the Plan); (e) to
hear and  determine  disputes  arising in  connection  with the  interpretation,
implementation,  or  enforcement  of the  Plan;  and (f) to hear  and  determine
matters  concerning  state,  local and federal taxes in accordance with sections
346, 505 and 1146 of the Bankruptcy Code including,  without limitation, the New
York Real Property Transfer Gains Tax, Article 31-B of the New York Tax Law.

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

              The Annual Meeting of  Shareholders  was held on December 1, 1998.
At such meeting, the shareholders of the Company (i) elected Lee S. Neibart as a
Class I Director of the Company and Bruce H. Spector and David  Roberts as Class
II  Directors of the  Company,  each of their terms to expire in 2001,  and (ii)
ratified  Deloitte & Touche LLP as the  Company's  independent  auditors for the
year ended December 31, 1998.

809954.6
                                       11

<PAGE>



                                     PART II


ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS

              The Common Stock is not listed on any  exchange,  the Company does
not intend to list the Common Stock on any  exchange in the near term,  there is
not currently a public market for the Common Stock and there can be no assurance
that an active trading market for the Common Stock will develop or be sustained.
As of March 12,  1999,  there were  approximately  108  holders of record of the
Company's Common Stock.

              Distribution Policy

              On March 6, 1997,  the Board of Directors  adopted a  distribution
policy calling for regular quarterly  distributions.  The Board of Directors, in
its sole discretion,  determines the actual  distribution rate based on a number
of  factors,  including  the  amount of cash  available  for  distribution,  the
Company's  financial  condition,   capital  expenditure   requirements  for  the
Company's  Properties,  the  annual  distribution  requirements  under  the REIT
provisions  of the Internal  Revenue Code and such other factors as the Board of
Directors deems relevant.  The Company intends to make  distributions  to comply
with the REIT distribution requirements.  In order to maintain its qualification
as a REIT,  the Company must make annual  distributions  to  stockholders  of at
least 95% of its taxable income (excluding  capital gains).  Since the Effective
Date, the Company has made the following distributions:


                                                        Amount of Distribution
       Date of Distribution      Type of Distribution       (Per Share)
       --------------------      --------------------       -----------

       January 20, 1997               special                 $0.50

       April 15, 1997                 regular                 $0.25

       July 15, 1997                  regular                 $0.50

       October 15, 1997               regular                 $0.50
                                      special                 $0.50

       December 31, 1997              regular                 $0.50
                                      special                 $0.50

       March 17, 1998                 regular                 $0.50

       December 31, 1998              regular                 $0.50
                                      special                 $0.50



       On July 1, 1998 the  Company  suspended  its regular  quarterly  dividend
pending  consideration of strategic  alternatives to maximize stockholder value.
On July 13, 1998 the Company  announced the retention of Victor  Capital  Group,
L.P. and Eastdil Realty  Company,  LLC to explore the sale of the Company or its
two principal assets -- the 1290 Property and 237 Property.


809954.6
                                       12

<PAGE>



            On November 16, 1998, the Company  announced that after  considering
strategic  alternatives in order to maximize stockholder value, it had postponed
the  marketing  of the  Company's  properties.  The Company also  announced  the
reinstatement of its regular quarterly dividend of $.50 per share.

            On March  21,  1999 the  Company  announced  its  regular  quarterly
dividend  of $0.50 per share,  which is  payable to the  holders of record as of
March 31, 1999 and which will be paid on April 15, 1999.


ITEM 6.       SELECTED FINANCIAL DATA

              The following table sets forth selected historical financial data.


                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                      (In thousands, except share amounts)


<TABLE>
<CAPTION>
                                                                                                      Period
                                                                                                   October 10, 1996
                                                                                                   (commencement
                                                                                                   of operations) to
                                                                 Years Ended December 31,           December 31,
                                                                  1998            1997                  1996
                                                                  ----            ----                  ----

REVENUES
<S>                                                            <C>                <C>                  <C>    
  Rental income                                                $134,754           $129,617             $28,141
  Miscellaneous income                                            4,889              1,190               1,965
   Interest income                                                3,293              3,676                 779
                                                              ---------           --------            --------
     Total revenues                                             142,936            134,483              30,885
                                                                =======            =======              ======

OPERATING EXPENSES
  Real Estate Taxes                                              27,733             26,813               6,208
  Operating and Maintenance                                       7,119              7,553               1,774
  Utilities                                                       6,674              6,870               1,195
  Payroll                                                         4,430              4,332               1,170
  Management Fees                                                 2,298              2,121                 426
  Professional Fees                                               3,451              2,055                 384
  General and Administrative                                        562              1,032                 204
                                                                -------             ------            --------
    Total Operating Expenses                                     52,267             50,776              11,361
                                                                 ======             ======              ======

OTHER ITEMS
  Interest Expense                                               33,615             34,048               7,484
  Depreciation and Amortization                                  16,651             15,532               3,457
                                                                 ------             ------              ------
    Total Other Expenses                                         50,266             49,580              10,941
                                                                 ------             ------              ------

NET INCOME                                                     $ 40,403           $ 34,127             $ 8,583
                                                               ========           ========             =======

Net Income Per Common Share:
Net Income                                                        $3.12              $2.63               $0.66
                                                                  -----              -----               -----
Weighted Average Common Shares Outstanding                   12,967,153         12,963,963          12,963,046
                                                             ----------         ----------          ----------

Net Income Per Common Share
(assuming dilution):

Net Income                                                        $3.11              $2.63               $0.66
                                                                  -----              -----               -----

Weighted Average Common Shares Outstanding                                                                                      
(assuming dilution):                                         12,993,666         12,988,963          12,990,046
                                                             ----------         ----------          ----------

Funds from Operations                                         $  54,839          $  47,422           $  11,541
                                                              ---------          ---------           ---------
Total Assets as of year end                                    $767,771           $757,932            $766,219
                                                               --------           --------            --------
Long-Term Debt as of year end                                  $410,625           $418,125            $420,000
                                                               --------           --------            --------
Cash Dividends Declared Per Common Share                         $1.50              $2.75                $0.50
                                                                 -----              -----                -----

</TABLE>

809954.6
                                       13

<PAGE>



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

              The  following  discussion  should  be  read in  conjunction  with
Selected  Financial  Data and the financial  statements  included in "ITEM 6. --
SELECTED FINANCIAL DATA" and "ITEM 8. -- FINANCIAL  STATEMENTS AND SUPPLEMENTARY
DATA."

              Overview

              The Company was formed on May 13, 1996 and commenced operations on
October 10, 1996,  upon  acquisition  of the 237 Property and the 1290  Property
pursuant to the Plan. The Company is a Maryland  corporation that qualifies as a
REIT for tax purposes.

              The  Company's  principal  business  objective  is to operate  the
Properties in a manner that will maximize the Properties' revenues and value and
in turn maximize funds from operations and stockholder value.

              The 1290 Property is a 43-story Class A commercial office building
with  approximately  2 million  rentable  square feet of space.  The building is
centrally   located  in  midtown   Manhattan  and  is  connected  to  the  famed
"Rockefeller  Center" complex via an underground  passageway.  The 1290 Property
serves as the corporate headquarters for The Equitable Life Assurance Society of
the United  States,  and is  currently  98%  leased.  Over the next five  years,
approximately  19% of the total  rentable  area of the  building  is  subject to
expiring leases.

              The 237 Property is a 21-story Class A commercial  office building
with  approximately  1.1 million  rentable  square feet of space.  The building,
centrally located in midtown  Manhattan,  is situated off one of New York City's
most  prestigious  thoroughfares  and is within close proximity to Grand Central
Station,  a  transportation  hub.  The  237  Property  serves  as the  corporate
headquarters for J. Walter Thompson Company, a major advertising agency, as well
as Swiss  Reinsurance  Company  ("Swiss  Re"), an  insurance/financial  services
organization,   and  is  currently  99%  leased.   Over  the  next  five  years,
approximately  21% of the total  rentable area of the  building  is  subject  to
expiring leases.

              The  Company,  through  the  Property  Owning  Partnerships,   has
retained  Tishman Speyer  Properties,  L.P. to serve as the property manager and
leasing  agent,  which is responsible  for managing the daily  operations of the
Properties, and 970 Management, LLC, an affiliate of Victor Capital Group, L.P.,
to serve  as the  Asset  Manager.  The  Company  has  also  entered  into a REIT
Management  Agreement with Tishman Speyer  Properties,  L.P. to perform  certain
accounting, administrative and REIT compliance monitoring services.

              On July 1,  1998  the  Company  suspended  its  regular  quarterly
dividend pending consideration of strategic alternatives to maximize stockholder
value.  On July 13, 1998 the Company  announced the retention of Victor  Capital
Group,  L.P. and Eastdil Realty Company,  LLC to explore the sale of the Company
or its two principal assets -- the 1290 Property and 237 Property.

              On November 16, 1998, the Company announced that after considering
strategic  alternatives in order to maximize stockholder value, it has postponed
the  marketing  of the  Company's  properties.  The Company also  announced  the
reinstatement of its regular  quarterly  dividend of $.50 per share and that the
Board of Directors  had declared a dividend of $1.00 per share,  consisting of a
regular quarterly  dividend of $.50 per share and a special dividend of $.50 per
share,  payable on December 31, 1998 to  stockholders  of record on December 18,
1998.

              As of December  31, 1998,  12,970,646  shares of common stock were
issued and  outstanding.  The Common  Stock of the  Company is not listed on any
exchange,  and the  Company  does not  intend  to list the  Common  Stock on any
exchange in the near term.


809954.6
                                       14

<PAGE>



              The  assets  and  results  of  operations  of the  Properties  are
reported in the  consolidated  financial  statements  of the  Company  using the
consolidation  method of accounting.  In accordance with Rule 3-14 of Regulation
S-X of  the  Securities  and  Exchange  Commission,  the  financial  information
presented  for the period  January  1, 1996 to October  10,  1996  represents  a
Combined  Statement  of Revenues  and Certain  Expenses.  This  statement is not
representative  of the actual  operations for such period,  as certain expenses,
which may not be  comparable  to the  expenses  expected  to be  incurred in the
future  operations  of the  Properties,  have been  excluded.  As a result,  the
operating  results of the Company for the years ended December 31, 1998 and 1997
and for the period  October  10,  1996 to  December  31,  1996 are not  directly
comparable with such prior period.

              Historical  Consolidated  Statement of Income, year ended December
31, 1998

              Base rental income increased by  approximately  $5,092,000 for the
year ended  December  31, 1998 as compared to the prior year.  This  increase of
4.5% is  attributable  to an overall  increase in occupancy  at the  Properties.
Miscellaneous  income increased by  approximately  $3,699,000 for the year ended
December 31, 1998 as compared to the prior year primarily as a result of receipt
of net proceeds in excess of accrued  amounts  related to the  settlement of tax
certiorari  proceedings with respect to 2 Broadway,  a property previously owned
by the Predecessors.

              Operating  expenses  for the year  ended  December  31,  1998 were
$52,267,000,  an increase of 2.9% from the year ended  December 31,  1997.  This
increase is primarily attributable to professional fees and expenses incurred in
connection  with the  settlement  of tax  certiorari  proceedings  related  to 2
Broadway, totaling $2,238,000. Operating expenses as a percentage of base rental
income and escalation income remained at 39%.

              Depreciation and amortization for the year ended December 31, 1998
was  $16,651,000 as compared to $15,532,000  for the prior year. The increase of
$1,119,000  is  primarily  the result of building and tenant  improvements  made
subsequent to December 31, 1997.

              Historical  Consolidated  Statement of Income, year ended December
31, 1997

              The Company's  revenues of $134,483,000  for the year consisted of
base rental income of  $114,183,000  (84.9%),  escalation  income of $15,434,000
(11.5%),  and other income of $4,866,000 (3.6%).  This revenue is achieved based
on the 237  Property  and the  1290  Property  being  approximately  98% and 97%
leased, respectively, during the year.

              Historical  Consolidated  Statement of Income,  Period October 10,
1996 to December 31, 1996.

              The Company's  revenues of $30,885,000 for the period consisted of
base  rental  income of  $24,919,000  (80.7%),  operating  escalation  income of
$3,222,000 (10.4%),  and miscellaneous income of $2,744,000 (8.9%). This revenue
is achieved based on the 237 Property and the 1290 Property being  approximately
98% and 90% leased, respectively, during the period.

              Liquidity and Capital Resources

              During  1998,  the Company  received  cash flows of  approximately
$49,038,000  from operations of the Properties.  The Company used this cash flow
from  operations  to fund  building  and tenant  improvements  of  approximately
$15,903,000,  principal  payments  of  $7,500,000  on the Loan  (as  hereinafter
defined) to the Property Owning Partnership,  and leasing costs of approximately
$5,790,000.

