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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                      ------------------------------------
                                   FORM 10-K
           [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                          SECURITIES AND 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 AND EXCHANGE ACT OF 1934
                For the transition period from           to
                        COMMISSION FILE NUMBER: 1-13115
                         EQUITY OFFICE PROPERTIES TRUST
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                            <C>
                  MARYLAND                                      36-4151656
(State or other jurisdiction of incorporation      (I.R.S. Employer Identification No.)
              or organization)                                     60606
         TWO NORTH RIVERSIDE PLAZA,                             (Zip Code)
        SUITE 2200, CHICAGO, ILLINOIS
  (Address of principal executive offices)
</TABLE>
 
                                 (312) 466-3300
              (Registrant's telephone number, including area code)
          Securities registered pursuant to Section 12(b) of the Act:
 
<TABLE>
<CAPTION>
                   TITLE OF EACH CLASS                       NAME OF EACH EXCHANGE ON WHICH REGISTERED
                   -------------------                       -----------------------------------------
<S>                                                          <C>
          Common Shares of Beneficial Interest,
       $.01 par value per share ("Common Shares")                New York Stock Exchange
          8.98% Series A Cumulative Redeemable
        Preferred Shares of Beneficial Interest,
         liquidation preference $25.00 per share                 New York Stock Exchange
         5.25% Series B Convertible, Cumulative
   Redeemable Preferred Shares of Beneficial Interest,
         liquidation preference $50.00 per share                 New York Stock Exchange
          8.625% Series C Cumulative Redeemable
        Preferred Shares of Beneficial Interest,
         liquidation preference $25.00 per share                 New York Stock Exchange
</TABLE>
 
          Securities registered pursuant to Section 12(g) of the Act:
                                     (None)
    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 (of for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes  [ ] No
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ] Yes  [ ] No
    The aggregate market value of the Common Shares held by non-affiliates of
the registrant as of March 12, 1999 was $6,642,224,418.
    On March 12, 1999, 260,083,420 of the registrant's Common Shares were
outstanding.
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<PAGE>   2
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the registrant's proxy statement for the annual shareholders'
meeting to be held in 1999 are incorporated by reference into Part III.
 
                                        2
<PAGE>   3
 
                         EQUITY OFFICE PROPERTIES TRUST
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>        <C>                                                           <C>
PART 1.
Item 1.    Business....................................................     4
Item 2.    Properties..................................................    33
Item 3.    Legal Proceedings...........................................    43
Item 4.    Submission of Matters to a Vote of Security Holders.........    44
PART II.
Item 5.    Market for the Registrant's Common Equity and Related
           Shareholder Matters.........................................    45
Item 6.    Selected Financial Data.....................................    48
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations...................................    51
Item 7A.   Quantitative and Qualitative Disclosure About Market Risk...    76
Item 8.    Financial Statements........................................    78
Item 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure....................................   116
PART III.
Item 10.   Directors and Executive Officers of the Registrant..........   117
Item 11.   Executive Compensation......................................   117
Item 12.   Security Ownership of Certain Beneficial Owners and
           Management..................................................   117
Item 13.   Certain Relationships and Related Transactions..............   117
 
PART IV.
ITEM 14.   Exhibits, Financial Statement Schedules, and Reports on Form
           8-K.........................................................   118
</TABLE>
 
                                        3
<PAGE>   4
 
                                     PART I
 
ITEM 1.  BUSINESS.
 
                                  THE COMPANY
 
     As used herein, the terms "we," "us," "our," " Equity Office" or the
"Company" refer to Equity Office Properties Trust, a Maryland real estate
investment trust, individually or together with its subsidiaries, including EOP
Operating Limited Partnership, a Delaware limited partnership (sometimes called
the "Operating Partnership" or "EOP Operating"), and our predecessors. With EOP
Operating, we were formed as a REIT to continue and expand the national office
property business organized by Mr. Samuel Zell, our Chairman of the Board, and
to complete the consolidation of our predecessors. We completed our initial
public offering, or "IPO," on July 11, 1997. We are a fully integrated,
self-managed real estate company engaged in acquiring, owning, managing and
leasing office properties and parking facilities. We have elected to be taxed as
a real estate investment trust, or "REIT," for federal income tax purposes and
generally will not be subject to federal income tax if we distribute 100% of our
taxable income and comply with a number of organizational and operational
requirements.
 
     As of December 31, 1998, we owned or had an interest in 284 office
properties containing approximately 75.1 million rentable square feet of office
space and owned 19 stand-alone parking facilities containing approximately
18,059 parking spaces. The weighted average occupancy for our office properties
at December 31, 1998 was approximately 95.0%. Our office properties are located
in 80 submarkets in 36 markets in 24 states and the District of Columbia. The
office properties, by rentable square feet, are located approximately 53% in
central business districts, or "CBDs," and 47% in suburban markets. We own all
of our assets and conduct all of our operations through EOP Operating. We own in
excess of 90% of EOP Operating and are its sole managing general partner. To
facilitate maintenance of our qualification as a REIT for federal income tax
purposes, we generally conduct the management of properties that are not wholly
owned by us and our subsidiaries and certain other business activities through
taxable corporations in which we own substantially all of the equity but little
or no voting stock. We refer to these corporations as our "noncontrolled
subsidiaries."
 
     Our executive offices are located at Two North Riverside Plaza, Suite 2200,
Chicago, Illinois 60606, and our telephone number is (312) 466-3300.
 
                              ACQUISITION ACTIVITY
 
     During the period from 1987 through 1998, we invested approximately $12.5
billion, averaging $2.7 billion annually for the four years ended December 31,
1998, calculated on a cost basis, in acquisitions of institutional quality
office properties and parking facilities throughout the United States. During
the year ended December 31, 1998, we completed 12 acquisition transactions in
which we acquired 28 office properties, containing an aggregate of approximately
10.4 million square feet of rentable space and two parking facilities containing
1,310 spaces. The aggregate consideration we paid for these acquisitions during
1998 was approximately $2,534.5 million, comprised of $1,923.7 million in cash,
$204.0 million in common shares and units of limited partnership interest in EOP
Operating and $406.8 million in assumed liabilities.
 
                         BUSINESS AND GROWTH STRATEGIES
 
     Our primary business objective is to achieve sustainable long-term growth
in cash flow and portfolio value. We intend to achieve this objective by owning
and operating institutional quality office buildings and providing a superior
level of service to tenants across the United States. We intend to supplement
this strategy by owning parking facilities.
 
     INTERNAL GROWTH.  We believe that our future internal growth will come from
(i) lease up of vacant space, (ii) tenant roll-over at increased rents where
market conditions permit, (iii) repositioning of certain properties which have
not yet achieved stabilization, (iv) the reduction of various expenses as a
percentage of revenues, and (v) capital market efficiencies.
 
                                        4
<PAGE>   5
 
     As of December 31, 1998, 3.7 million rentable square feet of our office
property space was vacant. During the period from December 31, 1998 through
December 31, 2003, 5,376 leases for 43.3 million rentable square feet of space
are scheduled to expire. As of December 31, 1998, the average rent for this
space was $23.22 per square foot. The actual rental rates at which available
space will be relet will depend on prevailing market factors at the time.
 
     We own various undeveloped land on which office space could be developed,
assuming our receipt of all necessary permits and licenses. Our policy is to
develop land only when market conditions warrant. Although we may develop
certain properties ourselves, a portion of this activity may be conducted with
joint venture partners.
 
     EXTERNAL GROWTH.  Assuming that capital is available to us on reasonable
terms, we expect to actively pursue, over the long term, acquisitions of
additional office properties and parking facilities. Properties may be acquired
separately or as part of a portfolio, and may be acquired for cash and/or in
exchange for our equity or debt securities. Such acquisitions may be customary
real estate transactions and/or mergers or other business combinations.
 
     PARKING FACILITIES.  We intend to focus any acquisition efforts for parking
facilities on municipal or private parking facilities that have limited
competition, minimal or no rental rate restrictions, and/or a superior location
proximate to or affiliated with airports, CBDs, entertainment projects or
healthcare facilities.
 
                                   EMPLOYEES
 
     As of December 31, 1998, we had approximately 1,680 employees providing
in-house expertise in:
 
     -  property management
     -  leasing
     -  finance
     -  tax
     -  acquisition
     -  development
     -  disposition
     -  marketing
     -  accounting
     -  information systems
     -  law
 
     Our five most senior executives have an average tenure of 9 years with us
or our affiliates and an average of 23 years experience in the real estate
industry.
 
                                        5
<PAGE>   6
 
                  EXECUTIVE AND SENIOR OFFICERS OF THE COMPANY
 
     As of March 12, 1999, the following executive and senior officers of Equity
Office hold the offices indicated until their successors are chosen and
qualified after the next annual meeting of shareholders.
 
<TABLE>
<CAPTION>
         NAME            AGE                          OFFICE HELD
-----------------------  ---  ------------------------------------------------------------
<S>                      <C>  <C>
Timothy H. Callahan....   48  President and Chief Executive Officer
Michael A. Steele......   52  Executive Vice President -- Real Estate Operations and Chief
                              Operating Officer
Richard D. Kincaid.....   37  Executive Vice President and Chief Financial Officer
Stanley M. Stevens.....   50  Executive Vice President, Chief Legal Counsel and Secretary
Gary A. Beller.........   52  Executive Vice President -- Parking Facilities
Peter H. Adams.........   52  Senior Vice President -- Pacific Region
Sybil J. Ellis.........   45  Senior Vice President -- Acquisitions
Maureen O. Fear........   42  Senior Vice President -- Treasurer
Debra L. Ferruzzi......   38  Senior Vice President and Executive Advisor
Frank Frankini.........   44  Senior Vice President -- Design & Construction
David A. Helfand.......   34  Senior Vice President -- New Business Development
Jeffrey L. Johnson.....   39  Senior Vice President -- Investments and Chief Investment
                              Officer
Peter D. Johnston......   42  Senior Vice President -- Southwest Region
Kim J. Koehn...........   43  Senior Vice President -- West Region
Frances P. Lewis.......   45  Senior Vice President -- Corporate Communications
Anita A. Loch..........   50  Senior Vice President -- Human Resources
Gregory S. Mancuso.....   41  Senior Vice President -- Information Systems
Diane M. Morefield.....   40  Senior Vice President -- Investor Relations
Christopher P. Mundy...   37  Senior Vice President -- Northwest Region
David H. Naus..........   44  Senior Vice President -- Acquisitions
Arvid J. Povilaitis....   38  Senior Vice President -- Central Region
John C. Schneider......   40  Senior Vice President -- Legal and Associate General Counsel
                              for Property Operations
Mark E. Scully.........   40  Senior Vice President -- Southeast Region
Michael E. Sheinkop....   36  Senior Vice President -- Real Estate Services
</TABLE>
 
     Timothy H. Callahan has been a trustee, Chief Executive Officer and
President of the Company since October 1996. Mr. Callahan served on the Board of
Managers and was the Chief Executive Officer of Equity Office Holdings, L.L.C
("EOH"), and Equity Office Properties, L.L.C. ("EOP LLC"), predecessors of the
Company, from August 1996 until October 1997. Mr. Callahan was Executive Vice
President and Chief Financial Officer of Equity Group Investments, Inc. ("EGI"),
an owner, manager and financier of real estate and corporate investments, from
January 1995 until August 1996, was Executive Vice President of EGI from
November 1994 through January 1995 and was Senior Vice President of EGI from
July 1992 until November 1994. Mr. Callahan was Vice President -- Finance of the
Edward J. DeBartolo Corporation, a developer, owner and operator of shopping
centers, in Youngstown, Ohio, from July 1988 until July 1992. Mr. Callahan was
employed by Chemical Bank, a commercial bank located in New York, New York, from
July 1973 until March 1987.
 
     Michael A. Steele has been Executive Vice President -- Real Estate
Operations and Chief Operating Officer for the Company since March 1998 and was
Executive Vice President -- Real Estate Operations of the Company from October
1996 until February 1998. Mr. Steele was President and Chief Operating Officer
of EOP LLC from July 1995 until October 1997. Mr. Steele was Executive Vice
President of EOH from July 1995 until October 1997. Mr. Steele was President and
Chief Operating Officer of Equity Office Properties, Inc., a subsidiary of EGI
which provided real estate property management services ("EOP, Inc."), from
November 1993 through October 1995. Mr. Steele was President and Chief Executive
Officer of First Office Management, a former division of Equity Property
Management, Inc., that provided real estate property management services
("FOM"), from June 1992 until October 1993. Mr. Steele was Senior Vice
 
                                        6
<PAGE>   7
 
President and regional director for Rubloff, Inc., a full service real estate
company in Chicago, Illinois, from April 1987 until June 1992.
 
     Richard D. Kincaid has been Executive Vice President and Chief Financial
Officer of the Company since March 1997 and was Senior Vice President and Chief
Financial Officer of the Company from October 1996 until March 1997. Mr. Kincaid
was Senior Vice President and Chief Financial Officer of EOH from July 1995
until October 1997. Mr. Kincaid was Senior Vice President of EGI from February
1995 until July 1995. Mr. Kincaid was Senior Vice President of the Yarmouth
Group, a real estate investment company in New York, New York, from August 1994
until February 1995. Mr. Kincaid was Senior Vice President -- Finance for EGI
from December 1993 until July 1994. Mr. Kincaid was Vice President -- Finance
for EGI from August 1990 until December 1993. Mr. Kincaid was Vice President for
Barclays Bank PLC, a commercial bank located in Chicago, Illinois, from August
1987 until August 1990.
 
     Stanley M. Stevens has been Executive Vice President, Chief Legal Counsel
and Secretary of the Company since October 1996. Mr. Stevens was Executive Vice
President and General Counsel of EOH from September 1996 until October 1997. Mr.
Stevens was a vice president of Rosenberg & Liebentritt, P.C., a law firm in
Chicago, Illinois, from December 1993 until September 1996. Mr. Stevens was a
partner at Rudnick & Wolfe, a national law firm based in Chicago, Illinois, from
October 1987 until December 1993.
 
     Gary A. Beller has been Executive Vice President -- Parking Facilities of
the Company since March 1997. Mr. Beller has been President of Equity Capital
Holdings L.L.C., the general partner of Equity Capital Holdings, L.P., an asset
manager of parking facilities, since August 1997. Mr. Beller was Senior Vice
President -- Redevelopment of Equity Assets Management, Inc., a former
subsidiary of EGI which provided real estate asset management services ("EAM")
from October 1987 until March 1997.
 
     Peter H. Adams has been Senior Vice President -- Pacific Region of the
Company since March 1998 and was Regional Vice President -- Pacific Region of
the Company from March 1997 until February 1998. Mr. Adams was Vice
President -- Group Manager of EOH from July 1994 until July 1995, and Vice
President -- Regional Manager from July 1995 until March 1997. Mr. Adams was
President of Adams Equities, a private real estate consulting firm, from 1990 to
1994.
 
     Sybil J. Ellis has been Senior Vice President -- Acquisitions of the
Company since March 1997. Ms. Ellis was Senior Vice President -- Acquisitions of
EOH from July 1995 until October 1997. Ms. Ellis was Senior Vice
President -- Acquisitions of EOP, Inc. from July 1994 through July 1995 and was
Vice President -- Acquisitions of EOP, Inc. from November 1993 until July 1994.
Ms. Ellis was Vice President -- Acquisitions of EAM from March 1990 until
October 1993.
 
     Maureen O. Fear has been Senior Vice President -- Treasurer of the Company
since November 1998. Ms. Fear was Assistant Treasurer of Comdisco, Inc. from
1992 until November 1998. From 1989 until 1992, Ms. Fear was Cash Manager of
Comdisco, Inc. and from 1984 until 1989, Ms. Fear was Transaction Analyst,
Private Placement Group of Comdisco, Inc.
 
     Debra L. Ferruzzi has been Senior Vice President and Executive Advisor of
the Company since June 1998. Ms. Ferruzzi was Senior Vice President -- Finance
for EGI from December 1995 until June 1998. Ms. Ferruzzi was Vice President of
EAM from December 1992 until December 1995. She was employed by EGI from 1982
until May 1998.
 
     Frank Frankini has been Senior Vice President -- Design and Construction of
the Company since March 1997. Mr. Frankini was Senior Vice President -- Design
and Construction of EOP LLC from July 1995 until October 1997. Mr. Frankini was
Senior Vice President -- Engineering and Operations of EOP, Inc. from November
1993 until July 1995. Mr. Frankini was Senior Vice President -- Engineering and
Operations of FOM from October 1990 until October 1993. Mr. Frankini was
National Director of Engineering and Operations for Rubloff, Inc., a full
service real estate company in Chicago, Illinois, from October 1984 until
October 1990.
 
     David A. Helfand has been Senior Vice President -- New Business Development
of the Company since July 1998. Mr. Helfand was Managing Director of Equity
International Properties, Ltd. from December 1997 until
 
                                        7
<PAGE>   8
 
July 1998. Mr. Helfand was Chief Executive Officer of Manufactured Home
Communities, Inc. from August 1996 until December 1997 and was President of
Manufactured Home Communities, Inc. from January 1995 until July 1996. From
December 1992 until February 1995, Mr. Helfand was Chief Financial Officer and
from March 1994 until January 1995, he was Vice President of Manufactured Home
Communities, Inc. Since May 1995, Mr. Helfand has been a member of the Board of
Directors of Manufactured Home Communities, Inc.
 
     Jeffrey L. Johnson has been Senior Vice President -- Investments and Chief
Investment Officer for the Company since March 1998 and was Senior Vice
President -- Investments for the Company from March 1997 until February 1998.
Mr. Johnson was Senior Vice President -- Asset Management for EOH from July 1996
until October 1997. Mr. Johnson was Senior Vice President -- Acquisitions for
EOH from July 1995 until July 1996. Mr. Johnson was Senior Vice
President -- Acquisitions of EOP, Inc. from December 1994 until July 1995 and
was Vice President -- Acquisitions of EOP, Inc. from November 1993 until
December 1994. Mr. Johnson was Vice President Acquisitions of EAM from September
1990 until October 1993. Mr. Johnson was an Investor and Asset Manager for
Aldrich Eastman Waltch, Inc., a real estate advisor in Boston, Massachusetts,
from August 1987 until August 1990. Mr. Johnson was Senior Project Manager in
the real estate investment group for First Wachovia, Inc., a commercial bank in
Winston-Salem, North Carolina, from July 1983 until August 1987.
 
     Peter D. Johnston has been Senior Vice President -- Southwest Region of the
Company since March 1998 and was Regional Vice President -- Southwest Region
from January 1998 until February 1998. Mr. Johnston was Senior Vice
President -- National Accounts from April 1993 until February 1998.
 
     Kim J. Koehn has been Senior Vice President -- West Region of the Company
since March 1998 and was Regional Vice President -- West Region from March 1997
until February 1998 and was also Regional Vice President Southwest Region from
March 1997 until December 1997. Mr. Koehn was Senior Vice President -- Asset
Management of EOH from December 1995 to February 1997. Mr. Koehn was a Vice
President of EOH from June 1993 until December 1995.
 
     Frances P. Lewis has been Senior Vice President -- Corporate Communications
of the Company since April 1997. Ms. Lewis was Vice President -- Corporate
Communications of EGI from November 1994 until April 1997. Ms. Lewis was Vice
President -- Publications of EGI from September 1988 until October 1994.
 
     Anita A. Loch has been Senior Vice President -- Human Resources of the
Company since January 1999. Ms. Loch was Vice President of Human Resources of
Moore Corporation, Ltd. from 1997 until December 1998. From 1992 until 1997, Ms.
Loch was Vice President of Human Resources of Continental Can Europe, White Cap,
Inc. Division.
 
     Gregory S. Mancuso has been Senior Vice President -- Information Systems of
the Company since October 1998. Mr. Mancuso was Senior Vice President, Business
Systems Integration Group of ERE Yarmouth from 1997 until September 1998. Mr.
Mancuso was Senior Vice President/CIO of The Yarmouth Group, Inc., from 1994
until 1997, and was Senior Vice President of The Yarmouth Group, Inc. from 1991
until 1994. Mr. Mancuso held various positions at The Yarmouth Group, Inc. from
1982 through 1997.
 
     Diane M. Morefield has been Senior Vice President -- Investor Relations
since January 1999 and was Senior Vice President -- Finance/Capital Markets of
the Company from July 1997 until December 1998. Ms. Morefield was Senior Manager
in the Corporate Finance practice of Deloitte & Touche, a public accounting and
consulting firm, from November 1994 until July 1997. Ms. Morefield was Executive
Vice President of the Fordham Company, a real estate development company located
in Chicago, Illinois, from November 1993 until November 1994. Ms. Morefield was
Vice President and Team Leader for the Real Estate Group division, in the
Midwest, of Barclays Bank PLC from August 1983 until November 1993.
 
     Christopher P. Mundy has been Senior Vice President -- Northeast Region of
the Company since March 1998, and was Regional Vice President -- Northeast
Region from July 1997 until February 1998. Mr. Mundy was Vice
President -- Leasing of EOH from November 1991 until July 1997.
 
                                        8
<PAGE>   9
 
     David H. Naus has been Senior Vice President -- Acquisitions of the Company
since March 1997. Mr. Naus was Senior Vice President -- Acquisitions for EOH
from December 1995 until October 1997. Mr. Naus was Vice
President -- Acquisitions of EOH from July 1995 until December 1995. Mr. Naus
was Vice President -- Acquisitions of EOP, Inc. from November 1993 until July
1995. Mr. Naus was Vice President -- Acquisitions of EAM from November 1992
until November 1993. Mr. Naus was Vice President of EAM from October 1988 until
November 1992.
 
     Arvid A. Povilaitis has been Senior Vice President -- Central Region of the
Company since March 1998 and was Regional Vice President -- Central Region from
March 1997 until February 1998. Mr. Povilaitis was Vice President -- Asset
Management of EOH from August 1994 until February 1997. Mr. Povilaitis was Vice
President Investment Properties of Strategic Realty Advisors, Inc., a real
estate and advisory company, from January 1994 until August 1994. Mr. Povilaitis
was employed at VMS Realty Partners, a sponsor of public and private real estate
limited partnerships, from January 1983 until January 1994, most recently
serving as Second Vice President.
 
     John C. Schneider has been Senior Vice President -- Legal and Associate
General Counsel for Property Operations of the Company since July 1998. From
January 1997 until June 1998, Mr. Schneider was a Vice President of the Company.
From January 1994 until December 1996, Mr. Schneider was a vice president of
Rosenberg & Liebentritt, P.C.
 
     Mark E. Scully has been Senior Vice President -- Southeast Region of the
Company since March 1998 and was Regional Vice President for the Southeast
Region from March 1997 until February 1998. Mr. Scully was Vice
President -- Regional Leasing Director of EOH from January 1995 until February
1997. Mr. Scully was Regional Leasing Director of EOH from September 1991 until
December 1994.
 
     Michael E. Sheinkop has been Senior Vice President -- Real Estate Services
of the Company since January 1999 and was Senior Vice President -- Portfolio
Management of the Company from November 1997 until December 1998. Mr. Sheinkop
was Senior Vice President -- Divisional Manager of EOH from March 1997 until
October 1997 and for the Company from March 1997 through December 1997. Mr.
Sheinkop was Senior Vice President -- Asset Management of EOH from December 1995
until February 1997. Mr. Sheinkop was Vice President -- Asset Management of EOH
from July 1995 until December 1995. Mr. Sheinkop was Vice President -- Asset
Management of EOP, Inc. from November 1993 until July 1995. Mr. Sheinkop was
Vice President of EAM from March 1990 until November 1993.
 
                                  RISK FACTORS
 
     Set forth below are the risks that we believe are material to investors who
purchase or own our common or preferred shares of beneficial interest or units
of limited partnership interest of EOP Operating, which are redeemable on a
one-for-one basis for common shares or their cash equivalent, at our election.
We refer to the shares and the units together as our "securities," and the
investors who own shares and/or units as our "securityholders."
 
     WE MAY BE UNABLE TO MANAGE EFFECTIVELY OUR RAPID GROWTH AND EXPANSION INTO
NEW MARKETS.  We have grown rapidly since our IPO in July 1997. As of December
31, 1998, we owned interests in 284 office properties containing 75.1 million
square feet. We also owned interests in 19 parking facilities containing
approximately 18,059 parking spaces. On a square footage basis, our office
portfolio grew by 133% and our parking portfolio grew by 22%, based on the
number of parking spaces, from the time of our IPO in July 1997 through the end
of 1998. If we do not effectively manage our rapid growth, we may not be able to
make expected distributions to our securityholders.
 
     OUR PERFORMANCE AND SHARE VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY.  If our assets do not generate income sufficient to pay
our expenses, service our debt and maintain our properties, we
 
                                        9
<PAGE>   10
 
may not be able to make expected distributions to our securityholders. Factors
that may adversely affect the economic performance and value of our properties
include:
 
     -  changes in the national, regional and local economic climates;
 
     -  local conditions such as an oversupply of office properties or a
        reduction in demand for office properties;
 
     -  the attractiveness of our properties to tenants;
 
     -  competition from other available office properties;
 
     -  changes in market rental rates and the need to periodically repair,
        renovate and relet space;
 
     -  our ability to collect rent from tenants; and
 
     -  our ability to pay for adequate maintenance, insurance and other
        operating costs, including real estate taxes which may increase over
        time as markets stabilize, and which are not necessarily reduced when
        circumstances such as market factors and competition cause a reduction
        in income from the property.
 
     WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE.  When our
tenants decide not to renew their leases upon expiration, we may not be able to
relet the space. Even if the tenants do renew or we can relet the space, the
terms of renewal or reletting, including the cost of required renovations, may
be less favorable than current lease terms or less favorable than the market has
anticipated in the valuation of our shares. From now through December 31, 2003,
leases will expire on a total of 61% of the currently occupied rentable square
feet at our current properties. If we are unable to promptly renew the leases or
relet this space, or if the rental rates upon such renewal or reletting are
significantly lower than expected rates, then our cash flow and ability to
service debt and make distributions to securityholders would be adversely
affected.
 
     NEW ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED.  Assuming we are able to
obtain capital on commercially reasonable terms, we intend to continue to
actively acquire office and parking properties. Newly acquired properties may
fail to perform as expected. We may underestimate the costs necessary to bring
an acquired property up to standards established for its intended market
position.
 
     COMPETITION FOR ACQUISITIONS COULD RESULT IN INCREASED PRICES FOR
PROPERTIES.  We expect other major real estate investors with significant
capital will compete with us for attractive investment opportunities. These
competitors include publicly traded REITs, private REITs, investment banking
firms and private institutional investment funds. This competition could
increase prices for office properties.
 
     BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO SELL
PROPERTIES WHEN APPROPRIATE. Real estate investments generally cannot be sold
quickly. We may not be able to vary our portfolio promptly in response to
economic or other conditions. This inability to respond to changes in the
performance of our investments could adversely affect our ability to service
debt and make distributions to our securityholders.
 
     SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE.  We carry comprehensive
liability, fire, extended coverage and rental loss insurance on all of our
properties. There are, however, certain types of losses, such as lease and other
contract claims, that generally are not insured. Should an uninsured loss or a
loss in excess of insured limits occur, we could lose all or a portion of the
capital we have invested in a property, as well as the anticipated future
revenue from the property. In such an event, we might nevertheless remain
obligated for any mortgage debt or other financial obligations related to the
property.
 
     We carry earthquake insurance on all of our properties, including those
located in California. Our earthquake policies are subject to coverage
limitations. We cannot assure securityholders that material losses in excess of
insurance proceeds will not occur in the future.
 
     SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION.  Our business is subject to risks normally associated with debt
financing. If principal payments due at maturity cannot be refinanced, extended
or paid with proceeds of other capital transactions, such as new equity capital,
our cash flow will not be sufficient in all years to repay all maturing debt. If
prevailing interest rates or other factors at the time of refinancing, such as
the possible reluctance of lenders to make commercial real estate loans, result
in higher
                                       10
<PAGE>   11
 
interest rates, increased interest expense would adversely affect cash flow and
our ability to service debt and make distributions to securityholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Debt Financing."
 
     OUR OBLIGATION TO COMPLY WITH FINANCIAL COVENANTS IN OUR DEBT COULD
RESTRICT OUR RANGE OF OPERATING ACTIVITIES.  The mortgages on our properties
contain customary negative covenants, including limitations on our ability,
without the prior consent of the lender, to further mortgage the property, to
enter into new leases or materially modify existing leases. In addition, our
credit facilities contain customary restrictions, requirements to and other
limitations on our ability to incur indebtedness, including debt to assets
ratios, secured debt to total assets ratios, debt service coverage ratios and
minimum ratios of unencumbered assets to unsecured debt. The indenture under
which our senior unsecured debt is issued contains financial and operating
covenants including coverage ratios and limitations on our ability to incur
secured and unsecured indebtedness. These covenants reduce our flexibility in
conducting our operations and create a risk of default on our debt if we cannot
satisfy them.
 
     OUR DEGREE OF LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING.  Our "debt to market capitalization" ratio, which we calculate as
total debt as a percentage of total debt plus the value of our preferred shares
and the market value of our outstanding common shares and the outstanding units
of EOP Operating, was approximately 44.4% as of December 31, 1998. Our leverage
could have important consequences to securityholders, including affecting our
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, development or other general corporate
purposes and making us more vulnerable to a downturn in business or the economy
generally.
 
     RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW.  Advances under
our three credit facilities bear interest at variable rates based upon one-month
and 90-day LIBOR. We may borrow additional money with variable interest rates in
the future, and may enter into other transactions to limit our exposure to
rising interest rates as appropriate and cost effective. Increases in interest
rates, or the loss of the benefits of hedging agreements, would increase our
interest expenses, which would adversely affect cash flow and our ability to
service our debt and make distributions to securityholders.
 
     PROVISIONS OF OUR DECLARATION OF TRUST AND BYLAWS COULD INHIBIT CHANGES IN
CONTROL.  Provisions of our Declaration of Trust and bylaws may delay or prevent
a change in control or other transaction that could provide our shareholders
with a premium over the then-prevailing market price of their shares or which
might otherwise be in the best interest of our securityholders. These include a
staggered Board of Trustees and the share ownership limit for REIT tax purposes
described below.
 
     WE COULD ADOPT MARYLAND LAW LIMITATIONS ON CHANGES IN CONTROL.  Provisions
of Maryland law prohibit "business combinations," including certain issuances of
equity securities, between a Maryland REIT and any person who beneficially owns
ten percent or more of the voting power of its outstanding shares, or, in other
words, an "Interested Shareholder," or any affiliate of an Interested
Shareholder. Our Board of Trustees elected to opt out of these business
combinations provisions. The Board of Trustees may, however, repeal this
election and cause us to become subject to these provisions in the future,
except with respect to a shareholder who became an Interested Shareholder in
connection with our formation in July 1997.
 
     WE HAVE A SHARE OWNERSHIP LIMIT FOR REIT TAX PURPOSES.  Primarily to
facilitate maintenance of our REIT qualification, our Declaration of Trust
generally prohibits ownership by any single shareholder of more than 9.9%, in
value or number of shares, whichever is more restrictive, of any class or series
of our outstanding shares. We refer to this as the "ownership limit." The
federal tax laws include complex stock ownership and attribution rules that
apply in determining whether a shareholder exceeds the ownership limit. These
rules may cause a shareholder to be treated as owning the shares that are
actually owned by others, including family members and entities in which a
shareholder has an ownership interest. In limited circumstances, our Declaration
of Trust permits the Board of Trustees to waive or modify the ownership limit
with respect to certain shareholders. Absent any such modification or waiver,
shares acquired or held in violation of the ownership limit will be transferred
to a trust for the exclusive benefit of a designated charitable beneficiary, and
the shareholder's rights to distributions and to vote would terminate. Also, the
ownership limit could delay
 
                                       11
<PAGE>   12
 
or prevent a change in control and, therefore, could adversely affect our
shareholders' ability to realize a premium over the then-prevailing market price
for their shares.
 
     WE DO NOT CONTROL OUR MANAGEMENT AND SERVICES BUSINESSES.  To facilitate
maintenance of our REIT qualification, we have "noncontrolled subsidiaries" that
provide management and other services for properties that we do not wholly own.
While we generally own from 95% to 99% of the economic interest in the
noncontrolled subsidiaries, their voting stock is owned directly or indirectly
by private companies controlled by Mr. Zell. We therefore do not control the
timing or amount of distributions or the management and operation of the
noncontrolled subsidiaries, and this prevents us from controlling decisions
relating to the declaration and payment of distributions and the business
policies and operations of the noncontrolled subsidiaries. As of December 31,
1998, we had five noncontrolled subsidiaries, including:
 
     -  Equity Office Properties Management Corp. and Beacon Property Management
        Corporation, which we refer to as the "management companies," which
        manage several properties that we do not wholly own;
 
     -  Beacon Construction Company, Inc., which provides third-party
        construction services; and
 
     -  EOP Office Company, which owns a noncontrolling interest in Wright
        Runstad Associates Limited Partnership, a provider of third-party
        development and management services.
 
     MR. ZELL'S AFFILIATES CONTROL OUR MANAGEMENT COMPANIES AND CERTAIN OF THE
PROPERTIES WE MANAGE BUT DO NOT OWN.  The management companies and Beacon
Property Management, L.P. provide property management services and, in most
cases, asset management services to several properties, certain of which are
owned or controlled by affiliates of Mr. Zell. Most of these management
contracts were not negotiated on an arm's length basis. While we believe that
the management fees we receive from these properties are at current market
rates, we cannot assure securityholders that these management fees will equal at
all times those fees that would be charged by an unaffiliated third party. In
this regard, Mr. Zell controls and has a substantial interest in the private
company which has voting control of the management companies. See "We do not
control our management and services businesses" above.
 
     MR. ZELL AND HIS AFFILIATES CONTINUE TO BE INVOLVED IN OTHER INVESTMENT
ACTIVITIES.  Although Mr. Zell entered into a noncompetition agreement at the
time of the IPO, he and his affiliates have a broad and varied range of
investment interests, including interests in other real estate investment
companies. Mr. Zell's continued involvement in other investment activities could
result in competition for us as well as management decisions which might not
reflect the interests of our securityholders. Mr. Zell's noncompetition
agreement does not apply to activities outside the United States.
 
     ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND CAN BE COSTLY.  Federal, state and
local laws and regulations relating to the protection of the environment may
require a current or previous owner or operator of real estate to investigate
and clean up hazardous or toxic substances or petroleum product releases at such
property. If unidentified environmental problems arise, we may have to make
substantial payments which could adversely affect our cash flow and our ability
to make distributions to our shareholders because:
 
     -  the owner or operator may have to pay a governmental entity or third
        parties for property damage and for investigation and clean-up costs
        incurred by such parties in connection with the contamination;
 
     -  such laws typically impose clean-up responsibility and liability without
        regard to whether the owner or operator knew or caused the presence of
        the contaminants;
 
     -  even if more that one person may have been responsible for the
        contamination, each person covered by the environmental laws may be held
        responsible for all of the clean-up costs incurred; and
 
     -  third parties may sue the owner or operator of a site for damages and
        costs resulting from environmental contamination emanating from that
        site.
 
     Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require (1) that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, (2) that they notify and
train those who may come into contact with asbestos, and (3) that they undertake
                                       12
<PAGE>   13
 
special precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building. Such laws may impose
fines and penalties on building owners or operators who fail to comply with
these requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.
 
     Independent environmental consultants have conducted Phase I environmental
site assessments at all of our properties. These assessments included, at a
minimum, a visual inspection of the properties and the surrounding areas, an
examination of current and historical uses of the properties and the surrounding
areas and a review of relevant state, federal and historical documents. Where
appropriate, on a property by property basis, these consultants have conducted
additional testing, including sampling for asbestos, for lead in drinking water,
for soil contamination where underground storage tanks are or were located or
where other past site usages create a potential environmental problem, and for
contamination in groundwater.
 
     These environmental assessments have not revealed any environmental
liabilities at the properties that would require us to make payments of amounts
material to our business, nor are we aware of any such material environmental
liability. Asbestos is in a number of the office properties, but most of these
buildings contain only minor amounts. We believe this asbestos is in good
condition and almost none of it is easily crumbled so as to cause the release of
asbestos fibers. We are currently properly managing and maintaining all of the
asbestos and we are following other requirements relating to asbestos. The
presence of asbestos should not present a significant risk as long as compliance
with these requirements continues.
 
     For a few of the properties, the environmental assessments note potential
offsite sources of contamination such as underground storage tanks. For some of
the properties, the environmental assessments note previous uses, such as the
former presence of underground storage tanks. In most of these cases, follow-up
soil and/or groundwater sampling has not identified evidence of significant
contamination. In the few cases where contamination has been found, existing
plans to mitigate and monitor the sites and/or financial commitments from
certain prior owners and tenants to cover costs related to mitigation should
prevent the contamination from becoming a significant liability.
 
     WE ARE DEPENDENT ON OUR KEY PERSONNEL.  We depend on the efforts of Mr.
Zell and our executive officers, particularly Mr. Callahan. If they resigned,
our operations could be adversely affected. We do not have employment agreements
with Mr. Zell or our executive officers.
 
     CONTINGENT OR UNDISCLOSED LIABILITIES ACQUIRED IN MERGERS OR SIMILAR
TRANSACTIONS COULD REQUIRE US TO MAKE SUBSTANTIAL PAYMENTS.  The properties we
acquired in our formation and in our merger with Beacon Properties Corporation
were acquired subject to liabilities and without any recourse with respect to
unknown liabilities. In addition, we have acquired numerous other properties
where we have only limited recourse with respect to unknown liabilities. As a
result, if liability were asserted against us based upon any of those
properties, we might have to pay substantial sums to settle it. Any such
payments could adversely affect our cash flow and our ability to service debt
and make distributions to securityholders. Unknown liabilities with respect to
properties acquired might include:
 
     -  liabilities for clean-up or remediation of undisclosed environmental
        conditions;
 
     -  unasserted claims of tenants, vendors or other persons dealing with the
        former entities of the properties;
 
     -  liabilities incurred in the ordinary course of business; and
 
     -  claims for indemnification by general partners, directors, officers and
        others indemnified by the former owners of the properties.
 
     In the future, we may face additional risks of contingent or undisclosed
liabilities as a result of mergers, other business combinations or similar
transactions.
 
                                       13
<PAGE>   14
 
     OUR EARNINGS AND CASH DISTRIBUTIONS WILL AFFECT THE MARKET PRICE OF OUR
PUBLICLY TRADED SECURITIES.  We believe that the market value of a REIT's equity
securities is based primarily upon the market's perception of the REIT's growth
potential and its current and potential future cash distributions, and is
secondarily based upon the real estate market value of the underlying assets.
For that reason, our shares may trade at prices that are higher or lower than
the net asset value per share. To the extent we retain operating cash flow for
investment purposes, working capital reserves or other purposes, these retained
funds, while increasing the value of our underlying assets, may not
correspondingly increase the market price of our shares. Our failure to meet the
market's expectations with regard to future earnings and cash distributions
would likely adversely affect the market price of our publicly traded
securities.
 
     MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR PUBLICLY
TRADED SECURITIES.  One of the factors that investors consider important in
deciding whether to buy or sell shares of a REIT is the distribution rate on
such shares, considered as a percentage of the price of such shares, relative to
market interest rates. If market interest rates go up, prospective purchasers of
REIT shares may expect a higher distribution rate.Thus, higher market interest
rates could cause the market price of our shares to go down.
 
     WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL FOR FUTURE GROWTH.  To
qualify as a REIT, we must distribute to our shareholders each year at least 95%
of our net taxable income, excluding any net capital gain. For more information,
please refer to "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Annual Distribution Requirements Applicable to
REITs." Because of these distribution requirements, it is not likely that we
will be able to fund all future capital needs, including for acquisitions, from
income from operations. We therefore will have to rely on third-party sources of
capital which may or may not be available on favorable terms or at all. Our
access to third-party sources of capital depends on a number of things,
including the market's perception of our growth potential and our current and
potential future earnings. Moreover, additional equity offerings may result in
substantial dilution of securityholders' interests, and additional debt
financing may substantially increase our leverage.
 
     IF WE FAIL TO QUALIFY AS A REIT OUR SHAREHOLDERS WOULD BE ADVERSELY
AFFECTED.  We believe that, since our IPO in July 1997, we have qualified for
taxation as a REIT for federal income tax purposes. We plan to continue to meet
the requirements for taxation as a REIT but we cannot assure shareholders that
we will qualify as a REIT. Many of the REIT requirements are highly technical
and complex. The determination that Equity Office is a REIT requires an analysis
of various factual matters and circumstances that may not be totally within our
control. For example, to qualify as a REIT, at least 95% of our gross income
must come from certain sources that are itemized in the REIT tax laws. We are
also required to distribute to shareholders at least 95% of our REIT taxable
income, excluding capital gains. The fact that we hold our assets through EOP
Operating and its subsidiaries further complicates the application of the REIT
requirements. Even a technical or inadvertent mistake could jeopardize our REIT
status. Furthermore, Congress and the IRS might make changes to the tax laws and
regulations, and the courts might issue new rulings that make it more difficult,
or impossible, for us to remain qualified as a REIT. We do not believe, however,
that any pending or proposed tax law changes would jeopardize our REIT status.
 
     If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under
statutory provisions, we would remain disqualified as a REIT for the four years
following the year we first failed to qualify. If we failed to qualify as a
REIT, we would have to pay significant income taxes and would therefore have
less money available for investments or for distributions to shareholders. This
would likely have a significant adverse effect on the value of our securities.
In addition, we would no longer be required to make any distributions to
shareholders. See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Failure of Equity Office to Qualify as a REIT."
 
     WE PAY SOME TAXES.  Even if we qualify as a REIT, we are required to pay
certain federal, state and local taxes on our income and property. In addition,
any net taxable income earned directly by the noncontrolled subsidiaries is
subject to federal and state corporate income tax. See "Federal Income Tax
Considerations -- Other Tax Consequences for Equity Office and Its
Shareholders."
 