              At December 31, 1998, the Company had unrestricted cash on hand of
approximately  $25,357,000.  At December 31, 1997, the Company had  unrestricted
cash on hand of approximately $24,627,000.


809954.6
                                       15

<PAGE>



              On October 10, 1996,  the Property  Owning  Partnerships  borrowed
$420,000,000  (the  "Loan"),  secured by the 1290 Property and the 237 Property.
The Loan is  cross-collateralized  by the  Properties and prohibits the Property
Owning Partnerships from incurring any additional indebtedness. The Company may,
however,  be able to incur  unsecured  indebtedness,  although it has no present
plans to do so. The Company  believes  that cash on hand and existing  cash flow
from  operations  are  sufficient  to satisfy  the  Company's  foreseeable  cash
requirements which consist primarily of property operating expenses, real estate
taxes,  capital  expenditures,  debt  service  on  the  Loan  and  distributions
necessary  to enable the  Company  to  continue  to qualify as a REIT.  The Loan
matures on October 10, 2001. If not repaid or refinanced prior to such date, the
Property  Owning  Partnerships  will be required to  refinance  the Loan on that
date.  There can be no  assurance,  however,  that the  Company  will be able to
refinance the Loan on that date or what the terms of any refinancing will be.

              Year 2000 Compliance

              The inability of computers, software and other equipment utilizing
microprocessors  to recognize and properly process data fields  containing a two
digit year is commonly  referred to as the Year 2000  Compliance  issue.  As the
year 2000 approaches,  such systems may be unable to accurately  process certain
date-based information.

              The Company began  preparations  for the year 2000 in 1996 and has
identified all significant applications that will require modification to ensure
compliance. Internal and external resources have been and continue to be used to
make the required modifications and test Year 2000 Compliance.  The modification
process of all significant applications is substantially complete.

              In addition, the Company has communicated with others with whom it
does significant  business to determine their Year 2000 Compliance readiness and
the  extent to which the  Company  is  vulnerable  to any third  party Year 2000
issues.  However,  there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted,  or that a failure
to convert by another  company,  or a conversion that is  incompatible  with the
Company's systems, would not have a material adverse effect on the Company.

              The  total  cost to the  Company  of these  Year  2000  Compliance
activities  has not been and is not  anticipated to be material to its financial
position or results of operations in any given year. These costs to complete the
Year 2000  modification  and testing  processes are based on  management's  best
estimates,  which were derived utilizing  numerous  assumptions of future events
including  the  continued   availability  of  certain  resources,   third  party
modification  plans and other factors.  However,  there can be no guarantee that
these  estimates  will be achieved  and actual  results  could differ from those
plans.

              Funds from Operations

              The Company  generally  considers  Funds from  Operations  to be a
useful measure of the operating performance of an equity REIT because,  together
with net income and cash flows, Funds from Operations provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures.  Funds from Operations does
not represent  net income or cash flows from  operations as defined by generally
accepted accounting  principles ("GAAP") and does not necessarily  indicate that
cash flows will be sufficient to fund cash needs. It should not be considered as
an  alternative  to  net  income  as an  indicator  of the  Company's  operating
performance  or to cash flows as a measure of liquidity.  Funds from  Operations
does not measure  whether cash flow is  sufficient  to fund all of the Company's
cash  needs,   including  principal   amortization,   capital  improvements  and
distributions  to  shareholders.  Funds from  operations also does not represent
cash flows  generated  from  operating,  investing  or financing  activities  as
defined by GAAP. Further,  Funds from Operations as disclosed by other REITs may
not be comparable to the Company's  calculation  of Funds from  Operations.  The
Company  adopted  the  National  Association  of Real Estate  Investment  Trusts
("NAREIT")  definition of Funds from  Operations in 1996 and has used it for all
periods  presented.  Funds from  Operations  is  calculated as net income (loss)
computed in accordance with GAAP adjusted for depreciation  expense attributable
to real property,

809954.6
                                       16

<PAGE>



amortization  expense  attributable  to  real  property,   amortization  expense
attributable to capitalized  leasing costs,  tenant allowances and improvements,
gains and  losses on sales of real  estate  investments  and  extraordinary  and
nonrecurring items.

              Funds from  Operations  for the years ended  December 31, 1998 and
1997 and the period  October 10, 1996  (commencement  of operations) to December
31, 1996 is summarized in the following table (in thousands, except share data).

<TABLE>
<CAPTION>

                                                                                                  Period October 10, 1996
                                                                                                     (commencement of
                                                                                                         operations)
                                                               Years ended December 31,              to December 31, 1996
                                                                                                    ---------------------
                                                                  1998             1997
                                                                  ----             ----
<S>                                                            <C>                <C>                     <C>      
Net Income                                                     $    40,403        $  34,127               $   8,583
Add:
Depreciation attributable to real property and
amortization attributable to leasing costs                     $    14,436        $  13,295               $   2,958
                                                               -----------        ---------               ---------
Funds from Operations                                          $    54,839        $  47,422               $  11,541
                                                               ===========        =========               =========

Weighted average number of shares of                            12,993,666       12,988,963              12,990,046
Common Stock outstanding (assuming dilution) (1)                ==========       ==========              ==========


(1)      Includes 28,000, 25,000 and 27,000 shares of Common Stock issuable upon the exercise of outstanding options as of
         December 31, 1998, 1997 and 1996, respectively.

</TABLE>

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

              The  Property  Owning  Partnerships  and the lead lender under the
Loan entered into an Interest Rate Exchange Agreement effective October 10, 1996
(the "Swap  Agreement").  The Swap  Agreement has a term of 5 years and provides
that the Property Owning  Partnerships will pay interest at an effective rate of
7.987% per annum of the notional amount of $420,000,000. Management believes the
risk of  incurring  losses  related to the credit  risk is remote and any losses
would be immaterial.

              The  Company  believes  the  fair  value  of  the  Swap  Agreement
generally  offsets  gains or losses on the Loan  being  hedged and  changes  the
nature of such underlying  financial  instruments.  Because the maturity date of
the Loan and the  termination  date of the Swap  Agreement are identical and the
Company has no intention of terminating  either the Loan or the Swap  Agreement,
the fair value of the Swap Agreement may be of limited usefulness.



809954.6
                                       17

<PAGE>



ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          METROPOLIS REALTY TRUST, INC.
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>

<CAPTION>

                                                                                                                   Page

<S>                                                                                                                <C>
HISTORICAL FINANCIAL STATEMENTS

            Independent Auditors' Report..........................................................................  19

            Consolidated Balance Sheets as of December 31, 1998 and 1997..........................................  20

            Consolidated Statements of Income for the years ended December 31, 1998 and 1997
             and the period October 10, 1996 (commencement of operations) to December 31, 1996....................  21

            Consolidated Statements of Stockholders' Equity for years ended December 31, 1998 and 1997
             and the period October 10, 1996 (commencement of operations) to December 31, 1996....................  22

            Consolidated Statements of Cash Flows for years ended December 31, 1998 and 1997
             and the period October 10, 1996 (commencement of operations) to December 31, 1996....................  23

            Notes to Consolidated Financial Statements............................................................  24

PURCHASED PROPERTIES

            Independent Auditors' Report..........................................................................  31

            Combined Statement of Revenues and Certain Expenses for the period
            January 1, 1996 to October 10, 1996...................................................................  32

            Notes to Combined Statement of Revenues
            and Certain Expenses..................................................................................  33
</TABLE>


809954.6
                                       18

<PAGE>



INDEPENDENT AUDITORS' REPORT

To the Stockholders of Metropolis Realty Trust, Inc.

We have  audited the  accompanying  consolidated  balance  sheets of  Metropolis
Realty  Trust,  Inc. and  Subsidiaries  as of December 31, 1998 and 1997 and the
related consolidated  statements of income,  stockholders' equity and cash flows
for the years ended  December 31, 1998 and 1997 and the period  October 10, 1996
(commencement  of operations) to December 31, 1996.  These financial  statements
are the  responsibility of the Company'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,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial position of Metropolis Realty Trust, Inc. and
Subsidiaries  as of  December  31,  1998  and  1997  and the  results  of  their
operations  and their cash flows for the years ended  December 31, 1998 and 1997
and the period  October 10, 1996  (commencement  of  operations) to December 31,
1996 in conformity with generally accepted accounting principles.

Deloitte & Touche LLP
New York, New York
January 29, 1999


809954.6
                                       19

<PAGE>


METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES

<TABLE>
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
------------------------------------------------------------------------------------------------------------------------------------


<CAPTION>
ASSETS
                                                                                                           December 31,
                                                                                                    1998                 1997
                                                                                                    ----                 ----
<S>                                                                                              <C>               <C>             
Rental property - net of accumulated depreciation of $30,172 and $16,165,                       $ 651,003           $ 649,107
   respectively
Cash and cash equivalents                                                                          25,357              24,627
Escrow deposits                                                                                     3,084               2,909
Tenant security deposits                                                                              644                 640
Due from tenants - net of doubtful accounts of $2,696 and $2,745, respectively                      4,088               3,005
Deferred financing costs - net of amortization of $4,863 and $2,678,                                6,062               8,247
   respectively
Real estate tax refunds                                                                             3,175              14,088
Notes receivable - net of unamortized discount of $187 and $420, respectively                       9,307               9,101
Deferred rent receivable                                                                           39,831              26,855
Prepaid real estate taxes                                                                          14,138              13,575
Deferred leasing costs, net of amortization of $538 and $110, respectively                         10,628               5,266
Other assets                                                                                          454                 512
                                                                                              -----------           ---------

TOTAL ASSETS                                                                                    $ 767,771           $ 757,932
                                                                                                =========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
   Secured notes                                                                               $  410,625          $  418,125
   Accounts payable and accrued expenses                                                           11,927              16,968
   Tenants' security deposits and unearned revenue                                                  3,292               2,009
                                                                                             ------------        ------------

Total Liabilities                                                                                 425,844             437,102
                                                                                                  -------             -------

Subordinated Minority Interest                                                                     14,855              14,855
                                                                                                  -------             -------

Stockholders' Equity
   Preferred Stock - $10 par value, 10,000,000 shares authorized, none issued
    and outstanding
   Common Stock - $10 par value, 50,000,000 authorized
   (Class A - outstanding - 8,034,586 and 7,990,586 shares, respectively;  
    Class B - outstanding - 4,936,060 and 4,936,060 shares, respectively;
    and Class C - outstanding - 0 and 40,000 shares, respectively)                                129,706             129,666
   Paid-in capital                                                                                175,844             175,736
   Retained earnings                                                                               21,522                 573
                                                                                                ---------           ---------

Total Stockholders' Equity                                                                        327,072             305,975
                                                                                                  -------             -------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                      $ 767,771           $ 757,932
                                                                                                =========           =========

See notes to consolidated financial statements.
</TABLE>


809954.6
                                       20

<PAGE>
<TABLE>


METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except share amounts)
-----------------------------------------------------------------------------------------------------------------------------------


                                                                                                                        
                                                                                                               October 10, 1996
                                                                                                               (commencement
                                                                                                               of operations) to
                                                                      Years ended December 31,                 December 31,
                                                                    1998                      1997                 1996
                                                                    ----                      ----                 ----
REVENUES:
<S>                                                               <C>                       <C>                  <C>    
       Base rental income                                         $119,275                  $114,183             $24,919
       Operating escalation income                                  15,479                    15,434                3,222
       Interest income                                               3,293                     3,676                  779
       Miscellaneous income                                          4,889                     1,190                1,965
                                                                 ---------                 ---------               ------
       Total revenues                                              142,936                   134,483               30,885
                                                                  --------                  --------               ------

OPERATING EXPENSES:
        Real estate taxes                                           27,733                    26,813                6,208
        Operating and maintenance                                    7,119                     7,553                1,774
        Utilities                                                    6,674                     6,870                1,195
        Payroll                                                      4,430                     4,332                1,170
        General and administrative                                     562                     1,032                  204
        Professional fees                                            3,451                     2,055                  384
        Management fees                                              2,298                     2,121                  426
                                                                    ------                   -------                  ---
        Total operating expenses                                    52,267                    50,776               11,361
                                                                    ------                    ------              -------

OTHER ITEMS:
        Interest expense                                            33,615                    34,048                7,484
        Depreciation and amortization                               16,651                    15,532                3,457
                                                                    ------                    ------               ------
        Total other items                                           50,266                    49,580               10,941
                                                                    ------                    ------               ------

NET INCOME                                                        $ 40,403                  $ 34,127              $ 8,583
                                                                  ========                  ========              =======

NET INCOME PER COMMON SHARE:
Net income                                                           $3.12                     $2.63                $0.66
                                                                     =====                     =====                =====
Weighted Average Common Shares Outstanding                      12,967,153                12,963,963           12,963,046
                                                                ==========                ==========           ==========

NET INCOME PER COMMON SHARE
(assuming dilution):
  Net income                                                         $3.11                     $2.63                $0.66
                                                                     =====                     =====                =====
  Weighted Average Common Shares Outstanding                    12,993,666                                     12,990,046
                                                                ==========                                     ==========
 (including 28,000, 25,000 and 27,000 shares of                                          12,988,963
  Common Stock issuable upon the exercise of outstanding                                 ==========
  options as of December 31, 1998, 1997 and 1996, respectively).

See notes to consolidated financial statements.
</TABLE>


809954.6
                                       21

<PAGE>


METROPOLIS REALTY TRUST, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>


                                                                Common                               
                                                               Stock at                                                    Total
                                                                  Par            Paid-in            Retained          Stockholders'
                                                                 Value           Capital             Earnings             Equity    
                                                            --------------- -------------------  ------------------   --------------

<S>                                                             <C>            <C>                <C>                  <C>     
BALANCE, OCTOBER 10, 1996                                       $129,630       $175,615           $    --              $305,245
       Net income                                                 --              --                  8,583               8,583
       Dividends Declared                                         --              --                 (6,481)             (6,481)
                                                                --------       --------              -------            -------
BALANCE, DECEMBER 31, 1996                                       129,630        175,615               2,102             307,347
       Shares issued under Directors' Stock Plan                      36            121                --                   157
       Net income                                                  --              --                34,127              34,127
       Dividends Declared                                          --              --               (35,656)            (35,656)
                                                                --------        -------             --------            -------
BALANCE, DECEMBER 31, 1997                                       129,666        175,736                 573             305,975
       Shares issued under Directors' Stock Plan                      40            108                 --                  148
       Net income                                                 --               --                40,403              40,403
       Dividends Declared                                         --               --               (19,454)            (19,454)
                                                                --------        -------              -------            -------
BALANCE, DECEMBER 31, 1998                                      $129,706       $175,844           $  21,522            $327,072
                                                                ========        =======             ========           ========
</TABLE>


See notes to consolidated financial statements.


809954.6
                                       22

<PAGE>


METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                                        October 10, 1996
                                                                                                        (Commencement of
                                                                                                         Operations) to
                                                                              Years Ended December 31,    December 31,
                                                                                1998           1997          1996
                                                                               ----           ----        --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                            <C>           <C>            <C>    
Net income                                                                     $40,403       $34,127        $ 8,583
Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization                                               16,651        15,532          3,457
    Issuance of shares of Common Stock                                             148           157             --
    Amortization of discount - notes receivable                                   (545)         (504)           (96)
    Change in:
        (Increase)/Decrease in escrow deposits                                    (175)       10,848          8,177
        (Increase)/Decrease in due from tenants                                 (1,084)          947            734
        (Increase) /Decrease in prepaid expenses and other assets                 (535)          199         (7,860)
        Decrease in real estate tax refunds                                     10,913            --             --
        Increase in deferred rent receivable                                   (12,976)      (20,279)        (6,576)
        Increase/(Decrease) in accounts payable and accrued expenses            (5,041)          547            (79)
        Increase/(Decrease) in unearned revenue                                  1,279           848         (5,125)
                                                                               -------       -------         ------
            Net cash provided by operating activities                           49,038        42,422          1,215
                                                                                ------        ------          -----

CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to building and equipment                                           (15,903)       (6,559)        (2,405)
 Leasing costs                                                                  (5,790)       (5,206)          (182)
 Collections on notes receivable                                                   339           307             48
                                                                               -------      --------        -------
            Net cash used in investing activities                              (21,354)      (11,458)        (2,539)
                                                                               --------       ------        -------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on Secured Notes                                                   (7,500)       (1,875)            --
    Dividends Paid                                                             (19,454)      (42,137)            --
                                                                               --------      -------        -------
            Net cash used in financing activities                              (26,954)      (44,012)            --
                                                                               -------       -------        -------

INCREASE/(DECREASE) IN CASH AND CASH                                               730       (13,048)        (1,324)
EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  24,627        37,675         38,999
                                                                               -------      --------         ------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                       $25,357       $24,627        $37,675
                                                                               =======       =======        =======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
 Interest paid                                                                 $33,489       $33,905        $ 5,341
                                                                               =======       =======        =======
 Dividends declared                                                            $19,454       $35,656        $ 6,481
                                                                               =======       =======        =======
</TABLE>

See notes to consolidated financial statements.


809954.6
                                       23

<PAGE>


METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE
PERIOD  OCTOBER 10, 1996  (COMMENCEMENT  OF OPERATIONS) TO DECEMBER 31, 1996 
(In Thousands except share amounts)
-------------------------------------------------------------------------------

        1.   BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT 
             ACCOUNTING POLICIES





      Organization  - Metropolis  Realty  Trust,  Inc.,  a Maryland  corporation
      ("Metropolis" or the "Company"),  was formed on May 13, 1996 to facilitate
      the consummation of the Second Amended Joint Plan of Reorganization of 237
      Park Avenue  Associates,  L.L.C.  ("237 LLC") and 1290 Associates,  L.L.C.
      ("1290  LLC"  and  together  with  237  LLC,  the  "Predecessors"),  dated
      September  20, 1996 (the  "Plan").  Pursuant  to the Plan,  on October 10,
      1996,  the date  operations  commenced  ("Effective  Date"),  the  Company
      acquired the interests of 237 LLC and 1290 LLC in the  properties  located
      at 237 Park Avenue (the "237  Property")  and 1290 Avenue of the  Americas
      (the  "1290   Property,"   and  together  with  the  237   Property,   the
      "Properties").  The Company owns a 95% interest,  as general partner,  and
      .05%  interest,  as limited  partner  (through its 1% general  partnership
      interest  in  Upper  Tier  Associates,   L.P.),  in  237/1290  Lower  Tier
      Associates,  L.P., a Delaware limited partnership (the "Lower Tier Limited
      Partnership") which owns a 99% partnership interest, as limited partner in
      each of 237 Park Partners,  L.P., a Delaware limited partnership (the "237
      Property Owning Partnership") and 1290 Partners,  L.P., a Delaware limited
      partnership (the "1290 Property Owning Partnership," and together with the
      237 Property Owning Partnership, the "Property Owning Partnerships").  The
      Property  Owning  Partnerships  were  formed  to own the  Properties.  The
      remaining 1% general  partnership  interest in each of the Property Owning
      Partnerships  is owned by 237 GP Corp. and 1290 GP Corp.  (the "GP Corps")
      which are wholly-owned subsidiaries of the Company.

      Basis of  Presentation - The  consolidated  financial  statements  include
      Metropolis,  the Lower Tier Limited Partnership,  the GP Corps and each of
      the Property Owning Partnerships.

      Certain 1996 amounts have been  reclassified  to conform with the 1997 and
      1998 presentation.

      The  presentation  of  the  consolidated   financial  statements  requires
      estimates and assumptions  that affect the reported  amounts of assets and
      liabilities  at the balance sheet date.  Actual  results could differ from
      those estimates.

      Rental  Property - Rental  property is carried at cost, net of accumulated
      depreciation  and  amortization  and,  includes  land,  building,   tenant
      improvements and building  improvements.  Land is valued at $134,518 as of
      December 31, 1998 and 1997 and building,  tenant improvements and building
      improvements  are carried at $546,658 and $530,754 as of December 31, 1998
      and 1997,  respectively.  In accordance  with SFAS No. 121,  impairment of
      property is determined to exist when estimated amounts recoverable through
      future operations and sale of property on an undiscounted  basis are below
      that  property's  carrying  value.  If a  property  is  determined  to  be
      impaired,  it must be written down to its estimated fair value. Fair value
      is defined as the amount for which the asset  could be bought or sold in a
      current transaction, that is, other than a forced or liquidation sale.

      Cash and Cash Equivalents - Cash and cash equivalents includes investments
      purchased with an original maturity of three months or less.

809954.6
                                       24

<PAGE>

      Depreciation  and  Amortization - Building and building  improvements  are
      depreciated over their useful life of 40 years. Furniture and fixtures are
      depreciated  over their  useful life,  ranging  from 5 to 7 years.  Tenant
      improvements are amortized on a straight-line  basis over the terms of the
      respective leases.

      Deferred Charges - Deferred financing costs are amortized over the term of
      the related loan.  Direct costs related to leasing are amortized  over the
      related lease term on a straight-line basis.

      Rental Income - Rental income is recognized on a straight-line  basis over
      the terms of the related leases.  Differences  between actual base amounts
      due from  tenant  leases  and the  straight-line  basis  are  included  in
      deferred rent receivable.

      Escrow Deposits - Escrow deposits include reserves for certain claims made
      in conjunction with the Plan and escrow deposits for tenant  improvements,
      insurance and real estate taxes and utility taxes.

      Income Taxes - The Company  qualifies as a REIT under the Internal Revenue
      Code, as amended,  and will generally not be taxed at the corporate  level
      on income it  currently  distributes  to its  stockholders  so long as it,
      among other things, distributes at least 95% of its REIT taxable income.

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

2.    REAL ESTATE TAX REFUNDS

             2  Broadway  Associates,  L.P.  ("2  Broadway  LP")  commenced  tax
certiorari  proceedings  against  the City of New York  for  over-assessment  of
property  taxes for the tax years ended June 30, 1988 through June 30, 1995 with
respect to the 2 Broadway Property. The rights to the proceeds of the 2 Broadway
Property tax certiorari proceedings were assigned to the Company pursuant to the
Plan. The Company settled such proceedings with the City of New York on July 14,
1998 and received net proceeds of approximately  $8,342 after  reimbursements to
tenants  and  $2,238  of fees and  expenses  incurred  in  connection  with such
proceedings.  Such net proceeds were approximately $3,280 in excess of estimated
net proceeds and are included in  miscellaneous  income in 1998.  Tax certiorari
proceedings have been commenced which remain outstanding against the City of New
York,  for  over-assessment  of property taxes for the tax years ending June 30,
1995  through  June 30, 1998 with  respect to the 237  Property  and for the tax
years  ending  June 30,  1991  through  June 30,  1998 with  respect to the 1290
Property.  The Company has reflected  real estate tax proceeds of $3,175 and the
corresponding tenant reimbursements,  fees and expenses of $2,800 related to the
1290 Property in the balance sheet as of December 31, 1998.

3.    NOTES RECEIVABLE

      Included   in  Notes   Receivable   are  two  tenant   notes   aggregating
      approximately   $9,307  and  $9,101  at   December   31,  1998  and  1997,
      respectively.  The first  note,  dated April 1, 1989 with a face amount of
      $6,500 and a maturity  date of September 1, 1999,  is carried at $5,232 as
      of December 31, 1998,  based on certain  payment terms net of  unamortized
      discount.  Such payment  terms  include a stated  interest rate of 10%. In
      1991 and 1992,  the  tenant  claimed  certain  concessions  regarding  the
      payment terms of such note. Without the Company expressing an opinion with
      regard  thereto,  if such  concessions  were granted,  the note would bear
      interest at 7.5% per annum and would  require  level  monthly  payments of
      interest and  principal  of $75.  The second note,  dated August 20, 1985,
      with a face value of $4,355,  is carried at $4,075 as of December 31, 1998
      net of unamortized discount. The second note does not bear interest and is
      payable on October 31, 1999.


809954.6
                                       25

<PAGE>



4.    SECURED NOTES

      Secured Notes consist of promissory  notes ("Loan") issued by the Property
      Owning  Partnerships in the original principal amount of $420,000 pursuant
      to  a  Credit   Agreement   ("Agreement")   among  the   Property   Owning
      Partnerships,  the lenders as signatories thereto in the Agreement and the
      lead lender.  Of the aggregate  principal amount of the loan,  $250,000 of
      the Loan is  allocated  to the 1290  Property and $170,000 is allocated to
      the 237 Property. The Loan is cross collateralized by the Properties.  The
      Loan will  terminate on October 10, 2001 unless  sooner  terminated by the
      occurrence of an Event of Default as described in the Agreement.  The Loan
      requires the Property  Owning  Partnerships  to make  payments of interest
      only through  October 7, 1997 and then make principal  payments of $1,875,
      $7,500,  $8,125, $11,250 and $11,250 in each of 1997, 1998, 1999, 2000 and
      2001,  respectively.  Scheduled  principal payments of $625 were made each
      month since  October 7, 1997.  If any such  scheduled  principal  payments
      would   cause  the  Company  to  fail  to  comply  with  any  income  test
      requirements  necessary  for the Company to maintain its status as a REIT,
      then the  Property  Owning  Partnerships  may,  in lieu of such  principal
      payment,  post an  irrevocable  letter  of  credit  in the  amount of such
      payment.  The  Property  Owning  Partnerships  have  entered into lock box
      agreements  for the  collection  of  rents  and  have  established  escrow
      accounts for real estate taxes and insurance.