                                       14
<PAGE>   15
 
                       FEDERAL INCOME TAX CONSIDERATIONS
 
     The following discussion summarizes many federal income tax considerations
relating to Equity Office and to the acquisition, ownership and disposition of
common shares. If Equity Office offers one or more additional series of
preferred shares or debt securities, information about any additional federal
income tax considerations for the holders of such preferred shares or debt
securities will be included in the documents pursuant to which such securities
are offered. The following description is for general information only, is not
exhaustive of all possible tax considerations, and is not tax advice. For
example, this summary does not give a detailed discussion of any state, local or
foreign tax consequences. In addition, this discussion is intended to address
only those federal income tax considerations that are generally applicable for
all shareholders in Equity Office. It does not discuss all aspects of federal
income taxation that might be relevant to a specific shareholder in light of its
particular investment or tax circumstances or that might be relevant to
shareholders subject to special treatment under the federal income tax laws,
such as insurance companies, financial institutions or broker-dealers,
tax-exempt organizations or foreign corporations and persons who are not
citizens or residents of the United States.
 
     The information in this section is based on the Internal Revenue Code,
current, temporary and proposed regulations, the legislative history of the
Internal Revenue Code, current administrative interpretations and practices of
the IRS, including its practices and policies as endorsed in private letter
rulings, which are not binding on the IRS, and court decisions, all as of the
date hereof. No assurance can be given that future legislation, regulations,
administrative interpretations and court decisions will not significantly change
current law or adversely affect existing interpretations of current law. Any
such change could apply retroactively to transactions preceding the date of the
change. Except as described below in "-- Requirements for Qualification as a
REIT -- Income Tests Applicable to REITs," Equity Office has not received any
rulings from the IRS concerning the tax treatment of Equity Office or EOP
Operating. Thus no assurance can be provided that the statements set forth
herein will not be challenged by the IRS or will be sustained by a court if so
challenged.
 
     The specific tax attributes of a particular shareholder could have a
material impact on the tax considerations associated with the purchase,
ownership and disposition of common shares. Therefore, it is essential that each
prospective shareholder consult with his own tax advisors with regard to the
application of the federal income tax laws to such shareholder's personal tax
situation, as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
 
TAXATION OF EQUITY OFFICE AS A REIT
 
     GENERAL.  Equity Office has elected to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code, beginning with its taxable year
ended December 31, 1997. Equity Office believes that it is organized and has
operated in such a manner so as to qualify for taxation as a REIT under the
Internal Revenue Code and intends to continue to operate in such a manner.
Qualification and taxation as a REIT depends upon Equity Office's ability to
meet on a continuing basis the various qualification tests imposed on REITs by
the Internal Revenue Code. Given the highly complex nature of the REIT
qualification requirements, the ongoing importance of factual determinations and
the possibility of future changes in circumstances of Equity Office, no
assurance can be given that Equity Office has qualified as a REIT or will
continue to qualify as a REIT.
 
     The sections of the Internal Revenue Code and the corresponding regulations
that govern the federal income tax treatment of a REIT and its shareholders are
highly technical and complex. The following discussion is a summary of the
material aspects of these rules, which is qualified in its entirety by the
applicable Internal Revenue Code provisions, rules and regulations promulgated
thereunder and administrative and judicial interpretations thereof.
 
     So long as Equity Office qualifies for taxation as a REIT, it generally
will not be subject to federal corporate income tax on its net income that is
distributed currently to shareholders. This treatment substantially eliminates
the "double taxation" (i.e., taxation at both the corporate and shareholder
levels) that
 
                                       15
<PAGE>   16
 
generally results from investment in a regular corporation. However, Equity
Office will be subject to federal income tax as follows:
 
     1.  Equity Office will be taxed at regular corporate rates on any
         undistributed "REIT taxable income," and on undistributed net capital
         gains. REIT taxable income is the otherwise taxable income of the REIT
         subject to certain adjustments, including a deduction for dividends
         paid.
 
     2.  Under certain circumstances, Equity Office may be subject to the
         "alternative minimum tax" on its items of tax preference.
 
     3.  If Equity Office has net income from the sale or other disposition of
         "foreclosure property" that is held primarily for sale to customers in
         the ordinary course of business or other nonqualifying income from
         foreclosure property, it will be subject to tax at the highest
         corporate rate on such income.
 
     4.  Equity Office's net income from "prohibited transactions" will be
         subject to a 100% tax. In general, prohibited transactions are certain
         sales or other dispositions of property held primarily for sale to
         customers in the ordinary course of business other than foreclosure
         property.
 
     5.  If Equity Office fails to satisfy the 75% gross income test or the 95%
         gross income test discussed below, but nonetheless maintains its
         qualification as a REIT because certain other requirements are met, it
         will be subject to a tax equal to (1) the gross income attributable to
         the greater of the amount by which Equity Office fails the 75% or 95%
         test multiplied by (2) a fraction intended to reflect its
         profitability.
 
     6.  If Equity Office fails to distribute during each calendar year at least
         the sum of (1) 85% of its REIT ordinary income for such year, (2) 95%
         of its REIT capital gain net income for such year and (3) any
         undistributed taxable income from prior periods, Equity Office will be
         subject to a 4% excise tax on the excess of such required distribution
         over the sum of amounts actually distributed and amounts retained but
         with respect to which federal income tax was paid.
 
     7.  If Equity Office acquires any asset from a taxable "C" corporation in a
         transaction in which the basis of the asset in the hands of Equity
         Office is determined by reference to the basis of the asset, or any
         other asset, in the hands of the "C" corporation, and Equity Office
         recognizes gain on the disposition of such asset during the ten-year
         period beginning on the date on which such asset was acquired by Equity
         Office (the "Recognition Period"), then, to the extent of the asset's
         "built-in gain," such gain will be subject to tax at the highest
         regular corporate rate applicable. Built-in gain is the excess of the
         fair market value of an asset over Equity Office's adjusted basis in
         the asset, determined when Equity Office acquired the asset.
 
     The results described above regarding the recognition of built-in gain
assume that Equity Office has made or will make an election pursuant to IRS
Notice 88-19 with respect to the receipt of any built-in gain assets in any
carryover basis transaction in which assets are acquired from a taxable "C"
Corporation. Generally, a corporation with assets with net built-in gains must
recognize the gain at the time it transfers those assets to a REIT. If Equity
Office did not make an election pursuant to IRS Notice 88-19 with respect to
assets acquired in a tax-free merger with a corporation other than a REIT,
Equity Office would inherit the tax liability of the other corporation on those
built-in gains even though that merger otherwise qualified as a "tax-free
reorganization." Equity Office believes that each of the ZML REITs and Beacon
qualified as a REIT at the time of its merger into Equity Office. However, if
one of the ZML REITs or Beacon (as defined below) did not qualify as a REIT at
the time of its merger into Equity Office, Equity Office would inherit the tax
liability on the built-in gains attributable to the assets acquired in that
merger.
 
     REQUIREMENTS FOR QUALIFICATION AS A REIT.  The Internal Revenue Code
defines a REIT as a corporation, trust or association
 
     (1)  that is managed by one or more trustees or directors;
 
     (2)  the beneficial ownership of which is evidenced by transferable shares,
or by transferable certificates of beneficial interest;
 
                                       16
<PAGE>   17
 
     (3)  that would be taxable as a domestic corporation, but for Sections 856
through 860 of the Internal Revenue Code;
 
     (4)  that is neither a financial institution nor an insurance company
subject to certain provisions of the Internal Revenue Code;
 
     (5)  the beneficial ownership of which is held by 100 or more persons;
 
     (6)  during the last half of each taxable year not more than 50% in value
of the outstanding shares of which is owned directly or indirectly by five or
fewer individuals (as defined in the Internal Revenue Code to include certain
entities);
 
     (7)  that makes an election to be taxable as a REIT, or has made such
election for a previous taxable year which has not been revoked or terminated,
and satisfies all relevant filing and other administrative requirements
established by the IRS that must be met in order to elect and maintain REIT
status;
 
     (8)  that uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the Internal Revenue Code and regulations
promulgated thereunder; and
 
     (9)  that meets certain other tests, described below, regarding the nature
of its income and assets and the amount of its distributions.
 
     Conditions (1) to (4) inclusive must be met during the entire taxable year
and condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
For purposes of determining stock ownership under condition (6), a supplemental
unemployment compensation benefits plan, a private foundation or a portion of a
trust permanently set aside or used exclusively for charitable purposes
generally is considered an individual. However, a trust that is a qualified
trust under Internal Revenue Code Section 401(a) generally is not considered an
individual and beneficiaries of such trust are treated as holding shares of a
REIT in proportion to their actuarial interests in such trust for purposes of
condition (6).
 
     Equity Office believes that it has issued sufficient shares of beneficial
interest with sufficient diversity of ownership to allow it to satisfy the
conditions described in clauses (5)and (6) above. In addition, the Declaration
of Trust contains restrictions regarding the transfer of shares of beneficial
interest that are intended to assist Equity Office in continuing to satisfy the
share ownership requirements described in clauses (5) and (6) above. These
restrictions, however, may not ensure that Equity Office will, in all cases, be
able to satisfy the share ownership requirements described above. If Equity
Office fails to satisfy such share ownership requirements, its status as a REIT
will terminate.
 
     In connection with condition (6), a REIT is required to send annual letters
to its shareholders requesting information regarding the actual ownership of its
shares. For Equity Office's taxable years beginning on or after January 1, 1998,
if Equity Office complies with the annual letters requirement and it does not
know or, exercising reasonable diligence, would not have known of its failure to
meet condition (6), then it will be treated as having met condition (6).
 
     To qualify as a REIT, Equity Office cannot have at the end of any taxable
year any undistributed "earnings and profits" that are attributable to a
non-REIT taxable year. Equity Office has elected to be taxed as a REIT
commencing with its first taxable year. Therefore, Equity Office has not had any
undistributed non-REIT earnings and profits of its own. However, when Equity
Office merged in 1997 with each of the ZML REITs (defined, for these purposes,
as ZML Investors, Inc., ZML Investors II, Inc., Zell/Merrill Lynch Real Estate
Opportunity Partners III Trust and Zell/Merrill Lynch Real Estate Opportunity
Partners IV Trust, collectively) and with Beacon Properties Corporation
("Beacon"), Equity Office inherited any undistributed non-REIT earnings and
profits that those companies might have had at the time of the merger if, for
any reason, any of them had failed to qualify as a REIT at any point. Equity
Office believes that the ZML REITs and Beacon qualified as REITs throughout
their existence and that, in any event, none of the ZML REITs or Beacon had any
undistributed non-REIT earnings and profits at the time of their mergers with
Equity Office. However, the IRS could determine otherwise. If the IRS did
determine that Equity Office inherited undistributed non-REIT earnings and
profits, it appears that Equity Office could keep from being disqualified
                                       17
<PAGE>   18
 
as a REIT by using "deficiency dividend" procedures to distribute the non-REIT
earnings and profits. The deficiency dividend procedures would require Equity
Office to make a distribution to shareholders, in addition to the regularly
required REIT distributions, within 90 days of the IRS determination. In
addition, Equity Office would have to pay to the IRS an interest charge on 50%
of the non-REIT earnings and profits that were not distributed prior to December
31, 1997. However, it is possible that the IRS would determine that the
deficiency dividend procedure is not available to Equity Office, in which case
Equity Office would fail to qualify as a REIT. It is also possible that, even if
the procedure were available, Equity Office would be prohibited from qualifying
as a REIT for 1997, but would be allowed to qualify as a REIT for subsequent
years.
 
     QUALIFIED REIT SUBSIDIARIES.  If a REIT owns a corporate subsidiary that is
a "qualified REIT subsidiary" that subsidiary will be disregarded for federal
income tax purposes, and all assets, liabilities and items of income, deduction
and credit of the subsidiary will be treated as assets, liabilities and items of
income, deduction and credit of the REIT itself. Generally, a qualified REIT
subsidiary is a corporation all of the capital stock of which is owned by the
REIT. A qualified REIT subsidiary of Equity Office will not be subject to
federal corporate income taxation, although it may be subject to state and local
taxation in certain states.
 
     OWNERSHIP OF PARTNERSHIP INTERESTS BY A REIT.  A REIT that is a partner in
a partnership will be deemed to own its proportionate share of the assets of the
partnership and will be deemed to be entitled to the income of the partnership
attributable to such share. In addition, the character of the assets and gross
income of the partnership retain the same character in the hands of the REIT for
purposes of Section 856 of the Internal Revenue Code, including satisfying the
gross income tests and the asset tests. Thus, Equity Office's proportionate
share of the assets and items of income of EOP Operating, including EOP
Operating's share of such items of any subsidiaries that are partnerships or
LLCs, are treated as assets and items of income of Equity Office for purposes of
applying the requirements described herein. Equity Office has direct control
over EOP Operating, each of the ZML Opportunity Partnerships (which will be
liquidated and dissolved in July 1999), and each partnership or limited
liability company subsidiary of EOP Operating and intends to operate them in a
manner that is consistent with the requirements for qualification of Equity
Office as a REIT.
 
     INCOME TESTS APPLICABLE TO REITS.  To qualify as a REIT, Equity Office must
satisfy two gross income tests. First, at least 75% of Equity Office's gross
income, excluding gross income from prohibited transactions, for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property, including "rents from real property,"
gains on the disposition of real estate, dividends paid by another REIT and
interest on obligations secured by mortgages on real property or on interests in
real property, or from certain types of temporary investments. Second, at least
95% of Equity Office's gross income, excluding gross income from prohibited
transactions, for each taxable year must be derived from any combination of such
real property investments, dividends, interest, certain payments under hedging
instruments and gain from the sale or disposition of stock or securities and
certain hedging instruments.
 
     Rents received by Equity Office will qualify as rents from real property in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term rents from real property
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Second, rents received from a "related party tenant" will not qualify
as rents from real property in satisfying the gross income tests. A tenant is a
related party tenant if the REIT, or an actual or constructive owner of 10% or
more of the REIT, actually or constructively owns 10% or more of such tenant.
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property."
 
     Generally, for rents to qualify as rents from real property for the purpose
of satisfying the gross income tests, Equity Office is only allowed to provide
services that are "usually or customarily rendered" in connection with the
rental of real property and not otherwise considered "rendered to the occupant."
Accordingly, Equity
 
                                       18
<PAGE>   19
 
Office may not operate or manage the property or provide "impermissible
services" to the tenants except through an independent contractor that bears the
expenses of providing the services and from whom Equity Office derives no
revenue. However, Equity Office may provide some impermissible services
directly, provided that the "impermissible service income" at any particular
property for any taxable year does not exceed 1% of Equity Office's total income
from that property. For these purposes, impermissible service income is deemed
to be at least 150% of Equity Office's direct cost of providing the service. If
the impermissible service income does not exceed 1% of Equity Office's total
income from a property, the services will not cause the rent paid by tenants of
that property to fail to qualify as rents from real property, but the
impermissible service income will not qualify as rents from real property. If
the impermissible service income exceeds 1% of Equity Office's total income from
a property, then all of the income from that property will fail to qualify as
rents from real property.
 
     Equity Office will provide directly certain services at some or all of the
properties. However, based upon Equity Office's experience in the office rental
markets in which the properties are located, we believe that all services
provided to tenants by us either are usually or customarily rendered in
connection with the rental of office space for occupancy or, if considered
impermissible services, will not result in impermissible service income in
excess of the 1% threshold described above. However, there can be no assurance
that the IRS will not contend otherwise with respect to either of these
positions. In the past, Equity Office has engaged Tenant Services Corp., which
is owned by affiliates of Mr. Zell and was structured to qualify as an
independent contractor, to perform certain impermissible services that Equity
Office believes are customarily offered in institutional quality office
properties that might not be permissible for a REIT to perform directly. Equity
Office may continue to engage Tenant Services Corp. to perform impermissible
services that, if not performed by an independent contractor, would give rise to
impermissible service income in excess of 1% of the income from any given
property. Equity Office will monitor the activities at its properties to ensure
that the 1% threshold is not exceeded at any property.
 
     Equity Office does not and will not do any of the following:
 
     -  charge rent for any property that is based in whole or in part on the
        income or profits of any person, except by reason of being based on a
        percentage of receipts or sales, as described above, or unless Equity
        Office determines that the rent received from a particular tenant under
        such an arrangement is not material and will not jeopardize Equity
        Office's status as a REIT;
 
     -  rent any property to a related party tenant, unless Equity Office
        determines that the rent received from such related party tenant is not
        material and will not jeopardize Equity Office's status as a REIT;
 
     -  derive rental income attributable to personal property other than
        personal property leased in connection with the lease of real property,
        the amount of which either is less than 15% of the total rent received
        under the lease or is such that it will not jeopardize Equity Office's
        status as a REIT; or
 
     -  perform services considered to be rendered to the occupant of the
        property, other than through an independent contractor from whom Equity
        Office derives no revenue, except to the extent that the impermissible
        service income would not exceed the 1% threshold described above or
        Equity Office otherwise determines that the nonqualifying income
        resulting therefrom is not material and will not jeopardize Equity
        Office's status as a REIT.
 
     Equity Office has obtained a ruling from the IRS to the effect that amounts
received by EOP under agreements with third-party service companies for the
operation of parking facilities that are part of, adjacent to or within the same
complex as an Equity Office building, under which EOP Operating will bear the
expenses incurred in operating the parking facilities, will qualify as rents
from real property for purposes of satisfying the 95% and 75% gross income
tests. Parking facilities that are within one block of an Equity Office building
are considered adjacent for purposes of the ruling. The parking garages are
operated by third-party service companies pursuant to parking management
agreements under which the service companies receive a management fee which may
be a fixed dollar amount or a percentage of gross or net revenues.
 
                                       19
<PAGE>   20
 
     All but one of the stand-alone garages are operated by third party service
companies under lease agreements whereby EOP Operating and the service companies
share the gross receipts from the parking operation and EOP Operating receives
fixed rental payments from the service companies and bears none of the
operational expenses. The income received by EOP Operating from the stand-alone
garages under such agreements should qualify as rents from real properties for
the purposes of the 95% and 75% gross income tests. One stand-alone garage
agreement provides for the receipt of a percentage of net receipts by EOP
Operating and, therefore, results in nonqualifying gross income. However, the
amount of nonqualifying income received under this one agreement is
insignificant relative to the total gross income of Equity Office. Equity Office
believes that the income received under this agreement should not affect its
ability to satisfy the 95% and 75% gross income tests in the future.
 
     In addition, Equity Office may acquire interests in stand-alone parking
facilities that are owned by municipalities. Interests in these municipal
parking facilities may be acquired by entering into either leases or concession
agreements with the municipalities, under which Equity Office would have rights
and obligations that would be substantially similar to those of a ground lessee.
Equity Office would then enter into subconcession agreements, which would be
substantially similar to subleases, pursuant to which third-parties would
operate the parking facilities. Equity Office believes that any income received
pursuant to such subconcession agreements would either be qualifying income for
purposes of the 75% and 95% gross income tests or would be insignificant
relative to the total gross income of Equity Office, and, therefore, would not
affect Equity Office's ability to satisfy the 75% and 95% gross income tests in
the future.
 
     Equity Office has also received a ruling from the IRS to the effect that
revenue received by Equity Office with respect to certain telecommunications
services provided to tenants will qualify as rents from real property for
purposes of the 75% and 95% gross income tests and will not cause the rents
received by Equity Office from these tenants not to qualify as rents from real
property for purposes of the 75% and 95% income tests. The ruling addresses
revenue generated from the provision of telephone and other communications
services, e-mail, video communications, electronic research, internet access,
communication networking, safety and security systems and environmental control
systems, some of which will be provided through business relationships with
telecommunications service providers. Equity Office intends to provide these
telecommunication services only as described in the ruling received from the
IRS.
 
     "Interest" generally will not qualify under the 75% or 95% gross income
tests if it depends in whole or in part on the income or profits of any person.
However, interest will not fail to qualify under the income tests solely by
reason of being based on a fixed percentage or percentages or receipts or sales.
Equity Office does not expect to derive significant amounts of interest that
will not qualify under the 75% and 95% gross income tests. Beacon Property
Management Corporation and Beacon Construction Company, Inc., currently hold
options to acquire loans secured by the Rowes Wharf property. These options
expire on March 31, 1999 and are likely to be exercised prior to their
expiration. Such loans provide for payments of interest based upon cash flow and
might be recharacterized as equity interests. These loans could not be held
directly by Equity Office without jeopardizing our qualification as a REIT and
will continue to be held in a taxable "C corporation."
 
     Equity Office Properties Management Corp. and Beacon Property Management
Corp. conduct third-party management services with respect to properties not
wholly owned by EOP Operating. EOP Office Company, through its interest in
WRALP, provides development services with respect to properties that are not
wholly owned by EOP Operating. These entities collectively, together with Beacon
Construction Company, Inc., which is expected to cease operations upon
completion of its existing contracts, and Beacon Design Corporation, which has
an interest in a development project in Newton, Massachusetts, are referred to
as the noncontrolled subsidiaries. EOP Operating owns 100% of the non-voting
stock of each of the noncontrolled subsidiaries, 1% of the voting stock of
Beacon Property Management Corporation and Beacon Construction Company, Inc. and
none of the voting stock of any of the other noncontrolled subsidiaries. Each of
the noncontrolled subsidiaries is taxable as a regular "C corporation." Equity
Office's share of any dividends received from the noncontrolled subsidiaries
should qualify for purposes of the 95% gross income test but not for purposes of
the 75% gross income test. Equity Office does not anticipate that it will
receive sufficient dividends from the noncontrolled subsidiaries to cause it to
exceed the limit on nonqualifying income under the 75% gross income test.
                                       20
<PAGE>   21
 
     In addition to the 75% and 95% gross income tests, Equity Office had to
meet a 30% gross income test for its taxable year ended December 31, 1997. The
30% gross income test required that short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years,
apart from involuntary conversions and sales of foreclosure property, represent
less than 30% of Equity Office's gross income, including gross income from
prohibited transactions. The 30% gross income test is not applicable for taxable
years starting on or after January 1, 1998.
 
     If Equity Office fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Internal
Revenue Code. These relief provisions will generally be available if Equity
Office's failure to meet such tests is due to reasonable cause and not due to
willful neglect, and Equity Office attaches a schedule of the sources of its
income to its federal income tax return and any incorrect information on such
schedule is not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances Equity Office would be entitled
to the benefit of these relief provisions. For example, if Equity Office fails
to satisfy the gross income tests because nonqualifying income that Equity
Office intentionally incurs exceeds the limits on such income, the IRS could
conclude that the failure to satisfy the tests was not due to reasonable cause.
If these relief provisions are inapplicable to a particular set of circumstances
involving Equity Office, Equity Office will fail to qualify as a REIT. As
discussed above in "-- Taxation of Equity Office as a REIT General," even if
these relief provisions apply, a tax would be imposed with respect to the excess
net income. No similar relief provision is available if Equity Office failed the
30% income test for its taxable year ended December 31, 1997.
 
     Any gain realized by Equity Office on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business, including Equity Office's share of any such gain realized by
EOP Operating, will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of a trade
or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. EOP Operating intends
to hold the properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, and operating the
properties, and other properties, and to make such occasional sales of the
properties as are consistent with EOP Operating's investment objectives. There
can be no assurance, however, that the IRS might not contend that one or more of
such sales is subject to the 100% penalty tax.
 
     ASSET TESTS APPLICABLE TO REITS.  Equity Office, at the close of each
quarter of its taxable year, must satisfy three tests relating to the nature of
its assets. First, at least 75% of the value of Equity Office's total assets
must be represented by real estate assets. Equity Office's real estate assets
include, for this purpose, its allocable share of real estate assets held by EOP
Operating and the non-corporate subsidiaries of EOP Operating, as well as stock
or debt instruments held for less than one year purchased with the proceeds of a
stock offering, or long-term (at least five years) debt offering of Equity
Office, cash, cash items and government securities. Second, not more than 25% of
Equity Office's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by Equity Office may not
exceed 5% of the value of Equity Office's total assets, and, except for REITs or
qualified REIT subsidiaries, Equity Office may not own more than 10% of any one
issuer's outstanding voting securities.
 
     After initially meeting the asset tests at the close of any quarter, Equity
Office will not lose its status as a REIT for failure to satisfy the 25% or 5%
asset tests at the end of a later quarter solely by reason of changes in the
relative values of its assets. If the failure to satisfy the 25% or 5% asset
tests results from an acquisition of securities or other property during a
quarter, including, for example, as a result of Equity Office increasing its
interest in EOP Operating as a result of a merger, the exercise by limited
partners of their right to redeem units in EOP Operating, or an additional
capital contribution of proceeds of an offering of shares of beneficial interest
by Equity Office, the failure can be cured by disposition of sufficient
nonqualifying assets within 30 days after the close of that quarter. Equity
Office intends to maintain adequate records of the value of its assets to ensure
compliance with the asset tests and to take any available actions within 30 days
after the close
                                       21
<PAGE>   22
 
of any quarter as may be required to cure any noncompliance with the 25% or 5%
asset tests. If Equity Office fails to cure noncompliance with the asset tests
within such time period, Equity Office would cease to qualify as a REIT.
 
     Stock interests owned by Equity Office in another REIT are qualifying real
estate assets for purposes of the 75% gross asset test, and, consequently, such
stock interests are not subject to the 10% voting stock limitation described
above. EOP Operating currently owns 51.6% of the outstanding stock of BeaMetFed,
Inc., which has elected to be taxed as a REIT for federal income tax purposes.
As a REIT, BeaMetFed, Inc., is subject to the various REIT qualification
requirements described herein. Equity Office believes that BeaMetFed, Inc. has
been organized and has operated in a manner so as to qualify for taxation as a
REIT for federal income tax purposes and will continue to be organized and to
operate in such a manner. If BeaMetFed, Inc. were to fail to qualify as a REIT,
Equity Office's stock interests in BeaMetFed, Inc. would cease to be qualifying
real estate assets for purposes of the 75% gross asset test and would become
subject to the 10% voting stock limitation generally applicable to Equity
Office's ownership in corporations which are neither REITs nor qualified REIT
subsidiaries. Since Equity Office owns 51.6% of the outstanding stock of
BeaMetFed, Inc., upon any failure of BeaMetFed, Inc. to qualify as a REIT, the
10% voting stock limitation would not be satisfied and Equity Office itself
would fail to qualify as a REIT.
 
     EOP Operating does not own more than 1% of the voting stock of any of the
noncontrolled subsidiaries but it does own 100% of the nonvoting stock of each
of the noncontrolled subsidiaries. EOP Operating also may own nonvoting stock,
representing substantially all of the equity, in other corporate entities that
serve as partners or members in the various entities that hold title to the
properties. Neither Equity Office, EOP Operating, nor any of the non-corporate
subsidiaries of EOP Operating own more than 10% of the voting securities of any
entity that would be treated as a corporation for federal income tax purposes.
In addition, Equity Office and its senior management believe that its pro rata
share of the value of the securities of each of the noncontrolled subsidiaries
does not exceed 5% of the total value of Equity Office's assets. There can be no
assurance, however, that the IRS might not contend either that the value of the
securities of the noncontrolled subsidiaries held by Equity Office through the
ZML Opportunity Partnerships and EOP Operating exceeds the 5% value limitation
or that nonvoting stock of the noncontrolled subsidiaries or another corporate
entity owned by EOP Operating should be considered "voting stock" for this
purpose.
 
     CLINTON ADMINISTRATION'S PROPOSED CHANGES TO REIT QUALIFICATION
REQUIREMENTS.  The Clinton Administration's fiscal year 2000 budget proposal,
announced February 1, 1999, includes a proposal that would change the 10% voting
securities test to a 10% vote or value test. Under the proposal, a REIT would
not be able to own more than 10% of the vote or value of the outstanding
securities of any corporation, except for a qualified REIT subsidiary or another
REIT. The proposal also contains an exception to the 5% and 10% asset tests that
would allow a REIT to have "taxable REIT subsidiaries," including both
"qualified independent contractor subsidiaries," which could perform
noncustomary and other currently prohibited services for tenants and other
customers, and "qualified business subsidiaries," which could undertake
third-party management and development activities as well as other non-real
estate related activities. Under the proposal, no more than 15% of a REIT's
total assets could consist of taxable REIT subsidiaries and no more than 5% of a
REIT's total assets could consist of qualified independent contractor
subsidiaries. Under the budget proposal, a taxable REIT subsidiary would not be
entitled to deduct any interest on debt funded directly or indirectly by the
REIT. This proposal would be effective after the date of enactment and a REIT
would be allowed to combine and convert existing corporate subsidiaries into
taxable REIT subsidiaries tax-free prior to a certain date. A transition period
would allow for conversion of existing corporate subsidiaries before the 10%
vote or value test would become effective. For Equity Office's taxable years
after the effective date of the proposal and after any applicable transition
period, the 10% vote or value test would apply to Equity Office's ownership in
any of the noncontrolled subsidiaries not converted into taxable REIT
subsidiaries. It is presently uncertain whether any proposal regarding REIT
subsidiaries, including the budget proposal, will be enacted or, if enacted,
what the terms, including the effective date, of such proposal will be.
 
                                       22
<PAGE>   23
 
     ANNUAL DISTRIBUTION REQUIREMENTS APPLICABLE TO REITS.  Equity Office, in
order to qualify as a REIT, is required to distribute dividends, other than
capital gain dividends, to its shareholders in an amount at least equal to
 
     (i)  the sum of (a) 95% of Equity Office's REIT taxable income, computed
without regard to the dividends paid deduction and Equity Office's net capital
gain, and (b) 95% of the net income, after tax, if any, from foreclosure
property, minus
 
     (ii)  the sum of certain items of noncash income.
 
     In addition, if Equity Office recognizes any built-in gain, Equity Office
will be required, pursuant to IRS regulations which have not yet been
promulgated, to distribute at least 95% of the built-in gain, after tax,
recognized on the disposition of such asset. Such distributions must be paid
either in the taxable year to which they relate, or in the following taxable
year if declared before Equity Office timely files its tax return for such year
and if paid on or before the first regular dividend payment date after such
declaration. See "-- General" above for a discussion of the possible recognition
of built-in gain.
 
     To the extent that Equity Office does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its REIT taxable
income, as adjusted, it is subject to tax thereon at regular ordinary and
capital gain corporate tax rates. Equity Office, however, may designate some or
all of its retained net capital gain, so that, although the designated amount
will not be treated as distributed for purposes of this tax, a shareholder would
include its proportionate share of such amount in income, as capital gain, and
would be treated as having paid its proportionate share of the tax paid by
Equity Office with respect to such amount. The shareholder's basis in its shares
would be increased by the amount the shareholder included in income and
decreased by the amount of the tax the shareholder is treated as having paid.
Equity Office would make an appropriate adjustment to its earnings and profits.
For a more detailed description of the federal income tax consequences to a
shareholder of such a designation, see "-- Taxation of Taxable U.S. Shareholders
Generally."
 
     Equity Office intends to make timely distributions sufficient to satisfy
its annual distribution requirements. In this regard, EOP Operating's
partnership agreement authorizes Equity Office, as managing general partner, to
take such steps as may be necessary to cause EOP Operating to distribute to its
partners an amount sufficient to permit Equity Office to meet these distribution
requirements. It is expected that Equity Office's REIT taxable income will be
less than its cash flow due to the allowance of depreciation and other noncash
charges in computing REIT taxable income. Accordingly, Equity Office anticipates
that it will generally have sufficient cash or liquid assets to enable it to
satisfy the distribution requirements described above. It is possible, however,
that Equity Office, from time to time, may not have sufficient cash or other
liquid assets to meet these distribution requirements. In such event, in order
to meet the distribution requirements, Equity Office may find it necessary to
arrange for short-term, or possibly long-term borrowings to fund required
distributions or to pay dividends in the form of taxable stock dividends.
 
     Under certain circumstances, Equity Office may be able to rectify a failure
to meet the distribution requirement for a year by paying deficiency dividends
to shareholders in a later year, which may be included in Equity Office's
deduction for dividends paid for the earlier year. Thus, Equity Office may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, Equity Office will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
 
     Furthermore, if Equity Office should fail to distribute during each
calendar year at least the sum of 85% of its REIT ordinary income for such year,
95% of its REIT capital gain income for such year, and any undistributed taxable
income from prior periods, Equity Office would be subject to a 4% excise tax on
the excess of such required distribution over the sum of amounts actually
distributed during the calendar year by the REIT and the amount, if any, on
which the REIT paid income tax for such year.
 
     RECORDKEEPING REQUIREMENTS.  Pursuant to applicable IRS regulations, Equity
Office must comply with certain recordkeeping requirements to qualify for
taxation as a REIT.
 
                                       23
<PAGE>   24
 
     FAILURE OF EQUITY OFFICE TO QUALIFY AS A REIT.  If Equity Office fails to
qualify for taxation as a REIT in any taxable year and if the relief provisions
do not apply, Equity Office will be subject to tax, including any applicable
alternative minimum tax, on its taxable income at regular corporate rates.
Distributions to shareholders in any year in which Equity Office fails to
qualify will not be deductible by Equity Office nor will they be required to be
made. As a result, Equity Office's failure to qualify as a REIT would
significantly reduce the cash available for distributions by Equity Office to
its shareholders. In addition, if Equity Office fails to qualify as a REIT, all
distributions to shareholders will be taxable as ordinary income, to the extent
of Equity Office's current and accumulated earnings and profits. Subject to
certain limitations of the Internal Revenue Code, corporate distributees may be
eligible for the dividends received deduction with respect to these
distributions. Unless entitled to relief under specific statutory provisions,
Equity Office also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances Equity Office would be entitled
to such statutory relief.
 
TAXATION OF TAXABLE U.S. SHAREHOLDERS GENERALLY
 
     As used herein, the term "U.S. shareholder" means a holder of common shares
who for United States federal income tax purposes (i) is a citizen or resident
of the United States, (ii) is a corporation, partnership, or other entity
treated as a corporation or partnership for federal income tax purposes created
or organized in or under the laws of the United States or of any political
subdivision thereof, (iii) is an estate or trust the income of which is subject
to United States federal income taxation regardless of its source, or (iv) a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
 
     DISTRIBUTIONS BY EQUITY OFFICE.  As long as Equity Office qualifies as a
REIT, distributions made by Equity Office out of its current or accumulated
earnings and profits, and not designated as capital gain dividends, constitute
dividends taxable to its taxable U.S. shareholders as ordinary income. Such
distributions are not eligible for the dividends received deduction in the case
of U.S. shareholders that are corporations. To the extent that Equity Office
makes distributions not designated as capital gain dividends in excess of its
current and accumulated earnings and profits, such distributions are treated
first as a tax-free return of capital to each U.S. shareholder, reducing the
adjusted basis which such U.S. shareholder has in its shares for tax purposes by
the amount of such distribution but not below zero, with distributions in excess
of a U.S. shareholder's adjusted basis in its shares taxable as capital gains,
provided that the shares have been held as a capital asset. Dividends declared
by Equity Office in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by Equity Office and received by the shareholder on December 31 of
such year, provided that the dividend is actually paid by Equity Office on or
before January 31 of the following calendar year.
 
     Distributions made by Equity Office that are properly designated by Equity
Office as capital gain dividends are subject to special rules. They are taxed as
gain from the sale or exchange of a capital asset held for more than one year to
the extent that they do not exceed Equity Office's actual net capital gain for
the taxable year, without regard to the period for which a U.S. shareholder has
held its shares. In the event that Equity Office designates any portion of a
dividend as a "capital gain dividend," a U.S. shareholder's share of such
capital gain dividend would be an amount which bears the same ratio to the total
amount of dividends paid to such U.S. shareholder for the year as the aggregate
amount designated as a capital gain dividend bears to the aggregate amount of
all dividends paid on all classes of shares for the year.
 
     On November 10, 1997, the IRS issued Notice 97-64, which provides generally
that Equity Office may classify portions of its designated capital gain dividend
as either a 20% rate gain distribution, which would be taxable to non-corporate
U.S. shareholders, i.e. individuals, estates or trusts, at a maximum rate of
20%, an unrecaptured Section 1250 gain distribution which would be taxable to
non-corporate U.S. shareholders at a maximum rate of 25%, or a 28% rate gain
distribution which would be taxable to non-corporate U.S. shareholders at a
maximum rate of 28%. If no designation is made, the entire designated capital
gain dividend will be treated as a 28% rate gain distribution. Notice 97-64
provides that a REIT must determine the maximum amounts that it may designate as
20% and 25% rate capital gain dividends by performing the
                                       24
<PAGE>   25
 
computation required by the Internal Revenue Code as if the REIT were an
individual whose ordinary income were subject to a marginal tax rate of at least
28%. Notice 97-64 further provides that designations made by the REIT only will
be effective to the extent that they comply with Revenue Ruling 89-91, which
requires that distributions made to different classes of shares be composed
proportionately of dividends of a particular type. On July 22, 1998, as part of
the IRS Restructuring Act, the holding period requirement for the application of
the 20% and 25% capital gain tax rates was reduced to 12 months from 18 months
for sales of capital gain assets on or after January 1, 1998. Although Notice
97-64 will apply to sales of capital gain assets after July 28, 1997 and before
January 1, 1998, it is expected that the IRS will issue clarifying guidance,
most likely applying the same principles set forth in Notice 97-64, regarding a
REIT's designation of capital gain dividends in light of the new holding period
requirements. For a discussion of the capital gain tax rates applicable to
non-corporate U.S. shareholders, see " -- Taxpayer Relief Act and IRS
Restructuring Act Changes to Capital Gain Taxation" below.
 
     Distributions made by Equity Office that are properly designated by Equity
Office as capital gain dividends will be taxable to taxable corporate U.S.
shareholders as long-term capital gain to the extent that they do not exceed
Equity Office's actual net capital gain for the taxable year, at a maximum rate
of 35% without regard to the period for which such corporate U.S. shareholder
has held its shares. Such corporate U.S. shareholders may, however, be required
to treat up to 20% of certain capital gain dividends as ordinary income.
 
     U.S. shareholders may not include in their individual income tax returns
any net operating losses or capital losses of Equity Office. Instead, such
losses would be carried over by Equity Office for potential offset against
future income, subject to certain limitations. Distributions made by Equity
Office and gain arising from the sale or exchange by a U.S. shareholder of
shares will not be treated as passive activity income, and as a result, U.S.
shareholders generally will not be able to apply any "passive losses" against
such income or gain. In addition, taxable distributions from Equity Office
generally will be treated as investment income for purposes of the investment
interest limitations. Capital gain dividends and capital gains from the
disposition of shares, including distributions treated as such, however, will be
treated as investment income for purposes of the investment interest limitation
only if the U.S. shareholder so elects, in which case such capital gains will be
taxed at ordinary income rates. Equity Office will notify shareholders after the
close of Equity Office's taxable year as to the portions of distributions
attributable to that year that constitute ordinary income, return of capital and
capital gain.
 
     Equity Office may designate, by written notice to its shareholders, its net
capital gain so that with respect to retained net capital gains, a U.S.
shareholder would include its proportionate share of such gain in income, as
long-term capital gain, and would be treated as having paid its proportionate
share of the tax paid by Equity Office with respect to the gain. The U.S.
shareholder's basis in its shares would be increased by its share of such gain
and decreased by its share of such tax. With respect to such long-term capital
gain of a U.S. shareholder that is an individual or an estate or trust, the IRS,
as described below in this section, has authority to issue regulations that
could apply the special tax rate applicable generally to the portion of the
long-term capital gains of an individual or an estate or trust attributable to
deductions for depreciation taken with respect to depreciable real property. IRS
Notice 97-64, described above in this Section, did not address the taxation of
noncorporate REIT shareholders with respect to retained net capital gains.
 
     SALES OF SHARES.  Upon any sale or other disposition of shares, a U.S.
shareholder will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received on such sale or other disposition and (ii)
the holder's adjusted basis in such shares for tax purposes. Such gain or loss
will be a capital gain or loss if the shares have been held by the U.S.
shareholder as a capital asset. In the case of a U.S. shareholder who is an
individual or an estate or trust, such gain or loss will be long-term capital
gain or loss, and any such long-term capital gain shall be subject to the
maximum capital gain rate of 20%. In the case of a U.S. shareholder that is a
corporation, such gain or loss will be long-term capital gain or loss if such
shares have been held for more than one year, and any such capital gain shall be
subject to the maximum capital gain rate of 35%. In general, any loss recognized
by a U.S. shareholder upon the sale or other disposition of shares that have
been held for six months or less, after applying certain holding period rules,
will be treated as a long-term capital loss, to the extent of distributions
                                       25
<PAGE>   26
 
received by such U.S. shareholder from Equity Office that were required to be
treated as long-term capital gains.
 
     TAXPAYER RELIEF ACT AND IRS RESTRUCTURING ACT CHANGES TO CAPITAL GAIN
TAXATION.  The Taxpayer Relief Act of 1997 altered the taxation of capital gain
income. Under the Act, individuals, trust and estates that hold certain
investments for more than 18 months may be taxed at a maximum long-term capital
gain rate of 20% on the sale or exchange of those investments. Individuals,
trust and estates that hold certain assets for more than one year but not more
than 18 months may be taxed at a maximum long-term capital gain rate of 28% on
the sale or exchange of those investments. The Taxpayer Relief Act also provides
a maximum rate of 25% for "unrecaptured Section 1250 gain" for individuals,
trusts and estates, special rules for "qualified 5-year gain" and other changes
to prior law. The recently enacted IRS Restructuring Act of 1998, however,
reduced the holding period requirement established by the Taxpayer Relief Act
for the application of the 20% and 25% capital gain tax rates to 12 months from
18 months for sales of capital gain assets after December 31, 1997, and thus
eliminated the 28% rate. The Taxpayer Relief Act allows the IRS to prescribe
regulations on how the Taxpayer Relief Act's capital gain rates will apply to
sales of capital assets by "pass-through entities," including REITs, such as
Equity Office and to sales of interests in pass-through entities. For a
discussion of the rules under the Taxpayer Relief Act that apply to the taxation
of distributions by Equity Office to its shareholders that are designated by
Equity Office as capital gain dividends, see " -- Distributions by Equity
Office" above. Shareholders are urged to consult with their own tax advisors
with respect to the rules contained in the Taxpayer Relief Act and the IRS
Restructuring Act.
 
BACKUP WITHHOLDING FOR EQUITY OFFICE'S DISTRIBUTIONS
 
     Equity Office will report to its U.S. shareholders and the IRS the amount
of dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a U.S. shareholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless such
holder either is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. shareholder that does not provide Equity Office with a correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding is creditable against the shareholder's income
tax liability. In addition, Equity Office may be required to withhold a portion
of its capital gain distributions to any shareholders who fail to certify their
nonforeign status to Equity Office. See " -- Taxation of Non-U.S. Shareholders"
below.
 