      The  Property  Owning  Partnerships  and the lead lender  entered  into an
      Interest Rate  Exchange  Agreement  effective  October 10, 1996 (the "Swap
      Agreement").  The Swap  Agreement  has a term of 5 years and provides that
      the Property Owning Partnerships will pay interest at an effective rate of
      7.987% per annum of the notional amount of $420,000.  Management  believes
      the risk of incurring  losses related to the credit risk is remote and any
      losses would be immaterial.

5.    ACCOUNTS PAYABLE AND ACCRUED EXPENSES

      Accounts  payable and accrued expenses include funded reserves held by the
      Company for utility tax claims, certain claims related to the Plan, tenant
      claims  against real estate tax proceeds and property  operating  expenses
      payable.  

6.    SUBORDINATED MINORITY INTEREST

      The   Subordinated   Minority   Interest   represents  4.95%  of  the  net
      reorganization value of the Lower Tier Limited Partnership, reflecting the
      99% limited  partnership  interest of JMB/NYC Office Building  Associates,
      L.P.  ("JMB LP") in the  limited  partnership  (the  "Upper  Tier  Limited
      Partnership") which owns a subordinated 5% limited partnership interest in
      the Lower Tier Limited Partnership (the "Subordinated Minority Interest").
      Management believes, however, that no economic obligation exists to JMB LP
      as of December 31, 1998 and, that, pursuant to the distribution priorities
      set forth in the limited  partnership  agreement of the Lower Tier Limited
      Partnership  (the "Lower Tier  Partnership  Agreement"),  if the Company's
      Properties  were sold,  JMB LP would be entitled to receive  approximately
      $450 in respect of the  Subordinated  Minority  Interest.  Pursuant to the
      Lower Tier  Limited  Partnership  Agreement,  JMB LP would be  entitled to
      distributions  only  after  the  Company  has  received  certain  priority
      distributions  as more fully described below. As of December 31, 1998, the
      Company,  as general  partner of the Lower Tier  Limited  Partnership,  is
      entitled to receive $400,000 and a 12% cumulative  compounded return (from
      October 10, 1996) on such amount from the Lower Tier Limited  Partnership,
      before any distributions are made in respect of the Subordinated  Minority
      Interest.

      The Upper Tier Limited Partnership has the right to require the Company to
      acquire  the  Subordinated  Minority  Interest  at a  price  based  upon a
      multiple of the net operating income of the Properties for the immediately
      preceding calendar year reduced by the debt encumbering the Properties and
      any  priority  distributions  to which the  Company is entitled as general
      partner of the Lower Tier Limited Partnership. As of December 31, 1998, no
      economic obligation exists based upon such formula.

809954.6
                                       26

<PAGE>

      The Lower Tier Limited  Partnership  Agreement provides that the aggregate
      Available  Cash  (as  defined  in  the  Lower  Tier  Limited   Partnership
      Agreement),  from distributions from the Property Owning Partnerships will
      be  distributed no less  frequently  than quarterly to the partners of the
      Lower Tier Limited Partnership as follows:

      (i) 100% to the  Company,  as  general  partner,  until  it has  received,
      together with all prior distributions  pursuant to this clause and clauses
      (i) and (iv) of the succeeding paragraph, aggregate distributions equal to
      a cumulative  compounded  return,  commencing on October 10, 1996 (or with
      respect to capital  contributions made after October 10, 1996, the date of
      such capital contributions),  of 12% per annum on the sum of (x) $280,000,
      (y) any additional capital  contributions made by the Company,  as general
      partner, to the Lower Tier Limited Partnership ($20,000 as of December 31,
      1998), and (z) a $100,000 preference amount (the "Preference Amount") (the
      amounts in (x),  (y) and (z),  as reduced by  distributions  in respect of
      such amounts referred to herein as the "Adjusted GP Contribution");

      (ii) 100% to the  Company,  as general  partner,  until it has received in
      total,  taking into account  distributions  made to it from Available Cash
      and sale or refinancing proceeds, the Adjusted GP Contribution; and

      (iii) the balance,  95% to the Company, as general partner,  and 5% to the
      Upper Tier Limited Partnership, as limited partner.

      The Lower  Tier  Limited  Partnership  Agreement  also  provides  that net
      proceeds  from any  distributions  from the Property  Owning  Partnerships
      related to any sale,  refinancing,  condemnation or insurance  recovery of
      the Properties or any loan made to the Partnership  will be distributed by
      the Lower Tier Limited Partnership to its partners as follows:

      (i) 100% to the  Company,  as  general  partner,  until  it has  received,
      together  with all prior  distributions  pursuant  to this  clause (i) and
      clause (i) of the immediately preceding paragraph, aggregate distributions
      equal  to the  product  of (x)  0.5 and  (y) a 12%  per  annum  cumulative
      compounded  return on the Adjusted GP  Contribution  from October 10, 1996
      (or with respect to capital contributions made after October 10, 1996, the
      date of such capital contributions);

      (ii) 100% to the  Company,  as  general  partner,  until it has  received,
      together  with all prior  distributions  pursuant  to this clause (ii) and
      clause   (ii)   of  the   immediately   preceding   paragraph,   aggregate
      distributions  equal to the  product  of (x) .75 and (y) the  Adjusted  GP
      Contribution;

      (iii) from the next  $500,  90%  (i.e.,  $450) to the Upper  Tier  Limited
      Partnership,  as  limited  partner,  and 10% to the  Company,  as  general
      partner;

      (iv) 100% to the  Company,  as  general  partner,  until it has  received,
      together with all prior distributions pursuant to this clause (iv), clause
      (i)  of  this  paragraph  and  clause  (i) of  the  immediately  preceding
      paragraph, a 12% per annum cumulative compounded return on the Adjusted GP
      Contribution commencing with respect to each capital contribution,  on the
      date such Capital Contribution was made;

      (v) 100% to the  Company,  as  general  partner,  until  it has  received,
      together with all prior distributions  pursuant to this clause (v), clause
      (ii) of this  paragraph  and  clause  (ii)  of the  immediately  preceding
      paragraph,  aggregate distributions equal to the Adjusted GP Contribution;
      and

      (vi) 95% to the  Company,  as  general  partner,  and 5% to the Upper Tier
      Limited Partnership, as limited partner.

7.    STOCKHOLDERS' EQUITY

      The Company has the authority to issue 50,000,000  shares of common stock,
      par value $10 per share (the "Common  Stock"),  and  10,000,000  shares of
      Preferred Stock, par value $10 per share. 

809954.6
                                       27

<PAGE>


      As of December 31, 1998,  there were  12,970,646  shares of the  Company's
      Common  Stock  issued  and  outstanding,  8,034,586  of which were Class A
      Common Stock and 4,936,060 of which were Class B Common Stock. On November
      3, 1998, all of the issued and outstanding  shares of Class C Common Stock
      were converted into Class A Common Stock. The Class A Common Stock and the
      Class B Common Stock have identical rights and privileges, and are treated
      as a single class,  with respect to all matters (other than certain voting
      rights) including,  without  limitation,  the payment of distributions and
      upon liquidation.

      On January 20, 1997, the Company made a special  distribution  of $.50 per
      share of Common Stock to shareholders of record on December 31, 1996.

      On April 15,  1997,  the Company made a regular  distribution  of $.25 per
      share of Common Stock to shareholders of record on March 31, 1997.

      On July 15,  1997,  the Company  made a regular  distribution  of $.50 per
      share of Common Stock to shareholders of record on June 30, 1997.

      On October 15, 1997, the Company made a distribution of $1.00 per share of
      Common Stock to shareholders  of record on September 30, 1997;  consisting
      of a regular  distribution of $.50 per share of Common Stock and a special
      distribution of $.50 per share of Common Stock.

      On December 31, 1997, the Company made a  distribution  of $1.00 per share
      of Common Stock to shareholders of record on December 26, 1997; consisting
      of a regular  distribution of $.50 per share of Common Stock and a special
      distribution of $.50 per share of Common Stock.

      On April 15,  1998,  the Company made a regular  distribution  of $.50 per
      share of Common Stock to shareholders of record on March 31, 1998.

      On July 1, 1998 the  Company  suspended  its  regular  quarterly  dividend
      pending  consideration of strategic  alternatives to maximize  stockholder
      value.  On July 13, 1998 the Company  announced  the  retention  of Victor
      Capital Group, L.P. and Eastdil Realty Company, LLC to explore the sale of
      the  Company  or its two  principal  assets,  the  1290  Property  and 237
      Property.

      On  November  16,  1998,  the  Company  announced  that after  considering
      strategic  alternatives  in order to maximize  stockholder  value,  it has
      postponed  the  marketing of the  Company's  properties.  The Company also
      announced the reinstatement of its regular quarterly  dividend of $.50 per
      share and that the Board of Directors had declared a dividend of $1.00 per
      share,  consisting of a regular quarterly dividend of $.50 per share and a
      special  dividend  of $.50 per share,  payable  on  December  31,  1998 to
      stockholders of record on December 18, 1998.

809954.6
                                       28

<PAGE>



8.    STOCK PLAN AND REGISTRATION RIGHTS

      The Board of  Directors  of the Company  adopted a  Directors'  Stock Plan
      effective  October 10,  1996.  Pursuant  to the Stock  Plan,  the Board of
      Directors  of the  Company  has the  authority  to issue to members of the
      Company's  Board of  Directors  options  to  purchase,  in the  aggregate,
      100,000 shares of Common Stock. On the Effective Date, the initial members
      of the Company's  Board of Directors were granted  options  entitling each
      director to purchase an  aggregate  of 3,000  shares of Common Stock at an
      exercise price of $25 per share.

      Pursuant to the Stock Plan,  each  Director  received 400 shares of Common
      Stock in September  1997 in  consideration  for  services  rendered to the
      Company during the Company's first fiscal year of operations. The value of
      such  shares was based upon the most recent  price at which  shares of the
      Company's  Common  Stock were traded  prior to such grant of shares and is
      included as an operating expense. Each Director received an additional 400
      shares  of  Common  Stock  at the 1998  annual  meeting  of the  Company's
      stockholders  and will receive shares at each  subsequent  annual meeting.

      In March 1998,  a new  director was granted 400 shares of Common Stock and
      options  entitling  him to purchase an aggregate of 3,000 shares of Common
      Stock at an  exercise  price of $42.50 per share.  Such shares and options
      were  issued  in  July  1998.  Of such  options,  1,000  were  immediately
      exercisable, 1,000 became exercisable on October 10, 1998 and 1,000 become
      exercisable on October 10, 1999. Total outstanding options at December 31,
      1998 aggregated  28,000,  of which 27,000 were exercisable.

      The Company has entered into a Registration  Rights Agreement  between the
      Company and the holders of Common Stock. The Registration Rights Agreement
      permits  certain  of the  Company's  stockholders  to  demand,  subject to
      certain conditions,  that the Company register their Common Stock for sale
      and  provides  all  of  the  Company's  stockholders  with  the  right  to
      participate  proportionally  in  any  public  offering  of  the  Company's
      securities.

9.    RELATED PARTY TRANSACTIONS

      Asset  Management  - The  Company  has  entered  into an Asset  Management
      Agreement with a company  ("Asset  Manager")  that is directly  affiliated
      with two of Metropolis' shareholders.  One of these shareholders is also a
      Director  and Officer of the Company.  The Asset  Manager  provides  asset
      advisory,  consultation and management services for the Company.  Fees for
      such services are payable in arrears, on a monthly basis of $25. The Asset
      Management  Agreement  also  provides  for  reimbursement  for  costs  and
      expenses for contractors and professional fees, payable as incurred. Asset
      management  fees  incurred for the years ended  December 31, 1998 and 1997
      and  the  period  October  10,  1996  to  December  31,  1996   aggregated
      approximately $300, $300 and $74, respectively.

      Property  Management - The Company has also entered into a Management  and
      Leasing Agreement with a company ("Property  Manager/Leasing  Agent") that
      is an affiliate of a shareholder. The Property Manager/Leasing Agent is to
      manage and operate the  property and provide all  supervisory,  management
      and leasing services.  The Management and Leasing Agreement provides for a
      fee of 1.5% of Gross  Revenues,  payable  monthly  and  reimbursement  for
      overhead  and  all  reasonable   out-of-pocket   expenses  incurred.   The
      Management and Leasing Agreement also provides for leasing  commissions to
      be  calculated  on a sliding  scale  percentage  basis of the lease's base
      rent.  Fees under  Management  and Leasing  Agreement  for the years ended
      December 31, 1998 and 1997 and the period October 10, 1996 to December 31,
      1996 aggregated approximately $3,451, $3,333 and $392, respectively.