TAXATION OF TAX-EXEMPT SHAREHOLDERS
 
     Provided that a tax-exempt shareholder has not held its common shares as
"debt financed property" within the meaning of the Internal Revenue Code and
such common shares are not otherwise used in a trade or business, the dividend
income from Equity Office will not be unrelated business taxable income ("UBTI")
to a tax-exempt shareholder. Similarly, income from the sale of shares will not
constitute UBTI unless such tax-exempt shareholder has held such shares as debt
financed property within the meaning of the Internal Revenue Code or has used
the shares in a trade or business.
 
     However, for tax-exempt shareholders that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation under
Code Sections 501 (c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from
an investment in Equity Office will constitute UBTI unless the organization is
able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its investment in Equity
Office. Such shareholders should consult their own tax advisors concerning these
"set aside" and reserve requirements.
 
     Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" are treated as UBTI as to any trust which is described in
Section 401(a) of the Internal Revenue Code, is tax-exempt under Section 501(a)
of the Internal Revenue Code, and holds more than 10%, by value, of the
 
                                       26
<PAGE>   27
 
interests in the REIT. Tax-exempt pension funds that are described in Section
401(a) of the Internal Revenue Code are referred to below as "qualified trusts."
 
     A REIT is a pension held REIT if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Internal Revenue Code provides
that stock owned by qualified trusts shall be treated, for purposes of the "not
closely held" requirement, as owned by the beneficiaries of the trust rather
than by the trust itself, and (ii) either (a) at least one such qualified trust
holds more than 25%, by value, of the interests in the REIT, or (b) one or more
such qualified trusts, each of which owns more than 10%, by value, of the
interests in the REIT, hold in the aggregate more than 50%, by value, of the
interests in the REIT. The percentage of any REIT dividend treated as UBTI is
equal to the ratio of the UBTI earned by the REIT, treating the REIT as if it
were a qualified trust and therefore subject to tax on UBTI, to the total gross
income of the REIT. An exception applies where the percentage is less than 5%
for any year. The provisions requiring qualified trusts to treat a portion of
REIT distributions as UBTI will not apply if the REIT is able to satisfy the not
closely held requirement without relying upon the "look-through" exception with
respect to qualified trusts. Based on both the current ownership shares and the
limitations on transfer and ownership of shares contained in the Declaration of
Trust, Equity Office does not expect to be classified as a pension held REIT.
 
TAXATION OF NON-U.S. SHAREHOLDERS
 
     The rules governing federal income taxation of the ownership and
disposition of common shares by non-U.S. shareholders are complex, and no
attempt is made herein to provide more than a brief summary of those rules.
Accordingly, this discussion does not address all aspects of federal income tax
and does not address state, local or foreign tax consequences that may be
relevant to a non-U.S. shareholder in light of its particular circumstances. In
addition, this discussion is based on current law, which is subject to change,
and assumes that Equity Office qualifies for taxation as a REIT. Prospective
non-U.S. shareholders should consult with their own tax advisers to determine
the impact of federal, state, local and foreign income tax laws with regard to
an investment in common shares, including any reporting requirements.
 
     DISTRIBUTIONS BY EQUITY OFFICE.  Distributions by Equity Office to a
non-U.S. shareholder that are neither attributable to gain from sales or
exchanges by Equity Office of United States real property interests nor
designated by Equity Office as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of Equity Office. Such distributions ordinarily
will be subject to withholding of United States federal income tax on a gross
basis (that is, without allowance of deductions) at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are treated as effectively connected with the conduct by the non-U.S.
shareholder of a United States trade or business. Under certain treaties,
however, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT, such as Equity Office. Certain certification and
disclosure requirements must be satisfied to be exempt from withholding under
the effectively connected income exemption. Dividends that are effectively
connected with such a trade or business will be subject to tax on a net basis
(that is, after allowance for deductions) at graduated rates, in the same manner
as U.S. shareholders are taxed with respect to such dividends, and are generally
not subject to withholding. Any such dividends received by a non-U.S.
shareholder that is a corporation may also be subject to an additional branch
profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Equity Office expects to withhold United States
income tax at the rate of 30% on any distributions made to a non-U.S.
shareholder unless (i) a lower treaty rate applies and any required form or
certification evidencing eligibility for that reduced rate is filed with Equity
Office or (ii) the non-U.S. shareholder files an IRS Form 4224 with Equity
Office claiming that the distribution is effectively connected income.
 
     Distributions in excess of current or accumulated earnings and profits of
Equity Office will not be taxable to a non-U.S. shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's common shares but
rather will reduce the adjusted basis of such common shares. To the extent that
such distributions exceed the adjusted basis of a non-U.S. shareholder's common
shares, they will give rise to gain from the sale or exchange of its common
shares, the tax treatment of which is described below.
 
                                       27
<PAGE>   28
 
     As a result of a legislative change made by the Small Business Job
Protection Act of 1996, it appears that Equity Office will be required to
withhold 10% of any distribution in excess of its current and accumulated
earnings and profits. Consequently, although Equity Office intends to withhold
at a rate of 30%, or a lower applicable treaty rate, on the entire amount of any
distribution, to the extent that Equity Office does not do so, any portion of a
distribution not subject to withholding at a rate of 30%, or a lower applicable
treaty rate, will be subject to withholding at a rate of 10%. However, a
non-U.S. shareholder may seek a refund of such amounts from the IRS if it
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of Equity Office, and the amount
withheld exceeded the non-U.S. shareholder's United States tax liability, if
any, with respect to the distribution.
 
     Distributions to a non-U.S. shareholder that are designated by Equity
Office at the time of the distributions as capital gain dividends, other than
those arising from the disposition of a United States real property interest,
generally will not be subject to United States federal income taxation unless
 
     (i) the investment in the common shares is effectively connected with the
         non-U.S. shareholder's United States trade or business, in which case
         the non-U.S. shareholder will be subject to the same treatment as U.S.
         shareholders with respect to such gain, except that a shareholder that
         is a foreign corporation may also be subject to the 30% branch profits
         tax, as discussed above, or
 
     (ii) the non-U.S. shareholder is a nonresident alien individual who is
          present in the United States for 183 days or more during the taxable
          year and has a "tax home" in the United States, in which case the
          nonresident alien individual will be subject to a 30% tax on the
          individual's capital gains.
 
     Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a non-U.S. shareholder that are attributable to gain from sales
or exchanges by Equity Office of United States real property interests, whether
or not designated as a capital gain dividend, will cause the non-U.S.
shareholder to be treated as recognizing such gain as income effectively
connected with a United States trade or business. Non-U.S. shareholders would
thus generally be taxed at the same rates applicable to U.S. shareholders,
subject to a special alternative minimum tax in the case of nonresident alien
individuals. Also, such gain may be subject to a 30% branch profits tax in the
hands of a non-U.S. shareholder that is a corporation, as discussed above.
Equity Office is required to withhold 35% of any such distribution. That amount
is creditable against the non-U.S. shareholder's United States federal income
tax liability.
 
     Although the law is not entirely clear on the matter, it appears that
amounts designated by Equity Office pursuant to the Taxpayer Relief Act as
undistributed capital gains in respect of the common shares held by U.S.
shareholders (see "-- Requirements for Qualification as a REIT -- Annual
Distribution Requirements Applicable to REITs" above) would be treated with
respect to non-U.S. shareholders in the manner outlined in the preceding two
paragraphs for actual distributions by Equity Office of capital gain dividends.
Under that approach, the non-U.S. shareholders would be able to offset as a
credit against their United States federal income tax liability resulting
therefrom their proportionate share of the tax paid by Equity Office on such
undistributed capital gains, and to receive from the IRS a refund to the extent
their proportionate share of such tax paid by Equity Office were to exceed their
actual United States federal income tax liability.
 
     SALE OF COMMON SHARES.  Gain recognized by a non-U.S. shareholder upon the
sale or exchange of common shares generally will not be subject to United States
taxation unless such shares constitute a "United States real property interest"
within the meaning of FIRPTA. The common shares will not constitute a United
States real property interest so long as Equity Office is a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its stock is
held directly or indirectly by non-U.S. shareholders. Equity Office believes
that it is a "domestically controlled REIT" and, therefore, that the sale of
common shares will not be subject to taxation under FIRPTA. However, because the
shares of Equity Office are publicly traded, no assurance can be given that
 
                                       28
<PAGE>   29
 
Equity Office will continue to be a domestically controlled REIT. In any event,
gain from the sale or exchange of common shares not otherwise subject to FIRPTA
will be taxable to a non-U.S. shareholder if either
 
     (i) the investment in the common shares is effectively connected with the
         non-U.S. shareholder's United States trade or business, in which case
         the non-U.S. shareholder will be subject to the same treatment as
         domestic shareholders with respect to such gain, or
 
     (ii) the non-U.S. shareholder is a nonresident alien individual who is
          present in the United States for 183 days or more during the taxable
          year and has a tax home in the United States, in which case the
          nonresident alien individual will be subject to a 30% tax on the
          individual's capital gains.
 
     Even if Equity Office does not qualify as or ceases to be a domestically
controlled REIT, gain arising from the sale or exchange by a non-U.S.
shareholder of common shares still would not be subject to United States
taxation under FIRPTA as a sale of a United States real property interest if:
 
     (i) the class or series of shares being sold is "regularly traded," as
         defined by applicable IRS regulations, on an established securities
         market such as the New York Stock Exchange, and
 
     (ii) the selling non-U.S. shareholder owned 5% or less of the value of the
          outstanding class or series of shares being sold throughout the
          five-year period ending on the date of the sale or exchange.
 
     If gain on the sale or exchange of common shares were subject to taxation
under FIRPTA, the non-U.S. shareholder would be subject to regular United States
income tax with respect to such gain in the same manner as a taxable U.S.
shareholder, subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations. The purchaser of the common shares would be required to withhold
and remit to the IRS 10% of the purchase price.
 
     BACKUP WITHHOLDING TAX AND INFORMATION REPORTING.  Backup withholding tax
generally is a withholding tax imposed at the rate of 31% on certain payments to
persons that fail to furnish certain information under the United States
information reporting requirements. Backup withholding and information reporting
will generally not apply to distributions paid to non-U.S. shareholders outside
the United States that are treated as dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, capital gain dividends or
distributions attributable to gain from the sale or exchange by Equity Office of
United States real property interests. As a general matter, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of common shares by or through a foreign office of a foreign broker. Generally,
information reporting will apply to a payment of the proceeds of a sale of
common shares by a foreign office of a broker that:
 
     (a) is a United States person,
 
     (b) derives 50% or more of its gross income for certain periods from the
         conduct of a trade or business in the United States, or
 
     (c) is a "controlled foreign corporation," which, in general, is a foreign
         corporation that is controlled by United States shareholders.
 
     If, however, the broker has documentary evidence in its records that the
holder is a non-U.S. shareholder and certain other conditions are met or the
shareholder otherwise establishes an exemption, information reporting will not
apply. Payment to or through a United States office of a broker of the proceeds
of a sale of common shares is subject to both backup withholding and information
reporting unless the shareholder certifies under penalty of perjury that the
shareholder is a non-U.S. shareholder, or otherwise establishes an exemption. A
non-U.S. shareholder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.
 
     The IRS has recently finalized regulations regarding the withholding and
information reporting rules discussed above. In general, these regulations do
not alter the substantive withholding and information reporting requirements but
unify certification procedures and forms and clarify and modify reliance
standards. These regulations generally are effective for payments made after
December 31, 1999, subject to certain
                                       29
<PAGE>   30
 
transition rules. Valid withholding certificates that are held on December 31,
1999, will remain valid until the earlier of December 31, 2000, or the date of
expiration of the certificate under rules currently in effect, unless otherwise
invalidated due to changes in the circumstances of the person whose name is on
such certificate. A non-U.S. shareholder should consult its own advisor
regarding the effect of the new regulations.
 
TAX ASPECTS OF EQUITY OFFICE'S OWNERSHIP OF INTERESTS IN THE ZML OPPORTUNITY
PARTNERSHIPS, EOP OPERATING AND THE SUBSIDIARY PARTNERSHIPS
 
     GENERAL.  Substantially all of Equity Office's investments are held
indirectly through the ZML Opportunity Partnerships (prior to July 1999) and EOP
Operating. The ZML Opportunity Partnerships were the predecessor owners of the
assets transferred to EOP Operating upon the occurrence of Equity Office's IPO
in July 1997). In general, partnerships are "pass-through" entities that are not
subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. Equity Office
includes in its income its proportionate share of the foregoing partnership
items for purposes of the various REIT income tests and in the computation of
its REIT taxable income. Moreover, for purposes of the REIT asset tests, Equity
Office includes its proportionate share of assets held through the ZML
Opportunity Partnerships and EOP Operating. See " -- Requirements for
Qualification as a REIT -- Ownership of Partnership Interests by a REIT" above.
 
     ENTITY CLASSIFICATION.  Equity Office believes that each of the ZML
Opportunity Partnerships and EOP Operating will be treated as a partnership for
federal income tax purposes and not as an association taxable as a corporation.
If any of the ZML Opportunity Partnerships, EOP Operating, or the Subsidiary
Partnerships were treated as an association, the entity would be taxable as a
corporation and therefore would be subject to an entity level tax on its income.
In such a situation, the character of Equity Office's assets and items of gross
income would change and would preclude Equity Office from qualifying as a REIT
(see " -- Requirements for Qualification as a REIT -- Asset Tests Applicable to
REITs" and " -- Income Tests Applicable to REITs" above). The same result could
occur if any LLC failed to qualify for treatment as a partnership or were not
disregarded for federal income tax purposes.
 
     Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the regulations in effect at that time used
to distinguish a partnership from a corporation for tax purposes. These four
characteristics were (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests. Under final
IRS regulations which became effective January 1, 1997, the four factor test has
been eliminated and an entity formed as a partnership or as a limited liability
will be taxed as a partnership for federal income tax purposes, unless it
specifically elects otherwise. The regulations provide that the IRS will not
challenge the classification of an existing partnership or limited liability
company for tax periods prior to January 1, 1997 so long as:
 
     (1)  the entity had a reasonable basis for its claimed classification,
 
     (2)  the entity and all its members recognized the federal income tax
consequences of any changes in the entity's classification within the 60 months
prior to January 1, 1997, and
 
     (3)  neither the entity nor any member of the entity had been notified in
writing on or before May 8, 1996 that the classification of the entity was under
examination by the IRS.
 
     Pursuant to Section 7704 of the Internal Revenue Code, however, a
partnership that does not elect to be treated as a corporation nevertheless will
be treated as a corporation for federal income tax purposes if it is a "publicly
traded partnership," unless at least 90% of its income consists of "qualifying
income" within the meaning of that section. A publicly traded partnership is any
partnership (i) the interests in which are traded on an established securities
market or (ii) the interests in which are readily tradeable on a "secondary
market or the substantial equivalent thereof." Units of limited partnership
interest in EOP Operating are not and will not be traded on an established
securities market. There is significant risk, however, that after the right to
redeem such units becomes exercisable, such interests would be considered
readily tradable on the substantial
 
                                       30
<PAGE>   31
 
equivalent of a secondary market. The income requirements generally applicable
to REITs and the definition of qualifying income under Section 7704 of the
Internal Revenue Code are similar in most key respects. There is one significant
difference, however, regarding rent received from related party tenants. For a
REIT, rent from a tenant does not qualify as rents from real property if the
REIT and/or one or more actual or constructive owners of 10% or more of the REIT
actually or constructively own 10% or more of the tenant; under Section 7704 of
the Internal Revenue Code, rent from a tenant is not qualifying income if a
partnership and/or one or more actual or constructive owners of 5% or more of
the partnership actually or constructively own 10% or more of the tenant.
 
     ALLOCATIONS OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION.  Although a
partnership agreement will generally determine the allocation of income and loss
among partners, such allocations will be disregarded for tax purposes if they do
not comply with the provisions of Section 704(b) of the Internal Revenue Code
and the applicable regulations. Generally, Section 704(b) and the applicable
regulations require that partnership allocations respect the economic
arrangement of the partners.
 
     If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss provided for in the ZML Opportunity Partnerships and the EOP Operating
agreements are intended to comply with the requirements of Section 704(b) of the
Internal Revenue Code and the regulations promulgated thereunder.
 
     TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES.  Pursuant to Section 704(c)
of the Internal Revenue Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the difference between the adjusted tax basis and the fair market value of such
property at the time of contribution associated with the property at the time of
contribution. The difference is known as the book-tax difference. Such
allocations are solely for federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners. Under regulations promulgated under Section 704 of the Internal
Revenue Code, similar rules apply when a partnership elects to "revalue" its
assets in certain situations, such as when a contribution of property is made to
a partnership by a new partner.
 
     EOP Operating's partnership agreement requires that such allocations be
made in a manner consistent with Section 704(c) of the Internal Revenue Code.
IRS regulations under Section 704(c) of the Internal Revenue Code provide
partnerships with a choice of several methods of accounting for book-tax
differences, including retention of the "traditional method" or the election of
certain alternative methods which would permit any distortions caused by a
book-tax difference to be entirely rectified on an annual basis or with respect
to a specific taxable transaction such as a sale. EOP Operating and Equity
Office have determined to use the traditional method of accounting for book-tax
differences with respect to the properties initially contributed to EOP
Operating in connection with its formation or subsequently acquired by merger or
contribution.
 
     In general, if any asset contributed to or revalued by EOP Operating is
determined to have a fair market value that is greater than its adjusted tax
basis, certain partners of EOP Operating including Equity Office will be
allocated lower amounts of depreciation deductions as to certain properties for
tax purposes by EOP Operating and increased taxable income and gain on sale.
Such allocations will tend to eliminate the book-tax difference over the life of
EOP Operating. However, the special allocation rules of Section 704(c) of the
Internal Revenue Code do not always entirely rectify the book-tax difference on
an annual basis or with respect to a specific transaction such as a sale. Thus,
Equity Office may be allocated lower depreciation and other deductions, and
possibly greater amounts of taxable income in the event of a sale of contributed
assets, and such amounts may be in excess of the economic or book income
allocated to it as a result of such sale. Such an allocation might cause Equity
Office to recognize taxable income in excess of cash proceeds, which might
adversely affect Equity Office's ability to comply with the REIT distribution
requirements. In this regard, it should be noted that as the managing general
partner of EOP Operating, Equity Office will
 
                                       31
<PAGE>   32
 
determine when and whether to sell any given property. See " -- Requirements for
Qualification as a REIT -- Annual Distribution Requirements Applicable to
REITs."
 
OTHER TAX CONSEQUENCES FOR EQUITY OFFICE AND ITS SHAREHOLDERS
 
     Equity Office and its shareholders are subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of Equity Office
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders of Equity Office should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in Equity Office.
 
     A portion of the cash to be used by Equity Office to fund distributions
comes from the noncontrolled subsidiaries through payment of dividends on the
shares of such corporations held by EOP Operating. The noncontrolled
subsidiaries pay federal and state income tax at the full applicable corporate
rates. To the extent that the noncontrolled subsidiaries are required to pay
federal, state or local taxes, the cash otherwise available for distribution by
Equity Office to shareholders will be reduced accordingly.
 
                                       32
<PAGE>   33
 
ITEM 2.  PROPERTIES.
 
     All capitalized terms used herein and not otherwise defined shall have the
meaning given in the Financial Statements set forth in Item 8.
 
GENERAL
 
     The Company's portfolio (based on revenue and square footage) is the
largest portfolio of office properties of any publicly traded, full-service
office company in the United States. As of December 31, 1998, the Company owned
or had an interest in 284 Office Properties containing approximately 75.1
million rentable square feet of office space and owned an interest in 19 Parking
Facilities containing approximately 18,059 parking spaces. The Office Properties
are located in 80 submarkets in 36 markets in 24 states and the District of
Columbia. The Office Properties by rentable square feet are located
approximately 53% in central business districts and approximately 47% in
suburban markets. As of December 31, 1998, the Office Properties were, on a
weighted average basis, 95.0% occupied by a total of 6,422 tenants, with no
single tenant accounting for more that 1.7% of the Company's aggregate
annualized rent (except for the U.S. General Services Administration, which
accounted for 3.5% of annualized rent.)
 
     All Property data is as of December 31, 1998.
 
OFFICE PROPERTIES BY REGION
<TABLE>
<CAPTION>
                                  NUMBER OF      APPROXIMATE       PERCENT OF TOTAL                        ANNUALIZED
                                    OFFICE     RENTABLE SQUARE    OFFICE PROPERTIES                           RENT
PRIMARY MARKET                    PROPERTIES        FEET         RENTABLE SQUARE FEET   PERCENT OCCUPIED   (000'S)(1)
--------------                    ----------   ---------------   --------------------   ----------------   ----------
<S>                               <C>          <C>               <C>                    <C>                <C>
Central.........................      31         13,339,779              17.8%                95.1%        $ 297,249
Northeast.......................      90         21,497,179              28.5%                97.1%          604,024
Southeast.......................      47          7,774,199              10.4%                95.5%          140,771
Southwest.......................      32         10,866,482              14.5%                91.4%          177,224
West............................      40         11,606,805              15.5%                94.3%          220,329
Pacific.........................      44         10,016,283              13.3%                94.8%          230,400
                                     ---         ----------             ------               ------        ----------
Total/Weighted Average..........     284         75,100,727             100.0%                95.0%        $1,669,996
                                     ===         ==========             ======               ======        ==========
 
<CAPTION>
                                    PERCENT OF                  ANNUALIZED RENT
                                     PORTFOLIO      NUMBER OF    PER OCCUPIED
PRIMARY MARKET                    ANNUALIZED RENT    LEASES     SQUARE FEET(1)
--------------                    ---------------   ---------   ---------------
<S>                               <C>               <C>         <C>
Central.........................       17.8%          1,196         $23.43
Northeast.......................       36.2%          1,508         $28.90
Southeast.......................        8.4%            577         $18.96
Southwest.......................       10.6%          1,155         $17.85
West............................       13.2%          1,279         $20.13
Pacific.........................       13.8%            707         $24.26
                                      ------          -----         ------
Total/Weighted Average..........      100.0%          6,422         $23.40
                                      ======          =====         ======
</TABLE>
 
---------------
 
(1) Annualized Rent is the monthly contractual rent under existing leases as of
    December 31, 1998, multiplied by 12. This amount reflects total base rent
    before any rent abatements, but includes expense reimbursements, which may
    be estimates. Total rent abatements for leases in effect as of December 31,
    1998, for the 12 months ending December 31, 1999, are approximately $7.1
    million.
 
OFFICE PROPERTY STATISTICS
 
     The following table sets forth certain information relating to each Office
Property as of December 31, 1998.
<TABLE>
<CAPTION>
                                                                                                                          PERCENT
                                                                                                                             OF
                                 NUMBER OF                  APPROXIMATE     PERCENT OF TOTAL                ANNUALIZED   PORTFOLIO
PRIMARY MARKET                     OFFICE     YEAR BUILT/    RENTABLE      OFFICE PROPERTIES     PERCENT       RENT      ANNUALIZED
SUB MARKET                       PROPERTIES    RENOVATED    SQUARE FEET   RENTABLE SQUARE FEET   OCCUPIED   (000'S)(1)      RENT
--------------                   ----------   -----------   -----------   --------------------   --------   ----------   ----------
<S>                              <C>          <C>           <C>           <C>                    <C>        <C>          <C>
CENTRAL REGION
Chicago
 Central Loop
   161 N. Clark................       1       1992           1,010,520             1.3%            98.4%    $   22,103       1.3%
   200 West Adams..............       1       1985/1996        677,222             0.9%            85.7%        12,747       0.8%
   30 N. LaSalle Street(2).....       1       1974/1990        925,950             1.2%            98.6%        21,366       1.3%
   One North Franklin..........       1       1991             617,592             0.8%            98.3%        13,583       0.8%
 Lake County
   Tri-State International.....       5       1986             546,263             0.7%            96.2%        11,872       0.7%
 
<CAPTION>
                                               ANNUALIZED
                                                  RENT
                                              PER OCCUPIED
PRIMARY MARKET                   NUMBER OF       SQUARE
SUB MARKET                        LEASES        FEET(1)
--------------                   ---------   --------------
<S>                              <C>         <C>
CENTRAL REGION
Chicago
 Central Loop
   161 N. Clark................       48         $22.22
   200 West Adams..............       59         $21.96
   30 N. LaSalle Street(2).....      125         $23.39
   One North Franklin..........       55         $22.38
 Lake County
   Tri-State International.....       42         $22.60
</TABLE>
 
                                       33
<PAGE>   34
<TABLE>
<CAPTION>
                                                                                                                          PERCENT
                                                                                                                             OF
                                 NUMBER OF                  APPROXIMATE     PERCENT OF TOTAL                ANNUALIZED   PORTFOLIO
PRIMARY MARKET                     OFFICE     YEAR BUILT/    RENTABLE      OFFICE PROPERTIES     PERCENT       RENT      ANNUALIZED
SUB MARKET                       PROPERTIES    RENOVATED    SQUARE FEET   RENTABLE SQUARE FEET   OCCUPIED   (000'S)(1)      RENT
--------------                   ----------   -----------   -----------   --------------------   --------   ----------   ----------
<S>                              <C>          <C>           <C>           <C>                    <C>        <C>          <C>
 O'Hare
   Presidents Plaza............       4       1980-1982        815,604             1.1%            97.4%        17,420       1.0%
   1700 Higgins................       1       1986             133,876             0.2%           100.0%         2,585       0.2%
 Oak Brook
   AT&T Plaza..................       1       1984             224,847             0.3%            86.6%         4,416       0.3%
   Oakbrook Terrace Tower......       1       1988             772,928             1.0%            89.4%        16,545       1.0%
   Westbrook Corporate
    Center.....................       5       1985-1996      1,107,372             1.5%            90.0%        27,824       1.7%
 West Loop
   10 & 30 South Wacker........       2       1983-1987      2,003,288             2.7%            98.0%        64,766       3.9%
   101 N. Wacker...............       1       1980/1990        575,294             0.8%            92.9%        12,294       0.7%
   Civic Opera House...........       1       1929/1996        841,778             1.1%            98.2%        14,360       0.9%
Indianapolis
 Downtown
   Bank One Center/Tower(2)....       2       1990           1,057,877             1.4%            94.8%        19,783       1.2%
Cleveland
 Downtown
   BP Tower....................       1       1985           1,242,144             1.7%            97.1%        20,100       1.2%
Columbus
 Downtown
   One Columbus Building.......       1       1987             407,472             0.5%            86.1%         8,293       0.5%
 Suburban
   Community Corporate Center..       1       1987             250,169             0.3%            98.7%         4,976       0.3%
   One Crosswoods Center.......       1       1984             129,583             0.2%            97.1%         2,215       0.1%
                                    ---                     ----------           ------           ------    ----------     ------
CENTRAL REGION TOTAL/WEIGHTED
 AVERAGE.......................      31                     13,339,779            17.8%            95.1%    $  297,249      17.8%
                                    ===                     ==========           ======           ======    ==========     ======
NORTHEAST REGION
Stamford
 Shelton
   Shelton Point...............       1       1985/1993        159,848             0.2%            96.0%    $    2,688       0.2%
 Stamford
   177 Broad Street............       1       1989             187,573             0.2%            96.3%         4,445       0.3%
   300 Atlantic Street.........       1       1987/1996        272,458             0.4%           100.0%         7,417       0.4%
   Canterbury Green(2).........       1       1987             224,405             0.3%            99.0%         6,481       0.4%
   One Stamford Plaza..........       1       1986/1994        212,244             0.3%           100.0%         5,479       0.3%
   Two Stamford Plaza..........       1       1986/1994        253,020             0.3%            98.2%         7,104       0.4%
   Three Stamford Plaza........       1       1980/1994        241,575             0.3%           100.0%         5,707       0.3%
   Four Stamford Plaza.........       1       1979/1994        260,581             0.3%           100.0%         5,497       0.3%
Washington D.C
 CBD
   1111 19th Street............       1       1979/1993        252,014             0.3%            99.5%         7,593       0.5%
   1620 L Street...............       1       1989             156,272             0.2%            99.3%         4,490       0.3%
   One Lafayette Centre........       1       1980/1993        314,634             0.4%            99.9%        10,047       0.6%
 East End
   1333 H Street...............       1       1982             244,585             0.3%           100.0%         6,928       0.4%
Boston
 East Cambridge
   One Canal Park..............       1       1987              98,154             0.1%            98.6%         2,570       0.2%
   Riverview I & II............       2       1985-1986        263,892             0.4%           100.0%         7,262       0.4%
   Ten Canal Park..............       1       1987             110,843             0.1%           100.0%         2,208       0.1%
 Financial District
   100 Summer Street...........       1       1974/1990      1,037,801             1.4%            99.8%        30,186       1.8%
   150 Federal Street..........       1       1988             529,730             0.7%           100.0%        15,109       0.9%
   175 Federal Street..........       1       1977             207,366             0.3%            99.2%         5,338       0.3%
   2 Oliver Street-147 Milk
    Street.....................       1       1988             270,302             0.4%            96.5%         5,256       0.3%
   225 Franklin Street.........       1       1966/1996        916,722             1.2%           100.0%        36,794       2.2%
   28 State Street.............       1       1968/1997        570,040             0.8%           100.0%        18,429       1.1%
   75-101 Federal Street(4)....       2       1988             811,054             1.1%            96.1%        27,769       1.7%
   One Post Office Square(3)...       1       1981             765,780             1.0%           100.0%        24,509       1.5%
   Rowes Wharf(2)(3)...........       3       1987             344,698             0.5%            99.2%        12,622       0.8%
   Russia Wharf................       1       1978-1982        312,833             0.4%            98.8%         5,485       0.3%
   South Station(2)............       1       1988             178,959             0.2%            99.9%         6,763       0.4%
 Government Center
   Center Plaza................       1       1969             637,069             0.8%            96.7%        17,432       1.0%
 
<CAPTION>
                                               ANNUALIZED
                                                  RENT
                                              PER OCCUPIED
PRIMARY MARKET                   NUMBER OF       SQUARE
SUB MARKET                        LEASES        FEET(1)
--------------                   ---------   --------------
<S>                              <C>         <C>
 O'Hare
   Presidents Plaza............       66         $21.93
   1700 Higgins................       15         $19.31
 Oak Brook
   AT&T Plaza..................       27         $22.67
   Oakbrook Terrace Tower......       60         $23.95
   Westbrook Corporate
    Center.....................      101         $27.91
 West Loop
   10 & 30 South Wacker........      135         $32.98
   101 N. Wacker...............       41         $23.00
   Civic Opera House...........      216         $17.38
Indianapolis
 Downtown
   Bank One Center/Tower(2)....       81         $19.72
Cleveland
 Downtown
   BP Tower....................       38         $16.67
Columbus
 Downtown
   One Columbus Building.......       28         $23.64
 Suburban
   Community Corporate Center..       41         $20.16
   One Crosswoods Center.......       18         $17.60
                                   -----         ------
CENTRAL REGION TOTAL/WEIGHTED
 AVERAGE.......................    1,196         $23.43
                                   =====         ======
NORTHEAST REGION
Stamford
 Shelton
   Shelton Point...............       12         $17.51
 Stamford
   177 Broad Street............       14         $24.60
   300 Atlantic Street.........       24         $27.22
   Canterbury Green(2).........       16         $29.16
   One Stamford Plaza..........       11         $25.81
   Two Stamford Plaza..........       20         $28.59
   Three Stamford Plaza........       13         $23.62
   Four Stamford Plaza.........       10         $21.10
Washington D.C
 CBD
   1111 19th Street............       29         $30.29
   1620 L Street...............       18         $28.95
   One Lafayette Centre........       22         $31.98
 East End
   1333 H Street...............       22         $28.33
Boston
 East Cambridge
   One Canal Park..............        7         $26.57
   Riverview I & II............        4         $27.52
   Ten Canal Park..............        1         $19.92
 Financial District
   100 Summer Street...........       26         $29.14
   150 Federal Street..........       23         $28.52
   175 Federal Street..........       31         $25.95
   2 Oliver Street-147 Milk
    Street.....................       42         $20.15
   225 Franklin Street.........       18         $40.14
   28 State Street.............       27         $32.33
   75-101 Federal Street(4)....       69         $35.63
   One Post Office Square(3)...       63         $32.01
   Rowes Wharf(2)(3)...........       45         $36.89
   Russia Wharf................       51         $17.75
   South Station(2)............       31         $37.83
 Government Center
   Center Plaza................       86         $28.31
</TABLE>
 
                                       34
<PAGE>   35
<TABLE>
<CAPTION>
                                                                                                                          PERCENT
                                                                                                                             OF
                                 NUMBER OF                  APPROXIMATE     PERCENT OF TOTAL                ANNUALIZED   PORTFOLIO
PRIMARY MARKET                     OFFICE     YEAR BUILT/    RENTABLE      OFFICE PROPERTIES     PERCENT       RENT      ANNUALIZED
SUB MARKET                       PROPERTIES    RENOVATED    SQUARE FEET   RENTABLE SQUARE FEET   OCCUPIED   (000'S)(1)      RENT
--------------                   ----------   -----------   -----------   --------------------   --------   ----------   ----------
<S>                              <C>          <C>           <C>           <C>                    <C>        <C>          <C>
 Northwest
   Crosby Corporate Center.....       6       1996             337,285             0.4%           100.0%         5,061       0.3%
   Crosby Corporate Center
    II.........................       3       1998             257,528             0.3%            54.3%         3,126       0.2%
   New England Executive Park..       9       1970-1985        817,008             1.1%            98.1%        19,101       1.1%
   The Tower at New England
    Executive Park.............       1       1971/1998        194,911             0.3%            20.4%           961       0.1%
 South
   Westwood Business Center....       1       1985             164,985             0.2%            91.8%         3,134       0.2%
 West
   Wellesley Office Park.......       8       1963-1984        641,793             0.9%            98.1%        16,997       1.0%
New York
 Columbus Circle
   Worldwide Plaza(5)..........       1       1989           1,704,624             2.3%            98.8%        70,357       4.2%
 Park/Lexington
   Park Avenue Tower(6)........       1       1986             550,894             0.7%            99.5%        35,061       2.1%
 Third Avenue
   850 Third Avenue............       1       1960/1996        562,567             0.7%           100.0%        16,888       1.0%
Philadelphia
 Center City
   1601 Market Street..........       1       1970             681,289             0.9%            93.9%        13,039       0.8%
   1700 Market Street..........       1       1969             841,172             1.1%            93.0%        16,071       1.0%
 Conshohocken
   Four Falls Corporate
    Center(3)..................       1       1988             254,355             0.3%            98.5%         6,211       0.4%
 King of Prussia/Valley Forge
   Oak Hill Plaza(3)...........       1       1982             164,360             0.2%           100.0%         3,015       0.2%
   Walnut Hill Plaza(3)........       1       1985             149,716             0.2%            99.4%         3,013       0.2%
 Main Line
   One Devon Square(2)(3)......       1       1984              73,267             0.1%            65.6%           877       0.1%
   Two Devon Square(3).........       1       1985              63,226             0.1%           100.0%         1,032       0.1%
   Three Devon Square(2)(3)....       1       1988               6,000             0.0%           100.0%           171       0.0%
 Plymouth Meeting/Blue Bell
   One Valley Square(3)........       1       1982              70,289             0.1%           100.0%         1,285       0.1%
   Two Valley Square(3)........       1       1990              70,622             0.1%           100.0%         1,359       0.1%
   Three Valley Square(3)......       1       1984              84,605             0.1%           100.0%         1,677       0.1%
   Four and Five Valley
    Square(3)..................       2       1988              68,321             0.1%           100.0%         1,377       0.1%
Norfolk
 Norfolk
   Dominion Tower(3)...........       1       1987             403,276             0.5%            99.2%         6,817       0.4%
Washington D.C
 Alexandria/Old Town
   1600 Duke Street............       1       1985              68,770             0.1%           100.0%         1,667       0.1%
 Crystal City
   Polk and Taylor Buildings...       2       1970             902,371             1.2%           100.0%        24,589       1.5%
 Fairfax/Center
   Centerpointe I & II.........       2       1988-1990        407,723             0.5%            97.3%         7,302       0.4%
   Fair Oaks Plaza.............       1       1986             177,917             0.2%            92.7%         2,885       0.2%
 Herndon/Dulles
   Northridge I................       1       1988             124,319             0.2%           100.0%         3,312       0.2%
 Reston
   Reston Town Center..........       3       1990             726,045             1.0%           100.0%        19,755       1.2%
 Rosslyn/Ballston
   1300 North 17th Street......       1       1980             380,199             0.5%            98.3%         9,663       0.6%
   1616 N. Fort Myer Drive.....       1       1974             292,826             0.4%           100.0%         7,427       0.4%
 Tyson's Corner
   E.J. Randolph...............       1       1983             164,906             0.2%           100.0%         3,815       0.2%
   John Marshall I.............       1       1981             255,558             0.3%           100.0%         5,370       0.3%
                                    ---                     ----------           ------           ------    ----------     ------
NORTHEAST REGION TOTAL/WEIGHTED
 AVERAGE.......................      90                     21,497,179            28.5%            97.1%    $  604,024      36.2%
                                    ===                     ==========           ======           ======    ==========     ======
SOUTHEAST REGION
Orlando
 Central Business District
   SunTrust Center.............       1       1988             640,385             0.9%            94.3%    $   14,964       0.9%
 
<CAPTION>
                                               ANNUALIZED
                                                  RENT
                                              PER OCCUPIED
PRIMARY MARKET                   NUMBER OF       SQUARE
SUB MARKET                        LEASES        FEET(1)
--------------                   ---------   --------------
<S>                              <C>         <C>
 Northwest
   Crosby Corporate Center.....        6         $15.01
   Crosby Corporate Center
    II.........................        4         $22.37
   New England Executive Park..       85         $23.84
   The Tower at New England
    Executive Park.............        3         $24.15
 South
   Westwood Business Center....       18         $20.69
 West
   Wellesley Office Park.......       83         $27.00
New York
 Columbus Circle
   Worldwide Plaza(5)..........       22         $41.79
 Park/Lexington
   Park Avenue Tower(6)........       25         $63.99
 Third Avenue
   850 Third Avenue............       26         $30.03
Philadelphia
 Center City
   1601 Market Street..........       77         $20.38
   1700 Market Street..........       60         $20.54
 Conshohocken
   Four Falls Corporate
    Center(3)..................       41         $24.79
 King of Prussia/Valley Forge
   Oak Hill Plaza(3)...........        4         $18.34
   Walnut Hill Plaza(3)........       22         $20.26
 Main Line
   One Devon Square(2)(3)......        8         $18.24
   Two Devon Square(3).........        6         $16.32
   Three Devon Square(2)(3)....        1         $28.47
 Plymouth Meeting/Blue Bell
   One Valley Square(3)........        6         $18.28
   Two Valley Square(3)........        7         $19.24
   Three Valley Square(3)......        6         $19.83
   Four and Five Valley
    Square(3)..................        5         $20.16
Norfolk
 Norfolk
   Dominion Tower(3)...........       54         $17.05
Washington D.C
 Alexandria/Old Town
   1600 Duke Street............        9         $24.24
 Crystal City
   Polk and Taylor Buildings...        9         $27.25
 Fairfax/Center
   Centerpointe I & II.........       12         $18.40
   Fair Oaks Plaza.............       35         $17.49
 Herndon/Dulles
   Northridge I................        1         $26.64
 Reston
   Reston Town Center..........       82         $27.21
 Rosslyn/Ballston
   1300 North 17th Street......       29         $25.86
   1616 N. Fort Myer Drive.....       11         $25.36
 Tyson's Corner
   E.J. Randolph...............       14         $23.13
   John Marshall I.............        2         $21.01
                                   -----         ------
NORTHEAST REGION TOTAL/WEIGHTED
 AVERAGE.......................    1,508         $28.90
                                   =====         ======
SOUTHEAST REGION
Orlando
 Central Business District
   SunTrust Center.............       47         $24.77
</TABLE>
 
                                       35
<PAGE>   36
<TABLE>
<CAPTION>
                                                                                                                          PERCENT
                                                                                                                             OF
                                 NUMBER OF                  APPROXIMATE     PERCENT OF TOTAL                ANNUALIZED   PORTFOLIO
PRIMARY MARKET                     OFFICE     YEAR BUILT/    RENTABLE      OFFICE PROPERTIES     PERCENT       RENT      ANNUALIZED
SUB MARKET                       PROPERTIES    RENOVATED    SQUARE FEET   RENTABLE SQUARE FEET   OCCUPIED   (000'S)(1)      RENT
--------------                   ----------   -----------   -----------   --------------------   --------   ----------   ----------
<S>                              <C>          <C>           <C>           <C>                    <C>        <C>          <C>
Sarasota
 Downtown
   Sarasota City Center........       1       1989             247,891             0.3%            97.5%         4,560       0.3%
Atlanta
 Central Perimeter
   Central Park................       2       1986             612,733             0.8%            95.8%        12,530       0.8%
   Lakeside Office Park........       5       1972-1978        390,721             0.5%            98.2%         6,101       0.4%
   One Perimeter Center........       4       1972-1986      1,264,027             1.7%            89.3%        21,577       1.3%
   Two Perimeter Center........      11       1971-1985        980,708             1.3%            93.7%        15,096       0.9%
   Three Perimeter Center......      14       1970-1989        557,435             0.7%            94.5%        10,086       0.6%
   Four Perimeter Center.......       3       1978-1981        483,796             0.6%           100.0%         9,300       0.6%
 Midtown
   Promenade II................       1       1990             770,840             1.0%            98.7%        17,361       1.0%
 Northwest
   Paces West..................       2       1988             641,263             0.9%            96.5%        13,084       0.8%
Charlotte
 Uptown
   Wachovia Center.............       1       1972/1994        581,666             0.8%           100.0%         6,927       0.4%
Raleigh/Durham
 South Durham
   University Tower............       1       1987/1992        181,221             0.2%            95.5%         3,375       0.2%
Nashville
 Downtown
   Nations Bank Plaza..........       1       1977/1995        421,513             0.6%            98.5%         5,809       0.3%
                                    ---                     ----------           ------           ------    ----------     ------
SOUTHEAST REGION TOTAL/WEIGHTED
 AVERAGE.......................      47                      7,774,199            10.4%            95.5%    $  140,771       8.4%
                                    ===                     ==========           ======           ======    ==========     ======
SOUTHWEST REGION
New Orleans
 CBD
   LL&E Tower..................       1       1987             545,157             0.7%            82.2%    $    7,117       0.4%
   Texaco Center                      1       1984             619,714             0.8%            87.7%         8,955       0.5%
 Metairie/E. Jefferson
   One Lakeway Center..........       1       1981/1996        289,112             0.4%            93.2%         4,259       0.3%
   Two Lakeway Center..........       1       1984/1996        440,826             0.6%            98.3%         7,338       0.4%
   Three Lakeway Center........       1       1987/1996        462,890             0.6%            97.3%         6,927       0.4%
Austin
 CBD
   Franklin Plaza..............       1       1987             517,849             0.7%            97.6%        10,353       0.6%
   One American Center(2)......       1       1984             505,770             0.7%            99.0%        10,143       0.6%
   San Jacinto Center..........       1       1987             400,329             0.5%            97.9%         8,222       0.5%
Dallas
 Central
   Eighty-Eighty Central.......       1       1984/1995        283,707             0.4%            93.6%         4,647       0.3%
 LBJ/Quorum
   Colonnade I & II............       2       1983-1985        606,615             0.8%            93.9%        11,152       0.7%
   Colonnade III...............       1       1998             377,639             0.5%            60.1%         4,681       0.3%
   Four Forest Plaza(3)........       1       1985             394,324             0.5%            92.5%         6,325       0.4%
   Lakeside Square.............       1       1987             397,328             0.5%            82.2%         7,412       0.4%
   North Central Plaza Three...       1       1986/1994        346,575             0.5%            82.3%         5,048       0.3%
 N. Central Expressway
   9400 NCX....................       1       1981/1995        379,556             0.5%            91.7%         5,408       0.3%
 Preston Center
   Preston Commons.............       3       1986             418,604             0.6%            84.5%         7,693       0.5%
   Sterling Plaza..............       1       1984/1994        302,747             0.4%            92.6%         5,410       0.3%
Ft. Worth
 W/SW Fort Worth
   Summitt Office Park.........       2       1974/1993        239,095             0.3%            97.8%         2,928       0.2%
Houston
 Galleria/West Loop
   San Felipe Plaza(3).........       1       1984             959,466             1.3%            93.5%        15,846       0.9%
 North Loop/Northwest
   Brookhollow Central.........       3       1972-1981        797,971             1.1%            86.9%        10,602       0.6%
 