      An affiliate of the Property  Manager/Leasing  Agent provides the cleaning
      services for the Properties. Fees paid for cleaning services for the years
      ended  December 31, 1998 and 1997 and the period  October 10, 1996 through
      December 31, 1996 totaled $4,248, $4,226 and $196, respectively.

809954.6
                                       29

<PAGE>



      REIT Management - The Company has entered into a REIT Management Agreement
      with the Property Manager/Leasing Agent ("REIT Manager"). The REIT Manager
      is to perform certain accounting,  administrative and monitoring services.
      The  REIT  Management  Agreement  provides  for  compensation  to the REIT
      Manager of a monthly fee and  reimbursement  of  documented  out-of-pocket
      expenses.  Fees incurred under the REIT Management Agreement for the years
      ended December 31, 1998 and 1997 aggregated  $141 and $140.  There were no
      fees paid under the REIT  Management  Agreement for the period October 10,
      1996 to December 31, 1996.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

      The carrying amount of cash and cash equivalents,  escrow deposits, tenant
      security deposits,  tax refunds receivable,  and accounts receivable are a
      reasonable  estimate of their fair value due to their  short-term  nature.
      The  Company  believes  the fair  value of the  Swap  Agreement  generally
      offsets  gains or losses on the Secured Notes being hedged and changes the
      nature of such underlying financial instruments. Because the maturity date
      of the Secured Notes and the  termination  date of the Swap  Agreement are
      identical  and the  Company has no  intention  of  terminating  either the
      Secured Notes or the Swap Agreement,  the fair value of the Swap Agreement
      may be of limited usefulness.

      The fair value of the notes  receivable  has been estimated by discounting
      cash  flows at the  current  rate at which  similar  instruments  would be
      issued with similar  credit  ratings for the  remaining  term.  Management
      believes the fair market value of the notes  receivable  approximates  the
      carrying value at December 31,1998.

      The fair value of the Secured Notes has been estimated by discounting cash
      flows  at the  current  rate  at  which  similar  loans  would  be made to
      borrowers with similar credit ratings for the remaining  term.  Management
      believes  the fair market  value of the  Secured  Notes  approximates  the
      carrying value at December 31, 1998.

      The  fair  value  estimates   presented  herein  are  based  on  pertinent
      information available to management as of December 31, 1998.

11. LEASES


      Minimum  future rents  (excluding  escalation  rentals) due to the Company
      under noncancellable leases as of December 31, 1998 are as follows:


                            1999                 $105,074
                            2000                  111,032
                            2001                  107,366
                            2002                   97,928
                            2003                   89,751
                            Thereafter            530,218
                                               ----------
                                               $1,041,369
                                               ==========


809954.6
                                       30

<PAGE>



                          INDEPENDENT AUDITORS' REPORT


To the Stockholders of Metropolis Realty Trust, Inc.:


               We have audited the combined  statement  of revenues and certain
expenses as  described  in Note 1 for the period  January 1, 1996 to October 10,
1996.  This  financial   statement  is  the   responsibility  of  the  Company's
management.  Our  responsibility  is to express  an  opinion  on this  financial
statement based on our audits.

               We conducted  our audit 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 statement is free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 audit  provides a  reasonable  basis for our
opinion.

               The  accompanying  combined  statement  of  revenue  and  certain
expenses  was  prepared  in  compliance  with the rules and  regulations  of the
Securities and Exchange  Commission  (for inclusion in the Annual Report on Form
10-K of  Metropolis  Realty  Trust,  Inc.)  and as  described  in Note 1, is not
intended to be a complete  presentation of the Purchased Properties' revenue and
expenses.

               In our opinion, the financial statement referred to above present
fairly, in all material respects,  the combined revenues and certain expenses as
described  in Note 1 for the  period  January  1, 1996 to  October  10,  1996 in
conformity with generally accepted accounting principles.



Deloitte & Touche LLP
New York, New York
December 5, 1996


809954.6
                                       31

<PAGE>


                              PURCHASED PROPERTIES


               COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
                      Period January 1, to October 10, 1996
                                 (in thousands)



                                                             

                                                            Period January 1,
                                                            to October 10, 1996
                                                            -------------------
REVENUES:
  Rental Income                                                   $90,993
  Interest Income                                                     410
                                                                   ------
    Total Revenues                                                 91,403

CERTAIN EXPENSES:
  Payroll and Benefits                                              3,258
  Operating and Maintenance                                         4,798
  Utilities                                                         5,288
  Management Fees                                                     528
  Real Estate Taxes                                                21,299
  General and Administrative                                         1991
                                                                   ======
   Total Certain Expenses                                          37,162
                                                                   ------

REVENUES IN EXCESS OF CERTAIN EXPENSES                            $54,241
                                                                 ========




See notes to Combined Statement of Revenues and Certain Expenses.

809954.6
                                       32

<PAGE>


                              PURCHASED PROPERTIES


          NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
               For the period January 1, 1996 to October 10, 1996
                                 (in thousands)


1.             BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
               ACCOUNTING POLICIES

               Organization  -  Metropolis   Realty  Trust,   Inc.,  a  Maryland
               corporation ("Metropolis" or the Company"), was formed on May 13,
               1996 to facilitate the  consummation  of the Second Amended Joint
               Plan of  Reorganization  of 237 Park  Avenue  Associates,  L.L.C.
               ("237 LLC") and 1290 Associates,  L.L.C. ("1290 LLC" and together
               with 237 LLC, the "Predecessors"),  dated September 20, 1996 (the
               "Plan").   Pursuant  to  the  Plan,  on  October  10,  1996  (the
               "Effective  Date") the Company  acquired the interests of 237 LLC
               and 1290 LLC in the office properties  located at 237 Park Avenue
               (the "237  Property")  and 1290 Avenue of the Americas (the "1290
               Property," and together with the 237 Property, the "Properties").
               The Company owns a 95% interest,  as general partner, in 237/1290
               Lower Tier Associates,  L.P., a Delaware limited partnership (the
               "Lower Tier Limited  Partnership")  which owns a 99%  partnership
               interest, as limited partner in each of 237 Park Partners,  L.P.,
               a  Delaware   limited   partnership  (the  "237  Property  Owning
               Partnership")  and  1290  Partners,   L.P.,  a  Delaware  limited
               partnership (the "1290 Property Owning Partnership," and together
               with the 237 Property Owning  Partnership,  the "Property  Owning
               Partnerships").  The Property Owning  Partnerships were formed to
               own the  Properties.  The  remaining  1%  interest in each of the
               Property Owning  Partnerships is owned by one of two wholly-owned
               subsidiaries of the Company. 

               Basis of  Presentation  - The combined  statement  relates to the
               operations of the Properties  (the "Purchased  Properties").  The
               Purchased  Properties  have a  combined  net  leaseable  area  of
               approximately  3,103,000 square feet. As of October 10, 1996, the
               Purchased  Properties are  encumbered  with less debt and related
               interest;   the   asset   base  and   related   depreciation   is
               significantly  different; one of the Predecessor's equity holders
               has a  remaining  subordinated  5%  indirect  interest;  and  the
               properties are managed by an affiliated  property  manager with a
               different management structure. Accordingly,  Management believes
               the combined statement is the most meaningful  presentation as it
               presents the Purchased  Properties'  operations in a manner which
               excludes  variables  associated with the ownership and management
               of the Predecessors.

               Combined Statement of Revenue and Certain Expenses:
               ---------------------------------------------------

               The  accompanying  combined  statement  of  revenue  and  certain
               expenses is presented in conformity  with Rule 3-14 of Regulation
               S-X of the Securities and Exchange Commission.  Accordingly,  the
               statement is not  representative of the actual operations for the
               period  January 1, 1996 to October 10,  1996 as certain  expenses
               which  may  not be  comparable  to the  expenses  expected  to be
               incurred  in the  proposed  future  operations  of the  Purchased
               Properties  have been  excluded.  Expenses  excluded  consist  of
               interest,  depreciation  and  amortization  and  other  costs not
               directly  related  to the  future  operations  of  the  Purchased
               Properties.

               Rental  income is  recognized  on a straight  line basis over the
               term of the related leases.


809954.6
                                       33

<PAGE>



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

                       None.

809954.6
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<PAGE>

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive  officers of the Company as of December 31, 1998 are
as follows:


Name                                  Age         Position
----                                  ---         --------

William L. Mack.....................  59     Director and Chairman of the Board
Lee S. Neibart......................  48     Director and President
Bruce H. Spector....................  56     Director
John R.S. Jacobsson.................  30     Director and Secretary
John R. Klopp.......................  45     Director and Vice President
Russel S. Bernard...................  41     Director
Ralph F. Rosenberg..................  34     Director
David A. Strumwasser................  47     Director
David Roberts.......................  37     Director


               Each of the officers and directors listed above,  other than John
R. Klopp and John Jacobsson,  has served in the positions listed for the Company
since  September  1996. Mr. Klopp has served as a Director since  September 1996
and as an officer since December  1996.  Mr.  Jacobsson has served as a Director
since October 1997 and as an officer since December 1996.

               William L. Mack is the  managing  partner of Apollo  Real  Estate
Advisors, L.P., the manager of three opportunistic real estate investment funds,
which he  founded  in 1993 and  serves as  President  of its  corporate  general
partner.  Beginning  in 1969,  Mr. Mack  served as Managing  Partner of the Mack
Company,  where he oversaw  the  dynamic  growth of the Mack  Company's  office,
industrial,  retail and hotel  facilities.  Mr. Mack has served as a director of
Mack-Cali Realty  Corporation since the 1997 merger of the Mack Company's office
portfolio  into Mack-Cali.  Mr.  Mack is also  a  director  of The Bear  Stearns
Companies,  Inc., an investment  banking firm, Koger Equity,  Inc., a REIT which
owns and operates suburban office parks in the Southeast and the Southwest,  and
Vail  Resorts,  Inc.,  an owner and operator of Colorado  ski resorts.  Mr. Mack
attended  the  Wharton  School of  Business  and  Finance at the  University  of
Pennsylvania and received a B.S. degree in business administration,  finance and
real estate from New York University.

               Lee S. Neibart is a partner of Apollo Real Estate Advisors, L.P.,
with which he has been  associated  since 1993, and directs  portfolio and asset
management.  From  1979 to 1993,  he was  Executive  Vice  President  and  Chief
Operating  Officer  of  the  Robert  Martin  Company,   a  private  real  estate
development  and  management  firm.  Mr.  Neibart is a director of Atlantic Gulf
Communities Corp., a land development company,  Koger Equity, Inc.,  NextHealth,
Inc.,  an  owner  and  operator  of spa  and  wellness  facilities,  and  Roland
International Corporation, a land development company. Mr. Neibart received a BA
from the University of Wisconsin and an MBA from New York University.

               Bruce H.  Spector is a partner of Apollo  Real  Estate  Advisors,
L.P., with which he has been associated  since 1993 and has been responsible for
advising on matters of reorganization  strategy.  From 1967 to 1992, Mr. Spector
was a  member  of the law  firm of  Stutman,  Treister  and  Glatt,  spending  a
substantial amount of

809954.6
                                       35

<PAGE>



that time as a senior partner and head of the firm's  executive  committee.  Mr.
Spector is a director of NextHealth,  Inc.,  Telemundo  Group,  Inc., a national
Spanish-language  oriented television producer,  United  International  Holding,
Inc.,  a  designer  and owner of cable and  telephone  systems  outside of North
America, and Vail Resorts,  Inc. Mr. Spector received a B.A. from the University
of Southern California and a J.D. from the UCLA School of Law.

               John R.S.  Jacobsson is a partner of Apollo Real Estate Advisors,
L.P.  with  which he has been  associated  since  1993  and is  responsible  for
investments.  Prior to 1993, Mr.  Jacobsson was associated with the acquisitions
group of Trammell Crow Ventures, a real estate investment firm. Mr. Jacobsson is
a director of Koger  Equity,  Inc.  and Roland  International  Corporation.  Mr.
Jacobsson received a B.A. from Harvard College in 1990.

               John R. Klopp is a Trustee,  the Chief  Executive  Officer  and a
Vice  Chairman of Capital  Trust,  a specialty  finance  company  focused on the
commercial real estate industry.  Mr. Klopp is a founder and has been a Managing
Partner of Victor Capital Group L.P. (a subsidiary of Capital Trust) since 1989.
From 1982 to 1989,  Mr.  Klopp was a Managing  Director  and co-head of Chemical
Realty  Corporation  ("Chemical  Realty"),  the real estate  investment  banking
affiliate of Chemical Bank. Prior to founding  Chemical Realty,  he held various
positions  in Chemical  Bank's  Real Estate  Division  and was  responsible  for
originating,  closing and  monitoring  portfolios  of  construction  and interim
loans.  He  received  a B.A.  from  Tufts  University  in 1976  with a major  in
economics,  and an M.B.A.  in 1978 from the Wharton  School at the University of
Pennsylvania with a major in real estate and finance.