<CAPTION>
                                               ANNUALIZED
                                                  RENT
                                              PER OCCUPIED
PRIMARY MARKET                   NUMBER OF       SQUARE
SUB MARKET                        LEASES        FEET(1)
--------------                   ---------   --------------
<S>                              <C>         <C>
Sarasota
 Downtown
   Sarasota City Center........       35         $18.88
Atlanta
 Central Perimeter
   Central Park................       67         $21.34
   Lakeside Office Park........       38         $15.90
   One Perimeter Center........      128         $19.11
   Two Perimeter Center........       69         $16.43
   Three Perimeter Center......       50         $19.16
   Four Perimeter Center.......        8         $19.22
 Midtown
   Promenade II................       26         $22.82
 Northwest
   Paces West..................       42         $21.14
Charlotte
 Uptown
   Wachovia Center.............        9         $11.91
Raleigh/Durham
 South Durham
   University Tower............       36         $19.50
Nashville
 Downtown
   Nations Bank Plaza..........       22         $14.00
                                   -----         ------
SOUTHEAST REGION TOTAL/WEIGHTED
 AVERAGE.......................      577         $18.96
                                   =====         ======
SOUTHWEST REGION
New Orleans
 CBD
   LL&E Tower..................       31         $15.89
   Texaco Center                      30         $16.47
 Metairie/E. Jefferson
   One Lakeway Center..........       48         $15.80
   Two Lakeway Center..........       80         $15.98
   Three Lakeway Center........       47         $16.29
Austin
 CBD
   Franklin Plaza..............       45         $20.48
   One American Center(2)......       33         $20.25
   San Jacinto Center..........       40         $20.97
Dallas
 Central
   Eighty-Eighty Central.......       36         $17.49
 LBJ/Quorum
   Colonnade I & II............       77         $19.58
   Colonnade III...............        8         $20.64
   Four Forest Plaza(3)........       52         $17.35
   Lakeside Square.............       22         $22.70
   North Central Plaza Three...       33         $17.71
 N. Central Expressway
   9400 NCX....................       69         $15.53
 Preston Center
   Preston Commons.............       68         $21.74
   Sterling Plaza..............       70         $19.31
Ft. Worth
 W/SW Fort Worth
   Summitt Office Park.........       57         $12.53
Houston
 Galleria/West Loop
   San Felipe Plaza(3).........      125         $17.66
 North Loop/Northwest
   Brookhollow Central.........       50         $15.29
</TABLE>
 
                                       36
<PAGE>   37
<TABLE>
<CAPTION>
                                                                                                                          PERCENT
                                                                                                                             OF
                                 NUMBER OF                  APPROXIMATE     PERCENT OF TOTAL                ANNUALIZED   PORTFOLIO
PRIMARY MARKET                     OFFICE     YEAR BUILT/    RENTABLE      OFFICE PROPERTIES     PERCENT       RENT      ANNUALIZED
SUB MARKET                       PROPERTIES    RENOVATED    SQUARE FEET   RENTABLE SQUARE FEET   OCCUPIED   (000'S)(1)      RENT
--------------                   ----------   -----------   -----------   --------------------   --------   ----------   ----------
<S>                              <C>          <C>           <C>           <C>                    <C>        <C>          <C>
 North/North Belt
   Intercontinental Center.....       1       1983/1991        194,801             0.3%           100.0%         2,881       0.2%
   Northborough Tower(3).......       1       1983/1990        207,908             0.3%            98.5%         3,036       0.2%
 West
   2500 CityWest...............       1       1982             574,216             0.8%            99.7%        12,156       0.7%
San Antonio
 Northwest
   Colonnade I.................       1       1983             168,637             0.2%            95.6%         2,589       0.2%
   Northwest Center............       1       1984/1994        241,248             0.3%            94.2%         3,011       0.2%
   Union Square................       1       1986             194,398             0.3%            92.2%         3,086       0.2%
                                    ---                     ----------           ------           ------    ----------     ------
SOUTHWEST REGION TOTAL/WEIGHTED
 AVERAGE.......................      32                     10,866,482            14.5%            91.4%    $  177,224      10.6%
                                    ===                     ==========           ======           ======    ==========     ======
WEST REGION
Anchorage
 Midtown
   Calais Office Center(2).....       2       1975             190,599             0.3%            99.8%    $    3,710       0.2%
Phoenix
 Central Corridor
   49 East Thomas Road(7)......       1       1974/1993         18,892             0.0%            61.4%           111       0.0%
   One Phoenix Plaza(8)........       1       1989             586,403             0.8%           100.0%         7,316       0.4%
Denver
 Downtown
   410 17th Street.............       1       1978             388,953             0.5%            88.1%         5,132       0.3%
   Denver Post Tower(2)........       1       1984             579,999             0.8%            85.6%         7,453       0.4%
   Dominion Plaza..............       1       1983             571,468             0.8%            86.4%         7,206       0.4%
   Tabor Center................       2       1985             674,278             0.9%            84.0%        11,836       0.7%
   Trinity Place...............       1       1983             189,163             0.3%            90.0%         2,266       0.1%
 Southeast
   4949 S. Syracuse............       1       1982              62,633             0.1%            86.4%           935       0.1%
   Denver Corporate Center II &
    III........................       2       1981/93-97       358,357             0.5%           100.0%         6,703       0.4%
   Metropoint..................       1       1987             263,719             0.4%            96.7%         5,164       0.3%
   Millennium Plaza............       1       1982             330,033             0.4%           100.0%         7,808       0.5%
   Solarium                           1       1982             162,817             0.2%            99.4%         2,952       0.2%
   Terrace Building............       1       1982             115,408             0.2%            83.5%         1,885       0.1%
   The Quadrant................       1       1985             313,302             0.4%            97.2%         6,040       0.4%
Minneapolis
 I-494
   Northland Plaza.............       1       1985             296,965             0.4%            95.7%         7,042       0.4%
 Minneapolis CBD
   LaSalle Plaza...............       1       1991             588,908             0.8%            97.5%        15,577       0.9%
St. Louis
 Mid County
   Interco Corporate Tower.....       1       1986             339,163             0.5%            98.9%         7,337       0.4%
Albuquerque
 Downtown
   500 Marquette Building......       1       1985             230,022             0.3%            92.7%         3,357       0.2%
 Uptown
   One Park Square.............       4       1985             262,020             0.3%            81.8%         3,812       0.2%
Oklahoma City
 Northwest
   5100 Brookline(3)...........       1       1974             105,459             0.1%            81.1%           832       0.0%
   Atrium Towers...............       2       1980/1995        155,865             0.2%            93.2%         1,361       0.1%
Portland
 Downtown
   1001 Fifth Avenue(2)........       1       1980             368,138             0.5%            93.9%         6,425       0.4%
Seattle
 Bellevue CBD
   One Bellevue Center(2)......       1       1983             344,715             0.5%            98.1%         7,595       0.5%
   Rainier Plaza(2)............       1       1986             410,855             0.5%            99.0%         8,966       0.5%
 
<CAPTION>
                                               ANNUALIZED
                                                  RENT
                                              PER OCCUPIED
PRIMARY MARKET                   NUMBER OF       SQUARE
SUB MARKET                        LEASES        FEET(1)
--------------                   ---------   --------------
<S>                              <C>         <C>
 North/North Belt
   Intercontinental Center.....       12         $14.79
   Northborough Tower(3).......       16         $14.83
 West
   2500 CityWest...............       26         $21.23
San Antonio
 Northwest
   Colonnade I.................       28         $16.05
   Northwest Center............       32         $13.25
   Union Square................       20         $17.22
                                   -----         ------
SOUTHWEST REGION TOTAL/WEIGHTED
 AVERAGE.......................    1,155         $17.85
                                   =====         ======
WEST REGION
Anchorage
 Midtown
   Calais Office Center(2).....       35         $19.50
Phoenix
 Central Corridor
   49 East Thomas Road(7)......       11         $ 9.58
   One Phoenix Plaza(8)........        1         $12.48
Denver
 Downtown
   410 17th Street.............       72         $14.97
   Denver Post Tower(2)........       30         $15.01
   Dominion Plaza..............       65         $14.59
   Tabor Center................      135         $20.90
   Trinity Place...............       41         $13.30
 Southeast
   4949 S. Syracuse............        7         $17.27
   Denver Corporate Center II &
    III........................       13         $18.71
   Metropoint..................       20         $20.25
   Millennium Plaza............        2         $23.66
   Solarium                           34         $18.24
   Terrace Building............       18         $19.54
   The Quadrant................       38         $19.84
Minneapolis
 I-494
   Northland Plaza.............       52         $24.77
 Minneapolis CBD
   LaSalle Plaza...............       32         $27.14
St. Louis
 Mid County
   Interco Corporate Tower.....       32         $21.87
Albuquerque
 Downtown
   500 Marquette Building......       33         $15.74
 Uptown
   One Park Square.............       47         $17.79
Oklahoma City
 Northwest
   5100 Brookline(3)...........       58         $ 9.73
   Atrium Towers...............       33         $ 9.37
Portland
 Downtown
   1001 Fifth Avenue(2)........       55         $18.60
Seattle
 Bellevue CBD
   One Bellevue Center(2)......       34         $22.46
   Rainier Plaza(2)............       60         $22.05
</TABLE>
 
                                       37
<PAGE>   38
<TABLE>
<CAPTION>
                                                                                                                          PERCENT
                                                                                                                             OF
                                 NUMBER OF                  APPROXIMATE     PERCENT OF TOTAL                ANNUALIZED   PORTFOLIO
PRIMARY MARKET                     OFFICE     YEAR BUILT/    RENTABLE      OFFICE PROPERTIES     PERCENT       RENT      ANNUALIZED
SUB MARKET                       PROPERTIES    RENOVATED    SQUARE FEET   RENTABLE SQUARE FEET   OCCUPIED   (000'S)(1)      RENT
--------------                   ----------   -----------   -----------   --------------------   --------   ----------   ----------
<S>                              <C>          <C>           <C>           <C>                    <C>        <C>          <C>
 CBD
   1111 Third Avenue...........       1       1980             528,282             0.7%            97.9%        10,171       0.6%
   Columbia Seafirst Center....       2       1985           1,537,932             2.0%            97.0%        35,321       2.1%
   First Interstate Center.....       1       1983             915,883             1.2%            96.6%        20,950       1.3%
   Nordstrom Medical Tower.....       1       1986             101,431             0.1%            98.5%         2,667       0.2%
   Second and Seneca
    Buildings..................       2       1991             480,272             0.6%           100.0%        10,249       0.6%
   Second and Spring
    Building...................       1       1906/1989        134,871             0.2%            80.6%         2,150       0.1%
                                    ---                     ----------           ------           ------    ----------     ------
WEST REGION TOTAL/WEIGHTED
 AVERAGE.......................      40                     11,606,805            15.5%            94.3%    $  220,329      13.2%
                                    ===                     ==========           ======           ======    ==========     ======
PACIFIC REGION
Los Angeles
 Downtown
   550 S. Hope.................       1       1991             566,434             0.8%            82.4%    $   10,235       0.6%
   Two California Plaza(2).....       1       1992           1,329,809             1.8%            88.9%        26,957       1.6%
 Pasadena
   Pasadena Towers.............       2       1990-91          439,367             0.6%            92.2%        11,369       0.7%
 Westwood
   10880 Wilshire Boulevard
    (2)........................       1       1970/1992        534,047             0.7%            94.7%        14,863       0.9%
   10960 Wilshire Boulevard....       1       1971/1992        543,804             0.7%            99.4%        15,974       1.0%
Orange County
 Airport Office Area
   1920 Main Plaza.............       1       1988             305,662             0.4%            97.7%         6,980       0.4%
   2010 Main Plaza.............       1       1988             280,882             0.4%            93.6%         6,675       0.4%
 Anaheim Stadium Area
   500 Orange Tower(9).........       1       1988             290,765             0.4%            94.3%         5,161       0.3%
 Town & Country
   1100 Executive Tower........       1       1987             366,747             0.5%            99.1%         6,542       0.4%
San Diego
 UTC
   Smith Barney Tower..........       1       1987             187,999             0.3%            94.6%         3,993       0.2%
   The Plaza at La Jolla
    Village(3).................       5       1987-1990        635,419             0.8%            89.9%        13,743       0.8%
San Francisco
 Financial District
   201 Mission Street..........       1       1981             483,289             0.6%            99.7%         8,395       0.5%
   301 Howard Building.........       1       1988             307,396             0.4%            86.8%         6,736       0.4%
   580 California..............       1       1984             313,012             0.4%           100.0%         8,585       0.5%
   60 Spear Street Building....       1       1967/1987        133,782             0.2%           100.0%         3,487       0.2%
   One Maritime Plaza..........       1       1967/1990        534,878             0.7%           100.0%        16,943       1.0%
   One Market(2)...............       1       1976/1995      1,460,081             1.9%            96.9%        40,928       2.5%
San Jose
 Mountain View
   Shoreline Technology Park...      12       1985-1991        726,508             1.0%           100.0%        13,665       0.8%
 Santa Clara
   Lake Marriott Business
    Park.......................       7       1981             401,402             0.5%           100.0%         5,949       0.4%
 Sunnyvale
   Sunnyvale Business Center...       3       1990             175,000             0.2%           100.0%         3,219       0.2%
                                    ---                     ----------           ------           ------    ----------     ------
PACIFIC REGION TOTAL/WEIGHTED
 AVERAGE.......................      44                     10,016,283            13.3%            94.8%    $  230,400      13.8%
                                    ---                     ----------           ------           ------    ----------     ------
PORTFOLIO TOTAL/WEIGHTED
 AVERAGE.......................     284                     75,100,727           100.0%            95.0%    $1,669,996     100.0%
                                    ===                     ==========           ======           ======    ==========     ======
 
<CAPTION>
                                               ANNUALIZED
                                                  RENT
                                              PER OCCUPIED
PRIMARY MARKET                   NUMBER OF       SQUARE
SUB MARKET                        LEASES        FEET(1)
--------------                   ---------   --------------
<S>                              <C>         <C>
 CBD
   1111 Third Avenue...........       47         $19.67
   Columbia Seafirst Center....      149         $23.67
   First Interstate Center.....       66         $23.68
   Nordstrom Medical Tower.....       23         $26.71
   Second and Seneca
    Buildings..................       30         $21.34
   Second and Spring
    Building...................        6         $19.79
                                   -----         ------
WEST REGION TOTAL/WEIGHTED
 AVERAGE.......................    1,279         $20.13
                                   =====         ======
PACIFIC REGION
Los Angeles
 Downtown
   550 S. Hope.................       38         $21.94
   Two California Plaza(2).....       35         $22.81
 Pasadena
   Pasadena Towers.............       35         $28.07
 Westwood
   10880 Wilshire Boulevard
    (2)........................       47         $29.38
   10960 Wilshire Boulevard....       32         $29.54
Orange County
 Airport Office Area
   1920 Main Plaza.............       43         $23.38
   2010 Main Plaza.............       27         $25.39
 Anaheim Stadium Area
   500 Orange Tower(9).........       47         $18.82
 Town & Country
   1100 Executive Tower........       24         $17.99
San Diego
 UTC
   Smith Barney Tower..........       21         $22.44
   The Plaza at La Jolla
    Village(3).................       84         $24.07
San Francisco
 Financial District
   201 Mission Street..........       19         $17.43
   301 Howard Building.........       25         $25.24
   580 California..............       27         $27.43
   60 Spear Street Building....        8         $26.07
   One Maritime Plaza..........       42         $31.68
   One Market(2)...............      121         $28.91
San Jose
 Mountain View
   Shoreline Technology Park...       12         $18.81
 Santa Clara
   Lake Marriott Business
    Park.......................       17         $14.82
 Sunnyvale
   Sunnyvale Business Center...        3         $18.40
                                   -----         ------
PACIFIC REGION TOTAL/WEIGHTED
 AVERAGE.......................      707         $24.26
                                   -----         ------
PORTFOLIO TOTAL/WEIGHTED
 AVERAGE.......................    6,422         $23.40
                                   =====         ======
</TABLE>
 
---------------
 
(1) Annualized Rent is the monthly contractual rent under existing leases as of
    December 31, 1998, multiplied by 12. This amount reflects total base rent
    before any rent abatements, but includes expense reimbursements, which may
    be estimates. Total rent abatements for leases in effect as of December 31,
    1998, for the 12 months ending December 31, 1999, are approximately $7.1
    million.
 
(2) All or a portion of this Office Property is held subject to a ground lease.
 
(3) This Office Property is held in a partnership with an unaffiliated third
    party and, in the case of San Felipe Plaza, an affiliated party.
 
                                       38
<PAGE>   39
 
(4) This Office Property is held in a private real estate investment trust in
    which the Company owns 51.6% of the outstanding shares.
 
(5) The Company's interest in the amenities component of this Office Property is
    primarily attributable to its ownership of mortgage indebtedness encumbering
    the theatre/plaza, retail, health club and parking facilities associated
    therewith.
 
(6) The Company acquired a $295 million first mortgage note secured by this
    Office Property for approximately $244.9 million. In accordance with certain
    agreements concerning the first mortgage note, the Company controls
    financial and operational decisions for the Property and is entitled to
    substantially all cash flow and residual profit. Accordingly, the Company
    consolidated the financial position and results of operations of the
    Property.
 
(7) This Office Property was purchased in conjunction with the purchase of One
    Phoenix Plaza for the sole purpose of providing additional parking for the
    tenants of One Phoenix Plaza.
 
(8) This Office Property is 100% leased to a single tenant on a triple net
    basis, whereby the tenant pays for certain operating expenses directly,
    rather than reimbursing the Company. The amounts shown above for annualized
    rent include the amounts of reimbursement of expenses paid by the Company
    but do not make any adjustments for expenses paid directly by the tenant.
 
(9) This Office Property is held subject to an interest in the improvements at
    the Property held by an unaffiliated third party. In addition, the Company
    has a mortgage interest in such improvements.
 
PARKING FACILITIES
 
     Information concerning the Parking Facilities as of December 31, 1998 is
set forth below.
 
<TABLE>
<CAPTION>
                                                                                 NUMBER OF   NUMBER OF      MANAGEMENT
REGION NAME        PROPERTY NAME                           STATE   CITY           SPACES      GARAGES       COMPANY(1)
-----------        --------------------------------------  -----   ------------  ---------   ---------   ----------------
<S>                <C>                                     <C>     <C>           <C>         <C>         <C>
CENTRAL
                   Adams-Wabash Garage                      IL     Chicago           670          1      Standard Parking
                   Theater District Garage(2)               IL     Chicago         1,006          1      Standard Parking
                   203 North LaSalle Garage(2)              IL     Chicago         1,172          1      Standard Parking
                   Capitol Commons Garage(2)(3)             IN     Indianapolis      950          1      Central Parking
                   Milwaukee Center Garage(3)               WI     Milwaukee         876          1      Standard Parking
NORTHEAST
                   Boston Harbor Garage                     MA     Boston          1,380          1      Standard Parking
                   1616 Sansom Street Garage                PA     Philadelphia      240          1      Central Parking
                   1111 Sansom Street Garage                PA     Philadelphia      250          1      Central Parking
                   Juniper/Locust Street Garage             PA     Philadelphia      541          1      Central Parking
                   15th & Sansom Street Garage              PA     Philadelphia      313          1      Central Parking
                   1602-34 Chancellor Garage                PA     Philadelphia      416          1      Central Parking
                   Stanwix Parking Garage                   PA     Pittsburgh        712          1      Standard Parking
                   Forbes & Allies Garage(4)                PA     Pittsburgh      1,310          2      Central Parking
SOUTHWEST
                   601 Tchoupitoulas                        LA     New Orleans       759          1      Central Parking
WEST
                   St. Louis Parking Garages(5)             MO     St. Louis       7,464          4      Central Parking
                                                                                  ------        ---
TOTAL EOP STAND-ALONE                                                             18,059         19
TOTAL EOP PORTFOLIO                                                               69,497         85
                                                                                  ------        ---
GRAND TOTAL                                                                       87,556        104
                                                                                  ======        ===
</TABLE>
 
---------------
 
(1) With the exception of Capitol Commons Garage, all of the named Parking
    Facilities are operated by the designated third-party service companies
    (each, a "Service Company") under a lease agreement whereby the Company and
    the Service Company share the gross receipts from the parking operation or
    the Company receives a fixed payment from the Service Company, and the
    Company bears none of the operational expenses. In the case of Capitol
    Commons Garage, the operating agreement provides for the Company's receipt
    of a percentage of net receipts and, therefore, results in an insignificant
    amount of
 
                                       39
<PAGE>   40
 
     non-qualifying gross income for REIT qualification purpose relative to the
     total gross income of the Company.
 
(2) Each of these Parking Facilities is held in a partnership with an
    unaffiliated third party. The Company or a Subsidiary is the managing
    general partner of each such partnership.
 
(3) This Parking Facility is held subject to a ground lease.
 
(4) The Company acquired a leasehold interest in these Parking Facilities. The
    lease is for a term of 50 years with four five-year options to renew.
    Pursuant to the lease, the Company is required to make annual rent payments
    of $172,500, and is required to make certain capital improvements to the
    garages of approximately $10.0 million during the first ten years of the
    lease. The Company has accounted for this transaction as a capital lease.
 
(5) The Company has a 50% membership interest in a portfolio of four Parking
    Facilities serving the St. Louis, Missouri area.
 
TENANTS
 
     As of December 31, 1998, the Office Properties were leased to 6,422
tenants; no single tenant accounted for more than 1.7% of the Company's
aggregate annualized rent or 1.5% of aggregate occupied square feet (except for
the U.S. General Services Administration, acting on behalf of various agencies
or departments of the U.S. government, which accounted for 3.5% of annualized
rent and 3.2% of occupied square feet).
 
LEASE EXPIRATIONS BY REGION AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
                                  1999 AND
                                  MONTH TO
                                   MONTH           2000           2001           2002           2003           2004
                                ------------   ------------   ------------   ------------   ------------   ------------
<S>                             <C>            <C>            <C>            <C>            <C>            <C>
CENTRAL REGION TOTALS
Square Feet (1)..............      1,058,880      1,189,236        971,560      1,072,414      1,702,602        964,295
% Square Feet (2)............           7.9%           8.9%           7.3%           8.0%          12.8%           7.2%
Annualized Rent (3)..........   $ 25,806,328   $ 29,143,061   $ 21,965,146   $ 26,531,315   $ 48,716,986   $ 23,280,366
Number of Leases.............            245            179            190            152            144             83
Rent Per Square Foot.........   $      24.37   $      24.51   $      22.61   $      24.74   $      28.61   $      24.14
 
NORTHEAST REGION TOTALS
Square Feet (1)..............      1,451,785      1,766,261      3,286,026      3,208,015      2,124,409      1,299,915
% Square Feet (2)............           6.8%           8.2%          15.3%          14.9%           9.9%           6.0%
Annualized Rent (3)..........   $ 36,618,104   $ 46,553,668   $105,003,832   $ 88,593,793   $ 61,781,333   $ 32,835,283
Number of Leases.............            255            234            236            229            218             87
Rent Per Square Foot.........   $      25.22   $      26.36   $      31.95   $      27.62   $      29.08   $      25.26
 
SOUTHEAST REGION TOTALS
Square Feet (1)..............      1,312,362      1,045,440      1,405,445        772,519        387,564        370,319
% Square Feet (2)............          16.9%          13.4%          18.1%           9.9%           5.0%           4.8%
Annualized Rent (3)..........   $ 21,944,149   $ 21,426,163   $ 25,891,378   $ 16,082,280   $  8,407,677   $  5,718,163
Number of Leases.............            149            103            117            101             48             22
Rent Per Square Foot.........   $      16.72   $      20.49   $      18.42   $      20.82   $      21.69   $      15.44
 
SOUTHWEST REGION TOTALS
Square Feet (1)..............      1,315,199      1,876,183      1,438,426      1,398,074      1,424,566        854,365
% Square Feet (2)............          12.1%          17.3%          13.2%          12.9%          13.1%           7.9%
Annualized Rent (3)..........   $ 22,552,831   $ 33,382,204   $ 26,538,168   $ 26,406,887   $ 25,660,899   $ 15,989,205
Number of Leases.............            317            247            181            151            159             46
Rent Per Square Foot.........   $      17.15   $      17.79   $      18.45   $      18.89   $      18.01   $      18.71
 
WEST REGION TOTALS
Square Feet (1)..............      1,332,693      1,462,005      1,732,283      1,220,739      1,513,115      1,188,782
% Square Feet (2)............          11.5%          12.6%          14.9%          10.5%          13.0%          10.2%
Annualized Rent (3)..........   $ 24,150,502   $ 28,220,660   $ 36,282,625   $ 25,090,787   $ 34,992,002   $ 19,184,479
Number of Leases.............            399            220            226            158            148             38
Rent Per Square Foot.........   $      18.12   $      19.30   $      20.94   $      20.55   $      23.13   $      16.14
 
<CAPTION>
 
                                                                                             2009 AND
                                   2005           2006           2007           2008          BEYOND          TOTALS
                               ------------   ------------   ------------   ------------   ------------   --------------
<S>                            <C>            <C>            <C>            <C>            <C>            <C>
CENTRAL REGION TOTALS
Square Feet (1)..............     1,296,086        683,110        440,291      1,160,460      2,150,197       12,689,131
% Square Feet (2)............          9.7%           5.1%           3.3%           8.7%          16.1%            95.1%
Annualized Rent (3)..........  $ 28,863,959   $ 14,653,053   $  9,181,483   $ 21,928,508   $ 47,178,901   $  297,249,106
Number of Leases.............            61             45             32             34             31            1,196
Rent Per Square Foot.........  $      22.27   $      21.45   $      20.85   $      18.90   $      21.94   $        23.43
NORTHEAST REGION TOTALS
Square Feet (1)..............     1,290,649      1,122,132      1,015,868      1,042,912      3,289,966       20,897,938
% Square Feet (2)............          6.0%           5.2%           4.7%           4.9%          15.3%            97.1%
Annualized Rent (3)..........  $ 35,955,383   $ 27,459,285   $ 25,732,532   $ 31,021,301   $112,469,010   $  604,023,525
Number of Leases.............            72             52             38             47             40            1,508
Rent Per Square Foot.........  $      27.86   $      24.47   $      25.33   $      29.74   $      34.19   $        28.90
SOUTHEAST REGION TOTALS
Square Feet (1)..............       465,161        555,370         33,750        346,336        729,800        7,424,066
% Square Feet (2)............          6.0%           7.1%           0.4%           4.5%           9.4%            95.5%
Annualized Rent (3)..........  $  6,998,489   $ 12,813,908   $    558,017   $  8,622,891   $ 12,307,455   $  140,770,569
Number of Leases.............            14              6              5              7              5              577
Rent Per Square Foot.........  $      15.05   $      23.07   $      16.53   $      24.90   $      16.86   $        18.96
SOUTHWEST REGION TOTALS
Square Feet (1)..............       233,304        564,265        256,513        278,707        288,778        9,928,380
% Square Feet (2)............          2.1%           5.2%           2.4%           2.6%           2.7%            91.4%
Annualized Rent (3)..........  $  3,903,360   $  9,647,066   $  4,826,063   $  6,162,961   $  2,154,574   $  177,224,218
Number of Leases.............            20             14              5             10              5            1,155
Rent Per Square Foot.........  $      16.73   $      17.10   $      18.81   $      22.11   $       7.46   $        17.85
WEST REGION TOTALS
Square Feet (1)..............       498,332        474,956        540,939        704,254        275,078       10,943,176
% Square Feet (2)............          4.3%           4.1%           4.7%           6.1%           2.4%            94.3%
Annualized Rent (3)..........  $ 11,148,911   $  9,776,078   $ 11,426,913   $ 18,808,208   $  1,248,207   $  220,329,372
Number of Leases.............            29             17             22             17              5            1,279
Rent Per Square Foot.........  $      22.37   $      20.58   $      21.12   $      26.71   $       4.54   $        20.13
</TABLE>
 
                                       40
<PAGE>   41
<TABLE>
<CAPTION>
                                  1999 AND
                                  MONTH TO
                                   MONTH           2000           2001           2002           2003           2004
                                ------------   ------------   ------------   ------------   ------------   ------------
<S>                             <C>            <C>            <C>            <C>            <C>            <C>
PACIFIC REGION TOTALS
Square Feet (1)..............      1,268,789      1,322,935      1,682,256        821,437        708,969        436,892
% Square Feet (2)............          12.7%          13.2%          16.8%           8.2%           7.1%           4.4%
Annualized Rent (3)..........   $ 26,644,154   $ 29,575,581   $ 38,500,310   $ 22,728,014   $ 19,700,363   $ 11,274,429
Number of Leases.............            148            118            136             87             81             29
Rent Per Square Foot.........   $      21.00   $      22.36   $      22.89   $      27.67   $      27.79   $      25.81
 
PORTFOLIO TOTALS
Square Feet (1)..............      7,739,708      8,662,060     10,515,996      8,493,198      7,861,225      5,114,568
% Square Feet (2)............          10.3%          11.5%          14.0%          11.3%          10.5%           6.8%
Annualized Rent (3)..........   $157,716,068   $188,301,337   $254,181,460   $205,433,075   $199,259,260   $108,281,926
Number of Leases.............          1,513          1,101          1,086            878            798            305
Rent Per Square Foot.........   $      20.38   $      21.74   $      24.17   $      24.19   $      25.35   $      21.17
 
<CAPTION>
 
                                                                                             2009 AND
                                   2005           2006           2007           2008          BEYOND          TOTALS
                               ------------   ------------   ------------   ------------   ------------   --------------
<S>                            <C>            <C>            <C>            <C>            <C>            <C>
PACIFIC REGION TOTALS
Square Feet (1)..............       940,473        599,153        824,068        268,500        623,343        9,496,815
% Square Feet (2)............          9.4%           6.0%           8.2%           2.7%           6.2%            94.8%
Annualized Rent (3)..........  $ 22,111,007   $ 16,915,716   $ 25,901,334   $  8,722,571   $  8,326,128   $  230,399,606
Number of Leases.............            37             23             19             12             17              707
Rent Per Square Foot.........  $      23.51   $      28.23   $      31.43   $      32.49   $      13.36   $        24.26
PORTFOLIO TOTALS
Square Feet (1)..............     4,724,005      3,998,986      3,111,429      3,801,169      7,357,162       71,379,506
% Square Feet (2)............          6.3%           5.3%           4.1%           5.1%           9.8%            95.0%
Annualized Rent (3)..........  $108,981,108   $ 91,265,106   $ 77,626,341   $ 95,266,440   $183,684,275   $1,669,996,396
Number of Leases.............           233            157            121            127            103            6,422
Rent Per Square Foot.........  $      23.07   $      22.82   $      24.95   $      25.06   $      24.97   $        23.40
</TABLE>
 
---------------
(1) Total net rentable square feet represented by expiring leases.
 
(2) Percentage of total net rentable feet represented by expiring leases.
 
(3) Annualized Rent is the monthly contractual rent under existing leases as of
    December 31, 1998 multiplied by 12. This amount reflects total base rent
    before any rent abatements, but includes expense reimbursements. Total rent
    abatements for leases in effect as of December 31, 1998 for the 12 months
    ending December 31, 1999 are approximately $7.1 million.
 
LEASE EXPIRATIONS -- TOTAL PORTFOLIO
 
     The following table sets forth a summary schedule of the lease expirations
for the Office Properties for leases in place as of December 31, 1998, assuming
that none of the tenants exercise renewal options or termination rights, if any,
at or prior to the scheduled expirations:
 
<TABLE>
<CAPTION>
                                                                                    ANNUALIZED   PERCENTAGE
                                                                                     RENT OF         OF
                                                      PERCENTAGE                     EXPIRING    ANNUALIZED
                                           SQUARE      OF TOTAL      ANNUALIZED       LEASES      RENT OF
                             NUMBER OF   FOOTAGE OF    OCCUPIED       RENT OF          PER        EXPIRING
       YEAR OF LEASE          LEASES      EXPIRING      SQUARE        EXPIRING        SQUARE       LEASES
        EXPIRATION           EXPIRING      LEASES        FEET          LEASES          FOOT         (1)
       -------------         ---------   ----------   ----------   --------------   ----------   ----------
<S>                          <C>         <C>          <C>          <C>              <C>          <C>
1999(2)....................    1,513      7,739,708       11.0%    $  157,716,068     $20.38         9.4%
2000.......................    1,101      8,662,060       12.3%       188,301,337      21.74        11.3%
2001.......................    1,086     10,515,996       14.8%       254,181,460      24.17        15.3%
2002.......................      878      8,493,198       12.1%       205,433,075      24.19        12.3%
2003.......................      798      7,861,225       11.2%       199,259,260      25.35        11.9%
2004.......................      305      5,114,568        7.3%       108,281,926      21.17         6.5%
2005.......................      233      4,724,005        6.7%       108,981,108      23.07         6.5%
2006.......................      157      3,998,986        5.7%        91,265,106      22.82         5.5%
2007.......................      121      3,111,429        4.4%        77,626,341      24.95         4.6%
2008.......................      127      3,801,169        5.4%        95,266,440      25.06         5.7%
2009.......................       41      2,282,470        3.2%        83,312,753      36.50         5.0%
2010 and beyond............       62      4,137,495        5.9%       100,371,522      24.26         6.0%
                               -----     ----------    --------    --------------     ------       -----
TOTAL/WEIGHTED AVERAGE.....    6,422     70,442,309    100.0%(3)   $1,669,996,396     $23.40       100.0%
                               =====     ==========    ========    ==============     ======       =====
</TABLE>
 
---------------
 
(1) Based on currently payable rent.
(2) Represents lease expirations from January 1, 1999 to December 31, 1999 and
    month-to-month leases.
(3) Reconciliation of total net rentable square footage is as follows:
 
                                       41
<PAGE>   42
 
<TABLE>
<CAPTION>
                                                                            PERCENTAGE
                                                                SQUARE          OF
                                                                FOOTAGE       TOTAL
                                                              -----------   ----------
<S>                                                           <C>           <C>
Square footage occupied by tenants..........................   70,442,309      93.8%
Square footage used for management offices and building use,
  and remeasurement adjustments.............................      937,197       1.2%
                                                              -----------     -----
Total occupied square footage...............................   71,379,506      95.0%
Square footage vacant.......................................    3,721,221       5.0%
                                                              -----------     -----
Total net rentable square footage...........................   75,100,727     100.0%
                                                              ===========     =====
</TABLE>
 
LEASE DISTRIBUTIONS
 
     The following table sets forth information relating to the distribution of
the Office Property leases, based on rentable square feet under lease, as of
December 31, 1998:
<TABLE>
<CAPTION>
                                                                        PERCENTAGE OF
                                                                          AGGREGATE
                                             PERCENT                      PORTFOLIO                       ANNUALIZED
                                 NUMBER OF   OF ALL    TOTAL OCCUPIED     OCCUPIED                         RENT PER
SQUARE FEET UNDER LEASE           LEASES     LEASES     SQUARE FEET      SQUARE FEET    ANNUALIZED RENT   SQUARE FOOT
-----------------------          ---------   -------   --------------   -------------   ---------------   -----------
<S>                              <C>         <C>       <C>              <C>             <C>               <C>
2,500 or Less..................    2,403      37.5%       2,882,846          4.1%       $   61,653,195       21.39
2,501 -- 5,000.................    1,374      21.4%       4,918,011          7.0%          108,101,012       21.98
5,001 -- 7,500.................      730      11.4%       4,469,543          6.3%           97,691,367       21.86
7,500 -- 10,000................      384       6.0%       3,327,753          4.7%           74,952,238       22.52
10,001 -- 20,000...............      780      12.1%      11,084,179         15.7%          252,474,321       22.78
20,001 -- 40,000...............      425       6.6%      11,599,388         16.4%          276,178,123       23.81
40,001 -- 60,000...............      138       2.1%       6,683,070          9.5%          158,315,153       23.69
60,001 -- 100,000..............       97       1.5%       7,381,212         10.5%          179,441,485       24.31
100,001 or Greater.............       91       1.4%      18,096,307         25.8%          461,189,502       25.49
                                   -----     ------      ----------        ------       --------------       -----
TOTAL/WEIGHTED AVERAGE.........    6,422     100.0%      70,442,309        100.0%       $1,669,996,396       23.40
                                   =====     ======      ==========        ======       ==============       =====
 
<CAPTION>
 
                                   PERCENTAGE
                                  OF AGGREGATE
                                    PORTFOLIO
SQUARE FEET UNDER LEASE          ANNUALIZED RENT
-----------------------          ---------------
<S>                              <C>
2,500 or Less..................        3.7%
2,501 -- 5,000.................        6.5%
5,001 -- 7,500.................        5.8%
7,500 -- 10,000................        4.5%
10,001 -- 20,000...............       15.1%
20,001 -- 40,000...............       16.5%
40,001 -- 60,000...............        9.5%
60,001 -- 100,000..............       10.7%
100,001 or Greater.............       27.7%
                                     ------
TOTAL/WEIGHTED AVERAGE.........      100.0%
                                     ======
</TABLE>
 
OCCUPANCY
 
     The table below sets forth weighted average occupancy rates, based on
square feet occupied, of the Office Properties owned by the Company at the
indicated date:
 
<TABLE>
<CAPTION>
                                                                 AGGREGATE      PERCENTAGE OF
                                                                 RENTABLE      RENTABLE SQUARE
DATE                                                            SQUARE FEET     FEET OCCUPIED
----                                                            -----------    ---------------
<S>                                                             <C>            <C>
December 31, 1992...........................................     9,095,684           73%
December 31, 1993...........................................    13,550,553           80%
December 31, 1994...........................................    18,505,591           88%
December 31, 1995...........................................    23,097,222           86%
December 31, 1996...........................................    29,127,289           90%
December 31, 1997...........................................    65,291,790           94%
December 31, 1998...........................................    75,100,727           95%
</TABLE>
 
                                       42
<PAGE>   43
 
ITEM 3.  LEGAL PROCEEDINGS.
 
     Neither the Company nor any of its Properties is presently subject to
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Properties, other than routine
actions for negligence and other claims and administrative proceedings arising
in the ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse effect on the liquidity, results of operations, or business or
financial condition of the Company.
 
                                       43
<PAGE>   44
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     None.
 
                                       44
<PAGE>   45
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
     The Company's Common Shares are traded on the New York Stock Exchange
("NYSE") under the symbol EOP. On March 12, 1999, the reported closing sale
price per Common Share on the NYSE was $25.813 and there were approximately 737
holders of record. The high and low closing prices for 1998 and 1997 on the NYSE
were as follows:
 
<TABLE>
<CAPTION>
YEAR   QUARTER    HIGH     LOW     CLOSE    DIVIDEND
----   -------   ------   ------   ------   --------
<S>    <C>       <C>      <C>      <C>      <C>
1998   Fourth    $25.63   $22.94   $24.00    $0.37
        Third    $28.69   $20.75   $24.50    $0.37
       Second    $31.00   $24.94   $28.38    $0.32
        First    $31.88   $28.00   $30.63    $0.32
1997   Fourth    $34.69   $29.00   $31.56    $0.30
        Third    $33.94   $26.06   $33.94    $0.26*
</TABLE>
 
---------------
 
* Prorated from IPO date of July 11, 1997 based on $.30 for full quarter.
 
     ISSUANCES OF UNREGISTERED SECURITIES.  Unless stated otherwise, the Company
received cash consideration in connection with each of the following issuances
of unregistered securities. Any Units issued by the Operating Partnership are
convertible into Common Shares of the Company on a one-for-one basis, or the
cash equivalent thereof, subject to certain restrictions.
 
     In September 1997, the Company purchased two Office Properties and a
Parking Facility from an unaffiliated party for a purchase price of
approximately $140 million. Of this amount, the Operating Partnership issued, in
a private placement of securities in reliance on an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) and Rule 506 of Regulation D
promulgated thereunder, 1,692,546 Units at a price of $29 per Unit for a total
of approximately $49.1 million.
 
     In September 1997, the Company (through the Operating Partnership) issued
$180 million of unsecured notes (the "$180 Million Notes") in a private
placement to an institutional investor, in reliance on an exemption from the
registration requirements of the Securities Act pursuant to Rule 144A, and used
the proceeds therefrom to repay amounts outstanding under the Company's $600
million unsecured revolving line of credit entered into in July 1997.
 
     In October 1997, the Company sold 9.7 million restricted Common Shares for
$274 million in two separate private placements to institutional investors in
reliance on an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, and contributed the proceeds to the Operating Partnership in
exchange for 9.7 million Units.
 
     Also in October 1997, the Company purchased four Office Properties from an
unaffiliated party for a purchase price of $289 million. Of this amount, the
Operating Partnership issued, in a private placement of securities in reliance
on an exemption from the registration requirements of the Securities Act
pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder,
2,900,000 Units at a price of $24.50 per Unit for a total of approximately $71.1
million.
 
     Also in October 1997, the Company purchased interests in nine Office
Properties from an unaffiliated party for a purchase price of approximately
$127.5 million. Of this amount, the Operating Partnership issued, in a private
placement of securities in reliance on an exemption from the registration
requirements of the Securities Act pursuant to Section 4(2) and Rule 506 of
Regulation D promulgated thereunder, 499,977 Units at a price of $28.755 per
Unit for a total of approximately $14.4 million.
 
                                       45
<PAGE>   46
 
     Also in October 1997, the Company purchased an Office Property from an
unaffiliated party for a purchase price of approximately $81.7 million. Of this
amount, the Operating Partnership issued, in a private placement of securities
in reliance on an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, 741,159 Units at a price of $32.975 per Unit for a total of
approximately $24.4 million.
 
     In November 1997, the Company purchased two Office Properties from an
unaffiliated party for a purchase price of $17.2 million. Of this amount, the
Operating Partnership issued, in a private placement of securities in reliance
on an exemption from the registration requirements of the Securities Act
pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder,
124,348 Units at a price of $28.775 per Unit for a total of approximately $3.6
million.
 
     In December 1997, the Company purchased ten Office Properties in the Wright
Runstad Acquisition for a purchase price of $640 million. Of this amount, the
Operating Partnership issued, in a private placement of securities in reliance
on an exemption from the registration requirements of the Securities Act
pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder,
2,615,700 Units at a price of $29.11 per Unit for a total of approximately $76.1
million and the Company issued, also in a private placement of securities in
reliance on an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, 3,435,688 Common Shares at a price of $29.11 per Common Share for a
total of approximately $100 million and contributed the proceeds to the
Operating Partnership for 3,435,688 Units. The sellers also received five year
warrants (valued at approximately $15 million) to purchase an additional
5,000,000 Common Shares at an exercise price of $39.375 per share. In addition,
the Company, through a noncontrolled subsidiary, acquired a non-controlling
interest in the management company of the seller for approximately $20 million.
Of this amount, the Operating Partnership issued, in a private placement of
securities in reliance on an exemption from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, 137,427 Units at a price of $29.11 per Unit for a total of
approximately $4.0 million.
 
     In February 1998, the Company (through the Operating Partnership), in two
private placements to institutional investors in reliance on an exemption from
the registration requirements of the Securities Act pursuant to Rule 144A, sold
$1.25 billion of unsecured notes in four series, ranging in maturities from five
to 20 years, and $250 million of unsecured 6.376% Mandatory Par Put Remarketed
Securities(SM) due 2012 (which are subject to mandatory tender on February 15,
2002). The proceeds of approximately $1.5 billion were used to pay down
borrowings under the Company's existing unsecured credit facility.
 
     Also in February 1998, the Company, in a private placement to institutional
investors in reliance on an exemption from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, sold 6,000,000 5.25% Series B Preferred Income Equity Redeemable
Shares, at $50 liquidation preference per share (the "Series B Preferred
Shares"). This offering generated net proceeds of approximately $290.3 million
after offering costs of $9.7 million. The net proceeds were used to pay down
borrowings on unsecured credit facilities. The Series B Preferred Shares are
convertible at any time by the holder into Common Shares at a conversion price
of $35.70 per Common Share, equivalent to a conversion ratio of 1.40056 Common
Shares for each Series B Preferred Share. The Series B Preferred Shares are
non-callable for five years with a mandatory call on February 15, 2008. Each
Series B Preferred Share will receive a quarterly distribution of $0.65625.
 
     In April 1998, the Company acquired an Office Property from an unaffiliated
third party for approximately $52.9 million. The acquisition was paid for with a
combination of approximately $52.8 million in cash and $.1 million in Units. The
Units were issued by the Operating Partnership and consisted of 3,368 Units at
$29.70 per Unit. The Units were issued in a private placement of securities in
reliance on an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder.
 
     In April 1998, the Company sold 1,628,009 restricted Common Shares. This
offering generated gross proceeds of approximately $44.1 million. The proceeds
were used to pay down borrowings on unsecured credit facilities. The shares were
issued in a private placement to an institutional investor in reliance on an
exemption
                                       46
<PAGE>   47
 
from the registration requirements of the Securities Act pursuant to Section
4(2) and Rule 506 of Regulation D promulgated thereunder, at a price of $28.5625
per Common Share.
 
     In June 1998, the Company (through the Operating Partnership), in a private
placement to institutional investors in reliance on an exemption from the
registration requirements of the Securities Act pursuant to Rule 144A, sold $775
million of unsecured notes and 300,000 warrants to purchase an additional $300
million in unsecured notes at a later date. The notes were issued in three
series, ranging in maturities from six to 30 years. The 300,000 warrants were
issued concurrently with the issue of $300 million, nine-year notes. Each
warrant entitles its holder to purchase a new $1,000 note at par on December 15,
1999 (or in certain circumstances on January 18, 2000) at a stated rate of
6.763%, which will mature on June 15, 2008 and will have other terms
substantially similar to the $300 million, nine-year notes. Total proceeds to
the Company, net of selling commissions, were approximately $768.6 million which
were used to pay down borrowings under the Company's existing unsecured credit
facility.
 
     In July 1998, the Company acquired an Office Property from an unaffiliated
party for approximately $19.7 million. The acquisition was paid for with a
combination of approximately $15.1 million in cash and $4.6 million in Units.
The Units were issued by the Operating Partnership and consisted of 178,976
Units at $25.69 per Unit. The Units were issued in a private placement of
securities in reliance on an exemption from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder.
 
     In October 1998, the Company acquired an Office Property from an
unaffiliated party for approximately $624.6 million. The acquisition was
partially paid for with $171.9 million in Units. The Units were issued by the
Operating Partnership and consisted of 6,861,166 Units at $25.05 per Unit. The
Units were issued in a private placement of securities in reliance on an
exemption from the registration requirements of the Securities Act pursuant to
Section 4 (2) and Rule 506 of Regulation D promulgated thereunder.
 
                                       47
<PAGE>   48
 
ITEM 6.  SELECTED FINANCIAL DATA.
 
EQUITY OFFICE PROPERTIES TRUST SELECTED FINANCIAL DATA(1)
 
     The following sets forth selected consolidated and combined financial and
operating information on a historical basis for Equity Office Properties Trust,
together with its subsidiaries including EOP Operating Limited Partnership and
the Company's predecessors ("Equity Office Predecessors") (the "Company"). The
following information should be read in conjunction with the consolidated and
combined financial statements and notes thereto of the Company and Equity Office
Predecessors included elsewhere in this Form 10-K.
 
<TABLE>
<CAPTION>
                                                                                         EQUITY OFFICE PREDECESSORS
                                           EQUITY OFFICE PROPERTIES TRUST                   (COMBINED HISTORICAL)
                                           -------------------------------   ---------------------------------------------------
                                                                               FOR THE
                                                           FOR THE PERIOD    PERIOD FROM
                                              FOR THE       FROM JULY 11,     JANUARY 1,
                                            YEAR ENDED      1997 THROUGH     1997 THROUGH     FOR THE YEARS ENDED DECEMBER 31,
                                           DECEMBER 31,     DECEMBER 31,       JULY 10,     ------------------------------------
                                               1998             1997             1997          1996         1995         1994
                                           -------------   ---------------   ------------   ----------   ----------   ----------
                                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>             <C>               <C>            <C>          <C>          <C>
OPERATING DATA:
REVENUES:
  Rental, parking and other..............   $ 1,658,420      $   406,713      $ 327,017     $  493,396   $  356,959   $  230,428
                                            -----------      -----------      ---------     ----------   ----------   ----------
    Total revenues.......................     1,679,699          412,968        339,104        508,124      371,457      240,878
                                            -----------      -----------      ---------     ----------   ----------   ----------
EXPENSES:
  Interest...............................       338,611           76,675         80,481        119,595      100,566       59,316
  Depreciation and amortization..........       305,982           70,346         66,034         96,237       74,156       46,905
  Property operating and ground
    rent(2)..............................       600,367          155,679        127,285        201,067      151,488      107,412
  General and administrative.............        63,564           17,690         17,201         23,145       21,987       15,603
  Provision for value impairment.........            --               --             --             --       20,248           --
                                            -----------      -----------      ---------     ----------   ----------   ----------
    Total expenses.......................     1,308,524          320,390        291,001        440,044      368,445      229,236
                                            -----------      -----------      ---------     ----------   ----------   ----------
Income before allocation to minority
  interests, income from investment in
  unconsolidated joint ventures, gain on
  sales of real estate and extraordinary
  items..................................       371,175           92,578         48,103         68,080        3,012       11,642
Minority interests.......................       (38,340)          (7,799)          (912)        (2,086)      (2,129)       1,437
Income from investment in unconsolidated
  joint ventures.........................        11,267            3,173          1,982          2,093        2,305        1,778
Gain/(loss) on sales of real estate and
  extraordinary items....................         4,927          (16,240)        12,236          5,338       31,271        1,705
                                            -----------      -----------      ---------     ----------   ----------   ----------
Net income...............................       349,029           71,712         61,409         73,425       34,459       16,562
Preferred distributions..................       (32,202)            (649)            --             --           --           --
                                            -----------      -----------      ---------     ----------   ----------   ----------
Net income available for Common Shares...   $   316,827      $    71,063      $  61,409     $   73,425   $   34,459   $   16,562
                                            ===========      ===========      =========     ==========   ==========   ==========
Net income available per weighted average
  Common Share outstanding -- Basic......         $1.25            $0.44
                                            ===========      ===========
Net income available per weighted average
  Common Share outstanding -- Diluted....         $1.24             $0.43
                                            ===========      ===========
Weighted average Common Shares
  outstanding -- Basic...................   253,167,037      162,591,477
                                            ===========      ===========
Weighted average Common Shares
  outstanding -- Diluted.................   283,974,532      180,014,027
                                            ===========      ===========
</TABLE>
 
                                       48
<PAGE>   49
 
<TABLE>
<CAPTION>
                                                                                         EQUITY OFFICE PREDECESSORS
                                           EQUITY OFFICE PROPERTIES TRUST                   (COMBINED HISTORICAL)
                                           -------------------------------   ---------------------------------------------------
                                                                               FOR THE
                                                           FOR THE PERIOD    PERIOD FROM
                                              FOR THE       FROM JULY 11,     JANUARY 1,
                                            YEAR ENDED      1997 THROUGH     1997 THROUGH     FOR THE YEARS ENDED DECEMBER 31,
                                           DECEMBER 31,     DECEMBER 31,       JULY 10,     ------------------------------------
                                               1998             1997             1997          1996         1995         1994
                                           -------------   ---------------   ------------   ----------   ----------   ----------
                                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>             <C>               <C>            <C>          <C>          <C>
BALANCE SHEET DATA (at end of period):
Investment in real estate after
  accumulated depreciation...............   $13,331,560      $10,976,319             --     $3,291,815   $2,393,403   $1,815,160
Total Assets.............................   $14,261,291      $11,751,672             --     $3,912,565   $2,650,890   $2,090,933
Mortgage debt, unsecured notes and lines
  of credit..............................   $ 6,025,405      $ 4,284,317             --     $1,964,892   $1,434,827   $1,261,156
Total Liabilities........................   $ 6,472,613      $ 4,591,697             --     $2,174,483   $1,529,334   $1,350,552
Minority Interests.......................   $   737,715      $   754,818             --     $   11,080   $   31,587   $    9,283
Shareholders' Equity/Owners' Equity......   $ 7,050,963      $ 6,405,157             --     $1,727,002   $1,089,969   $  731,098
OTHER DATA:
General and administrative expenses as a
  Percentage of total revenues...........          3.8%             4.3%           5.1%           4.6%         5.9%         6.5%
Number of Office Properties..............           284              258             --             84           73           63
Net rentable square feet of Office
  Properties (in millions)...............          75.1             65.3             --           29.2         23.1         18.5
Occupancy of Office Properties...........           95%              94%             --            90%          86%          88%
Number of Parking Facilities.............            19               17             --             10            3           --
Number of spaces at Parking Facilities...        18,059           16,749             --          7,321        3,323           --
Funds from Operations(3).................   $   662,585      $   163,253      $ 113,022     $  160,460   $   96,104   $   60,372
Property Net Operating Income(4).........   $ 1,065,714      $   253,418      $ 202,108     $  294,556   $  206,341   $  123,684
EBITDA(5)................................   $ 1,049,577      $   242,969      $ 197,489     $  286,128   $  200,438   $  121,927
Cash flow from operating activities......   $   759,151      $   190,754      $  95,960     $  165,975   $   93,878   $   73,821
Cash flow used for investing
  activities.............................   $(2,231,712)     $(1,592,272)     $(571,068)    $ (924,227)  $ (380,615)  $ (513,965)
Cash flow from financing activities......   $ 1,310,788      $ 1,630,346      $ 245,851     $1,057,551   $  276,513   $  514,923
</TABLE>
 
---------------
 
(1) The selected financial data at December 31, 1998, 1997, 1996 and 1995 and
    for the five years ended December 31, 1998 has been derived from the
    historical consolidated or combined financial statements of the Company and
    Equity Office Predecessors, audited by Ernst & Young LLP, independent
    auditors. The selected financial data at December 31, 1994 has been derived
    from the historical unaudited combined financial statements of Equity Office
    Predecessors.
 
(2) Property operating expenses includes real estate taxes, insurance, repairs
    and maintenance expenses and other property operating expenses.
 
(3) The White Paper on Funds from Operations approved by the Board of Governors
    of the National Association of Real Estate Investment Trusts ("NAREIT") in
    March 1995 defines Funds from Operations as net income (loss) (computed in
    accordance with GAAP), excluding gains (or losses) from debt restructuring
    and sales of properties, plus real estate related depreciation and
    amortization and after adjustments for unconsolidated partnerships and joint
    ventures. The Company believes that Funds from Operations is helpful to
    investors as a measure of the performance of an equity REIT because, along
    with cash flow from operating activities, financing activities and investing
    activities, it provides investors with an indication of the ability of the
    Company to incur and service debt, to make capital expenditures and to fund
    other cash needs. The Company computes Funds from Operations in accordance
    with standards established by NAREIT, which may not be comparable to Funds
    from Operations reported by other REITs that do not define the term in
    accordance with the current NAREIT definition or that interpret the current
    NAREIT definition differently than the Company. Funds from Operations does
    not represent cash generated from operating activities in accordance with
    GAAP, nor does it represent cash available to pay distributions and should
    not be considered as an alternative to net income (determined in accordance
    with GAAP) as an indication of the Company's financial performance or to
    cash flow from operating activities (determined in accordance with GAAP) as
    a measure of the Company's liquidity, nor is it
 
                                       49
<PAGE>   50
 
     indicative of funds available to fund the Company's cash needs, including
     its ability to make cash distributions. For a reconciliation of net income
     and Funds from Operations, see "Management's Discussion and Analysis of
     Financial Condition and Results of Operations -- Funds from Operations".
 
(4) Property Net Operating Income is defined as rental income including tenant
    reimbursements, parking and other income less property operating expenses
    including real estate taxes, insurance, repairs and maintenance and other
    property operating expenses.
 
(5) EBITDA is defined as net income excluding interest expense, federal, state
    and franchise taxes, depreciation and amortization, minority interest
    allocation to the Operating Partnership, gain on sales of real estate,
    gains/losses from extraordinary items and income from investment in
    unconsolidated joint ventures plus the Company's share of the EBITDA for the
    unconsolidated joint ventures.
 
                                       50
<PAGE>   51
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
 
OVERVIEW
 
     The following discussion and analysis of the consolidated financial
condition and consolidated and combined results of operations should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Combined Financial Statements of Equity Office Predecessors, and Notes thereto
contained herein. All references to the historical activities of the Company
prior to July 11, 1997, the date of the Company's initial public offering (the
"IPO") contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refer to the activities of the Equity
Office Predecessors. Terms employed herein as defined terms, but without
definition, shall have the meaning set forth in the financial statements.
Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" including without limitation, the "Market
Risk", "Developments" and "Year 2000" disclosures, which are not historical
facts may be forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"). The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward looking statements contained in Section 21E of the Exchange Act. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected or anticipated. Readers
are cautioned not to place undue reliance on these forward-looking statements
which speak only as of December 31, 1998. Among the factors that the Company has
made assumptions about are the following:
 
     -  Future economic conditions which may impact upon the demand for office
        space and tenant ability to pay rent, either at current or at increased
        levels.
 
     -  Prevailing interest rates.
 
     -  The extent of any inflation in operating expenses.
 
     -  The Company's ability to reduce various expenses as a percent of
        revenues.
 
     -  The Company's continuing ability to pay amounts due to its noteholders
        and preferred shareholders prior to any distribution to holders of its
        Common Shares.
 
     -  The cost to complete and lease-up pending developments.
 
     -  The continued availability of the $1.0 Billion Credit Facility.
 
     During 1998, the Company acquired an additional 28 Office Properties (and
the remaining interest in the Polk and Taylor Buildings) containing
approximately 10.4 million square feet and two Parking Facilities. The aggregate
purchase price for these acquisitions was approximately $2.5 billion. Excluded
from these amounts is the 215 Fremont Street Property acquired on April 29,
1998, which contains approximately 265,000 square feet and is currently vacant.
In 1998, the Company disposed of five office properties consisting of
approximately 1.0 million square feet for approximately $132.6 million.
 
     The Company was also active in the capital markets during 1998 as
summarized below:
 
     -  Issued $2.3 billion of unsecured notes in three separate offerings with
        various tranches maturing between 2002 and 2028 with a weighted average
        interest rate of 6.9%.
 
     -  Increased its line of credit from $600 million to $1.0 billion maturing
        in May 2001.
 
     -  Obtained $528.0 million of unsecured credit facilities maturing over the
        next two years at varying spreads over LIBOR.
 
     -  Issued $415.0 million of preferred shares in two separate offerings with
        a weighted average distribution rate of 6.2%.
 
     -  Issued 1,628,009 Common Shares for gross proceeds of $44.1 million.
 
                                       51
<PAGE>   52
 
RESULTS OF OPERATIONS
 
GENERAL
 
     The following discussion is based primarily on the Consolidated Financial
Statements of the Company and the Combined Financial Statements of Equity Office
Predecessors, as applicable, as of December 31, 1998 and December 31, 1997 and
for the years ended December 31, 1998, 1997 and 1996.
 
     The Company receives income primarily from rental revenue from the Office
Properties (including reimbursements from tenants for certain operating costs)
and from parking revenue from Office Properties and Parking Facilities.
 
     Below is a summary of the Company's acquisition and disposition activity
since January 1, 1997:
 
<TABLE>
<CAPTION>
                                                              OFFICE PROPERTIES           PARKING FACILITIES
                                                        ------------------------------    -------------------
                                                        BUILDINGS    TOTAL SQUARE FEET    GARAGES     SPACES
                                                        ---------    -----------------    --------    -------
<S>                                                     <C>          <C>                  <C>         <C>
PROPERTIES OWNED AS OF:
January 1, 1997.....................................        84          29,277,826           10        7,144
  Acquisitions......................................       176          36,549,956            7        9,605
  Dispositions......................................        (2)           (535,992)          --           --
                                                           ---          ----------           --       ------
December 31, 1997...................................       258          65,291,790           17       16,749
  Acquisitions......................................        28          10,425,595            2        1,310
  Developments placed in service....................         3             257,528           --           --
  Dispositions......................................        (5)           (986,391)          --           --
  Building remeasurements...........................        --             112,205           --           --
                                                           ---          ----------           --       ------
December 31, 1998 ("Total Portfolio")...............       284          75,100,727           19       18,059
                                                           ===          ==========           ==       ======
</TABLE>
 
     As a result of this rapid growth in the size of the Total Portfolio and the
disposition of properties, the financial data presented shows large changes in
revenues and expenses from period to period. For the foregoing reasons, the
Company does not believe its period to period financial data are comparable.
Therefore, the analysis below shows changes resulting from Properties that were
held during the entire period for the periods being compared (the "Core
Portfolio") and the changes in the Total Portfolio. The 28 State Street
Property, a 570,040 square foot Office Property acquired by the Company on
January 23, 1995, was undergoing major redevelopment until May 1997, therefore,
it has been excluded from the Core Portfolio in both comparisons.
 
                                       52
<PAGE>   53
 
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
 
     The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 77 Office Properties and ten
Parking Facilities acquired or placed in service prior to January 1, 1997.
 
<TABLE>
<CAPTION>
                                         TOTAL PORTFOLIO                                     CORE PORTFOLIO
                          ----------------------------------------------      --------------------------------------------
                                                    INCREASE/       %                                 INCREASE/       %
                             1998         1997      (DECREASE)    CHANGE        1998        1997      (DECREASE)    CHANGE
                          ----------    --------    ----------    ------      --------    --------    ----------    ------
                                                               (DOLLARS IN THOUSANDS)
<S>                       <C>           <C>         <C>           <C>         <C>         <C>         <C>           <C>
Property revenues.....    $1,658,420    $733,730     $924,690     126.0%      $624,598    $587,006     $ 37,592       6.4%
Fees from noncombined
  affiliates..........         9,571       4,950        4,621       93.4            --          --           --         --
Interest/dividend
  income..............        11,708      13,392       (1,684)     (12.6)        1,199       1,408         (209)     (14.8)
                          ----------    --------     --------     ------      --------    --------     --------     ------
    Total revenues....     1,679,699     752,072      927,627      123.3       625,797     588,414       37,383        6.4
                          ----------    --------     --------     ------      --------    --------     --------     ------
Interest expense......       338,611     157,156      181,455      115.5        83,296     118,583      (35,287)     (29.8)
Depreciation and
  amortization........       305,982     136,380      169,602      124.4       113,005     106,782        6,223        5.8
Property operating
  expenses............       592,706     278,204      314,502      113.0       221,855     217,748        4,107        1.9
Ground rent...........         7,661       4,760        2,901       60.9         4,413       4,611         (198)      (4.3)
General and
  administrative......        63,564      34,891       28,673       82.2           334         440         (106)     (24.1)
                          ----------    --------     --------     ------      --------    --------     --------     ------
    Total expenses....     1,308,524     611,391      697,133      114.0       422,903     448,164      (25,261)      (5.6)
                          ----------    --------     --------     ------      --------    --------     --------     ------
Income before
  allocation to
  minority interests,
  income from
  investment in
  unconsolidated joint
  ventures, gain on
  sales of real estate
  and extraordinary
  items...............       371,175     140,681      230,494      163.8       202,894     140,250       62,644       44.7
Minority interests....       (38,340)     (8,711)     (29,629)     340.1        (2,026)     (1,679)        (347)      20.7
Income from investment
  in unconsolidated
  joint ventures......        11,267       5,155        6,112      118.6         2,605       2,432          173        7.1
Gain on sales of real
  estate and
  extraordinary
  items...............         4,927      (4,004)       8,931     (223.1)           --     (14,971)      14,971     (100.0)
                          ----------    --------     --------     ------      --------    --------     --------     ------
Net income............    $  349,029    $133,121     $215,908     162.2%      $203,473    $126,032     $ 77,441      61.4%
                          ==========    ========     ========     ======      ========    ========     ========     ======
Property revenue less
  property operating
  expenses before
  depreciation and
  amortization,
  general and
  administrative,
  ground rent and
  interest expense....    $1,065,714    $455,526     $610,188     134.0%      $402,743    $369,258     $ 33,485       9.1%
                          ==========    ========     ========     ======      ========    ========     ========     ======
</TABLE>
 
Property Revenues
 
     The increase in rental revenues, tenant reimbursements, parking income and
other income ("Property Revenues") in the Core Portfolio resulted from a
combination of occupancy and rental rate increases. The weighted average
occupancy of the Core Portfolio increased from approximately 91.9% at January 1,
1997 to
 
                                       53
<PAGE>   54
 
96.1% as of December 31, 1998. This increase represents approximately 1.2
million square feet of additional occupancy in the Core Portfolio between
January 1, 1997 and December 31, 1998.
 
     Property Revenues for the Total Portfolio include lease termination fees of
approximately $15.5 million and $3.9 million for the years ended December 31,
1998 and 1997, respectively, and Property Revenues for the Core Portfolio
include lease termination fees of approximately $3.7 million and $3.8 million
for the years ended December 31, 1998 and 1997, respectively, (included in the
"other revenue" category on the consolidated and combined statements of
operations). These fees are related to specific tenants who have paid a fee to
terminate their lease obligations before the end of the contractual term of
their leases. Although the Company has historically experienced similar levels
of such termination fees, there is no way of predicting the timing or amounts of
future lease termination fees.
 
     The straight-line rent adjustment included in rental revenues for the Total
Portfolio for the years ended December 31, 1998 and 1997 was approximately $68.1
million and $27.7 million, respectively. The straight-line rent adjustment
included in rental revenues for the Core Portfolio for the years ended December
31, 1998 and 1997 was approximately $26.2 million and $23.4 million,
respectively.
 
Fees from Noncombined Affiliates
 
     The increase in fees from noncombined affiliates for the Total Portfolio is
mainly due to lease commissions received of approximately $2.8 million at a
single property and the addition of several fee managed properties. As of
December 31, 1998, the Company managed 18 properties.
 
Interest/Dividend Income
 
     Interest/dividend income for the Total Portfolio decreased mainly as a
result of less cash and cash equivalents on deposit during 1998 partially offset
by dividend income earned during the year ended December 31, 1998 of
approximately $1.7 million on the Company's $48.5 million investment in 50,000
shares of Capital Trust's 8.25% Step-Up Convertible Trust Preferred Securities
acquired in July 1998.
 
Interest Expense
 
     Interest expense increased for the Total Portfolio as a result of having
more debt outstanding during 1998 than 1997. The increase in total debt and the
related increase in interest expense were directly attributable to Property
acquisitions. The Company's total debt as a percentage of total assets increased
from approximately 36.5% of total assets at December 31, 1997 to 42.3% of total
assets at December 31, 1998. Although the Company's total debt has increased,
the weighted average interest rate on the Company's debt decreased from
approximately 7.2% at December 31, 1997 to approximately 7.1% at December 31,
1998 and the Company's interest coverage ratio increased from approximately 2.8
times in 1997 to 3.0 times in 1998. The decrease in interest expense in the Core
Portfolio is primarily due to the pay down of outstanding indebtedness with the
IPO proceeds and the replacement of secured debt with unsecured debt, which has
not been allocated to the Core Portfolio.
 
Depreciation and Amortization
 
     Depreciation and amortization expense for the Total Portfolio increased as
a result of Properties acquired and capital and tenant improvements made during
1998 and 1997. Depreciation and amortization expense for the Core Portfolio
increased as a result of capital and tenant improvements. In addition, a portion
of the increase in the depreciation and amortization expense for the Total and
Core Portfolio was due to recording substantially all the Company's assets and
liabilities at their fair market value in connection with the Consolidation and
the IPO.
 
Property Operating Expenses
 
     Real estate taxes, insurance, repairs and maintenance and other property
operating expenses ("Property Operating Expenses") increased for the Core
Portfolio mainly as a result of real estate taxes. Real estate taxes
 
                                       54
<PAGE>   55
 
increased approximately $4.6 million from the prior period of which
approximately $2.3 million related to higher property tax assessments in certain
markets and $2.3 million related to lower real estate tax refunds. Insurance
expense decreased approximately $1.6 million from the prior period as the
Company's ability to achieve economies of scale on its insurance coverage
resulted in lower premiums in 1998.
 
General and Administrative Expenses
 
     The primary reasons for the increase in general and administrative expenses
are the significant increase in the size of the Company's portfolio and
increased expenses associated with becoming a public company. While general and
administrative expenses will continue to increase as the size of the Company's
portfolio increases, it is currently anticipated that the Company's general and
administrative expenses as a percentage of total revenues will remain stable
with future growth. General and administrative expense was approximately 3.8%
and 4.6% of total revenues for the years ended December 31, 1998 and 1997,
respectively.
 
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996
 
     The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 70 Office Properties and
three Parking Facilities acquired or placed in service prior to January 1, 1996.
 
<TABLE>
<CAPTION>
                                          TOTAL PORTFOLIO                             CORE PORTFOLIO
                             -----------------------------------------   -----------------------------------------
                                                   INCREASE/      %                            INCREASE/      %
                               1997       1996     (DECREASE)   CHANGE     1997       1996     (DECREASE)   CHANGE
                             --------   --------   ----------   ------   --------   --------   ----------   ------
                                                            (DOLLARS IN THOUSANDS)
<S>                          <C>        <C>        <C>          <C>      <C>        <C>        <C>          <C>
Property revenues..........  $733,730   $493,396    $240,334    48.7%    $458,968   $427,936    $ 31,032     7.3%
Fees from noncombined
  affiliates...............     4,950      5,120        (170)    (3.3)         --         --          --       --
Interest income............    13,392      9,608       3,784     39.4       1,056      1,882        (826)   (43.9)
                             --------   --------    --------    ------   --------   --------    --------    -----
    Total revenues.........   752,072    508,124     243,948     48.0     460,024    429,818      30,206      7.0
                             --------   --------    --------    ------   --------   --------    --------    -----
Interest expense...........   157,156    119,595      37,561     31.4      93,606    110,566     (16,960)   (15.3)
Depreciation and
  amortization.............   136,380     96,237      40,143     41.7      85,999     84,411       1,588      1.9
Property operating
  expenses.................   278,204    198,840      79,364     39.9     177,069    175,529       1,540      0.9
Ground rent................     4,760      2,227       2,533    113.7         903        903          --       --
General and
  administrative...........    34,891     23,145      11,746     50.7          --         --          --       --
                             --------   --------    --------    ------   --------   --------    --------    -----
    Total expenses.........   611,391    440,044     171,347     38.9     357,577    371,409     (13,832)    (3.7)
                             --------   --------    --------    ------   --------   --------    --------    -----
Income before allocation to
  minority interests,
  income from investment in
  unconsolidated joint
  ventures, gain on sales
  of real estate and
  extraordinary items......   140,681     68,080      72,601    106.6     102,447     58,409      44,038     75.4
Minority interests.........    (8,711)    (2,086)     (6,625)   317.6      (1,679)    (1,986)        307    (15.5)
Income from investment in
  unconsolidated joint
  ventures.................     5,155      2,093       3,062    146.3       2,432      2,093         339     16.2
Gain on sales of real
  estate and extraordinary
  items....................    (4,004)     5,338      (9,342)   (175.0)   (16,311)        --     (16,311)      --
                             --------   --------    --------    ------   --------   --------    --------    -----
Net income.................  $133,121   $ 73,425    $ 59,696    81.3%    $ 86,889   $ 58,516    $ 28,373    48.5%
                             ========   ========    ========    ======   ========   ========    ========    =====
Property revenues less
  property operating
  expenses before
  depreciation and
  amortization, general and
  administrative, ground
  rent and interest
  expense..................  $455,526   $294,556    $160,970    54.6%    $281,899   $252,407    $ 29,492    11.7%
                             ========   ========    ========    ======   ========   ========    ========    =====
</TABLE>
 
                                       55
<PAGE>   56
 
Property Revenues
 
     The increase in rental revenues, tenant reimbursements, parking income and
other income ("Property Revenues") in the Core Portfolio resulted from a
combination of occupancy and rental rate increases. The weighted average
occupancy of the Core Portfolio increased from approximately 88.5% at January 1,
1996 to 94.8% as of December 31, 1997. This increase represents approximately
1.4 million square feet of additional occupancy in the Core Portfolio between
January 1, 1996 and December 31, 1997.
 
     Included in Property Revenues for the Core Portfolio are lease termination
fees of approximately $3.7 million and $5.6 million for 1997 and 1996,
respectively (included in the "other revenue" category on the consolidated and
combined statements of operations). These fees are related to specific tenants
who have paid a fee to terminate their lease obligations before the end of the
contractual term of the lease. Although the Company has historically experienced
similar levels of such termination fees, there is no way of predicting the
timing or amounts of future lease termination fees.
 
     The straight-line rent adjustment included in rental revenues for the Core
Portfolio for 1997 and 1996 was approximately $14.6 million and $13.9 million,
respectively. The straight-line rent adjustment included in rental revenues for
the Total Portfolio for 1997 and 1996 was approximately $27.7 million and $18.4
million, respectively. Other income for 1996 also includes approximately $8.8
million relating to the Company's share of a litigation settlement.
 
Fees from Noncombined Affiliate
 
     Fees from noncombined affiliates decreased in 1997 from approximately $5.1
million in 1996 to $4.9 million in 1997 mainly as a result of properties sold.
Fee income for the years ended December 31, 1997 and 1996, of approximately $0.4
million and $1.3 million, respectively, was related to properties which have
been sold.
 
Interest Income
 
     Interest income for the Total Portfolio increased primarily due to having a
greater amount of cash reserves invested in short term investments pending
investment in property acquisitions prior to the IPO. Prior to the
Consolidation, each of the entities involved in the Consolidation needed to
maintain separate cash reserves which in the aggregate were higher than the cash
reserves the Company anticipates maintaining going forward. Due to the
availability of borrowings under the credit facilities, the Company currently
maintains lower cash reserves which are targeted to be between $25 million and
$50 million (although the cash balance may at times be more or less in
anticipation of pending acquisitions or other transactions). Although the lower
cash balance will result in lower interest income in future periods, this loss
in income is expected to be offset by savings on interest expense on the credit
facilities.
 
Interest Expense
 
     Interest expense for the Total Portfolio increased as a result of having
more debt outstanding in 1997. The increase in total debt and the related
increase in interest expense were directly related to Property acquisitions.
While the Company's total debt and total interest expense have increased due to
acquisition activity, the total debt as a percentage of total assets decreased
from 50% of total assets at December 31, 1996 to 36.5% of total assets at
December 31, 1997, and the Company's interest coverage ratio increased from 2.4
times in 1996 to 2.8 times in 1997. In addition, the weighted average interest
rate on the Company's debt decreased from approximately 7.7% at December 31,
1996 to approximately 7.2% at December 31, 1997. The decrease in interest
expense in the Core Portfolio was primarily due to the replacement of secured
debt with unsecured debt, which has not been allocated to the Core Portfolio.
 
Depreciation and Amortization
 
     Depreciation and amortization expense increased for the Total Portfolio as
a result of Properties acquired during 1997 and the recording of substantially
all the Company's assets and liabilities at their fair market value
 
                                       56
<PAGE>   57
 
in connection with the Consolidation and the IPO. The increase in depreciation
in the Core Portfolio resulted from the recording of substantially all the
Company's assets and liabilities at their fair market value in connection with
the Consolidation and the Company's IPO. The decrease in amortization in the
Core Portfolio resulted from the write-off of deferred financing and leasing
costs at the time of the Consolidation and the IPO.
 
Property Operating Expenses
 
     The increase in real estate taxes, insurance, repairs and maintenance and
other property operating expenses ("Property Operating Expenses") in the Core
Portfolio relates primarily to increases in real estate taxes due to higher
property valuations partially offset by real estate tax refunds recorded in
1997.
 
General and Administrative Expenses
 
     The primary reasons for the increase in general and administrative expenses
are the significant increase in the size of the Company's portfolio and
increased expenses associated with becoming a public company. While general and
administrative expenses will continue to increase as the size of the Company's
portfolio increases, it is anticipated that general and administrative expenses
as a percentage of total revenue will initially remain stable or decrease with
future growth. General and administrative expenses were approximately 4.6% of
total revenues for the years ended December 31, 1997 and 1996.
 
                                       57
<PAGE>   58
 
PARKING OPERATIONS
 
     The Total Portfolio and Core Portfolio selected operating information for
1998, 1997 and 1996 presented above includes results of operations from the
Parking Facilities. Summarized information for the Parking Facilities is
presented below.
 
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
 
     The Total Portfolio and Core Portfolio consists of 19 and ten Parking
Facilities, respectively.
 
<TABLE>
<CAPTION>
                                     TOTAL PARKING PORTFOLIO                    CORE PARKING PORTFOLIO
                             ---------------------------------------   ----------------------------------------
                                                 INCREASE/      %                          INCREASE/       %
                              1998      1997     (DECREASE)   CHANGE    1998      1997     (DECREASE)   CHANGE
                             -------   -------   ----------   ------   -------   -------   ----------   -------
                                                           (DOLLARS IN THOUSANDS)
<S>                          <C>       <C>       <C>          <C>      <C>       <C>       <C>          <C>
Property revenues..........  $30,539   $22,577     $7,962      35.3%   $23,467   $20,669     $2,798      13.5%
Interest income............      140       249       (109)    (43.8)       139       249       (110)    (44.2)
                             -------   -------     ------     ------   -------   -------     ------     -------
     Total revenues........   30,679    22,826      7,853      34.4     23,606    20,918      2,688      12.9
                             -------   -------     ------     ------   -------   -------     ------     -------
Interest expense...........    5,496     5,427         69       1.3      5,490     5,426         64       1.2
Depreciation and
  amortization.............    5,880     4,031      1,849      45.9      4,628     3,755        873      23.2
Property operating
  expenses.................    8,353     5,023      3,330      66.3      6,401     4,613      1,788      38.8
Ground rent................       50        46          4       8.7         50        46          4       8.7
General and
  administrative...........       72        55         17      30.9         53        55         (2)     (3.6)
                             -------   -------     ------     ------   -------   -------     ------     -------
     Total expenses........   19,851    14,582      5,269      36.1     16,622    13,895      2,727      19.6
                             -------   -------     ------     ------   -------   -------     ------     -------
Income before allocation to
  minority interests and
  income from investment in
  unconsolidated joint
  ventures.................   10,828     8,244      2,584      31.3      6,984     7,023        (39)     (0.6)
Minority interests.........     (360)     (323)       (37)     11.5       (360)     (323)       (37)     11.5
Income from investment in
  unconsolidated joint
  ventures.................    1,884     2,461       (577)    (23.4)        --        --         --          --
                             -------   -------     ------     ------   -------   -------     ------     -------
Net income.................  $12,352   $10,382     $1,970      19.0%   $ 6,624   $ 6,700     $  (76)     (1.1)%
                             =======   =======     ======     ======   =======   =======     ======     =======
Property revenues less
  property operating
  expenses before
  depreciation and
  amortization, general and
  administrative, ground
  rent and interest
  expense..................  $22,186   $17,554     $4,632      26.4%   $17,066   $16,056     $1,010       6.3%
                             =======   =======     ======     ======   =======   =======     ======     =======
</TABLE>
 
                                       58
<PAGE>   59
 
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996
 
     The Total Portfolio and Core Portfolio consists of 17 and three Parking
Facilities, respectively.
 
<TABLE>
<CAPTION>
                                     TOTAL PARKING PORTFOLIO                    CORE PARKING PORTFOLIO
                             ---------------------------------------   ----------------------------------------
                                                 INCREASE/      %                          INCREASE/       %
                              1997      1996     (DECREASE)   CHANGE    1997      1996     (DECREASE)   CHANGE
                             -------   -------   ----------   ------   -------   -------   ----------   -------
                                                           (DOLLARS IN THOUSANDS)
<S>                          <C>       <C>       <C>          <C>      <C>       <C>       <C>          <C>
Property revenues..........  $22,577   $10,203    $12,374     121.3%   $10,238   $ 9,873     $  365       3.7%
Interest income............      249       141        108      76.6        239       141         98      69.5
                             -------   -------    -------     ------   -------   -------     ------     -------
     Total revenues........   22,826    10,344     12,482     120.7     10,477    10,014        463       4.6
                             -------   -------    -------     ------   -------   -------     ------     -------
Interest expense...........    5,427     1,814      3,613     199.2      2,724     1,645      1,079      65.6
Depreciation and
  amortization.............    4,031     1,432      2,599     181.5      1,708     1,359        349      25.7
Property operating
  expenses.................    5,023     3,102      1,921      61.9      2,573     3,031       (458)    (15.1)
Ground rent................       46        50         (4)     (8.0)        46        50         (4)     (8.0)
General and
  administrative...........       55        --         55         --        --        --         --      --
                             -------   -------    -------     ------   -------   -------     ------     -------
     Total expenses........   14,582     6,398      8,184     127.9      7,051     6,085        966      15.9
                             -------   -------    -------     ------   -------   -------     ------     -------
Income before allocation to
  minority interests and
  income from investment in
  unconsolidated joint
  ventures.................    8,244     3,946      4,298     108.9      3,426     3,929       (503)    (12.8)
Minority interests.........     (323)     (252)       (71)     28.2       (323)     (252)       (71)     28.2
Income from investment in
  unconsolidated joint
  ventures.................    2,461        --      2,461      --           --        --         --      --
                             -------   -------    -------     ------   -------   -------     ------     -------
Net income.................  $10,382   $ 3,694    $ 6,688     181.1%   $ 3,103   $ 3,677     $ (574)    (15.6)%
                             =======   =======    =======     ======   =======   =======     ======     =======
Property revenues less
  property operating
  expenses before
  depreciation and
  amortization, general and
  administrative, ground
  rent and interest
  expense..................  $17,554   $ 7,101    $10,453     147.2%   $ 7,665   $ 6,842     $  823      12.0%
                             =======   =======    =======     ======   =======   =======     ======     =======
</TABLE>
 
                                       59
<PAGE>   60
 
PROPERTY DISPOSITIONS
 
     The Company disposed of the following five office properties in November
1998: First Union Center, One Clearlake Centre, Tampa Commons and Westshore
Center, all located in Florida, and the Walker Building located in Washington,
D.C. These properties consisted of approximately 986,391 net rentable square
feet. The Company will continue managing the properties in Florida for one year
after the disposal date for a fee as defined in the management agreement. In
addition, Equity Office Predecessors sold Barton Oaks Plaza II in January 1997
and 8383 Wilshire in May 1997. These properties consisted of approximately
535,992 net rentable square feet. In January 1996, Equity Office Predecessors
sold the condominium portion of Three Lakeway, a mixed-use property. Below is a
summary of the operations of these office properties through their respective
disposition dates:
 
<TABLE>
<CAPTION>
                                                                FOR THE YEARS ENDED DECEMBER 31,
                                                                --------------------------------
                                                                  1998        1997        1996
                                                                --------    --------    --------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                                             <C>         <C>         <C>
Property revenues...........................................    $18,075     $21,711     $31,383
Interest income.............................................          9          77          96
                                                                -------     -------     -------
     Total revenues.........................................     18,084      21,788      31,479
                                                                -------     -------     -------
Interest expense............................................        428       2,051       6,111
Depreciation and amortization...............................      2,603       4,176       7,839
Property operating expenses.................................      6,700       9,335      13,477
General and administrative..................................          2           4          --
                                                                -------     -------     -------
     Total expenses.........................................      9,733      15,566      27,427
                                                                -------     -------     -------
Income before gain on sales of real estate and extraordinary
  items.....................................................      8,351       6,222       4,052
Gain on sales of real estate and extraordinary items........     12,433      11,740       5,338
                                                                -------     -------     -------
Net income..................................................    $20,784     $17,962     $ 9,390
                                                                =======     =======     =======
Property revenues less property operating expenses before
  depreciation and amortization, general and administrative
  and interest expense......................................    $11,375     $12,376     $17,906
                                                                =======     =======     =======
</TABLE>
 
LIQUIDITY AND CAPITAL RESOURCES
 
LIQUIDITY
 
     Net cash provided from operations represents the primary source of
liquidity to fund distributions, debt service, recurring capital costs and
non-revenue enhancing tenant improvements. The Company currently intends to
continue to make, but has not contractually bound itself to make, regular
quarterly distributions to holders of Series A Preferred Shares, Series B
Preferred Shares, Series C Preferred Shares, Common Shares and Units. The
Company has established annual distribution rates as follows: 8.98% per annum
($2.245 per share) for each Series A Preferred Share, 5.25% per annum ($2.625
per share) for each Series B Preferred Share, 8.625% per annum ($2.15625 per
share) for each Series C Preferred Share and $1.48 per annum per Common Share
and Unit. The Company increased its Common Share and Unit distribution from
$1.28 per annum to $1.48 per annum effective for the quarter ended September 30,
1998.
 