               Russel S. Bernard is a principal of Oaktree  Capital  Management,
LLC  ("Oaktree"),  with  which  he has  been  involved  since  1995,  and is the
portfolio manager of Oaktree's real estate and mortgage funds.  Prior to joining
Oaktree in 1995,  Mr.  Bernard was a Managing  Director of Trust  Company of the
West (TCW). Under subadvisory  relationships with Oaktree, Mr. Bernard continues
to serve as portfolio  manager for the TCW Special Credits  distressed  mortgage
funds.  From 1986 to 1994, Mr. Bernard was a partner in Win Properties,  Inc., a
national  real  estate  investment  company,  where he was  responsible  for the
acquisition,  financing and operation of a national real estate  portfolio.  Mr.
Bernard  holds  a  B.S.  in  Business  Management  and  Marketing  from  Cornell
University.

               Ralph F.  Rosenberg has been a Managing  Director in the Merchant
Banking Division at Goldman Sachs & Co. ("Goldman Sachs"),  since November 1998.
Prior to that he was a Vice  President  in the  Investment  Banking  Division at
Goldman Sachs since 1994.  Mr.  Rosenberg  joined the Real Estate  Department of
Goldman  Sachs  as an  Associate  in 1990,  transferred  to  their  Real  Estate
Principal  Investment Area at its inception in 1992 and became a  Vice-President
in 1994.  Mr.  Rosenberg  serves on the Whitehall  Investment  Committee and the
Goldman Sachs Emerging Market Real Estate Investment Committee. Additionally, he
serves on the Board of  Directors of Cadillac  Fairview  Corp.  and  Rockefeller
Center  Properties.  He received a B.A. from Brown  University  in 1986,  and an
M.B.A. from the Stanford Graduate School of Business in 1990.

               David A.  Strumwasser is a principal of Whippoorwill  Associates,
Incorporated ("Whippoorwill"),  an investment management firm, and has served as
a Managing Director and General Counsel of Whippoorwill since 1993. From 1984 to
1993,  Mr.  Strumwasser  was  a  Partner  and  co-head  of  the  Bankruptcy  and
Reorganization Practice at the New York law firm of Berlack,  Israels & Liberman
LLP. Prior to that, he practiced  bankruptcy law at Anderson Kill & Olick,  LLP,
from 1981 to 1984,  and at Weil,  Gotshal & Manges LLP, from 1976 to 1979.  From
1979 to 1981,  Mr.  Strumwasser  was an  Assistant  Vice  President  at Citicorp
Industrial  Credit,  Inc. Mr.  Strumwasser  received a B.A. in political science
from the State University of New York at Buffalo in 1973, and a J.D. from Boston
College Law School in 1976.

               David  Roberts has been a Managing  Director of Angelo,  Gordon &
Co., L.P. ("Angelo, Gordon") an investment management firm, since 1993, where he
oversees the firm's real estate and special  situations  investment  activities.
From  1988  until  1993,  Mr.  Roberts  was a  principal  of  Gordon  Investment
Corporation,  a Canadian  merchant bank, where he participated in a wide variety
of principal  transactions including investments in the real estate and mortgage
banking  industries.  Prior to that, Mr. Roberts worked in the Corporate Finance
Department  of L.F.  Rothschild & Co.  Incorporated,  an  investment  bank, as a
Senior Vice President specializing in mergers and acquisitions.  Mr. Roberts has
a B.S. in Economics from the Wharton School of the University of Pennsylvania.

809954.6
                                       36

<PAGE>



               Pursuant to the Charter, until the occurrence of a Simplification
Event (as hereinafter defined),  the Company's nine-member Board of Directors is
divided into five classes. The Class I Director,  Lee S. Neibart, was elected by
the holder of the Class B Common Stock; the Class II Directors  consist of Bruce
H. Spector and David Roberts,  both elected by the holders of the Class A Common
Stock  and  Class B Common  Stock;  the  Class  III  Directors  consist  of John
Jacobsson,  a director  designated by the holder of the Class B Common Stock and
David A.  Strumwasser,  a director  designated  by the holders of Class A Common
Stock; the Class IV Directors consist of William L. Mack, a director  designated
by the  holder of the Class B Common  Stock and Ralph F.  Rosenberg,  a director
designated  by  Whitehall  Street  Real  Estate,   Limited  Partnership  V  (the
"Whitehall"); and the Class V Directors consist of Russel S. Bernard, a director
designated by Oaktree and John R. Klopp, a director  designated by  stockholders
(other than Apollo, Whitehall and Oaktree).

               The  initial  terms of  Class I and  Class  II  directors  of the
Company  expired in 1997 and 1998,  respectively  and the  initial  terms of the
Class  III,  Class IV and  Class V  directors  expire  in 1999,  2000 and  2001,
respectively. As the term of each class expires, directors in that class will be
elected by the stockholders of the Company for a term of years which will expire
in 2001,  after which time all five classes of directors will be elected for one
year terms.  At the 1998 Annual  Meeting,  one Class I director and two Class II
directors  were  elected  to serve on the Board of  Directors  until the  Annual
Meeting of Stockholders  in 2001 or until their  successors are duly elected and
qualify or until their earlier death, resignation or removal. Lee S. Neibart was
duly  elected  to serve as the  Class I  director  of the  Company  and Bruce H.
Spector and David  Roberts  were each elected to serve as the Class II directors
of the Company.  The Charter provides that the Company will at all times have at
least two directors  that are not  affiliated  with Apollo,  any  Transferee (as
defined in the Charter) or any other  stockholder  of more than 10% of the stock
of the Company.

               "Simplification  Event"  means the  earliest  to occur of (i) the
date on which Apollo and its affiliates  (taken  together) or any transferee and
its  affiliates  (taken  together)  no longer  hold a number of shares of Common
Stock  representing at least 30% of the combined voting power of all outstanding
shares of stock of the Company; (ii) the date on which Apollo and its affiliates
(taken  together) or any transferee and its affiliates  (taken  together) or any
other person or entity and its  affiliates  (taken  together)  holds a number of
shares of Common Stock representing at least 75% of the combined voting power of
all outstanding  shares of stock of the Company;  (iii) the fifth anniversary of
the Effective  Date; and (iv) the date of the annual meeting of  stockholders in
2001.


ITEM 11.       EXECUTIVE COMPENSATION

               The  Company  has no  employees.  The  members  of the  Board  of
Directors will each receive as an annual retainer (i) $10,000 which will be paid
in cash,  and (ii) 400 shares of Common Stock to be issued under the Stock Plan.
Such stock and cash will be paid to the current  Board of  Directors at the time
of each  annual  meeting of  directors.  Directors  will  receive an  additional
payment of seven hundred and fifty  dollars for each Board of Directors  meeting
attended.  Upon  election  to the  Board of  Directors,  each  initial  Director
received  options to purchase  3,000 shares of the Company's  common stock which
will vest over two years and are exercisable at $25.00 per share. In March 1998,
a new director was granted 400 shares of Common Stock and options  entitling him
to purchase an aggregate of 3,000 shares of Common Stock at an exercise price of
$42.50 per share. Of such options,  1,000 were  immediately  exercisable,  1,000
became  exercisable on October 10, 1998 and 1,000 become  exercisable on October
10, 1999. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --
Description of the Company's Stock Plan."

               The Company has purchased a directors'  and  officers'  liability
insurance policy in the amount of $10,000,000.

               The  Directors  and  officers of the  Company,  the Upper Tier GP
Corp.  and the GP Corps are  identical.  The  officers of the  Company  will not
receive any compensation from the Company, other than any

809954.6
                                       37

<PAGE>



compensation  they may receive as  Directors.  The Directors and officers of the
Upper Tier GP Corp. and the GP Corps will not receive any compensation  from the
Upper Tier GP Corp. or the GP Corps.


ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


               The  information set forth in the following table is furnished as
of March 5, 1999,  with respect to any 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")) who is known to the Company to be the beneficial
owner of more than 5% of any class of the Company's voting securities, and as to
those shares of the Company's equity  securities  beneficially  owned by each of
its Directors,  its executive  officers,  and all of its executive  officers and
Directors as a group. As of December 31, 1998,  there were 12,970,646  shares of
Common Stock outstanding.

809954.6
                                       38

<PAGE>

<TABLE>
<CAPTION>
                                                                 Number of Shares       Percent of Common
                                                                 Beneficially Owned           Stock
                                                                 ------------------     ------------------

Principal Stockholders

<S>                                                                   <C>                     <C>       
Apollo Real Estate Investment Fund, L.P. (1)                          4,936,060               38.1%
The TCW Group, Inc.(2)                                                2,254,341               17.4%
Oaktree Capital Management, LLC (3)                                   1,913,263               13.6%
Whitehall Street Real Estate, Limited Partnership V (4)               1,122,821                8.7%
Angelo, Gordon & Co., L.P. (5)                                          818,739                6.3%
Intermarket Corp. (6)                                                   890,862                6.9%

Directors and Executive Officers

William L. Mack (7)                                                       3,800                  *
Lee S. Neibart (8)                                                        3,800                  *
John R.S. Jacobsson (9)                                                   2,800                  *
Bruce H. Spector (10)                                                     3,800                  *
John R. Klopp (11)                                                       23,800                  *
Russel S. Bernard (12)                                                    3,000                  *
Ralph F. Rosenberg (13)                                                   3,000                  *
David A. Strumwasser (14)                                                 3,800                  *
David Roberts (15)                                                        3,000                  *
                                                                         ------
Directors and Executive Officers as a group (9 persons) (16)             50,800                  *
                                                                         ======

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

*         Less than 1%

(1)       Held of record by Atwell & Co., c/o The Chase Manhattan Bank,  N.A., 4
          New York Plaza, New York, NY 10004. Apollo Real Estate Advisors,  L.P.
          is the managing general partner of Apollo Real Estate Investment, L.P.
          ("AREIF"),  and a joint  reporting  person with respect to  beneficial
          ownership  of these  shares  of  Common  Stock,  pursuant  to  AREIF's
          Schedule 13G,  filed with the  Securities  and Exchange  Commission on
          February 13,1998.

(2)       Includes  1,586,814 shares as to which voting and dispositive power is
          shared  with  Oaktree  Capital  Management,  LLC  ("Oaktree"),  as  an
          investment  sub-adviser  to TCW Asset  Management  Company for various
          limited  partnerships,  trusts and third party  accounts for which TCW
          Asset  Management  Company  acts  as  general  partner  or  investment
          manager.  According to the Schedule 13G filed with the  Securities and
          Exchange  Commission  on February 12, 1998,  Robert Day,  Chairman and
          Chief Executive Officer of the TCW Group, Inc. ("TCW"),  may be deemed
          to be a  control  person  of TCW  and  certain  other  holders  of the
          Company's  Common Stock.  Also includes 667,527 shares held by various
          limited  partnerships,  trusts and third party  accounts for which TCW
          Special  Credits acts as general  partner or investment  manager.  The
          shares  shown are held of record by (i)  Taylor & Co.,  c/o Sanwa Bank
          California Trust  Operations,  1977 Saturn Street,  Montrerey Park, CA
          91754  (1,848,248  shares),  and  (ii)  Cede &  Co.,  c/o  Sanwa  Bank
          California Trust  Operations,  1977 Saturn Street,  Montrerey Park, CA
          91754 (406,093 shares). To the extent permitted by applicable law, The
          TCW Group, Inc. and Robert Day hereby disclaim beneficial ownership of
          such shares.

(3)       Includes  1,586,814 shares as to which voting and dispositive power is
          shared  with TCW  Asset  Management  Company,  which  acts as  general
          partner or investment manager for certain funds and accounts for which
          Oaktree acts as an investment  sub-adviser.  According to the Schedule
          13G filed with the Securities and Exchange  Commission on February 12,
          1998,  Robert Day, Chairman and Chief Executive Officer of TCW, may be
          deemed to be a control  person of Oaktree and certain other holders of
          the Company's  Common Stock.  Also includes 284,839 shares held by two
          limited  partnerships  of which Oaktree is general  partner and 41,210
          shares  held  by a third  party  account  for  which  Oaktree  acts as
          investment  manager.  The 326,049  shares as to which Oaktree has sole
          voting and dispositive  power are held of record by Cun & Co., c/o The
          Bank of New York, One Wall Street,  New York, NY 10005.  Also includes
          400 shares  held  directly  by  Oaktree.  To the extent  permitted  by
          applicable law, Oaktree hereby disclaims  beneficial ownership of such
          shares.

(4)       Held of record by WSB Realty LLC,  (1,122,421  shares) and The Goldman
          Sachs Group,  L.P. (400 shares) 85 Broad  Street,  New York, NY 10004.
          Pursuant to Schedule  13G/A,  filed by The Goldman  Sachs Group,  L.P.
          with the Securities and Exchange Commission on February 17, 1999 these
          shares are reported as beneficially owned by: (i) Goldman, Sachs & Co.
          (ii) The Goldman Sachs Group,  L.P.,  (iii) WSB Realty,  L.L.C.,  (iv)
          Whitehall  Street  Real  Estate  Limited  Partnership  V  and  (v)  WH
          Advisors, L.P. V.

(5)       Angelo,  Gordon & Co., L.P.'s address is 245 Park Avenue, New York, NY
          10167.  Pursuant to Schedule 13G, filed by Angelo,  Gordon & Co., L.P.
          with the Securities and Exchange Commission on February 13, 1998 these
          shares are  reported as  beneficially  owned by: (i) Angelo,  Gordon &
          Co., L.P. ("Angelo,  Gordon"),  (ii) John M. Angelo, in his capacities
          as a general partner of AG Partners, L.P., the sole general partner of
          Angelo,  Gordon, and the chief executive officer of Angelo, Gordon and
          (iii)  Michael  L.  Gordon,  in his  capacities  as the other  general
          partner of AG  Partners,  L.P.,  the sole  general  partner of Angelo,
          Gordon, and the chief operating officer of Angelo, Gordon.

(6)       Intermarket Corp.'s address is 667 Madison Avenue, New York, NY 10021.

(7)       Does not include shares owned by Apollo. Includes 800 shares of Common
          Stock and 3,000 shares of Common Stock  issuable  upon the exercise of
          options  granted to Mr. Mack under the Company's  Stock Plan. Mr. Mack
          is the  managing  partner of Apollo Real Estate  Advisors,  L.P.,  the
          general partner of Apollo,  and the President of its corporate general
          partner.  Mr. Mack  disclaims  beneficial  ownership  of the shares of
          Common Stock owned by Apollo.


80995
                                       39

<PAGE>

(8)       Does not include shares owned by Apollo. Includes 800 shares of Common
          Stock and 3,000 shares of Common Stock  issuable  upon the exercise of
          options  granted to Mr.  Neibart under the Company's  Stock Plan.  Mr.
          Neibart is a partner of Apollo Real Estate Advisors,  L.P. Mr. Neibart
          disclaims  beneficial ownership of the shares of Common Stock owned by
          Apollo.

(9)       Does not include  shares owned by Apollo,  or 1,000 shares  granted to
          Mr.  Jacobsson  pursuant  to the Stock  Plan that will not vest  until
          October 10, 1999. Includes 800 shares of Common Stock and 2,000 shares
          of Common Stock  issuable upon the exercise of options  granted to Mr.
          Jacobsson under the Company's  Stock Plan. Mr.  Jacobsson is a partner
          of  Apollo  Real  Estate  Advisors,   L.P.  Mr.  Jacobsson   disclaims
          beneficial ownership of the Common Stock owned by Apollo.

(10)      Does not include shares owned by Apollo. Includes 800 shares of Common
          Stock and 3,000 shares of Common Stock  issuable  upon the exercise of
          options  granted to Mr.  Spector under the Company's  Stock Plan.  Mr.
          Spector is a partner of Apollo Real Estate Advisors,  L.P. Mr. Spector
          disclaims  beneficial ownership of the shares of Common Stock owned by
          Apollo.

(11)      Includes  20,800  shares  of Common  Stock and 3,000  shares of Common
          Stock issuable upon the exercise of options granted to Mr. Klopp under
          the Company's Stock Plan.

(12)      Does not  include  shares  owned  by funds  and  accounts  managed  by
          Oaktree.  Includes  3,000  shares of Common  Stock  issuable  upon the
          exercise of options  granted to Mr. Bernard under the Company's  Stock
          Plan.  Mr. Bernard is a principal of Oaktree.  Mr.  Bernard  disclaims
          beneficial  ownership of the shares of Common Stock owned by funds and
          accounts  managed by Oaktree.  Mr.  Bernard is required to transfer to
          funds managed by Oaktree any shares of Common Stock he either receives
          directly under the Company's  Stock Plan or purchases upon an exercise
          of options granted under the Company's Stock Plan.

(13)      Does not include  shares owned by Whitehall.  Includes 3,000 shares of
          Common  Stock  issuable  upon the  exercise of options  granted to Mr.
          Rosenberg  under the Company's  Stock Plan.  Mr.  Rosenberg  disclaims
          beneficial ownership of the shares of Common Stock owned by Whitehall.
          Mr. Rosenberg is a Vice President of Goldman,  Sachs & Co. Pursuant to
          Mr.  Rosenberg's  employment  arrangements  with  Goldman  Sachs,  Mr.
          Rosenberg  is  required  to  transfer  to Goldman  Sachs any shares of
          Common Stock he receives  either  directly  under the Company's  Stock
          Plan or  purchases  upon an  exercise  of  options  granted  under the
          Company's Stock Plan.

(14)      Does not include 311,591 shares held by various limited  partnerships,
          trusts and third party  accounts  for which  Whippoorwill  Associates,
          Inc.  has  discretionary  authority  and acts as  general  partner  or
          investment  manager.  Includes  800  shares of Common  Stock and 3,000
          shares of Common Stock  issuable upon the exercise of options  granted
          to Mr.  Strumwasser under the Company's Stock Plan. Mr. Strumwasser is
          a  principal  of  and  Managing   Director  and  General   Counsel  of
          Whippoorwill   Associates.   Mr.  Strumwasser   disclaims   beneficial
          ownership  of the  shares  of  Common  Stock  owned  by  discretionary
          accounts managed by Whippoorwill Associates as set forth above.

(15)      Does not include shares owned by Angelo, Gordon. Includes 3,000 shares
          of Common Stock  issuable upon the exercise of options  granted to Mr.
          Roberts  under the  Company's  Stock Plan.  Mr.  Roberts is a Managing
          Director of Angelo, Gordon. Mr. Roberts disclaims beneficial ownership
          of the shares of Common Stock owned by Angelo, Gordon.

(16)      See  notes 1  through  15 above  with  respect  to the  nature  of the
          ownership of Directors  and Executive  Officers as a group,  including
          disclaimers of beneficial ownership described therein.



               Description of Stock Plan

               The  following  is a summary of the  material  terms of the Stock
Plan.  Such  summary  does not purport to be complete  and is  qualified  in its
entirety by  reference  to the Stock Plan,  a copy of which has been filed as an
exhibit to the Company's  Registration  Statement on Form 10 and is incorporated
by reference herein.

               The Board of  Directors  adopted the Stock Plan on the  Effective
Date. The purpose of the Stock Plan is to attract and retain  qualified  persons
as Directors.  Pursuant to the Stock Plan, the Board of Directors of the Company
has the  authority  to issue to  members  of the  Company's  Board of  Directors
options to purchase, in the aggregate,  100,000 shares of Common Stock. Pursuant
to the Plan and the Stock Plan, on the Effective  Date,  the initial  members of
the Company's Board of Directors were granted options entitling each director to
purchase an aggregate  of 3,000  shares of Common Stock at an exercise  price of
$25.00 per share. In March 1998, a new director was granted 400 shares of Common
Stock and options  entitling  him to purchase an  aggregate  of 3,000  shares of
Common Stock at an exercise  price of $42.50 per share.  Such shares and options
were issued in July 1998. Of such options,  1,000 were  immediately  exercisable
and  1,000  became  exercisable  on  October  10,  1998 and  1,000  will  become
exercisable on October 10, 1999. Each Director who is elected or appointed after
the Effective  Date will be granted  options to purchase  3,000 shares of Common
Stock on the date of the  meeting of the  Company's  stockholders  at which such
Director is first  elected to the Board of Directors or the date of the Board of
Directors  meeting at which such  Director  is first  appointed  to the Board of
Directors to fill a vacancy on the Board of Directors.  Each holder of an option
issued  under the Stock Plan will be entitled to exercise the option to purchase
one-third of

809954.6
                                       40

<PAGE>



the  shares of  Common  Stock  covered  by such  option on the date of  original
issuance thereof,  one-third on the first anniversary of such date and one-third
on the  second  anniversary  of such date,  in each case,  any time prior to the
tenth anniversary of the date of grant.

               If the holder of an option  ceases to serve as a Director  of the
Company for any reason, options that have been previously granted to such holder
and that have not been vested will be  forfeited  and options that are vested as
of the date of such cessation may be exercised by such holder in accordance with
and subject to the Stock Plan.  If the holder of an option dies while serving as
a Director of the  Company,  options that have been  previously  granted to such
holder  and  that  are  vested  as of the  date of such  holder's  death  may be
exercised by such holder's legal  representative  in accordance with and subject
to the Stock Plan.


ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

               Asset Manager

               The Company has  retained  970  Management,  LLC, an affiliate of
Victor Capital Group, L.P., to serve as the Company's Asset Manager  pursuant to
an Asset  Management  Agreement,  dated as of the  Effective  Date  (the  "Asset
Management  Agreement").  John R. Klopp,  one of the Company's  Directors and an
officer and a stockholder of the Company, is a Managing Partner of VCG. Pursuant
to the Asset Management  Agreement,  the Asset Manager will act as the Company's
advisor and consultant  with respect to the management of the Properties and the
Company's  interests in the Property Owning  Partnerships and Lower Tier Limited
Partnership.

                The Asset  Management  Agreement  has a term of one year,  which
term will be automatically  extended for consecutive one year periods thereafter
unless the Company or the Asset Manager notify the other at least 30 days before
the then current term would otherwise  terminate,  of its election not to extend
the term.

               The Company may  terminate  the Asset  Management  Agreement  (i)
after the  expiration  of a cure period,  by notice to the Asset  Manager if the
Asset  Manager  defaults in any material  respect in its  performance  under the
Asset  Management  Agreement,  and (ii)  immediately  upon  notice  to the Asset
Manager  if the  Properties  are sold or if there is a change in  control of the
Asset Manager. The Asset Manager may terminate the Asset Management Agreement if
the  Company  defaults in the payment of any amount due and payable to the Asset
Manager and such failure continues for 30 days after the Asset Manager's written
notice  of such  failure.  Either  party  may  terminate  the  Asset  Management
Agreement by giving notice to the other upon the  occurrence  of certain  events
relating to the bankruptcy or insolvency of the other party.

               The  Company  will  pay  the  Asset  Manager  a fee  (the  "Asset
Management Fee") in an amount equal to $25,000 per month.  Asset management fees
incurred for the years ended  December 31, 1998 and 1997 and the period  October
10, 1996 to December 31, 1996 aggregated  approximately  $300,000,  $300,000 and
$74,000,  respectively.  In addition to the payment of the Asset Management Fee,
the Company  will  reimburse  the Asset  Manager for  certain  expenses.  If the
Company sells or disposes of one but not both of the Properties, the Company and
the Asset Manager will review whether an adjustment to the Asset  Management Fee
is appropriate.  If the Company believes that the Asset Management Fee should be
reduced and the  parties  are unable in good faith to agree upon a reduced  fee,
the Asset Management  Agreement will be terminable by either party upon 90 days'
notice to the other.


809954.6
                                       41

<PAGE>


               Management and Leasing Agreements

               Each  of  the  Property  Owning   Partnerships   entered  into  a
Management and Leasing Agreement,  dated as of the Effective Date (the "Property
Management Agreements") with the Property  Manager/Leasing Agent. Nyprop, LLC, a
stockholder  of the Company,  is an  affiliate  of the Property  Manager/Leasing
Agent.   Pursuant  to  the   Property   Management   Agreements,   the  Property
Manager/Leasing  Agent will  perform  all  supervisory,  management  and leasing
services  and  functions  reasonably  necessary  or  incidental  to the leasing,
management and operations of the Properties.  Fees under the Property Management
Agreements for the years ended December 31, 1998 and 1997 and the period October
10, 1996 to December 31, 1996 aggregated  approximately  $3,451,000,  $3,333,000
and $392,000, respectively.

               An affiliate of the Property  Manager/Leasing  Agent provides the
cleaning  services for the Properties.  Fees paid for cleaning  services for the
years ended  December 31, 1998 and 1997 and the period  October 10, 1996 through
December 31, 1996 totaled $4,248,000, $4,226,000 and $196,000, respectively.