     The Company intends to continue to fund distributions, debt service,
recurring capital costs and non-revenue enhancing tenant improvements from cash
from operations and draws under the $1.0 Billion Credit Facility. The Company
also expects that the $1.0 Billion Credit Facility will provide for temporary
working capital, the funding of capital improvements and revenue enhancing
tenant improvements, unanticipated cash needs and funding of acquisitions and
development costs.
 
     Since the anticipated size of the Company's distributions will not allow
the Company, using only cash from operations, to retire all of its debt as it
comes due, the Company will be required to repay maturing debt with funds from
debt and/or equity financing.
 
                                       60
<PAGE>   61
 
DEBT FINANCING
 
     The table below summarizes the mortgage debt, unsecured notes and lines of
credit indebtedness outstanding at December 31, 1998 and 1997, including a net
premium on mortgage debt and unsecured notes (net of accumulated amortization of
approximately $2.7 million and $2.1 million) of approximately $17.8 million and
$1.2 million, respectively, recorded in connection with the Company's
Consolidation, debt assumed in connection with certain of the Company's
acquisitions, and unsecured notes.
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,1998    DECEMBER 31, 1997
                                                              -----------------   -----------------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                                           <C>                 <C>
DEBT SUMMARY:
Balance
  Fixed rate................................................     $4,739,018          $2,219,496
  Variable rate.............................................      1,286,387           2,064,821
                                                                 ----------          ----------
     Total..................................................     $6,025,405          $4,284,317
                                                                 ==========          ==========
Percent of total debt:
  Fixed rate................................................          78.7%               51.8%
  Variable rate.............................................          21.3%               48.2%
                                                                 ----------          ----------
     Total..................................................         100.0%              100.0%
                                                                 ==========          ==========
Weighted average interest rate at end of period:
  Fixed rate................................................           7.3%                7.5%
  Variable rate.............................................           6.4%                6.9%
                                                                 ----------          ----------
     Weighted average.......................................           7.1%                7.2%
                                                                 ==========          ==========
</TABLE>
 
     A majority of the variable rate debt shown above bears interest at an
interest rate based on LIBOR.
 
MORTGAGE FINANCING
 
     As of December 31, 1998, the Company's total mortgage debt (excluding the
Company's share of unconsolidated debt of approximately $124.3 million)
consisted of approximately $2.3 billion of fixed rate debt with a weighted
average interest rate of approximately 7.6% and $70.4 million of variable rate
debt based on various spreads over LIBOR. The Company's mortgage debt at
December 31, 1998 will mature as follows:
 
<TABLE>
<CAPTION>
                                                                (DOLLARS IN
                                                                THOUSANDS)
                                                                -----------
<S>                                                             <C>
1999........................................................    $  116,346
2000........................................................       185,888
2001........................................................       488,968
2002........................................................        78,398
2003........................................................       298,014
Thereafter..................................................     1,168,957
                                                                ----------
     Subtotal...............................................     2,336,571
Net premium (net of accumulated amortization of $3.0
  million)..................................................        13,517
                                                                ----------
     Total..................................................    $2,350,088
                                                                ==========
</TABLE>
 
     In the first quarter of 1999, the Company repaid approximately $257.0
million of mortgage debt (of which approximately $90.7 million was scheduled to
mature in 1999) and anticipates repaying an additional $240.0 million with
proceeds from the Company's $1.0 billion unsecured notes offering in January
1999.
 
     The instruments encumbering the Properties restrict transfer of the
mortgaged Properties subject to the terms of the mortgage indebtedness, prohibit
additional liens and require payment of taxes on the mortgaged
 
                                       61
<PAGE>   62
 
Properties, maintenance of the mortgaged Properties in good condition,
maintenance of insurance on the mortgaged Properties and obtaining lender
consent to leases with material tenants.
 
CREDIT FACILITIES
 
Lines of Credit
 
     On May 29, 1998, the Company amended and restated the $600 Million Credit
Facility to a $1.0 billion unsecured revolving credit facility (the "$1.0
Billion Credit Facility"). The $1.0 Billion Credit Facility matures on May 29,
2001. The Company incurred fees of approximately $2.5 million at the closing of
the $1.0 Billion Credit Facility which will be amortized over the term along
with approximately $1.0 million of unamortized deferred financing costs on the
$600 Million Credit Facility. The interest rate is based on the Company's
investment grade credit rating on its unsecured debt and is currently LIBOR plus
60 basis points with a facility fee equal to 20 basis points in respect to the
entire facility, payable quarterly. In addition, a competitive bid option,
whereby the lenders participating in the facility bid on the interest rate to be
charged, is available for up to $350 million of the facility. The outstanding
balance on the $1.0 Billion Credit Facility was $688.0 million as of December
31, 1998. Subsequent to December 31, 1998, the Company repaid $663.0 million on
the $1.0 Billion Credit Facility.
 
Term Loan Facilities
 
     On August 14, 1998, the Company closed on the $328 Million Credit Facility.
The facility is priced at 90-day LIBOR plus 80 basis points and is prepayable on
any interest payment date. The facility matures on August 15, 2000. The proceeds
from the facility were used to pay down the $1.0 Billion Credit Facility.
 
     On September 22, 1998, the Company closed on the $200 Million Credit
Facility. Interest accrues under the $200 Million Credit Facility at an initial
rate of LIBOR plus 50 basis points with a facility fee equal to 20 basis points
per annum. Pricing for the first twelve months is based on a matrix tied to the
Company's credit rating and may be reset after the first twelve months for an
additional six months and again after eighteen months for an additional six
months for a ten basis point fee. The proceeds from the facility were used to
paydown the $1.0 Billion Credit Facility.
 
UNSECURED NOTES
 
$180 Million Notes Offering
 
     In September 1997, the Company issued the $180 Million Notes. The $180
Million Notes were issued in four tranches with maturities from seven to ten
years.
 
$1.25 Billion Notes Offering
 
     In February 1998, the Company issued the $1.25 Billion Notes. The $1.25
Billion Notes were issued in four tranches with maturities of five to twenty
years.
 
$250 MandatOry Par Put Remarketed Securities Offering
 
     Also in February 1998, the Company issued the $250 Million MOPPRS which are
subject to mandatory tender on February 15, 2002.
 
$775 Million Notes and 300,000 Warrants Offering
 
     In June 1998, the Company issued the $775 Million Notes in three tranches
with maturities of six to thirty years, along with 300,000 warrants to purchase
an additional $300 million in unsecured notes at a later date. Each warrant
entitles the holder thereof to purchase a new $1,000 note at par on December 15,
1999 (or in certain circumstances on January 18, 2000) at a stated rate of
6.763%, which will mature on June 15, 2008 and will have other terms
substantially similar to the $300 million nine year notes due 2007.
 
                                       62
<PAGE>   63
 
$1.0 Billion Unsecured Notes Offering
 
     In January 1999, the Company issued the $1.0 Billion Notes in three
tranches with maturities of three to ten years and will use the net proceeds of
approximately $990.1 million to repay $497.0 million of mortgage debt, $16.0
million in prepayment penalties and $477.1 million of amounts outstanding on the
$1.0 Billion Credit Facility.
 
     The table below summarizes the Company's unsecured notes as of February 28,
1999:
 
<TABLE>
<CAPTION>
                                                                   AMOUNT        STATED    EFFECTIVE
                          TRANCHE                              (IN THOUSANDS)     RATE      RATE(1)
                          -------                              --------------    ------    ---------
<S>                                                            <C>               <C>       <C>
3 Year Notes due 2002......................................      $  200,000       6.4%       6.6%
4 Year MOPPRS due 2002(2)..................................         250,000       6.4%       6.3%
5 Year Notes due 2003......................................         300,000       6.4%       6.8%
5 Year Notes due 2004......................................         300,000       6.5%       6.7%
6 Year Notes due 2004......................................         250,000       6.5%       6.7%
7 Year Notes due 2004......................................          30,000       7.2%       7.3%
7 Year Notes due 2005......................................         400,000       6.6%       7.0%
8 Year Notes due 2005......................................          50,000       7.4%       7.7%
9 Year Notes due 2006......................................          50,000       7.4%       7.7%
9 Year Notes due 2007......................................         300,000       6.8%       6.8%
10 Year Notes due 2007.....................................          50,000       7.4%       7.7%
10 Year Notes due 2008.....................................         300,000       6.8%       7.0%
10 Year Notes due 2009.....................................         500,000       6.8%       6.9%
20 Year Notes due 2018.....................................         250,000       7.3%       7.6%
30 Year Notes due 2028.....................................         225,000       7.3%       7.3%
                                                                 ----------       ----       ----
  Subtotal.................................................       3,455,000       6.7%       6.9%
                                                                                  ====       ====
Net premium (net of accumulated amortization of $.3
  million).................................................             992
                                                                 ----------
  Total....................................................      $3,455,992
                                                                 ==========
</TABLE>
 
(1) Includes the cost of the terminated interest rate protection agreements,
    offering and transaction costs, the premium on the warrants and the discount
    on unsecured notes.
 
(2) The MOPPRS are subject to mandatory redemption in 2002 but do not mature
    until 2012.
 
     The Company filed a registration statement, which was declared effective on
June 18, 1998, relating to an offer to exchange the privately offered $180
Million Notes, the $1.25 Billion Notes and the $250 Million MOPPRS for
registered and, therefore, tradeable securities of the Company with terms
identical in all material respects to the terms of the previously issued
securities. This exchange offer expired on July 30, 1998 and a majority of the
holders exchanged their notes for registered notes of the Company.
 
     The Company filed a shelf registration statement, which was declared
effective on July 22, 1998, relating to the potential issuance from time to time
of up to $2.0 billion of unsecured debt securities and warrants exercisable for
debt securities in amounts, at initial prices and on terms to be determined at
the time of offering. The securities may be issued separately or together, in
separate series and in amounts, at prices and on terms to be described in one or
more supplements to the prospectus. The Company sold $1.0 billion of unsecured
notes in January 1999 under this registration statement.
 
     The Company filed a shelf registration statement, which was declared
effective on September 4, 1998, relating to an offer to exchange (a) the $775
Million Notes; (b) 300,000 warrants to purchase an additional $300 million in
unsecured notes at a later date; and (c) portions of the $1.25 Billion Notes and
$250 Million MOPPRS for registered securities of the Company with terms
identical in all material respects to the terms of the existing securities. This
exchange offer expired on October 27, 1998 and a majority of the holders
exchanged their restricted securities for registered notes and warrants of the
Company.
 
                                       63
<PAGE>   64
 
Restrictions and Covenants
 
     Agreements or instruments relating to the unsecured notes and lines of
credit contain certain restrictions and requirements regarding total debt to
assets ratios, secured debt to total assets ratios, debt service coverage
ratios, minimum ratio of unencumbered assets to unsecured debt and other
limitations.
 
EQUITY SECURITIES
 
     Below is a summary of the equity securities issued in connection with
various transactions occurring since January 1, 1998:
 
     -  In February 1998, the Company issued the Series B Preferred Shares which
        are convertible at any time at the option of the holder to Common Shares
        at a conversion price of $35.70 per Common Share (equivalent to a
        conversion ratio of 1.40056 Common Shares for each Series B Preferred
        Share). The Series B Preferred Shares are non-callable for five years
        with a mandatory call in year 2008. Proceeds from the Series B Preferred
        Share Offering were used to pay down amounts outstanding under the line
        of credit.
 
     -  In April 1998, the Company privately placed 1,628,009 restricted Common
        Shares at $28.5625 per share for net proceeds of approximately $44.1
        million which were used to pay down the credit facilities.
 
     -  The Company filed a shelf registration statement which was declared
        effective on July 22, 1998, relating to the registration of $1.5 billion
        of Common Shares, preferred shares of beneficial interest and warrants
        to be issued at prices and on terms to be determined at the time of
        offering. The Company may or may not issue the securities separately or
        together, in separate series, in amounts, at prices and on terms
        described in one or more supplements to the prospectus. The Series C
        Preferred Shares were issued under this registration statement in
        December 1998.
 
     -  In December 1998, the Company issued the Series C Preferred Shares. The
        shares are non-redeemable for five years, and after five years may be
        redeemed by the Company at par plus accumulated distributions. This
        offering generated net proceeds of approximately $111.4 million after
        offering costs of $3.6 million. The net proceeds were used to pay down
        the $1.0 Billion Credit Facility. Each share will be entitled to receive
        an annual distribution of $2.15625 to be paid quarterly.
 
     -  During 1998, there were 809,653 share options exercised, 380,000
        restricted Common Shares issued, 7,043,510 Units issued in connection
        with property acquisitions, 7,556,332 Units redeemed into Common Shares
        on a one-for-one basis, and 1,167 Units converted into cash.
 
     -  Effective as of August 13, 1998, the Company amended a pre-existing put
        option agreement with certain sellers of the Wright Runstad Properties
        (the "WR Holders"). The WR Holders have the option on August 13, 1999 to
        require the Company to purchase all or a portion of the 3,435,688 Common
        Shares, issued at acquisition, at a price equal to $31.50 per Common
        Share. Prior to August 13, 1999, if the WR Holders sell all or a portion
        of their Common Shares to a third party for a price less than $29.10625
        per Common Share, then the Company shall pay to the WR Holders an amount
        equal to the difference between such sale price and $29.10625 multiplied
        by the number of Common Shares sold, not to exceed $3.00 per Common
        Share. Any amounts paid by the Company as a result of such sales,
        calculated as the difference between the sale price and $29.10625 not
        exceeding $3.00 per Common Share, shall be recorded as a reduction of
        shareholders' equity. For options exercised on August 13, 1999, any
        amounts paid up to $29.10625 per Common Share would be reflected as a
        reduction to shareholders' equity; the portion of any amounts paid in
        excess of $29.10625 per Common Share (not to exceed $31.50 per Common
        Share) would be expensed by the Company. The portion expensed would not
        exceed $2.39375 per Common Share.
 
     -  Effective as of September 3, 1998, the Company amended its pre-existing
        put option agreement with the seller of the Columbus America Properties
        (the "CA Holder") related to 1,692,546 Units issued at acquisition. The
        CA Holder has the option at any time after January 1, 1999 until the
        earlier of
 
                                       64
<PAGE>   65
        a) September 3, 2000 or b) the date the CA Holder has converted all of
        its Units to Common Shares, to require the Company to purchase the Units
        at a price equal to $29.00 per Unit. Under the terms of the agreement,
        prior to September 3, 1999, the option shall be limited to an aggregate
        of 846,273 Units. In the event of any option exercise, the Company will
        recognize any cash paid as a reduction of minority interest.
 
     -  In connection with the acquisition of Worldwide Plaza on October 1,
        1998, the Company issued a transferable put option on Units exercisable
        only on the third anniversary of closing with an estimated fair value of
        approximately $27.4 million. This option entitles its holder to
        additional Common Shares, the number of which shall be determined using
        a formula based on the extent, if any, that the Common Shares are then
        trading at less than $29.05 per share.
 
MARKET RISK
 
     The Company's future earnings, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. The
Company manages its market risk by matching projected cash inflows from
operating activities, financing activities and investing activities with
projected cash outflows to fund debt payments, acquisitions, capital
expenditures, distributions and other cash requirements. The majority of the
Company's outstanding debt (maturing at various times through 2028) has a fixed
interest rate, which minimizes the interest rate risk. The Company also utilizes
certain derivative financial instruments at times to limit market risk. Interest
rate protection agreements are used to convert floating rate debt to a fixed
rate basis or to hedge anticipated financing transactions. Derivatives are used
for hedging purposes rather than speculation. The Company does not enter into
financial instruments for trading purposes.
 
     The Company has total outstanding debt of approximately $6.0 billion at
December 31, 1998, of which approximately $1.3 billion, or 21%, is variable rate
debt. If market rates of interest on the Company's variable rate debt increase
by ten percent (or approximately 64 basis points), the increase in interest
expense on the Company's variable rate debt would decrease future earnings and
cash flows by approximately $8.2 million. If market rates of interest increase
by ten percent, the fair value of the Company's total outstanding debt would
decrease by approximately $141.0 million. If market rates of interest on the
Company's variable rate debt decrease by ten percent (or approximately 64 basis
points), the decrease in interest expense on the Company's variable rate debt
would increase future earnings and cash flows by approximately $8.2 million. If
market rates of interest decrease by ten percent, the fair value of the
Company's total outstanding debt would increase by approximately $146.0 million.
 
     At December 31, 1998, the Company has put option agreements outstanding in
connection with the acquisition of the Wright Runstad Properties and Columbus
America Properties. On August 13, 1999, the holders of Wright Runstad options
(the "WR Holders"), can require the Company to purchase all or a portion of the
3,435,668 Common Shares issued at acquisition at a price equal to $31.50 per
Common Share. Prior to August 13, 1999, if the WR Holders sell all or a portion
of their Common Shares to a third party for a price less than $29.10625, then
the Company is obligated to pay to the WR Holders an amount equal to the
difference between such sale price and $29.10625 multiplied by the number of
Common Shares sold, not to exceed $3.00 per Common Share. Any amounts paid by
the Company as a result of such sales, calculated as the difference between the
sale price and $29.10625 not exceeding $3.00 per Common Share, shall be recorded
as a reduction of shareholders' equity. For options exercised on August 13,
1999, any amounts paid up to $29.10625 per Common Share would be reflected as a
reduction to shareholders' equity; the portion of any amounts paid in excess of
$29.10625 per Common Share (not to exceed $2.39375 per Common Share up to an
aggregate of approximately $8.2 million) would be expensed by the Company. The
Company will not incur any loss on this transaction if the put option is not
exercised.
 
     The Company's cash flows could decrease by up to $10.3 million if, prior to
August 13, 1999, the WR Holders sell all their Common Shares to third parties.
Cash flows of the Company may decrease by up to approximately $108 million if
the WR Holders exercise their rights under the put option agreement on August
13, 1999. There will be no impact on cash flows from this transaction if the put
option is not exercised.
 
                                       65
<PAGE>   66
 
     The Company has a put option agreement outstanding with the seller of the
Columbus America Properties (the "CA Holder") related to 1,692,546 Units issued
at acquisition. The CA Holder has the option at any time after January 1, 1999
until the earlier of September 3, 2000 or the date the CA Holder has converted
all of its Units to Common Shares, to require the Company to purchase the Units
at a price equal to $29.00 per Unit. Under the terms of the agreement, prior to
September 3, 1999, the option shall be limited to an aggregate of 846,273 Units.
In the event of any option exercise the Company will recognize any cash paid as
a reduction in minority interest. Cash flows of the Company may decrease by up
to approximately $49.1 million if the CA Holders exercise their rights under the
put option agreement. There will be no impact on cash flows from this
transaction if the put option is not exercised.
 
     These amounts were determined by considering the impact of hypothetical
interest rates and equity prices on the Company's financial instruments. These
analyses do not consider the effects of the reduced level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, these analyses
assumes no changes in the Company's financial structure.
 
CASH FLOWS
 
     For discussion purposes, the cash flows for 1997 combined the cash flows of
Equity Office Predecessors for the period January 1, 1997 through July 10, 1997
and the cash flows of the Company for the period July 11, 1997 through December
31, 1997. The cash flows for 1996 represent solely the cash flows of Equity
Office Predecessors. Consequently, the comparison of the periods provides only
limited information regarding the cash flows of the Company.
 
YEARS ENDED DECEMBER 31, 1998 AND 1997
 
     Cash and cash equivalents decreased by approximately $161.8 million to
$67.1 million at December 31, 1998, from $228.9 million at December 31, 1997.
This decrease was the result of approximately $759.1 million provided by
operating activities, $2,231.7 million used for investing activities and
$1,310.8 million provided by financing activities. Net cash provided by
operating activities increased by approximately $472.4 million from $286.7
million primarily due to the additional cash flow generated by the increase in
the number of Properties owned. Net cash used for investing activities increased
by approximately $68.4 million from $2,163.3 million mainly due to an increase
in the amount of cash used for real estate assets purchased during 1998 compared
to 1997. Net cash provided by financing activities decreased by approximately
$565.4 million from $1,876.2 million due primarily to a net pay down of the
credit facilities and distributions to common shareholders, unitholders and
preferred shareholders partially offset by proceeds from unsecured notes and the
line of credit.
 
YEARS ENDED DECEMBER 31, 1997 AND 1996
 
     Cash and cash equivalents decreased by approximately $181.5 million, to
approximately $228.9 million at December 31, 1997, compared to $410.4 million at
December 31, 1996. This decrease was the result of approximately $2.2 billion
invested in new acquisitions, capital and tenant improvements, and payment of
leasing commissions reduced by approximately $286.7 million of cash generated by
operations and $1.9 billion generated from financing activities (including the
$181.1 million contributed by Equity Office Predecessors). Net cash provided by
operating activities increased by approximately $120.7 million to approximately
$286.7 million from $166.0 million primarily due to the additional cash flow
generated by the increase in the number of Properties owned. Net cash used for
investing activities increased by approximately $1.3 billion from $0.9 billion
to $2.2 billion mainly due to an increase in the amount of real estate assets
purchased during 1997 compared to 1996. Net cash provided by financing
activities increased by approximately $0.8 billion from $1.1 billion to $1.9
billion due to net proceeds from the sale of Common Shares, an increase in
proceeds from lines of credit and unsecured notes, partially offset by a
decrease in proceeds from mortgage notes and an increase in principal payments
on mortgage notes and lines of credit.
 
                                       66
<PAGE>   67
 
CAPITAL IMPROVEMENTS
 
     The Company has a history of acquiring and repositioning undercapitalized
and poorly managed properties, many of which have required significant capital
improvements due to deferred maintenance and/or required substantial renovation
to enable them to compete effectively. A number of the Properties also have had
significant amounts of shell space requiring build out at the time of
acquisition. The Company takes these capital improvements and revenue enhancing
tenant improvements into consideration at the time of acquisition in determining
the amount of equity and debt financing required to purchase the property and
fund the improvements. Therefore, capital improvements made during the first
five years after acquisition of these Properties are treated separately from
typical recurring capital expenditures, non-revenue enhancing tenant
improvements and leasing commissions required once these Properties have reached
stabilized occupancy, and deferred maintenance and renovations planned at the
time of acquisition have been completed. Capital improvements (including tenant
improvements and leasing commissions for shell space) for the years ended
December 31, 1998, 1997 and 1996 were approximately $44.1 million, $46.8 million
and $53.0 million, respectively or $0.59, $.72 and $1.85 per square foot,
respectively. These amounts exclude capital and tenant improvements of
approximately $70.0 million, $31.2 million and $47.3 million incurred for the
years ended December 31, 1998, 1997 and 1996, respectively for developments.
 
     The Company considers capital expenditures to be recurring expenditures
relating to the ongoing maintenance of the Office Properties. The table below
summarizes capital expenditures (excluding Properties disposed of) for the years
ended December 31, 1998, 1997 and 1996. The capital expenditures set forth below
are not necessarily indicative of future capital expenditures.
 
<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED
                                                                     DECEMBER 31,
                                                                -----------------------
                                                                1998     1997     1996
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Number of Office Properties.................................      284      258       82
Rentable square feet (in millions)..........................     75.1     65.3     28.7
Annual capital expenditures per square foot.................    $0.17    $0.08    $0.16
</TABLE>
 
                                       67
<PAGE>   68
 
TENANT IMPROVEMENTS AND LEASING COMMISSION COSTS
 
     The Company distinguishes its tenant improvements and leasing commissions
between those that are revenue enhancing (i.e., required for space which is
vacant at the time of acquisition or that has been vacant for nine months or
more) and non-revenue enhancing (i.e., required to maintain the revenue being
generated from currently leased space). The table below summarizes the revenue
enhancing and non-revenue enhancing tenant improvements and leasing commissions
(excluding Properties disposed of) for the years ended December 31, 1998, 1997
and 1996 excluding amounts attributable to developments in process. The tenant
improvement and leasing commission costs set forth below are presented on an
aggregate basis and do not reflect significant regional variations and, in any
event, are not necessarily indicative of future tenant improvements and leasing
commission costs:
 
<TABLE>
<CAPTION>
                                                                FOR THE YEARS ENDED DECEMBER 31,
                                                                --------------------------------
                                                                1998 (1)    1997 (1)    1996 (1)
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>
Number of Office Properties.................................        284         258          82
Rentable square feet (in millions)..........................       75.1        65.3        28.7
Revenue enhancing tenant improvements and leasing
  Commissions:
  Amounts (in thousands)....................................    $42,817     $18,272     $31,534
  Per square foot improved..................................    $ 16.33     $ 19.74     $ 30.26
  Per total square foot.....................................    $  0.57     $  0.27     $  1.10
Non-revenue enhancing tenant improvements and leasing
  commissions:
Renewal space:
  Amounts (in thousands)....................................    $27,176     $ 8,334     $15,486
  Per square foot improved..................................    $  7.74     $  5.73     $  6.79
  Per total square foot.....................................    $  0.36     $  0.12     $   .54
Retenanted space:
  Amounts (in thousands)....................................    $33,324     $14,806     $31,987
  Per square foot improved..................................    $ 16.97     $ 15.10     $ 20.64
  Per total square foot.....................................    $  0.44     $  0.22     $  1.11
                                                                -------     -------     -------
Total non-revenue enhancing (in thousands)..................    $60,500     $23,140     $47,473
Per square foot improved....................................    $ 11.05     $  9.50     $ 12.39
Per total square foot.......................................    $  0.80     $  0.35     $  1.65
</TABLE>
 
---------------
 
(1) The per square foot calculations as of December 31, 1998, 1997 and 1996 are
    calculated taking the total dollars anticipated to be incurred on tenant
    improvements for tenants taking occupancy during the year ended December 31,
    1998 and 1997, and tenant improvements in process at December 31, 1996,
    divided by the total square footage being improved or total building square
    footage. The actual amounts incurred as of December 31, 1998, 1997 and 1996
    for revenue enhancing, non-revenue enhancing renewal and retenanted space
    are summarized below:
 
<TABLE>
<CAPTION>
                                                                FOR THE YEARS ENDED DECEMBER 31,
                                                                --------------------------------
                                                                  1998        1997        1996
                                                                --------    --------    --------
                                                                     (DOLLARS IN MILLIONS)
    <S>                                                         <C>         <C>         <C>
    Actual Amounts Expended:
    Revenue enhancing.......................................    $  39.0     $  18.4     $  30.6
    Non-revenue enhancing renewal...........................    $  33.2     $  12.4     $  14.0
    Non-revenue enhancing retenanted........................    $  51.9     $  33.5     $  20.8
</TABLE>
 
                                       68
<PAGE>   69
 
DEVELOPMENT
 
     In connection with the Beacon Merger and other acquisitions, the Company
acquired certain Properties that are currently in various stages of development
or pre-development. The Company funds these developments with proceeds from
working capital and the credit facilities. Specifically identifiable direct and
indirect acquisition, development and construction costs are capitalized
including, where applicable, salaries and related costs, real estate taxes,
interest and certain pre-construction costs essential to the development of a
property. As of December 31, 1998, the Company had incurred approximately $268.4
million of costs in connection with the Properties being developed. The
Properties under development as of December 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
                                                         ESTIMATED              ESTIMATED
                                                           PLACE                RENTABLE                 TOTAL
                                                         IN SERVICE   PERCENT    SQUARE      COSTS     ESTIMATED
PROPERTY                                 LOCATION         DATE(1)     LEASED     FOOTAGE    INCURRED    COST(1)
--------                             -----------------   ----------   -------   ---------   --------   ---------
                                                                                                (DOLLARS IN
                                                                                                 THOUSANDS)
<S>                                  <C>                 <C>          <C>       <C>         <C>        <C>
Developments in Service:
Tower at New England Executive Park  Burlington, MA          3/98       22%      194,911    $ 31,102   $ 41,000
Colonnade III                        Dallas, TX              9/98       70%      377,639      64,044     68,000
Crosby Corporate Center II           Bedford, MA            10/98       69%      257,528      34,886     42,000
                                                                                 -------    --------   --------
                                                                      Total      830,078    $130,032   $151,000
                                                                                 =======    ========   ========
Developments:
Reston Town Center Garage            Reston, VA           4Q/1999       N/A           (2)   $  2,937   $ 13,000
150 California                       San Francisco, CA    1Q/2000        0%      201,554      16,938     66,000
John Marshall III                    McLean, VA           1Q/2000      100%      180,000      18,081     46,000
Riverside Center                     Newton, MA           2Q/2000        0%      494,710      33,635    112,000
Other Projects (3)                   --                        --        --           --      66,127         --
                                                                                 -------    --------   --------
                                                                      Total      876,264    $137,718   $237,000
                                                                                 =======    ========   ========
</TABLE>
 
     In addition, the Company has entered into agreements to acquire the
following properties upon completion:
 
<TABLE>
<CAPTION>
                                                       ESTIMATED             ESTIMATED
                                                       PLACE IN              RENTABLE                 TOTAL
                                                        SERVICE    PERCENT    SQUARE      COSTS     ESTIMATED
PROPERTY                                LOCATION        DATE(1)    LEASED     FOOTAGE    INCURRED    COST(1)
--------                             ---------------   ---------   -------   ---------   --------   ---------
                                                                                             (DOLLARS IN
                                                                                              THOUSANDS)
<S>                                  <C>               <C>         <C>       <C>         <C>        <C>
Rand Tower Garage                    Minneapolis, MN    2Q/1999      N/A           (4)     $ 71     $ 19,000
Prominence (5)                       Atlanta, GA        3Q/1999       1%      425,706       535       87,000
World Trade Center                   Seattle, WA        1Q/2000     100%      186,787        17       39,000
                                                                              -------      ----     --------
                                                                   Total      612,493      $623     $145,000
                                                                              =======      ====     ========
</TABLE>
 
     The above transactions are contingent upon certain terms and conditions as
set forth in their respective purchase agreements. There can be no assurance
that these transactions will be consummated as described above.
 
     In addition, the Company has entered into separate joint ventures to
develop the following properties:
 
<TABLE>
<CAPTION>
                                                    ESTIMATED             ESTIMATED
                                                    PLACE IN              RENTABLE                 TOTAL
                                                     SERVICE    PERCENT    SQUARE      COSTS     ESTIMATED
PROPERTY                               LOCATION      DATE(1)    LEASED     FOOTAGE    INCURRED    COST(1)
--------                             ------------   ---------   -------   ---------   --------   ---------
                                                                                          (DOLLARS IN
                                                                                           THOUSANDS)
<S>                                  <C>            <C>         <C>       <C>         <C>        <C>
Metropoint II (6)                    Denver, CO      1Q/1999       19%     150,181    $ 7,676    $ 17,000
Sunset North Corporate Campus(7)     Bellevue, WA    4Q/1999       41%     460,663     27,861      81,000
Three Bellevue Center (8)            Bellevue, WA    1Q/2000        0%     471,635      4,501      72,000
                                                                          ---------   -------    --------
                                                                 Total    1,082,479   $40,038    $170,000
                                                                          =========   =======    ========
</TABLE>
 
                                       69
<PAGE>   70
 
---------------
 
(1) The Estimated Place in Service Date represents the date the certificate of
    occupancy has been or is anticipated to be obtained. Subsequent to obtaining
    the certificate of occupancy, the Property will undergo a lease up period.
    The Total Estimated Cost includes amounts attributable to tenanting the
    Property.
 
(2) This property is a parking facility that will consist of approximately 530
    parking spaces and 34,700 square feet of retail space.
 
(3) These projects are in various stages of development or pre-development. The
    Company has taken the necessary steps to continue the development process
    while it evaluates its alternatives with respect to these projects.
 
(4) This property is a parking facility that will consist of approximately 589
    parking spaces.
 
(5) The estimated cost of this property excludes a vacant land parcel valued at
    approximately $7.0 million, that will be purchased with the building.
 
(6) The Cost Incurred and Total Estimated Cost reflect the Company's 70%
    interest in this project. The total cost of the project including the joint
    venture partner's share is approximately $24.0 million.
 
(7) The Cost Incurred and Total Estimated Cost reflect the Company's 80%
    interest in this project including the Company's pro-rata share of the
    development loan. The total cost of the project including the joint venture
    partner's share is approximately $101.0 million of which up to $68.0 million
    will be funded by a development loan. The Company's share of the development
    loan outstanding at December 31, 1998 is approximately $3.1 million.
 
(8) The Cost Incurred and Total Estimated Cost reflect the Company's 80%
    interest in this project including the Company's pro-rata share of the
    development loan. The total cost of the project including the joint venture
    partner's share is approximately $90.0 million of which up to $60.0 million
    will be funded by a development loan. The Company's share of the development
    loan outstanding at December 31, 1998 is approximately $.3 million.
 
     In addition to the properties described above, the Company owns various
land parcels available for development. However, no significant development
activity is taking place on these sites at this time.
 
YEAR 2000
 
OVERVIEW OF Y2K PROBLEM
 
     The Year 2000 or "Y2K" problem refers to the inability of many existing
computer programs to properly recognize a year that begins with "20" instead of
the familiar "19". If left uncorrected, many computer programs having
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. The failure to accurately recognize the year 2000 and other
key dates could result in a variety of problems from data miscalculations to the
failure of entire systems. Among the assumptions the Company has made in the
course of this discussion are the following:
 
     -  The Company's ability to accurately determine its Y2K readiness on a
        cost effective basis.
 
     -  The availability of personnel and systems as required to correct any Y2K
        problems known to the Company.
 
     -  The continued availability of such personnel and systems on a
        commercially reasonable basis throughout 1999.
 
THE YEAR 2000 PROGRAM
 
     In the early months of 1998, the Company formed a Year 2000 committee for
the purpose of creating a program (the "Program") to identify, understand and
address the myriad of issues associated with the Y2K problem. Such committee is
comprised of representatives from senior management and various departments at
the home and regional offices, including the legal, engineering,
telecommunications, information systems
 
                                       70
<PAGE>   71
 
and office services departments. Due to the wide ranging implications of the Y2K
problem, management decided to carry out the Program in multiple phases during
1998 and the remainder of 1999. What follows is a description of the activities
that have been or are expected to be conducted in each phase of the Program,
including a summary of the results obtained to date and a time table for
completion. Although many of the phases of the Program are being carried out
simultaneously, the various phases will be discussed separately.
 
PHASE ONE -- ASSESSING THE COMPANY'S Y2K READINESS
 
     The initial step in assessing the Company's Y2K readiness consists of
conducting a study to identify any systems that are date sensitive and,
accordingly, could have potential Y2K problems. The study includes an
examination of information technology and non-information technology systems at
the Company's home and regional offices and at the Company's Properties. For the
most part, the initial step of identifying potentially problematic systems has
been completed by the Company's information services department and building
engineers through a combination of physical inspections and informational
interviews with Company employees. However, the initial study of the Company's
secondary systems (described below) remains to be completed and is being handled
with the assistance of an outside consultant.
 
     After identifying systems that could have a potential Y2K problem, the
Company is attempting to determine which of the systems actually have a Y2K
problem. Much of the required information is within the exclusive control of the
Company's vendors and manufacturers, who are being contacted through standard
form letters and telephone calls requesting information. In addition to
examining the Company's systems for compliance, the Company continues to assess
the progress of the Building Owners and Managers Association ("BOMA"), the
General Services Administration ("GSA") and other industry leaders that are
monitoring the compliance efforts of the major utility and telecommunications
companies. The following is a summary of the Phase One results obtained to date.
 
BUILDING MANAGEMENT SYSTEMS
 
     The Company has identified six categories of building management systems in
which it has the most exposure to potential Y2K problems. These categories
include:
 
     -  Building automation (e.g. energy management, HVAC)
 
     -  Security card access
 
     -  Fire and life safety
 
     -  Elevator
 
     -  Garage revenue control
 
     -  Office equipment
 
     In January 1999, the Company completed a preliminary Y2K compliance study
of the building management systems outlined above at each of the Company's
Properties. Based upon this study, the Company will upgrade or replace specific
building management systems that were determined not to be compliant. The
estimated cost of such upgrades and replacements is described in the Phase Two
summary that follows.
 
INFORMATION SYSTEMS
 
     The Company's information systems falls into four general categories:
accounting and property management, network operating systems, desktop software
and secondary systems.
 
                                       71
<PAGE>   72
 
ACCOUNTING AND PROPERTY MANAGEMENT
 
     Management has determined the Company's exposure with respect to the
Company's accounting and property management software. Specifically, although
the general ledger system is compliant, the accounts payable and property
management systems are not. The Company's current expected schedule for
compliance is as follows:
 
     -  Test software upgrades -- In Progress
 
     -  Begin installation of upgrades -- First Quarter 1999
 
     -  Full Y2K compliance -- Second Quarter 1999
 
NETWORK OPERATING SYSTEMS
 
     Management believes that the network operating servers are currently
approximately 50% compliant. The non-compliant servers require a software patch
that is being acquired from the software manufacturer in order to become
compliant. Upgrades of the Company's network operating systems are expected to
be installed in the first and second quarters of 1999, bringing the network
operating servers into full compliance. Management believes that testing of this
new software will not be necessary, as it has already been proven in the
industry to be Y2K compliant.
 
DESKTOP SOFTWARE
 
     Management believes that all of the Company's desktop systems and software
applications have been reviewed. Management has identified those that are not in
compliance and compiled a list of necessary upgrades. The efforts to ready the
Company's desktop systems for Y2K are being directed towards a broader Company
initiative referred to as EO 2000. As part of the EO 2000 program, the Company
currently intends to install Windows 98 and Microsoft Office 97 in all field and
home office desktop systems.
 
     The Company's timeframe for EO 2000 is expected to be as follows:
 
     -  Systems (hardware and software) testing for Y2K compliance -- Complete
 
     -  Install updated software that will also provide Y2K compliance -- In
       Progress
 
     -  Complete installation/full compliance -- October 1999
 
SECONDARY INFORMATION SYSTEMS
 
     The Company's "secondary" information systems include, but are not limited
to: payroll, human resources, fixed-asset system, forecasting modeling software,
and all types of internally developed software, such as the Company's budget
program and tenant-services system. As discussed above, the Company has retained
a third party consultant to assist in identifying and assessing the compliance
of the secondary systems. The initial step of identifying any non-compliant
secondary systems should be completed by the end of the first quarter 1999 at a
cost of approximately $300,000. Thereafter, a budget and timetable for the
replacement or upgrade of any non-compliant secondary systems will be developed.
 
TELECOMMUNICATION SYSTEMS
 
     Management generally believes that the Company's internal telephone systems
are not date sensitive and should not be materially affected by Y2K problems.
Although there could be some convenience issues such as inaccurate voice-mail
message date stamps, such problems are not expected to be material and, in large
part, should be corrected prior to the year 2000.
 
PHASE TWO -- DETERMINING THE COST OF ACHIEVING Y2K READINESS AND IMPLEMENTING
THE Y2K ACTION PLAN
 
     Except as described above with respect to the secondary systems, the work
to date on Phase One of the Program has been performed by the Company's
employees without additional cost. Based upon the
 
                                       72
<PAGE>   73
 
preliminary studies that were completed in January 1999, the Company has
budgeted approximately $7.4 million for the upgrade and replacement of building
management systems having potential Y2K related problems. This amount equates to
an average of approximately $.10 per rentable square foot at each of the
Company's Properties. It is management's belief that a large part of the cost of
bringing the building management systems into compliance will be considered to
be reimbursable to the Company under most tenant leases or is being incurred as
part of a broader initiative to improve building operating systems. The
estimated cost of the EO 2000 initiative is $1.7 million. Most of the work
related to EO 2000 is not Y2K related. The Company is still in the process of
completing Phases One and Two of the Program with respect to Information
Systems. Upon completion, the Company will prepare a budget and action plan for
bringing the Information Systems into compliance.
 
PHASE THREE -- ASSESSING THE RISKS TO THE COMPANY OF NON-COMPLIANCE
 
     Management does not currently believe that the impact of the Y2K problem
will have a material adverse effect on the Company's financial condition and
results of operations. Such belief is based on management's analysis of the
risks to the Company related to the Company's own potential Y2K problems
discussed above, as well as its assessment of the Y2K problems of the Company's
vendors, suppliers and customers.
 
FAILURE OF BUILDING MANAGEMENT SYSTEMS
 
     Management believes that the Y2K risks to the Company's financial condition
and operation associated with a failure of building management systems is
immaterial due to the fact that most building management systems can be operated
in a manual or by-pass mode, thereby negating the Y2K problem until it can be
corrected. In addition, each of the Company's Properties has, for the most part,
separate building management systems. Accordingly, a Y2K problem that is
experienced at one Property should have no effect on other Properties. In
addition, based upon the study results received to date, management believes
that the Company will have sufficient time to correct those system problems
within its control before the year 2000. The Company has previously begun
preliminary testing of building systems at several of its buildings sites,
including Westbrook Corporate Center, Two California Plaza and State Street Bank
Building. Testing of essential building management systems will continue
throughout 1999.
 
     In the event the Company does experience a failure of essential building
management systems at one or more of the Company's buildings, whether due to a
failure of one of its systems or an interruption of utilities, management
believes that the individual tenant leases will protect the Company from claims
of constructive eviction or other remedies that could result in a termination of
lease rights. It is also management's belief that most of its leases eliminate,
limit or quantify the rights of a tenant to receive an abatement under such
circumstances. Although there is always a risk of claims being brought on a
non-contractual basis (e.g. in tort), it is the Company's belief that its
efforts to identify and solve Y2K problems will minimize such risk. The Company
has also attempted to allocate the risk of non-compliance to the vendors and
manufacturers of the building management and information systems by establishing
standard riders and addenda to be attached to new contracts for systems using
time sensitive data.
 
FAILURE OF INFORMATION SYSTEMS
 
     Since the Company's major source of income is rental payments under long
term leases, the failure of key information systems is not expected to have a
material adverse effect on the Company's financial condition and results of
operations. Even if the Company were to experience problems with its information
systems, the payment of rent under the leases would not be excused. In addition,
the Company expects to correct those information system problems within its
control before the year 2000, thereby minimizing or avoiding the increased cost
of correcting problems after the fact.
 
THE Y2K PROBLEMS OF THE COMPANY'S VENDORS
 
     The success of the Company's business is not closely tied to the operations
of any one manufacturer, vendor or supplier. Accordingly, if any of the
Company's manufacturers, vendors or suppliers ceases to
 
                                       73
<PAGE>   74
 
conduct business due to Y2K related problems, the Company expects to be able to
contract with alternate providers without experiencing any material adverse
effect on the Company's financial condition and results of operations.
 
THE Y2K PROBLEMS OF THE COMPANY'S CUSTOMERS
 
     Due to our broad customer/tenant base, the success of the Company's
business is not closely tied to the success of any particular tenant.
Accordingly, management believes that there should not be a material adverse
effect on the Company's financial condition and results of operations if any one
of its tenants ceased to conduct business (and pay rent) due to Y2K related
problems. This would not necessarily be the case, however, were Y2K problems
sufficiently pervasive as to affect the financial conditions of a material
number of the Company's tenants. As part of its efforts to keep its tenants
advised as to the steps the Company is taking to address potential Y2K problems,
the Company has also requested that its tenants provide it with periodic updates
as to their Y2K readiness.
 
DOOMSDAY SCENARIO
 
     The Company is aware that it is generally believed that the world's Y2K
problem, if uncorrected, may result in an economic crisis of global proportions.
The Company is unable to determine whether such predictions are true or false.
As mentioned above, the Company expects that the nature of its income (rent from
good credit tenants under long term leases) should serve as a hedge against any
short term disruptions of business. However, if the doomsday scenarios prove
true, all companies (including Equity Office Properties Trust) will experience
the effects.
 
PHASE FOUR -- DEVELOPING CONTINGENCY PLANS
 
     The Company currently does not have a contingency plan in place. Once the
Company has proceeded further in the completion of the initial phases of the
Program, contingency plans are expected to be developed.
 
INFLATION
 
     Substantially all of the office leases require the tenant to pay, as
additional rent, a portion of any increases in real estate taxes (except, in the
case of certain California leases, which limit the ability of the landlord to
pass through to the tenants the effect of increased real estate taxes
attributable to a sale of real property interests) and operating expenses over a
base amount. In addition, many of the office leases provide for fixed increases
in base rent or indexed escalations (based on the Consumer Price Index or other
measures). The Company believes that inflationary increases in expenses will be
offset, in part, by the expense reimbursements and contractual rent increases
described above.
 
FUNDS FROM OPERATIONS
 
     Management of the Company believes Funds from Operations, as defined by the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), to be an
appropriate measure of performance for an equity REIT. While Funds from
Operations is a relevant and widely used measure of operating performance of
equity REITs, it does not represent cash flow from operations or net income as
defined by generally accepted accounting principles ("GAAP"), and it should not
be considered as an alternative to these indicators in evaluating liquidity or
operating performance of the Company.
 
                                       74
<PAGE>   75
 
     The following table reflects the calculation of the Company's and Equity
Office Predecessors' combined Funds from Operations for the years ended December
31, 1998, 1997 and 1996 on a historical basis:
 
<TABLE>
<CAPTION>
                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                       ----------------------------------------
                                                          1998          1997(1)         1996
                                                       -----------    -----------    ----------
                                                                (DOLLARS IN THOUSANDS)
<S>                                                    <C>            <C>            <C>
Income before allocation to minority interests,
  income from investment in unconsolidated joint
  ventures, gains on sales of real estate and
  extraordinary items:.............................    $   371,175    $   140,681    $   68,080
Add back (deduct):
  (Income) allocated to minority interests for
     partially owned properties....................         (2,114)        (1,701)       (2,086)
  Income from investment in unconsolidated joint
     ventures......................................         11,267          5,155         2,093
  Depreciation and amortization (real estate
     related)......................................        313,519        130,465        92,373
  Net amortization of net premium on mortgage
     debt..........................................            940          2,324            --
  Preferred dividends..............................        (32,202)          (649)           --
                                                       -----------    -----------    ----------
Funds from Operations before effect of adjusting
  straight-line rental revenue and expense included
  in Funds from Operations to a cash basis(2)......        662,585        276,275       160,460
  Deferred rental revenue..........................        (68,107)       (27,740)      (18,427)
  Deferred rental expense..........................          2,613          2,206           788
                                                       -----------    -----------    ----------
Funds from Operations excluding straight-line
  rental revenue and expense adjustments...........    $   597,091    $   250,741    $  142,821
                                                       ===========    ===========    ==========
Cash Flow Provided By (Used For):
  Operating Activities.............................    $   759,151    $   286,714    $  165,975
  Investing Activities.............................    $(2,231,712)   $(2,163,340)   $ (924,227)
  Financing Activities(3)..........................    $ 1,310,788    $ 1,876,197    $1,057,551
  Ratio of earnings to combined fixed charges and
     preferred share distributions.................            1.8            1.8           1.5
</TABLE>
 
---------------
 
(1) Represents the combined results of Equity Office Predecessors for the period
    from January 1 through July 10, 1997 and the Company from July 11 through
    December 31, 1997.
 
(2) The White Paper on Funds from Operations approved by the Board of Governors
    of the National Association of Real Estate Investment Trusts ("NAREIT") in
    March 1995 defines Funds from Operations as net income (loss) (computed in
    accordance with GAAP), excluding gains (or losses) from debt restructuring
    and sales of properties, plus real estate related depreciation and
    amortization and after adjustments for unconsolidated partnerships and joint
    ventures. The Company believes that Funds from Operations is helpful to
    investors as a measure of the performance of an equity REIT because, along
    with cash flow from operating activities, financing activities and investing
    activities, it provides investors with an indication of the ability of the
    Company to incur and service debt, to make capital expenditures and to fund
    other cash needs. The Company computes Funds from Operations in accordance
    with standards established by NAREIT which may not be comparable to Funds
    from Operations reported by other REITs that do not define the term in
    accordance with the current NAREIT definition or that interpret the current
    NAREIT definition differently than the Company. Funds from Operations does
    not represent cash generated from operating activities in accordance with
    GAAP, nor does it represent cash available to pay distributions and should
    not be considered as an alternative to net income (determined in accordance
    with GAAP) as an indication of the Company's financial performance or to
    cash flow from operating activities (determined in accordance with GAAP) as
    a measure of the Company's liquidity, nor is it indicative of funds
    available to fund the Company's cash needs, including its ability to make
    cash distributions.
 
(3) For the year ended December 31, 1997, cash flow provided by financing
    activities includes approximately $181.1 million in cash contributed from
    Equity Office Predecessors in connection with the Consolidation.
 
                                       75
<PAGE>   76
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The Company's future earnings, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. The
Company manages its market risk by matching projected cash inflows from
operating activities, financing activities and investing activities with
projected cash outflows to fund debt payments, acquisitions, capital
expenditures, distributions and other cash requirements. The majority of the
Company's outstanding debt (maturing at various times through 2028) has a fixed
interest rate, which minimizes the interest rate risk. The Company also utilizes
certain derivative financial instruments at times to limit market risk. Interest
rate protection agreements are used to convert floating rate debt to a fixed
rate basis or to hedge anticipated financing transactions. Derivatives are used
for hedging purposes rather than speculation. The Company does not enter into
financial instruments for trading purposes.
 
     The Company has total outstanding debt of approximately $6.0 billion at
December 31, 1998, of which approximately $1.3 billion, or 21%, is variable rate
debt. If market rates of interest on the Company's variable rate debt increase
by ten percent (or approximately 64 basis points), the increase in interest
expense on the Company's variable rate debt would decrease future earnings and
cash flows by approximately $8.2 million. If market rates of interest increase
by ten percent, the fair value of the Company's total outstanding debt would
decrease by approximately $141.0 million. If market rates of interest on the
Company's variable rate debt decrease by ten percent (or approximately 64 basis
points), the decrease in interest expense on the Company's variable rate debt
would increase future earnings and cash flows by approximately $8.2 million. If
market rates of interest decrease by ten percent, the fair value of the
Company's total outstanding debt would increase by approximately $146.0 million.
 
     At December 31, 1998, the Company has put option agreements outstanding in
connection with the acquisition of the Wright Runstad Properties and Columbus
America Properties. On August 13, 1999, the holders of Wright Runstad options
(the "WR Holders"), can require the Company to purchase all or a portion of the
3,435,668 Common Shares issued at acquisition at a price equal to $31.50 per
Common Share. Prior to August 13, 1999, if the WR Holders sell all or a portion
of their Common Shares to a third party for a price less than $29.10625, then
the Company is obligated to pay to the WR Holders an amount equal to the
difference between such sale price and $29.10625 multiplied by the number of
Common Shares sold, not to exceed $3.00 per Common Share. Any amounts paid by
the Company as a result of such sales, calculated as the difference between the
sale price and $29.10625 not exceeding $3.00 per Common Share, shall be recorded
as a reduction of shareholders' equity. For options exercised on August 13,
1999, any amounts paid up to $29.10625 per Common Share would be reflected as a
reduction to shareholders' equity; the portion of any amounts paid in excess of
$29.10625 per Common Share (not to exceed $2.39375 per Common Share up to an
aggregate of approximately $8.2 million) would be expensed by the Company. The
Company will not incur any loss on this transaction if the put option is not
exercised.
 
     The Company's cash flows could decrease by up to $10.3 million if, prior to
August 13, 1999, the WR Holders sell all their Common Shares to third parties.
Cash flows of the Company may decrease by up to approximately $108 million if
the WR Holders exercise their rights under the put option agreement on August
13, 1999. There will be no impact on cash flows from this transaction if the put
option is not exercised.
 
     The Company has a put option agreement outstanding with the seller of the
Columbus America Properties (the "CA Holder") related to 1,692,546 Units issued
at acquisition. The CA Holder has the option at any time after January 1, 1999
until the earlier of September 3, 2000 or the date the CA Holder has converted
all of its Units to Common Shares, to require the Company to purchase the Units
at a price equal to $29.00 per Unit. Under the terms of the agreement, prior to
September 3, 1999, the option shall be limited to an aggregate of 846,273 Units.
In the event of any option exercise the Company will recognize any cash paid as
a reduction in minority interest. Cash flows of the Company may decrease by up
to approximately $49.1 million if the CA Holders exercise their rights under the
put option agreement. There will be no impact on cash flows from this
transaction if the put option is not exercised.
 
     These amounts were determined by considering the impact of hypothetical
interest rates and equity prices on the Company's financial instruments. These
analyses do not consider the effects of the reduced level of
                                       76
<PAGE>   77
 
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, these
analyses assumes no changes in the Company's financial structure.
 
                                       77
<PAGE>   78
 
ITEM 8. FINANCIAL STATEMENTS.
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Trustees and Shareholders of Equity Office Properties Trust
 
     We have audited the accompanying consolidated balance sheets of Equity
Office Properties Trust (the "Company") as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity and cash
flows of the Company for the year ended December 31, 1998 and the period from
July 11, 1997 to December 31, 1997, and the related combined statements of
operations, owners' equity and cash flows of the Equity Office Predecessors, as
defined in Note 1, for the period from January 1, 1997 to July 10, 1997, and for
the year ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Equity Office
Properties Trust at December 31, 1998 and 1997, the consolidated results of
Equity Office Properties Trust's operations and cash flows for the year ended
December 31, 1998 and the period from July 11, 1997 to December 31, 1997, and
the combined results of the Equity Office Predecessors', as defined in Note 1,
operations and cash flows for the period from January 1, 1997 to July 10, 1997
and for the year ended December 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
 
                                                               Ernst & Young LLP
 
Chicago, Illinois
February 9, 1999, except for Note 23,
as to which the date is February 16, 1999
 
                                       78
<PAGE>   79
 
                         EQUITY OFFICE PROPERTIES TRUST
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                --------------------------
                                                                   1998           1997
                                                                -----------    -----------
                                                                  (DOLLARS IN THOUSANDS,
                                                                  EXCEPT PER SHARE DATA)
<S>                                                             <C>            <C>
ASSETS:
  Investment in real estate.................................    $13,349,627    $10,746,424
  Developments in process...................................        268,373        259,718
  Land available for development............................         65,819         34,872
  Accumulated depreciation..................................       (352,259)       (64,695)
                                                                -----------    -----------
                                                                 13,331,560     10,976,319
  Cash and cash equivalents.................................         67,080        228,853
  Tenant and other receivables (net of allowance for
    doubtful accounts of $1,013 and $675, respectively).....         36,193         32,531
  Deferred rent receivable..................................         87,115         20,050
  Escrow deposits and restricted cash.......................        159,576         25,772
  Investment in unconsolidated joint ventures...............        378,534        387,332
  Deferred financing costs (net of accumulated amortization
    of $6,242 and $1,855,
  respectively).............................................         53,181          5,090
  Deferred leasing costs (net of accumulated amortization of
    $9,714 and $1,473,
  respectively).............................................         65,090         26,994
  Prepaid expenses and other assets.........................         82,962         48,731
                                                                -----------    -----------
    Total Assets............................................    $14,261,291    $11,751,672
                                                                ===========    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
  Mortgage debt (including a net premium of $13,517 and
    $1,157, respectively)...................................    $ 2,350,088    $ 2,063,017
  Unsecured notes (including a net premium of $4,317 and $0,
    respectively)...........................................      2,459,317        180,000
  Lines of credit...........................................      1,216,000      2,041,300
  Accounts payable and accrued expenses.....................        347,970        260,401
  Due to affiliates.........................................          1,136            733
  Dividend/distribution payable.............................          5,080          1,191
  Other liabilities.........................................         93,022         45,055
                                                                -----------    -----------
    Total Liabilities.......................................      6,472,613      4,591,697
                                                                -----------    -----------
  Commitments and contingencies (Note 22)...................
  Minority Interests:
    Operating Partnership...................................        709,355        725,206
    Partially owned properties..............................         28,360         29,612
                                                                -----------    -----------
    Total Minority Interests................................        737,715        754,818
                                                                -----------    -----------
  Shareholders' Equity:
  Preferred Shares, 100,000,000 authorized:
    8.98% Series A Cumulative Redeemable Preferred Shares,
     liquidation preference $25.00 per share, 8,000,000
     issued and outstanding.................................        200,000        200,000
    5.25% Series B Convertible, Cumulative Redeemable
     Preferred Shares, liquidation preference $50.00 per
     share, 6,000,000 issued and outstanding................        300,000             --
    8.625% Series C Cumulative Redeemable Preferred Shares,
     liquidation preference $25.00 per share, 4,600,000
     issued and outstanding.................................        115,000             --
  Common Shares, $0.01 par value; 750,000,000 shares
    authorized, 259,901,657 and 250,030,403 issued,
    259,901,657 and 249,527,663 outstanding.................          2,599          2,495
  Additional paid in capital................................      6,483,569      6,219,511
  Dividends in excess of accumulated earnings...............        (50,205)       (16,849)
                                                                -----------    -----------
    Total Shareholders' Equity..............................      7,050,963      6,405,157
                                                                -----------    -----------
    Total Liabilities and Shareholders' Equity..............    $14,261,291    $11,751,672
                                                                ===========    ===========
</TABLE>
 
                            See accompanying notes.
 
                                       79
<PAGE>   80
 
      EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS
        AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                EQUITY OFFICE PROPERTIES TRUST                 EQUITY OFFICE PREDECESSORS
                                          ------------------------------------------   ------------------------------------------
                                                                FOR THE PERIOD FROM     FOR THE PERIOD FROM
                                          FOR THE YEAR ENDED   JULY 11, 1997 THROUGH      JANUARY 1, 1997      FOR THE YEAR ENDED
                                          DECEMBER 31, 1998      DECEMBER 31, 1997     THROUGH JULY 10, 1997   DECEMBER 31, 1996
                                          ------------------   ---------------------   ---------------------   ------------------
                                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>                  <C>                     <C>                     <C>
Revenues:
  Rental................................     $  1,299,044          $    314,233              $256,146               $386,481
  Tenant reimbursements.................          239,390                63,196                43,241                 62,036
  Parking...............................           94,241                25,960                21,091                 27,253
  Other.................................           25,745                 3,324                 6,539                 17,626
  Fees from noncombined affiliates......            9,571                 2,440                 2,510                  5,120
  Interest / dividends..................           11,708                 3,815                 9,577                  9,608
                                             ------------          ------------              --------               --------
    Total revenues......................        1,679,699               412,968               339,104                508,124
                                             ------------          ------------              --------               --------
Expenses:
  Interest:
    Expense incurred....................          338,611                76,675                80,481                119,595
    Amortization of deferred financing
      costs.............................            6,404                 4,178                 2,771                  4,275
  Depreciation..........................          291,213                64,695                57,379                 82,905
  Amortization..........................            8,365                 1,473                 5,884                  9,057
  Real estate taxes.....................          203,805                47,579                34,000                 52,182
  Insurance.............................            7,736                 3,196                 3,060                  4,863
  Repairs and maintenance...............          191,588                50,285                45,540                 71,156
  Property operating....................          189,577                52,235                42,309                 70,639
  Ground rent...........................            7,661                 2,384                 2,376                  2,227
  General and administrative............           63,564                17,690                17,201                 23,145
                                             ------------          ------------              --------               --------
    Total expenses......................        1,308,524               320,390               291,001                440,044
                                             ------------          ------------              --------               --------
Income before allocation to minority
  interests, income from investment in
  unconsolidated joint ventures, gain on
  sales of real estate and extraordinary
  items.................................          371,175                92,578                48,103                 68,080
Minority Interests:
  Operating Partnership.................          (36,226)               (7,010)                   --                     --
  Partially owned properties............           (2,114)                 (789)                 (912)                (2,086)
Income from investment in unconsolidated
  joint ventures........................           11,267                 3,173                 1,982                  2,093
Gain on sales of real estate............           12,433                   126                12,510                  5,338
                                             ------------          ------------              --------               --------
Income before extraordinary items.......          356,535                88,078                61,683                 73,425
Extraordinary items.....................           (7,506)              (16,366)                 (274)                    --
                                             ------------          ------------              --------               --------
Net income..............................          349,029                71,712                61,409                 73,425
Preferred distributions.................          (32,202)                 (649)                   --                     --
                                             ------------          ------------              --------               --------
Net income available for Common
  Shares................................     $    316,827          $     71,063              $ 61,409               $ 73,425
                                             ============          ============              ========               ========
Net income available per weighted
  average Common Share outstanding --
  Basic.................................     $       1.25          $       0.44
                                             ============          ============
Weighted average Common Shares
  outstanding -- Basic..................      253,167,037           162,591,477
                                             ============          ============
Net income available per weighted
  average Common Share outstanding --
  Diluted...............................     $       1.24          $       0.43
                                             ============          ============
Weighted average Common Shares
  outstanding -- Diluted................      283,974,532           180,014,027
                                             ============          ============
</TABLE>
 
                            See accompanying notes.
 
                                       80
<PAGE>   81
 
                         EQUITY OFFICE PROPERTIES TRUST
              CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
                     EQUITY AND EQUITY OFFICE PREDECESSORS
                COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
 
<TABLE>
<CAPTION>
                                              EQUITY OFFICE PROPERTIES TRUST                  EQUITY OFFICE PREDECESSORS
                                        ------------------------------------------   --------------------------------------------
                                                              FOR THE PERIOD FROM      FOR THE PERIOD FROM     FOR THE YEAR ENDED
                                        FOR THE YEAR ENDED   JULY 11, 1997 THROUGH   JANUARY 1, 1997 THROUGH      DECEMBER 31,
                                        DECEMBER 31, 1998      DECEMBER 31, 1997          JULY 10, 1997               1996
                                        ------------------   ---------------------   -----------------------   ------------------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                     <C>                  <C>                     <C>                       <C>
PREFERRED SHARES:
Balance, beginning of period..........     $   200,000            $        --              $        --            $        --
 8.98% Series A Cumulative
   Redeemable.........................              --                200,000                       --                     --
 5.25% Series B Convertible Cumulative
   Redeemable.........................         300,000                     --                       --                     --
 8.625% Series C Cumulative
   Redeemable.........................         115,000                     --                       --                     --
                                           -----------            -----------              -----------            -----------
Balance, end of period................     $   615,000            $   200,000              $        --            $        --
                                           ===========            ===========              ===========            ===========
COMMON SHARES, $0.01 PAR VALUE:
Balance, beginning of period..........     $     2,495            $        --              $        --            $        --
 Issuance of Common Shares for IPO....              --                    287                       --                     --
 Contribution of net assets from
   Consolidation at fair value in
   exchange for Common Shares.........              --                  1,230                       --                     --
 Issuance of Common Shares for
   acquisitions.......................              --                     34                       --                     --
 Issuance of Common Shares through
   exercise of options................               8                     --                       --                     --
 Issuance of Common Shares in exchange
   for Units..........................              76                     --                       --                     --
 Sale of Common Shares, net...........              16                     97                       --                     --
 Issuance of Common Shares for Beacon
   Merger.............................              --                    844                       --                     --
 Common Shares issued for restricted
   shares and trustee fees............               4                      3                       --                     --
                                           -----------            -----------              -----------            -----------
Balance, end of period................     $     2,599            $     2,495              $        --            $        --
                                           ===========            ===========              ===========            ===========
ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period..........     $ 6,219,511            $        --              $        --            $        --
 Net proceeds from IPO................              --                564,219                       --                     --
 Contribution of net assets from
   Consolidation at fair value in
   exchange for Common Shares.........              --              2,580,259                       --                     --
 Issuance of Common Shares and
   Warrants for acquisitions..........          27,445                114,966                       --                     --
 Amortization of restricted share
   awards.............................           3,129                     --                       --                     --
 Issuance of Common Shares through
   exercise of options................          15,460                     --                       --                     --
 Issuance of Common Shares in exchange
   for Units..........................         197,627                     --                       --                     --
 Preferred shares and other offering
   costs..............................         (14,631)                    --                       --                     --
 Sale of Common Shares, net...........          43,967                273,853                       --                     --
 Issuance of Common Shares for Beacon
   Merger.............................              --              2,652,726                       --                     --
 Common Shares issued for restricted
   shares and trustee fees............              (4)                   162                       --                     --
 Adjustment for minority interests
   ownership in Operating
   Partnership........................          (8,935)                33,326                       --                     --
                                           -----------            -----------              -----------            -----------
Balance, end of period................     $ 6,483,569            $ 6,219,511              $        --            $        --
                                           ===========            ===========              ===========            ===========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED
 EARNINGS:
Balance, beginning of period..........     $   (16,849)           $        --              $        --            $        --
 Net income...........................         349,029                 71,063                       --                     --
 Preferred distributions..............         (32,202)
 Dividends to Common Shares...........        (350,183)               (87,912)                      --                     --
                                           -----------            -----------              -----------            -----------
Balance, end of period................     $   (50,205)           $   (16,849)             $        --            $        --
                                           ===========            ===========              ===========            ===========
OWNERS' EQUITY:
Balance, beginning of period..........     $        --            $        --              $ 1,727,002            $ 1,089,969
 Contributions........................              --                     --                  285,542                661,265
 Offering expenses....................              --                     --                       --                 (1,157)
 Distributions........................              --                     --                 (189,752)               (96,500)
 Net income...........................              --                     --                   61,409                 73,425
 Contribution of Owners' Equity to the
   Company in connection with the
   Consolidation......................              --                     --               (1,884,201)                    --
                                           -----------            -----------              -----------            -----------
Balance, end of period................     $        --            $        --              $        --            $ 1,727,002
                                           ===========            ===========              ===========            ===========
</TABLE>
 
                            See accompanying notes.
 
                                       81
<PAGE>   82
 
EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS AND EQUITY
             OFFICE PREDECESSORS COMBINED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                EQUITY OFFICE PROPERTIES TRUST                 EQUITY OFFICE PREDECESSORS
                                          ------------------------------------------   ------------------------------------------
                                                                FOR THE PERIOD FROM     FOR THE PERIOD FROM
                                          FOR THE YEAR ENDED   JULY 11, 1997 THROUGH      JANUARY 1, 1997      FOR THE YEAR ENDED
                                          DECEMBER 31, 1998      DECEMBER 31, 1997     THROUGH JULY 10, 1997   DECEMBER 31, 1996
                                          ------------------   ---------------------   ---------------------   ------------------
                                                                          (DOLLARS IN THOUSANDS)
<S>                                       <C>                  <C>                     <C>                     <C>
OPERATING ACTIVITIES:
  Net income before preferred
    distributions.......................     $   349,029            $    71,712              $  61,409             $  73,425
  Adjustments to reconcile net income to
    net cash provided by operating
    activities:
    Depreciation and amortization.......         305,982                 70,202                 66,034                96,237
    Amortization of premiums/discounts
      on unsecured notes and terminated
      interest rate protection
      agreements........................           2,898                    144                     --                    --
    Compensation related to restricted
      shares issued to employees........           2,829                     --                     --                    --
  (Income) from unconsolidated joint
    ventures............................         (11,267)                (3,173)                (1,982)               (2,093)
  (Gain) on sales of real estate........         (12,433)                  (126)               (12,510)               (5,338)
  Extraordinary items...................           7,506                 16,366                    274                    --
  Provision for doubtful accounts.......             890                  1,686                  1,175                 2,284
  Allocation to minority interests......          38,340                  7,799                    912                 2,086
  Changes in assets and liabilities:
    (Increase) decrease in rents
      receivable........................          (4,552)                 2,064                  2,664                (1,550)
    (Increase) in deferred rent
      receivables{......................         (67,065)               (21,421)                (8,061)              (20,421)
    Decrease (increase) in prepaid
      expenses and other assets.........          10,756                (29,551)                (8,839)               (9,747)
    Increase in accounts payable and
      accrued expenses..................          87,569                 54,076                  2,916                19,241
    Increase (decrease) in due to
      affiliates........................             403                   (898)                  (722)                1,235
    Increase (decrease) in other
      liabilities.......................          48,266                 21,874                 (7,310)               10,616
                                             -----------            -----------              ---------             ---------
      Net cash provided by operating
         activities.....................         759,151                190,754                 95,960               165,975
                                             -----------            -----------              ---------             ---------
INVESTING ACTIVITIES:
  Property acquisitions.................      (1,930,172)            (1,508,928)              (531,968)             (768,906)
  Proceeds from sales of real estate....         130,123                     --                 72,078                14,502
  Payments for capital and tenant
    improvements........................        (207,093)               (99,586)               (59,511)             (129,485)
  Cash received from Beacon Merger......              --                 79,786                     --                    --
  Payment of Beacon Merger costs........              --                (62,069)                    --                    --
  Distributions from unconsolidated
    joint ventures......................          46,122                  4,571                     --                 1,688
  Investments in unconsolidated joint
    ventures............................         (42,019)                    --                (44,260)                   --
  Payments of lease acquisition costs...         (46,337)               (15,043)                (9,260)              (29,793)
  Investment in preferred securities....         (48,532)                    --                     --                    --
  (Increase) decrease in escrow deposits
    and restricted cash.................        (133,804)                 8,997                  1,853               (12,233)
                                             -----------            -----------              ---------             ---------
      Net cash (used for) investing
         activities.....................      (2,231,712)            (1,592,272)              (571,068)             (924,227)
                                             -----------            -----------              ---------             ---------
</TABLE>
 
                            See accompanying notes.
 
                                       82
<PAGE>   83
 
EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS AND EQUITY
      OFFICE PREDECESSORS COMBINED STATEMENTS OF CASH FLOWS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                EQUITY OFFICE PROPERTIES TRUST                 EQUITY OFFICE PREDECESSORS
                                          ------------------------------------------   ------------------------------------------
                                                                FOR THE PERIOD FROM     FOR THE PERIOD FROM
                                          FOR THE YEAR ENDED   JULY 11, 1997 THROUGH      JANUARY 1, 1997      FOR THE YEAR ENDED
                                          DECEMBER 31, 1998      DECEMBER 31, 1997     THROUGH JULY 10, 1997   DECEMBER 31, 1996
                                          ------------------   ---------------------   ---------------------   ------------------
                                                                          (DOLLARS IN THOUSANDS)
<S>                                       <C>                  <C>                     <C>                     <C>
FINANCING ACTIVITIES:
  Proceeds from Common Shares, net of
    offering costs......................          43,983                838,456                     --                    --
  Proceeds from exercise of options.....          15,435                 68,191                     --                    --
  Dividends/distributions to
    shareholders/unit holders...........        (388,954)               (95,569)                    --                    --
  Capital contributions.................              --                     --                287,949               661,265
  Capital distributions.................              --                     --               (288,652)              (12,508)
  Payments for offering expenses........            (117)                    --                     --                (1,157)
  Payment of preferred distributions....         (29,581)                    --                     --                    --
  Proceeds from sale of preferred
    shares, net of offering costs.......         400,487                     --                     --                    --
  (Distributions to) minority interest
    in partially owned properties.......          (3,366)                  (371)                (3,401)              (22,593)
  Cash contributed from net assets at
    the IPO.............................              --                181,138                     --                    --
  Proceeds from mortgage debt...........          10,865                 84,466                154,090               640,953
  Proceeds from unsecured notes.........       2,279,572                180,000                     --                    --
  Proceeds from lines of credit.........       4,922,500              2,530,425                218,000               216,943
  Principal payments on mortgage debt...         (38,370)              (838,354)               (47,472)             (254,104)
  Principal payments on lines of
    credit..............................      (5,841,197)            (1,294,750)               (72,500)             (165,818)
  Payments of loan costs................         (22,192)                (7,039)                (1,889)               (5,430)
  Termination of interest rate
    protection agreements...............         (38,277)                    --                     --                    --
  Prepayment penalties on early
    extinguishments of debt.............              --                (16,247)                  (274)                   --
                                             -----------            -----------              ---------             ---------
      Net cash provided by financing
         activities.....................       1,310,788              1,630,346                245,851             1,057,551
                                             -----------            -----------              ---------             ---------
  Net (decrease) increase in cash and
    cash equivalents....................        (161,773)               228,828               (229,257)              299,299
  Cash and cash equivalents at the
    beginning of the period.............         228,853                     25                410,420               111,121
                                             -----------            -----------              ---------             ---------
  Cash and cash equivalents at the end
    of the period.......................     $    67,080            $   228,853              $ 181,163             $ 410,420
                                             ===========            ===========              =========             =========
SUPPLEMENTAL INFORMATION:
  Interest paid during the period,
    including capitalized interest of
    $15,077, $1,890, $3,669 and $4,640,
    respectively........................     $   302,415            $    70,658              $  82,969             $ 121,813
                                             ===========            ===========              =========             =========
</TABLE>
 
                            See accompanying notes.
 
                                       83
<PAGE>   84
 
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 
NOTE 1 -- BUSINESS AND FORMATION OF THE COMPANY
 
     As used herein, "Company" means Equity Office Properties Trust, a Maryland
real estate investment trust, together with its subsidiaries including EOP
Operating Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"), and the predecessors thereof ("Equity Office Predecessors"). The
Company was formed on October 9, 1996 to continue and expand the national office
property business organized by Mr. Samuel Zell, Chairman of the Board of
Trustees of the Company, and to complete the consolidation of the Equity Office
Predecessors (the "Consolidation"). The Company completed its initial public
offering (the "IPO") on July 11, 1997. The Company is a fully integrated,
self-administered and self-managed real estate company engaged in acquiring,
owning, managing, leasing and renovating office properties and parking
facilities. The Company elected to be taxed as a real estate investment trust
("REIT") for federal income tax purposes and generally will not be subject to
federal income tax if it distributes 100% of its taxable income and complies
with a number of organizational and operational requirements. As of December 31,
1998, the Company owned or had an interest in 284 office properties (the "Office
Properties") containing approximately 75.1 million rentable square feet of
office space and owned 19 stand-alone parking facilities (the "Parking
Facilities" and, together with the Office Properties, the "Properties")
containing approximately 18,059 parking spaces. The weighted average occupancy
for the Office Properties at December 31, 1998 was approximately 95.0%. The
Office Properties are located in 80 submarkets in 36 markets in 24 states and
the District of Columbia. The Office Properties, by rentable square feet, are
located approximately 53% in central business districts ("CBDs") and 47% in
suburban markets.
 
     On July 11, 1997, the Company consummated the IPO having sold 28,750,000 of
its common shares of beneficial interest, $0.01 par value per share ("Common
Shares") at $21.00 per Common Share generating gross proceeds of approximately
$603.8 million. The Company contributed the net proceeds from the IPO of
approximately $564.5 million to the Operating Partnership in exchange for
28,750,000 units of partnership interest in the Operating Partnership ("Units").
The Company used the net proceeds of the IPO and available cash reserves to
repay debt of approximately $678.4 million, of which $598.4 million was mortgage
debt and $80 million was a revolving line of credit.
 
     Concurrent with the IPO, the Company also completed the following formation
transactions which resulted in the Consolidation of the Equity Office
Predecessors into the Company:
 
     -  Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership,
        Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership
        II, Zell/Merrill Lynch Real Estate Opportunity Partners Limited
        Partnership III and Zell/Merrill Lynch Real Estate Opportunity Partners
        Limited Partnership IV (collectively the "ZML Opportunity
        Partnerships"), the predecessor owner of the Properties, contributed
        their interest in the Properties to the Operating Partnership in
        exchange for 126,419,397 Units.
 
     -  ZML Investors Inc., ZML Investors II, Inc., Zell/Merrill Lynch Real
        Estate Opportunity Partners III Trust and Zell/Merrill Lynch Real Estate
        Opportunity Partners IV Trust (collectively "ZML REITs") merged into the
        Company, with the Company succeeding to their interest in, and becoming
        the managing general partners of each of the ZML Opportunity
        Partnerships. Shareholders of the ZML REITs received 122,900,572 Common
        Shares of the Company in exchange for their interests in the ZML REITs.
 
     -  Equity Group Investments, Inc. an Illinois corporation ("EGI"), and
        Equity Office Holdings, L.L.C., a Delaware limited liability company
        ("EOH" and together with EGI, the "Equity Group") contributed
        substantially all of their interests in their office property and asset
        management business and parking facilities management business
        (collectively the "Management Business") to the Operating Partnership in
        exchange for 8,358,822 Units.
 
                                       84
<PAGE>   85
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 1 -- BUSINESS AND FORMATION OF THE COMPANY -- (CONTINUED)
     -  The Operating Partnership transferred a portion of the office property
        management business of EOH, the office property asset management
        business and the parking asset management business of the Equity Group
        that relates to the property management of the properties owned by the
        Equity Group, together with the 18 properties then held in partnerships
        or subject to participation agreements with unaffiliated parties (the
        "Joint Venture Properties") (collectively, the "Managed Property
        Business") to Equity Office Properties Management Corp., a Delaware
        corporation (the "EOP Management Company"), in exchange for 95% of the
        economic value in the EOP Management Company and EOH contributed
        $150,000 to the EOP Management Company in exchange for 5% of the
        economic value of the EOP Management Company.
 
     -  ZML Partners Limited Partnership, ZML Partners Limited Partnership II,
        ZML Partners Limited Partnership III and ZML Partners Limited
        Partnership IV (the "ZML Partners"), each of which is the general
        partner of one of the ZML Opportunity Partnerships, each transferred its
        5% interest in certain corporations which owned a 1% general partnership
        interest in certain of the property title holding entities to a newly
        formed qualified REIT subsidiary in exchange for 26,458 Common Shares.
 
     -  The Operating Partnership transferred its 95% interest in certain
        corporations which owned a 1% general partner interest in certain of the
        property title holding entities to a subsidiary of the Company in
        exchange for 502,740 Common Shares. Such Common Shares have been treated
        as treasury stock in the accompanying financial statements as of
        December 31, 1997 and were retired in 1998.
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
     The Company's assets, which include investments in joint ventures, are
primarily owned by, and its operations are substantially conducted through, the
Operating Partnership. The Company is the managing general partner of the
Operating Partnership. Due to the Company's ability as managing general partner
to control the Operating Partnership and various other property holding
subsidiaries, each such entity has been consolidated with the Company for
financial reporting purposes.
 
     The Consolidation and the Beacon Merger (as described in Note 4) were
accounted for as purchases in accordance with Accounting Principles Board
Opinion No. 16. Accordingly, the fair value of the consideration given by the
Company was used as the valuation basis for these transactions. The assets
acquired and liabilities assumed by the Company were recorded at their fair
values as of the closing dates of the Consolidation and the Beacon Merger and
the excess of the purchase price over the related historical basis of the net
assets acquired was allocated primarily to investment in real estate.
 
     The combined financial statements of Equity Office Predecessors prior to
the Consolidation and the IPO included interests in the properties of the ZML
Opportunity Partnerships together with their limited and general partners
(collectively, the "ZML Funds" which includes ZML Fund I, ZML Fund II, ZML Fund
III and ZML Fund IV) and the Management Business. The financial statements of
Equity Office Predecessors are presented on a combined basis, at historical
cost, because the ZML Funds and the Management Business were under common
control. All intercompany transactions and balances have been eliminated in
combination.
 
     Minority interests have been recorded for those entities that were not
wholly owned by the ZML Funds. Where controlling interests were not held by the
ZML Funds, the entities were accounted for as investments in unconsolidated
joint ventures utilizing equity accounting.
 
                                       85
<PAGE>   86
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Investment in Real Estate
 
     Rental property and improvements, including interest and other costs
capitalized during construction, are included in investment in real estate and
are stated at cost. Expenditures for ordinary maintenance and repairs are
expensed to operations as they are incurred. Significant renovations and
improvements which improve or extend the useful life of the assets are
capitalized. Except for amounts attributed to land, rental property and
improvements are depreciated over their estimated useful lives using the
straight-line method. The estimated useful lives by asset category are:
 
<TABLE>
<CAPTION>
ASSET CATEGORY                                                  ESTIMATED USEFUL LIFE
--------------                                                  ---------------------
<S>                                                             <C>
Building....................................................                 40 years
Building improvements.......................................            4 -- 40 years
Tenant improvements.........................................            Term of lease
Furniture and fixtures......................................            3 -- 12 years
</TABLE>
 
Deferred Leasing and Financing Costs
 
     Deferred leasing and financing costs are recorded at cost. The deferred
leasing costs are amortized over the terms of the respective leases and the
deferred financing costs are amortized over the terms of the respective
financings on a straight-line basis, which approximates the effective yield
method.
 
Rental Income
 
     Certain leases provide for tenant occupancy during periods for which no
rent is due or where minimum rent payments increase during the term of the
lease. The Company records rental income for the full term of each lease on a
straight-line basis. Accordingly, the Company records a receivable from tenants
that the Company expects to collect over the remaining lease term rather than
currently ("Deferred Rent Receivable"). When the Company acquires a property the
term of existing leases is considered to commence as of the acquisition date for
purposes of this calculation. The amounts included in rental income for the year
ended December 31, 1998, the period from July 11, 1997 through December 31,
1997, the period from January 1, 1997 through July 10, 1997 and the year ended
December 31, 1996, which were not currently collectible as of such dates, were
approximately $68.1 million, $20.0 million, $7.7 million and $18.4 million,
respectively. Deferred Rent Receivable is not recognized for income tax
purposes.
 
Cash Equivalents
 
     The Company considers cash equivalents to be all highly liquid investments
purchased with a maturity of three months or less at the date of purchase.
 
Escrow Deposits and Restricted Cash
 
     Escrow deposits primarily consist of amounts held by lenders to provide for
future real estate tax expenditures and tenant improvements, earnest money
deposits on acquisitions and net proceeds from dispositions (see Note 5).
Restricted cash represents amounts committed for various utility deposits and
security deposits. Certain of these amounts may be reduced upon the fulfillment
of certain obligations.
 
Fair Value of Financial Instruments
 
     Management believes that the carrying basis of the Company's long-term debt
consisting of secured and unsecured borrowings and an interest rate protection
agreement approximate their respective fair market values as of December 31,
1998 and 1997, respectively. The current value of debt was computed by
 
                                       86
<PAGE>   87
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
discounting the projected debt service payments for each loan based on the
spread between the market rate and the effective rate, including the
amortization of loan origination costs, for each year. In addition, the carrying
values of cash and cash equivalents, restricted cash, escrow deposits, tenant
and other rents receivable, accounts payable and accrued expenses are reasonable
estimates of their fair value.
 
Interest Rate Protection Agreements
 
     The Company periodically enters into certain interest rate protection
agreements to effectively convert or cap floating rate debt to a fixed rate
basis, as well as to hedge anticipated future finance transactions. Net amounts
paid or received under these agreements are recognized as an adjustment to
interest expense when such amounts are incurred or earned. Settlement amounts
paid or received in connection with terminated interest rate protection
agreements are deferred and amortized as an adjustment to interest expense over
the term of the related financing transaction on the straight-line method, which
approximates the effective yield amount.
 
Derivatives and Hedging Activities
 
     In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The statement requires recording all
derivative instruments as assets or liabilities, measured at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. This standard is effective for fiscal years
beginning after June 15, 1999. The Company is planning to adopt the standard
effective January 1, 2000 and does not anticipate that the adoption will have a
material impact on the Company's financial condition and results of operations.
 