               The Property  Management  Agreements  have an initial term of two
years, which term will be automatically  extended for additional  consecutive 90
day terms until such time as a Property Owning Partnership notifies the Property
Manager/Leasing  Agent in writing, at least 30 days before the then current term
would otherwise terminate,  of its election not to extend the term of a Property
Management Agreement.

               A  Property   Owning   Partnership  may  terminate  its  Property
Management  Agreement  on 60 days  notice if its  Property is either sold by the
Property  Owning  Partnership or refinanced by the Property  Owning  Partnership
pursuant to a securitized  financing of the Property,  provided that termination
of the Property Management  Agreement as a result of such financing will only be
effective  if the Property  Manager/Leasing  Agent is not approved by the rating
agency  participating in such financing.  Each Property Owning  Partnerships may
terminate  its Property  Management  Agreement  (i) after a certain cure period,
upon   notice   to  the   Property   Manager/Leasing   Agent  if  the   Property
Manager/Leasing  Agent  breaches  a  material  term of the  Property  Management
Agreement,  and (ii)  immediately  upon notice to the  Property  Manager/Leasing
Agent if (x) the Property Manager/Leasing Agent or any principal of the Property
Manager/Leasing Agent intentionally misappropriates funds of the Property Owning
Partnership or commits fraud against the Property Owning Partnership or if there
is a change in control  of the  Property  Manager/Leasing  Agent.  The  Property
Manager/Leasing  Agent may terminate a Property Management Agreement (i) after a
certain  cure  period,  upon notice to the Property  Owning  Partnership  if the
Property Owning Partnership  breaches a material term of the Property Management
Agreement,  and (ii) upon 60 days notice to the Property  Owning  Partnership if
the Property Owning  Partnership fails to provide funds on a consistent basis to
operate  and  maintain  the  Property.  Either  party may  terminate  a Property
Management Agreement upon notice to the other party in the event that a petition
in bankruptcy  is filed  against the other party and is not dismissed  within 60
days, or a trustee,  receiver or other  custodian is appointed for a substantial
part of the other party's  assets and is not vacated within 60 days or the other
party makes an assignment for the benefit of its creditors.

               On the Effective Date, each Property Owning  Partnership paid the
Property  Manager/Leasing  Agent  $50,000  per month (pro rated for any  partial
month) for services provided by the Property  Manager/Leasing Agent prior to the
Effective Date in connection  with the transition of ownership and management of
the Properties  from the Property  Owning  Partnerships'  predecessors,  for the
period commencing August 1, 1996 and ending on the Effective Date. Each Property
Owning Partnership will (i) pay the Property  Manager/Leasing  Agent a fee in an
amount equal to 1.5% of gross revenues from the respective  Property,  which fee
will be paid monthly, and (ii) reimburse the Property  Manager/Leasing Agent for
all reasonable  out-of-pocket expenses incurred by the Property  Manager/Leasing
Agent  related to the  performance  of its  responsibilities  under the Property
Management Agreement, to the extent set forth in the annual budget. In addition,
the Property  Manager/Leasing  Agent will be entitled to receive  commissions in
connection  with the  leasing  of  space  at the  Properties  and  renewals  and
extensions of leases.

               The Company has entered into a REIT Management Agreement with the
Property  Manager/Leasing Agent ("REIT Manager"). The REIT Manager is to perform
certain accounting, administrative and monitoring

809954.6
                                       42

<PAGE>


services.  The REIT Management  Agreement  provides for compensation to the REIT
Manager of monthly fees aggregating approximately $125,000 per annum, a one-time
fee of $15,000,  and reimbursement of documented  out-of-pocket  expenses.  Fees
incurred  under the REIT  Management  Agreement for the years ended December 31,
1998 and 1997  aggregated  $141,000 and $140,000.  There were no fees paid under
the REIT  Management  Agreement for the period  October 10, 1996 to December 31,
1996.



809954.6
                                       43

<PAGE>



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


(a)(1)        Financial Statements are included in response to Item 8 hereof.

(a)(2)        Financial Statement Schedules have been omitted because they
              are  inapplicable,  not  required,  or  the  information  is
              included in the financial statements or notes thereto.

(a)(3)        Exhibits

2.1           Second  Amended  Joint Plan of  Reorganization  of 237 Park Avenue
              Associates, L.L.C. and 1290 Associates, L.L.C.(*)

2.2           Technical Amendment to Second Amended Joint Plan of Reorganization
              of 237 Park Avenue Associates, L.L.C. and 1290 Associates, L.L.C.*

2.3           Second  Technical  Amendment  to  Second  Amended  Joint  Plan  of
              Reorganization  of 237 Park  Avenue  Associates,  L.L.C.  and 1290
              Associates, L.L.C.*

3.1           Articles of Amendment and Restatement of Metropolis Realty, Trust,
              Inc., dated October 7, 1996.*

3.2           Amended and Restated By-Laws of Metropolis Realty Trust, Inc.*

10.1          Agreement and Plan of Merger among 1290 Associates,  L.L.C.,
              237 Park Avenue  Associates,  L.L.C. and 237/1290 Upper Tier
              Associates, L.P., as of October 10, 1996.*

10.2          Limited Partnership Agreement of 237 Park Partners, L.P.*

10.3          Limited Partnership Agreement of 1290 Partners, L.P.*

10.4          Agreement   of  Limited   Partnership   of  237/1290   Lower  Tier
              Associates, L.P.*

10.5          Amended and  Restated  Limited  Partnership  Agreement of 237/1290
              Upper Tier Associates, L.P.*

10.6          Redemption  and   Substitution   Agreement  among  JMB/NYC  Office
              Building  Associates,  L.P.,  O&Y  Equity  Company,  L.P.,  O&Y NY
              Building Corp.,  237/1290 Upper Tier GP Corp.,  and 237/1290 Upper
              Tier Associates, L.P., dated October 10, 1996.*

10.7          Metropolis Realty Trust, Inc. 1996 Directors' Stock Plan.*

10.8          Form of Metropolis  Realty Trust,  Inc. Stock Option Agreement for
              Directors.*

10.9          Form of Indemnification Agreement, dated as of October 10, 1996.*

10.10         Registration Rights Agreement, dated as of October 10, 1996.*

10.11         Participation  Agreement  (JMB Notes)  between  Metropolis  Realty
              Trust,  Inc. and Michigan  Avenue L.L.C.,  dated as of October 10,
              1996.*

10.12         Indemnification   Agreement  given  by  Property  Partners,  L.P.,
              Carlyle-XIII Associates, L.P., and Carlyle-XIV Associates, L.P. to
              Metropolis Realty Trust, Inc., dated as of October 10, 1996.*

10.13         Modification of Operating Agreement of 237 Park Avenue Associates,
              L.L.C., dated as of October 10, 1996.*

--------

(*) Incorporated by reference to the Registrant's Registration Statement on Form
10 (File No. 0-21849) and any amendments thereto.

809954.6
                                       44

<PAGE>


10.14         Noteholders   Contribution  and  Participation  Agreement  between
              Metropolis Realty Trust, Inc. and Bankers Trust Company,  dated as
              of October 10, 1996.*

10.15         Debt Contribution  Agreement,  dated as of October 10, 1996, among
              Metropolis  Realty Trust,  Inc.,  237/1290 Lower Tier  Associates,
              L.P., 237 Park Partners, L.P., and 1290 Partners, L.P.(*)

10.16         Debt  Assumption,  Release  and  Security  Agreement  (237  Excess
              amount) dated October 10, 1996.*

10.17         Debt  Assumption,  Release and  Security  Agreement  (1290  Excess
              amount) dated October 10, 1996.*

10.18         Release of Assumed Debt and  Termination  of Security  Interest by
              Bankers Trust Company for the benefit of O&Y NY Building Corp. and
              O&Y Equity Company, L.P., dated as of October 10, 1996.*

10.19         237 Property  Contribution  Agreement  between 237/1290 Upper Tier
              Associates,  L.P.,  237/1290 Lower Tier  Associates,  L.P. and 237
              Park Partners, L.P. dated as of October 10, 1996.*

10.20         1290 Property  Contribution  Agreement  among  237/1290 Upper Tier
              Associates,  L.P.,  237/1290 Lower Tier Associates,  L.P. and 1290
              Partners, L.P. dated as of October 10, 1996.*

10.21         Credit  Agreement  among 1290  Partners,  L.P., 237 Park Partners,
              L.P.,  the lenders  listed  herein and The Chase  Manhattan  Bank,
              dated as of October 10, 1996.*

10.22         Consolidated,  Amended and Restated  Promissory Note in the amount
              of $420,000,000  from 1290 Partners,  L.P., and 237 Park Partners,
              L.P. to The Chase Manhattan Bank, dated October 10, 1996.*

10.23         Mortgage  Modification,  Restatement  and Security  Agreement from
              1290 Partners,  L.P.,  and 237 Park  Partners,  L.P., to The Chase
              Manhattan Bank, dated as of October 10, 1996.*

10.24         Master  Agreement  among The Chase  Manhattan Bank, 1290 Partners,
              L.P. and 237 Park Partners, L.P., dated as of October 10, 1996.*

10.25         Schedule to the Master Agreement  between The Chase Manhattan Bank
              and 1290 Partners,  L.P. and 237 Park Partners,  L.P., dated as of
              October 10, 1996.*

10.26         Interest Rate Agreement Pledge,  and Security Agreement among 1290
              Partners,  L.P., 237 Park Partners,  L.P., and The Chase Manhattan
              Bank, dated as of October 10, 1996.*

10.27         Assignment of Leases,  Rents and Security Deposits,  dated October
              10, 1996, by 1290 Partners, L.P. and 237 Park Partners L.P. to The
              Chase Manhattan Bank.*

10.28         Note Pledge and Security Agreement among 1290 Partners,  L.P., 237
              Park  Partners,  L.P. and The Chase  Manhattan  Bank,  dated as of
              October 10, 1996.*

10.29         Consent and Subordination of Property Management Agreement,  dated
              as of October 10, 1996.*

10.30         Cash  and  Collateral  Account  Security,  Pledge  and  Assignment
              Agreement among 1290 Partners,  L.P., 237 Park Partners, L.P., and
              The Chase Manhattan Bank, dated as of October 10, 1996.*

--------
(*) Incorporated by reference to the Registrant's Registration Statement on Form
10 (File No. 0-21849) and any amendments thereto.

809954.6
                                       45

<PAGE>




10.31         Management and Leasing Agreement  between 237 Park Partners,  L.P.
              and Tishman Speyer Properties, L.P.*

10.32         Management and Leasing Agreement  between 1290 Partners,  L.P. and
              Tishman Speyer Properties, L.P.*

10.33         Asset Management  Agreement between  Metropolis Realty Trust, Inc.
              and 970 Management, L.L.C., dated as of October 10, 1996.(*)

27.1          Financial  Data  Schedule as of, and for the year ended,  December
              31, 1997.

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

(c)           Exhibits.
              Refer to paragraph (a)(3) under this Item 14.

(d)           Not applicable.



--------
(*)  Incorporated by reference to the Registrant's Registration Statement on 
Form 10 (File No. 0-21849) and any amendments thereto.

809954.6
                                       46

<PAGE>



                                   SIGNATURES


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


                                         METROPOLIS REALTY TRUST, INC.


                                         By:    /s/  Lee S. Neibart             
                                                ----------------------
                                         Name:  Lee S. Neibart
                                         Title: President and Director


                                          By:   /s/ Stuart Koenig            
                                                ----------------------
                                          Name:  Stuart Koenig
                                          Title:   Principal Financial Officer


Date:  March 31, 1999


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

<TABLE>
<CAPTION>

            Signature                            Title                            Date
            ---------                            -----                            ----



<S>                                         <C>                                 <C> 
/s/   Lee S. Neibart                       President and Director               March 31, 1999
--------------------------------
Lee S. Neibart



/s/ William L. Mack                        Chairman of the Board and            March 31, 1999
--------------------------------                   Director
William L. Mack



/s/  John R.S. Jacobsson                       Secretary and Director           March 31, 1999
--------------------------------
John R. S. Jacobsson



/s/ John R. Klopp                           Vice President and Director         March 31, 1999
--------------------------------
John R. Klopp



                                                      Director                  March __, 1999
--------------------------------
Bruce H. Spector



                                          S-1
809954.6

<PAGE>


        Signature                                      Title                          Date
        ---------                                      -----                          ----



/s/  Russel S. Bernard                                Director                   March 31, 1999
--------------------------------
Russel S. Bernard




                                                      Director                   March __, 1999
--------------------------------
Ralph F. Rosenberg



                                                      Director                   March __, 1999
--------------------------------
David A. Strumwasser


/s/ David Roberts                                     Director                   March 31, 1999
--------------------------------
David Roberts

</TABLE>

                                       S-2
809954.6