Income Taxes
 
     The Office Properties and Parking Facilities are primarily owned by limited
partnerships or limited liability companies, which are substantially
pass-through entities. Some of the pass-through entities have corporate general
partners or members, which are subject to federal and state income and franchise
taxes. In addition, the Management Business is owned by a corporation and is
subject to federal and state income taxes. The Company incurred federal and
state income and franchise taxes of approximately $1.7 million, $0.2 million,
$0.9 million and $1.4 million for the year ended December 31, 1998, the period
from July 11, 1997 through December 31, 1997, the period from January 1, 1997
through July 10, 1997 and the year ended December 31, 1996, respectively, which
are included in general and administrative expenses.
 
     The Company elected to be taxed as a REIT, under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the
Company generally will not be subject to federal income tax if it distributes
100% of its taxable income for each tax year to its shareholders. REITs are
subject to a number of organization and operational requirements. If the Company
fails to qualify as a REIT in any taxable year, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate tax rates. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to state and local income taxes
and to federal income tax and excise tax on its undistributed income. The
aggregate cost of land and depreciable property for federal income tax purposes
as of December 31, 1998 and 1997 was approximately $9.7 billion and $7.5
billion, respectively.
 
                                       87
<PAGE>   88
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Minority Interests
 
     Operating Partnership
 
     Net income is allocated to minority interests based on their respective
ownership percentage of the Operating Partnership. The ownership percentage is
calculated by dividing the number of Units held by the minority interests by the
total Units held by both the minority interests and the Company. Issuance of
additional Common Shares and Units changes the ownership interests of both the
minority interests and the Company. Such transactions and the proceeds therefrom
are treated as capital transactions.
 
     Partially Owned Properties
 
     The Company reflects minority interests in partially owned properties on
the balance sheet for the portion of properties consolidated by the Company that
are not wholly owned by the Company. The earnings or losses from these
properties attributable to the minority interests are reflected as minority
interests in partially owned properties in the statement of operations.
 
Use of Estimates
 
     The preparation of the consolidated financial statements of the Company and
the combined financial statements of Equity Office Predecessors in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
 
Reclassifications
 
     Certain reclassifications have been made to the previously reported 1997
and 1996 statements in order to provide comparability with the 1998 statements
reported herein. These reclassifications have not changed the 1997 or 1996
results, shareholders' equity or owners' equity.
 
NOTE 3 -- INVESTMENT IN REAL ESTATE
 
     Investment in real estate, including Office Properties, Parking Facilities,
properties under development and vacant land was as follows:
 
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                --------------------------
                                                                   1998           1997
                                                                -----------    -----------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                             <C>            <C>
Land........................................................    $ 1,343,308    $ 1,026,801
Land available for development..............................         65,819         34,872
Building....................................................     11,729,616      9,621,345
Building improvements.......................................         76,631         19,956
Tenant improvements.........................................        191,936         74,408
Furniture and fixtures......................................          8,136          3,914
Developments in process.....................................        268,373        259,718
                                                                -----------    -----------
  Gross investment in real estate...........................     13,683,819     11,041,014
Accumulated depreciation....................................       (352,259)       (64,695)
                                                                -----------    -----------
  Net investment in real estate.............................    $13,331,560    $10,976,319
                                                                ===========    ===========
</TABLE>
 
                                       88
<PAGE>   89
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3 -- INVESTMENT IN REAL ESTATE -- (CONTINUED)
     During the year ended December 31, 1998, the Company acquired the
Properties listed below. Each Property was purchased from an unaffiliated party
and was funded from credit facilities, working capital, assumption of mortgage
debt, issuance of promissory notes and/or issuance of Common Shares/Units. In
addition, during 1997 the Company acquired 176 Office Properties and seven
Parking Facilities, including those acquired in connection with the Beacon
Merger (see Note 4), for a total cost of approximately $6.6 billion.
 
<TABLE>
<CAPTION>
  DATE                                                             RENTABLE             TOTAL
ACQUIRED               PROPERTY                    LOCATION       SQUARE FEET    ACQUISITION COST(1)
--------  -----------------------------------  -----------------  -----------   ----------------------
                                                                                (DOLLARS IN THOUSANDS)
<C>       <S>                                  <C>                <C>           <C>
 1/29/98  BP Tower Garage                      Cleveland, OH              --          $   10,227
 3/18/98  100 Summer Street                    Boston, MA          1,037,801             222,710
 3/31/98  The Tower at New England Executive   Burlington, MA        194,911              27,929
          Park (2)
  4/2/98  Westbrook Corporate Center Vacant    Westchester, IL            --               3,973
          Land
 4/21/98  Denver Post Tower                    Denver, CO            579,999              52,937
 4/29/98  301 Howard Street and 215 Fremont    San Francisco, CA     572,396              90,015
          Street(3)
 4/30/98  410 17th Street                      Denver, CO            388,953              44,737
 4/30/98  Tabor Center (4)                     Denver, CO            674,278             144,485
 4/30/98  Trinity Place                        Denver, CO            189,163              19,034
 5/14/98  Dominion Plaza                       Denver, CO            571,468              59,901
 5/19/98  Millennium Plaza                     Englewood, CO         330,033              46,071
 5/22/98  Polk and Taylor Buildings (5)        Arlington, VA         902,371             153,463
  6/1/98  Walker Building                      Washington, D.C.       75,456               8,624
 6/26/98  Columbia Seafirst Center             Seattle, WA         1,537,932             401,750
  7/2/98  Northland Plaza                      Bloomington, MN       296,965              47,051
 7/15/98  4949 S. Syracuse                     Denver, CO             62,633               8,223
 7/15/98  Metropoint I and Metropoint III      Denver, CO            263,719              45,749
          vacant land
 7/15/98  One Park Square                      Albuquerque, NM       262,020              36,343
 7/15/98  Park Avenue Tower (6)                New York, NY          550,894             244,880
 7/15/98  Terrace Building                     Englewood, CO         115,408              15,464
 7/15/98  The Solarium                         Englewood, CO         162,817              19,511
 7/29/98  Second and Spring                    Seattle, WA           134,871              19,684
 9/30/98  Colonnade I, II and III (7)          Dallas, TX            984,254             151,958
 10/1/98  Worldwide Plaza (8)                  New York, NY        1,704,624             624,595
 11/3/98  Central Park vacant land             Atlanta, GA                --               3,975
12/17/98  Forbes Garage and Allies Garages     Pittsburgh, PA             --              31,251
          (9)
                                                                  ----------          ----------
                                               Total              11,592,966          $2,534,540
                                                                  ==========          ==========
</TABLE>
 
---------------
 
(1) Total acquisition cost includes the purchase price specified in the purchase
    contract, closing costs, acquisition costs and accounting adjustments
    recorded in accordance with GAAP.
 
(2) The Tower at New England Executive Park is currently undergoing a
    significant renovation in an effort to re-tenant the Property.
 
(3) 215 Fremont Street is currently vacant.
 
                                       89
<PAGE>   90
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3 -- INVESTMENT IN REAL ESTATE -- (CONTINUED)
(4) The total acquisition cost of Tabor Center includes a $15.0 million vacant
    land parcel and a 1,694 space parking facility.
 
(5) The total acquisition cost of the Polk and Taylor Buildings represents the
    cost to acquire the remaining 90% limited partnership interest in the
    Properties.
 
(6) The Company acquired a $295.0 million first mortgage note secured by Park
    Avenue Tower for approximately $244.9 million. In accordance with certain
    agreements concerning the first mortgage note, the Company controls the
    financial and operational decisions for the Property and is entitled to
    substantially all cash flow and residual profit. Accordingly, the Company
    consolidated the financial position and results of operations of the
    Property.
 
(7) Colonnade III was acquired from an unaffiliated party upon substantial
    completion and is approximately 70.0% leased as of December 31, 1998. The
    seller may be entitled to receive an earnout payment for leases executed in
    accordance with terms outlined in the purchase agreement. The maximum
    earnout payment is approximately $2.5 million.
 
(8) The $578.0 million purchase price specified in the purchase contract was
    adjusted to $624.6 million for the following: (1) the assumption of a $268.6
    million first mortgage with an estimated mark to market adjustment of $11.2
    million; (2) the assumption of a deferred real estate tax liability (a
    portion of which is expected to be recovered from tenants) with a present
    value of $31.2 million; (3) the issuance of 6,861,166 Units with an
    estimated fair value of $171.9 million based on a fair value of $25.05 per
    Unit; (4) a cash payment of approximately $110.1 million; (5) closing and
    transaction costs of approximately $4.2 million; and (6) the issuance of a
    transferable put option on Units exercisable only on the third anniversary
    of closing with an estimated fair value of approximately $27.4 million. This
    option entitles its holder to additional Common Shares, the number of which
    shall be determined using a formula based on the extent, if any, that the
    Common Shares are then trading at less than $29.05 per share. The office
    building consists of approximately 1,575,445 square feet of office space and
    approximately 20,788 square feet of retail space. The acquisition also
    includes a controlling financial interest in an amenities component that
    consists of approximately 108,391 square feet of retail space, a health club
    and movie theaters, and a 473-space parking garage. The complex also
    includes a residential condominium tower that was not acquired by the
    Company.
 
(9) The Company acquired a leasehold interest in Forbes Garage and Allies Garage
    for approximately $31.3 million. The lease is for a term of 50 years with
    four five-year options to renew. Pursuant to the lease, the Company is
    required to make annual rent payments of $172,500, and is required to make
    certain capital improvements to the garages of approximately $10.0 million
    during the first ten years of the lease. The Company has accounted for this
    transaction as a capital lease.
 
NOTE 4 -- BEACON MERGER
 
     On December 19, 1997, the Company, the Operating Partnership, Beacon
Properties Corporation, a Maryland corporation ("Beacon") and Beacon Partnership
L.P. ("Beacon Partnership") consummated the merger of Beacon with and into the
Company and Beacon Partnership with and into the Operating Partnership (the
"Beacon Merger") at a cost of approximately $4.3 billion. In the Beacon Merger,
(i) the Company issued 80,596,117 Common Shares in exchange for all of the
outstanding Beacon common shares, (ii) the Company exchanged its 8,000,000
Series A Preferred Shares for all of the outstanding Beacon preferred shares,
(iii) the Operating Partnership issued 8,570,886 Units in exchange for the
outstanding common partnership units of Beacon Partnership exclusive of those
held by Beacon, and (iv) the Operating Partnership issued to the Company
80,596,117 Units underlying the Common Shares issued in exchange for the Beacon
common shares and 8,000,000 Series A preferred units underlying the Series A
Cumulative Redeemable Preferred Shares were exchanged for the Beacon preferred
shares. In addition, the Company assumed the
 
                                       90
<PAGE>   91
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 4 -- BEACON MERGER -- (CONTINUED)
obligation to issue 4,732,822 Common Shares, of which 773,599 and 3,829,739 had
been issued as of December 31, 1998 and 1997, respectively, upon the exercise of
certain outstanding Beacon employee stock options. The $4.3 billion purchase
price is comprised of the following: (1) based on a share price of $31.30, the
Common Shares, including Common Shares issued for stock options, and Units were
valued at approximately $2.853 billion (which is net of a reduction for cash
received or to be received upon exercise of the stock options of $86 million);
(2) 8,000,000 Series A Cumulative Redeemable Preferred Shares valued at their
liquidation value of $200 million; (3) the assumption of approximately $627
million of secured debt and $533 million of unsecured debt; (4) merger costs of
approximately $85 million; and (5) net of the receipt of approximately $8
million of net assets.
 
     As a result of the Beacon Merger, the Company acquired an interest in 130
Beacon properties containing approximately 20.9 million rentable square feet of
office space. The Beacon properties are located in 22 submarkets in six markets:
Boston, Atlanta, Chicago, Los Angeles, San Jose and Washington, D.C. The Beacon
properties, by rentable square feet, are located 65% in suburban markets and 35%
in CBDs, primarily Boston.
 
NOTE 5 - DISPOSITIONS
 
     During 1998, the Company disposed of four office properties located in
Florida and one office property located in Washington, D.C. The combined square
footage of these office properties was approximately 986,391 square feet. These
office properties were sold for approximately $132.6 million generating a gain
on sale of approximately $12.4 million. The net proceeds of approximately $119.9
million from the sale of the office properties located in Florida were held in
an escrow account at December 31, 1998. The Company used the entire net proceeds
plus accrued interest income in the escrow account to partially fund the
acquisition of three Office Properties in January 1999 (see Note 23).
 
     During 1997, the Company disposed of one office property located in
California and one office property located in Texas. These office properties
were sold for approximately $72.5 million generating a gain on sale of
approximately $12.6 million. The combined square footage of these office
properties was approximately 535,992 square feet.
 
     During 1996, the Company disposed of a mixed-use property that included a
210-room hotel and an 18-story office complex located in Louisiana. This
property was sold for approximately $14.8 million generating a gain on sale of
approximately $5.3 million.
 
                                       91
<PAGE>   92
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 6 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
 
     The following is a summary of the Company's ownership in the unconsolidated
joint ventures:
 
<TABLE>
<CAPTION>
                                                                              COMPANY'S OWNERSHIP
ENTITY                                                 PROPERTY             AS OF DECEMBER 31, 1998
------                                       -----------------------------  -----------------------
<S>                                          <C>                            <C>
EOP -- Orange, L.L.C and EOP -- Ramlessview
  Investors, L.L.C.(1).....................  500 Orange Tower                         100%
Civic Parking, L.L.C(2)....................  St. Louis Parking Garages                 50%
Wright Runstad Associates Limited
  Partnership(3)...........................  N/A                                     28.5%
One Post Office Square Associates(4).......  One Post Office Square                    50%
BeaMetFed, Inc.(5).........................  75-101 Federal Street                     52%
Rowes Wharf Associates(6)..................  Rowes Wharf                               50%
Lehndorff Four Oaks Place Associates(7)....  Four Oaks Place                         2.55%
Metropoint II Associates(8)................  Metropoint II                             70%
WRC Sunset North, L.L.C.(9)................  Sunset North Corporate Campus             80%
Three Bellevue, L.L.C(10)..................  Three Bellevue Center                     80%
</TABLE>
 
---------------
(1) The Company owns a mortgage note receivable secured by the property and land
    underlying and adjacent to the property.
 
(2) The Company owns a 50% membership interest.
 
(3) The Company owns a 28.5% non-controlling interest in this property
    management and development company, Wright Runstad Associates Limited
    Partnership ("WRALP"), (see Note 22).
 
(4) The Company is a 50% general partner in this joint venture.
 
(5) The Company is a shareholder in the corporation (a private REIT) which owns
    the property.
 
(6) The Company owns a 50% equity interest in the property and, subject to a
    subparticipation which the Company expects to redeem for approximately
    $500,000, 50% of a first mortgage note.
 
(7) The Company owns a 3% general partner interest in this general partnership
    which owns an 85% general partnership interest in the property.
 
(8) In July 1998, the Company entered into a joint venture agreement with an
    unaffiliated party to develop Metropoint II, a 150,181 square foot office
    building, which is under construction in Denver, CO. The total cost of the
    project, including the joint venture partner's share, is approximately $24.0
    million. The completion of this project is scheduled for the first quarter
    1999. The Company acquired a 70% interest in this joint venture, while the
    unaffiliated party retained a 30% interest and will continue as the
    developer of the project. The Company has invested approximately $7.7
    million in this project as of December 31, 1998. A buy/sell option may be
    exercised to acquire the other venturer's interest by either the Company or
    its joint venture partner if certain conditions are met as defined in the
    joint venture agreement.
 
(9) In July 1998, the Company entered into a joint venture agreement with WRALP,
    an affiliated party, to develop Sunset North Corporate Campus, a three
    building, 460,663 square-foot office complex in Bellevue, WA. The total cost
    to develop the campus is estimated to be approximately $101.0 million, of
    which up to $68.0 million is anticipated to be funded by a development loan.
    The completion of this project is scheduled for the fourth quarter 1999. The
    Company will own 80% of the project during its development and will have the
    option to acquire the remaining 20% interest once stabilized occupancy has
    been achieved. The Company has incurred costs of approximately $27.9
    million, which includes the Company's share of the development loan, in this
    project as of December 31, 1998. A buy/sell option may be exercised to
    acquire the other venturer's interest by either the Company or its joint
    venture partner if certain conditions are met as defined in the joint
    venture agreement.
 
                                       92
<PAGE>   93
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 6 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)
(10) In December 1998, the Company entered into a joint venture agreement with
     WRALP to develop Three Bellevue Center, a 471,635 square foot office
     building in Bellevue, WA. Completion of the 22-story office building is
     scheduled for the first quarter 2000. The total cost to develop the project
     is estimated to be approximately $90.0 million, of which up to $60.0
     million is anticipated to be funded by a development loan. The Company has
     an 80% interest in this joint venture and will have an option to acquire
     the remaining 20% interest at a later date from WRALP. The Company has
     incurred costs of approximately $4.5 million, which includes the Company's
     share of the development loan, in this project as of December 31, 1998.
 
     These investments are accounted for utilizing the equity method of
accounting except for the Company's investment in Lehndorff Four Oaks Place
Associates, which is accounted for utilizing the cost method of accounting.
Under the equity method of accounting, the net equity investment of the Company
is reflected on the consolidated balance sheets, and the consolidated and
combined statements of operations include the Company's share of net income or
loss from the unconsolidated joint ventures. Any difference between the carrying
amount of these investments on the balance sheet of the Company and the
underlying equity in net assets is amortized as an adjustment to income from
unconsolidated joint ventures over 40 years.
 
     Combined summarized financial information of the unconsolidated joint
ventures is as follows:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1998    DECEMBER 31, 1997
                                                             -----------------    -----------------
(DOLLARS IN THOUSANDS)
<S>                                                          <C>                  <C>
Balance Sheets:
  Real estate, net.......................................        $488,997             $523,670
  Other assets...........................................          78,623               73,450
                                                                 --------             --------
     Total Assets........................................        $567,620             $597,120
                                                                 ========             ========
  Mortgage debt..........................................        $243,096             $344,427
  Other liabilities......................................          16,059               15,271
  Partners' and shareholders' equity.....................         308,465              237,422
                                                                 --------             --------
     Total Liabilities and Partners' and Shareholders'
       Equity............................................        $567,620             $597,120
                                                                 ========             ========
  Company's share of equity..............................        $159,092             $155,522
  Excess of cost of investments over the net book value
     of underlying net assets, net of accumulated
     depreciation of $5,854 and $99, respectively........         219,442              231,810
                                                                 --------             --------
  Carrying value of investments in unconsolidated joint
     ventures............................................        $378,534             $387,332
                                                                 ========             ========
  Company's share of unconsolidated mortgage debt........        $124,282             $ 92,400
                                                                 ========             ========
</TABLE>
 
                                       93
<PAGE>   94
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 6 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                FOR THE YEARS ENDED DECEMBER 31,
                                                                --------------------------------
                                                                  1998         1997       1996
                                                                ---------    --------    -------
                   (DOLLARS IN THOUSANDS)
<S>                                                             <C>          <C>         <C>
Statement of Operations:
  Revenues..................................................    $107,617     $16,687     $4,775
                                                                --------     -------     ------
  Expenses:
     Operating expenses.....................................      37,489       4,638      1,852
     Interest expense.......................................      17,004         793         --
     Depreciation and amortization..........................      18,916       2,752        830
                                                                --------     -------     ------
       Total expenses.......................................      73,409       8,183      2,682
                                                                --------     -------     ------
  Net income................................................    $ 34,208     $ 8,504     $2,093
                                                                ========     =======     ======
  Company's share of net income.............................    $ 11,267     $ 5,155     $2,093
                                                                ========     =======     ======
  Company's share of interest expense.......................    $  8,580     $    --     $   --
                                                                ========     =======     ======
  Company's share of depreciation and amortization (real
     estate related)........................................    $ 14,412     $ 1,524     $  830
                                                                ========     =======     ======
</TABLE>
 
NOTE 7 -- MORTGAGE DEBT
 
     The Company had outstanding mortgage indebtedness of approximately $2.4
billion and $2.1 billion as of December 31, 1998 and 1997, respectively. The
historical cost, net of accumulated depreciation of encumbered properties at
December 31, 1998 and 1997 was approximately $5.3 billion and $4.3 billion,
respectively. During the years ended December 31, 1998 and 1997, the Company (a)
repaid approximately $38.4 million and $885.8 million, respectively, of mortgage
debt with proceeds from the IPO, the credit facilities, available cash reserves,
and proceeds from property disposition; (b) assumed approximately $313.4 million
and $890.5 million, respectively, of mortgage debt in connection with the
acquisition of certain Properties; and (c) obtained proceeds from the financing
of certain Properties and draws on existing mortgages totaling $10.9 million and
$238.6 million, respectively.
 
     A summary of the Company's fixed and variable rate mortgage debt is as
follows:
 
Fixed Rate Mortgage Debt
 
     As of December 31, 1998 and 1997, the Company had outstanding fixed rate
mortgage indebtedness of approximately $2.3 billion and $2.0 billion,
respectively. Payments on fixed rate mortgage debt are generally due in monthly
installments of principal and interest or interest only. As of December 31, 1998
and 1997, fixed interest rates ranged from 6.88% to 9.06% and 6.67% to 8.63%,
respectively. The weighted average fixed interest rate was approximately 7.61%
and 7.53% as of December 31, 1998 and 1997, respectively. The Company entered
into an interest rate swap agreement in 1995 which effectively fixed the
interest rate on a $93.6 million variable rate mortgage loan at 6.94% through
the maturity of the loan on June 30, 2000.
 
Variable Rate Mortgage Debt
 
     As of December 31, 1998 and 1997, the Company had outstanding variable rate
mortgage indebtedness of approximately $70.4 million and $23.5 million,
respectively. Payments on variable rate mortgage debt are generally due in
monthly installments of principal and interest or interest only. The variable
interest rates are based on a variety of options including LIBOR-based interest
rates. As of December 31, 1998 and 1997, the weighted average variable interest
rate was 6.35% and 6.94%, respectively.
 
                                       94
<PAGE>   95
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 7 -- MORTGAGE DEBT -- (CONTINUED)
     Equity Office Predecessors sold several interest rate protection agreements
(aggregating $173.0 million of LIBOR -- based agreements) in June 1997 at a cost
of approximately $1.1 million.
 
Repayment Schedule
 
     Scheduled payments of principal on mortgage debt for each of the next five
years and thereafter as of December 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
                   (DOLLARS IN THOUSANDS)
<S>                                                             <C>
1999........................................................          $  116,346
2000........................................................             185,888
2001........................................................             488,968
2002........................................................              78,398
2003........................................................             298,014
Thereafter..................................................           1,168,957
                                                                      ----------
Subtotal....................................................           2,336,571
Net premium (net of accumulated amortization of $3,002).....              13,517
                                                                      ----------
  Total.....................................................          $2,350,088
                                                                      ==========
</TABLE>
 
NOTE 8 -- LINES OF CREDIT
 
Lines of Credit
 
     The Company assumed $533 million in unsecured debt in connection with the
Beacon Merger. The Company repaid $95 million prior to December 31, 1997 and
repaid the remaining balance in February 1998 with the proceeds from the $1.25
Billion Notes Offering, the $250 Million MOPPRS Offering and the Series B
Preferred Share Offering.
 
     On May 29, 1998, the Company completed a revolving credit agreement to
provide the Company a $1.0 billion unsecured line of credit (the "$1.0 Billion
Credit Facility"). This agreement amended the Company's previous unsecured line
of credit of $600 million. (The $600 million line of credit was obtained in July
1997 as an amendment to the $475 million line of credit, which was obtained in
April 1997 as an amendment to the $275 million line of credit). The $1.0 Billion
Credit Facility matures on May 29, 2001. The Company incurred fees of
approximately $2.5 million at the closing of the $1.0 Billion Credit Facility.
These fees are being amortized over the term along with approximately $1.0
million of unamortized deferred financing costs on the previous $600 million
line of credit. The interest rate is based on the Company's investment grade
rating on its unsecured debt and is currently LIBOR plus 60 basis points with a
facility fee equal to 20 basis points per annum. In addition, a competitive bid
option, whereby the lenders participating in the line of credit bid on the
interest rate to be charged, is available for up to $350 million of the $1.0
Billion Credit Facility. As of December 31, 1998 there was approximately $688.0
million outstanding on the $1.0 Billion Credit Facility.
 
Term Loan Facilities
 
     In October 1997, the Company obtained a $1.5 billion unsecured credit
facility (the "$1.5 Billion Credit Facility"). The $1.5 Billion Credit Facility
was available for the acquisition of properties and general corporate purposes.
The $1.5 Billion Credit Facility carried an interest rate equal to LIBOR plus
100 basis points subject to an increase or decrease upon receipt of an
investment grade unsecured debt rating. The Company received an investment grade
rating in December 1997 resulting in a reduction in the interest rate to LIBOR
plus 80 basis points. The Company paid an underwriting fee on the $1.5 Billion
Credit Facility at closing of
 
                                       95
<PAGE>   96
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 8 -- LINES OF CREDIT -- (CONTINUED)
approximately $4.9 million. In addition, an unused commitment fee of .15% to
 .25% was payable quarterly in arrears based upon the unused amount of the $1.5
Billion Credit Facility. In October 1997, the Company used approximately $236
million of proceeds from the $1.5 Billion Credit Facility to repay the majority
of the variable rate property mortgage indebtedness outstanding as of September
30, 1997. The Company repaid $150 million on the $1.5 Billion Credit Facility
with the proceeds from the $200 million private placement of Common Shares in
October 1997. In addition, amounts were drawn from the $1.5 Billion Credit
Facility for property acquisitions and general corporate purposes. As of
December 31, 1997, the outstanding balance on the $1.5 Billion Credit Facility
was approximately $1.044 billion. The $1.5 Billion Credit Facility was repaid
and terminated in May 1998 with amounts borrowed from the $1.0 Billion Credit
Facility.
 
     On August 14, 1998, the Company completed a term loan agreement with
various financial institutions to provide the Company a $328 million unsecured
term loan facility (the "$328 Million Credit Facility"). The term loan is priced
at 90-day LIBOR plus 80 basis points and is prepayable on any interest payment
date. The term loan matures on August 15, 2000. The proceeds were used to pay
down the $1.0 Billion Credit Facility.
 
     On September 22, 1998, the Company completed a term loan to provide the
Company a $200 million unsecured term loan facility (the "$200 Million Credit
Facility"). Interest accrues under the term loan at an initial rate of LIBOR
plus 50 basis points with a facility fee equal to 20 basis points per annum.
Pricing for the first twelve months is based on a matrix tied to the Company's
credit rating and may be reset after the first twelve months for an additional
six months and again after eighteen months for an additional six months for a
ten basis point fee. The proceeds were used to pay down the $1.0 Billion Credit
Facility.
 
NOTE 9 -- UNSECURED NOTES
 
$180 Million Notes Offering
 
     On September 3, 1997, the Company privately placed (the "$180 Million Notes
Offering") $180 million of unsecured notes (the "$180 Million Notes"). The notes
consist of four tranches with maturities from seven to ten years, which were
priced at an interest rate spread over the corresponding U.S. Treasury rate. The
Company used the proceeds to repay a portion of its credit facilities. In
connection with the offering, the Company terminated $150 million of hedge
agreements at a cost of approximately $3.9 million which is being amortized over
the terms of the respective tranches as an adjustment to interest expense.
 
$1.25 Billion Notes Offering
 
     In February 1998, the Company privately placed (the "$1.25 Billion Notes
Offering") $1.25 billion of unsecured notes (the "$1.25 Billion Notes"). The
notes consist of four tranches with maturities of five to 20 years priced at an
interest rate spread over the corresponding U.S. Treasury rate. The notes were
issued as a discount of approximately $2.0 million, which is being amortized
over the terms of the respective tranches as an adjustment to interest expense.
 
$250 Million Mandatory Par Put Remarketed Securities Offering
 
     Also in February 1998, the Company privately placed $250 million of 6.376%
Mandatory Par Put Remarketed Securities due February 15, 2012 ("MOPPRS"), which
are subject to mandatory tender on February 15, 2002 (the "$250 Million MOPPRS
Offering"). The MOPPRS are unsecured obligations of the Company. The MOPPRS were
issued at a premium of approximately $6.5 million which is being amortized over
the terms of the MOPPRS as an adjustment to interest expense.
 
     The proceeds to the Company from the $1.25 Billion Notes Offering and the
$250 Million MOPPRS Offering, net of offering costs, were approximately $1.5
billion. The Company terminated $700 million of hedge agreements in connection
with the issuance of the $1.25 Billion Notes and the MOPPRS at a cost of
 
                                       96
<PAGE>   97
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 9 -- UNSECURED NOTES -- (CONTINUED)
approximately $31.3 million which is being amortized as an adjustment to
interest expense. The net proceeds were used to pay down the line of credit and
other unsecured borrowings.
 
$775 Million Notes and 300,000 Warrants Offering
 
     In June 1998, the Company privately placed $775 million of unsecured notes
(the "$775 Million Notes") and 300,000 warrants to purchase an additional $300
million in unsecured notes at a later date (the "$775 Million Notes Offering").
The notes consist of three tranches with maturities of six to 30 years. The $775
Million Notes and warrants were issued at a net premium of $119,250, which is
being amortized over the terms of the respective tranches as an adjustment to
interest expense. Each of the 300,000 warrants entitles its holder to purchase a
new $1,000 note at par on December 15, 1999 (or in certain circumstances on
January 18, 2000) at a stated rate of 6.763%, which will mature on June 15, 2008
and will have other terms substantially similar to the $300 million, nine-year
notes due 2007. In exchange for issuing the warrants, the Company received a
$2.4 million premium (80 basis points) at closing. Total proceeds to the
Company, net of selling commissions, were approximately $768.6 million and were
used to pay down borrowings under the $1.0 Billion Credit Facility.
 
     A summary of the terms of the unsecured notes outstanding as of December
31, 1998 is presented below:
 
<TABLE>
<CAPTION>
                                                                                            EFFECTIVE
TRANCHE                                                        AMOUNT        STATED RATE    RATE (1)
-------                                                    --------------    -----------    ---------
                                                           (IN THOUSANDS)
<S>                                                        <C>               <C>            <C>
4 Year MOPPRS due 2002 (2).............................      $  250,000         6.4%          6.3%
5 Year Notes due 2003..................................         300,000         6.4%          6.8%
6 Year Notes due 2004..................................         250,000         6.5%          6.7%
7 Year Notes due 2004..................................          30,000         7.2%          7.3%
7 Year Notes due 2005..................................         400,000         6.6%          7.0%
8 Year Notes due 2005..................................          50,000         7.4%          7.7%
9 Year Notes due 2006..................................          50,000         7.4%          7.7%
9 Year Notes due 2007..................................         300,000         6.8%          6.8%
10 Year Notes due 2007.................................          50,000         7.4%          7.7%
10 Year Notes due 2008.................................         300,000         6.8%          7.0%
20 Year Notes due 2018.................................         250,000         7.3%          7.6%
30 Year Notes due 2028.................................         225,000         7.3%          7.3%
                                                             ----------         ----          ----
  Subtotal.............................................       2,455,000         6.8%          7.0%
                                                                                ====          ====
Net premium (net of accumulated amortization of $0.3
  million).............................................           4,317
                                                             ----------
  Total................................................      $2,459,317
                                                             ==========
</TABLE>
 
---------------
 
(1) Includes the cost of the terminated interest rate protection agreements,
    offering and transaction costs, the premium on the warrants and the discount
    on unsecured notes.
 
(2) The MOPPRS are subject to mandatory redemption in 2002, but do not mature
    until 2012.
 
     The Company filed a registration statement, which was declared effective on
June 18, 1998, relating to an offer to exchange the $180 Million Notes, the
$1.25 Billion Notes and the $250 million MOPPRS for registered securities of the
Company with terms identical in all material respects to the terms of the
existing notes and MOPPRS. This exchange offer expired on July 30, 1998 and a
majority of the holders exchanged their notes for registered notes of the
Company.
 
     The Company filed a shelf registration statement, which was declared
effective on July 22, 1998, relating to the issuance from time to time of up to
$2.0 billion of unsecured debt securities and warrants exercisable for
 
                                       97
<PAGE>   98
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 9 -- UNSECURED NOTES -- (CONTINUED)
debt securities in amounts, at initial prices and on terms to be determined at
the time of offering. The securities may be issued separately or together, in
separate series and in amounts, at prices and on terms to be described in one or
more supplements to the prospectus. The Company sold $1.0 billion of unsecured
notes in January 1999 under this registration statement.
 
     The Company filed a registration statement, which was declared effective on
September 4, 1998, relating to an offer to exchange (a) the $775 Million Notes;
(b) the 300,000 warrants to purchase an additional $300 million in unsecured
notes at a later date; and (c) portions of the $1.25 Billion Notes and MOPPRS
for registered securities of the Company with terms identical in all material
respects to the terms of the existing securities. This exchange offer expired on
October 27, 1998 and a majority of the holders exchanged their notes for
registered securities of the Company.
 
NOTE 10 -- MINORITY INTERESTS IN PARTIALLY OWNED PROPERTIES
 
     The following Properties are controlled and partially owned by the Company
but have partners with minority interests. The Company has included 100% of the
financial condition and results of operations of these properties in the
consolidated financial statements of the Company and the combined financial
statements of Equity Office Predecessors. The equity interests of the
unaffiliated partners are reflected as minority interests:
 
<TABLE>
<CAPTION>
                                                                COMPANY'S OWNERSHIP AS OF
PROPERTY                                                        DECEMBER 31, 1998 AND 1997
--------                                                        --------------------------
<S>                                                             <C>
5100 Brookline (CIGNA Center)...............................                 95%(1)
The Plaza at La Jolla Village...............................              66.67%(1)
San Felipe Plaza............................................                 35%(2)
Capitol Commons Garage......................................                 50%(3)
Acorn Properties............................................                 89%(4)
</TABLE>
 
---------------
 
(1) The Company owns a controlling interest and is the managing general partner.
 
(2) The Company is the managing general partner and receives preferential
    allocations resulting in the Company receiving 100% of the economic
    benefits. Prior to the IPO, an affiliate of the Company was the managing
    general partner.
 
(3) The Company owns a controlling interest and receives preferential
    allocations. The unaffiliated partner is entitled to receive 50% of the
    remaining cash flow after the Company receives its preferential allocations.
 
(4) The Company has an 89% managing general partner interest in 11 Office
    Properties and receives preferential allocations entitling the Company to
    99% of the economic benefits. The Company has the option of purchasing the
    remaining interest in the 11 Office Properties, exercisable for a designated
    period commencing three years after the respective closing dates on the
    initial purchases, for additional consideration in the amount of
    approximately $2.1 million, all payable in Units valued at $28.775 per Unit.
 
NOTE 11 -- SHAREHOLDERS' EQUITY
 
Common Shares
 
     During the period from July 11, 1997 through December 31, 1997, in the
course of acquiring 28 Office Properties, one Parking Facility and an interest
in a management company, the Operating Partnership issued 8,711,157 Units and
the Company issued 3,435,688 Common Shares for a total of approximately $342.7
million. The total acquisition cost of these Properties and the interest in the
management company was approximately $1,315.4 million. In addition, the
Operating Partnership issued 8,570,886 Units and the
 
                                       98
<PAGE>   99
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 11 -- SHAREHOLDERS' EQUITY -- (CONTINUED)
Company issued 84,425,856 Common Shares in connection with the Beacon Merger
(see Note 4). In July 1998, the Company filed a Form S-3 shelf registration
statement with the SEC, which was declared effective on September 4, 1998, to
register the resale of 20,210,129 Common Shares which may be sold by the holders
of previously privately issued Common Shares and/or certain Common Shares issued
in exchange for Units.
 
     In December 1998, the Company filed a Form S-3 shelf registration statement
with the SEC to register 137,427 Common Shares which may be sold by the holders
thereof after the issuance of such Common Shares in exchange for Units.
 
     In October 1997, the Company completed two private placements for a total
of 9,685,034 restricted Common Shares for a total value of approximately $273.9
million and subsequently registered a portion of the shares with the SEC.
 
     In April 1998, the Company privately placed 1,628,009 Common Shares at
$28.5625 per share for net proceeds of approximately $44.1 million (the "UIT
Offering"). The Company used the net proceeds to fund property acquisitions.
These shares were subsequently registered with the SEC.
 
     During 1998, the Company issued 7,043,510 Units at a weighted average price
of $25.07 per Unit for a total of approximately $176.6 million in connection
with the separate acquisition of three Office Properties located in Denver, CO.,
Seattle, WA. and New York, NY. These Units represented a portion of the total
acquisition cost of these Office Properties of approximately $697.2 million. In
September 1998, the Company filed a Form S-3 shelf registration statement with
the SEC to register the resale of 6,854,451 Common Shares which may be sold by
the holders thereof or by holders of Units upon the issuance of Common Shares in
exchange for such Units.
 
     In July 1998, the Company filed a Form S-3 shelf registration statement
with the SEC, which was declared effective on July 22, 1998, to register the
issuance of $1.5 billion of Common Shares, preferred shares of beneficial
interest and warrants to be issued at prices and on terms to be determined at
the time of offering. The Company may issue the securities separately or
together, in separate series, in amounts, at prices and on terms described in
one or more supplements to the prospectus. The Series C Preferred Shares were
issued under this registration statement in December 1998.
 
     The following table presents the changes in the Company's issued and
outstanding Common Shares since the Consolidation and IPO (excluding Units of
28,645,699 and 29,159,690 outstanding at December 31, 1998 and 1997
respectively, which are convertible into Common Shares on a one-for-one basis,
or the cash equivalent thereof, subject to certain restrictions):
 
<TABLE>
<CAPTION>
                                                               1998           1997
                                                            -----------    -----------
<S>                                                         <C>            <C>
OUTSTANDING AT JANUARY 1,...............................    249,527,663             --
Issued through UIT Offering.............................      1,628,009             --
Outstanding upon completion of the Consolidation and the
  IPO...................................................             --    152,180,770
Issued in exchange for Properties.......................             --      3,435,688
Restricted share awards.................................        380,000        298,000
Issued as trustee compensation..........................             --          5,055
Sale of Common Shares...................................             --      9,685,034
Issued for Beacon Merger (including 3,829,739 of Beacon
  options exercised)....................................             --     84,425,856
Issued through exercise of options......................        809,653             --
Issued through redemption of Units......................      7,556,332             --
Held in treasury (1)....................................             --       (502,740)
                                                            -----------    -----------
OUTSTANDING AT DECEMBER 31,.............................    259,901,657    249,527,663
                                                            ===========    ===========
</TABLE>
 
                                       99
<PAGE>   100
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 11 -- SHAREHOLDERS' EQUITY -- (CONTINUED)
---------------
 
(1) There were 502,740 Common Shares held by the Operating Partnership as of
    December 31, 1997. During 1998 these shares were retired.
 
Ownership of Operating Partnership
 
     The Company's ownership in the Operating Partnership was approximately
90.1% and 89.5% as of December 31, 1998 and 1997, respectively.
 
Warrants
 
     In connection with the December 1997 acquisition of 10 Office Properties,
the Company issued warrants that expire in December 2002 to purchase an
aggregate of 5,000,000 Common Shares at an exercise price of $39.375 per Common
Share. The warrants were valued at $3.00 per warrant utilizing the Black-Scholes
valuation model at the time of issuance, and are reflected as a component of
additional paid in capital.
 
Preferred Shares
 
     On December 19, 1997, the Company exchanged its 8,000,000 8.98% Series A
Cumulative Redeemable Preferred Shares, liquidation preference of $25.00 per
share for the Beacon Series A Preferred Shares in connection with the Beacon
Merger. Holders of the shares are entitled to receive, when and as authorized by
the Company, cumulative preferential cash distributions at the rate of 8.98% of
the $25.00 liquidation preference per annum (equivalent to a fixed annual amount
of $2.245 per share). Such distributions are cumulative from December 19, 1997
and are payable quarterly in arrears of $.56125 per share on or before March 15,
June 15, September 15 and December 15 of each year. Holders of the shares have
no other voting rights except as provided by law and have no preemptive rights.
On and after June 15, 2022, the Company, at its option and upon not less than
30, nor more than 60 days written notice, may redeem the shares, in whole or in
part, at any time or from time to time, for cash at a redemption price of $25.00
per share, plus all accrued and unpaid distributions thereon to the date fixed
for redemption.
 
     In February 1998, the Company privately placed (the "Series B Preferred
Share Offering") 6,000,000 of its 5.25% Series B Convertible, Cumulative
Redeemable Preferred Shares, $50 liquidation preference per share (the "Series B
Preferred Shares"). This offering generated net proceeds of approximately $290.3
million after offering costs of $9.7 million. The net proceeds were used to pay
down the line of credit. The Series B Preferred Shares are convertible at any
time by the holder into Common Shares at a conversion price of $35.70 per Common
Share, equivalent to a conversion ratio of 1.40056 Common Shares for each Series
B Preferred Share. The Series B Preferred Shares are non-callable for five years
with a mandatory call on February 15, 2008. Each Series B Preferred Share will
receive a quarterly distribution of $0.65625 per share.
 
     The Company filed a registration statement, which was declared effective on
September 4, 1998, relating to the resale of the Series B Preferred Shares. The
shares were required to be registered under the terms of a registration rights
agreement entered into at the time of the original private placement.
 
     In December 1998, the Company completed the offering (the "Series C
Preferred Share Offering") of 4,600,000 of its 8.625% Series C Cumulative
Redeemable Preferred Shares, $25 liquidation preference per share (the "Series C
Preferred Shares"). This offering generated net proceeds of approximately $111.4
million after offering costs of $3.6 million. The net proceeds were used to pay
down the $1.0 Billion Credit Facility. On and after December 8, 2003, the
Company may redeem the shares, in whole or in part, at any time or from time to
time, for cash at a redemption price of $25.00 per share, plus all accrued and
unpaid distributions thereon to the date fixed for redemption. Each Series C
Preferred Share will receive a quarterly distribution of $0.5390625 per share
which will commence in 1999.
 
                                       100
<PAGE>   101
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 11 -- SHAREHOLDERS' EQUITY -- (CONTINUED)
Dividends/Distributions
 
     The following table summarizes the dividends/distributions paid to Common
Share/Unit holders and Preferred Share holders related to the period from July
11, 1997 through December 31, 1997 and the year ended December 31, 1998.
 
<TABLE>
<CAPTION>
                                                                             FOR THE QUARTER
                                       DIVIDEND/ DISTRIBUTION      DATE         OR PERIOD        RECORD
                                               AMOUNT              PAID           ENDED           DATE
                                       ----------------------    --------    ---------------    --------
<S>                                    <C>                       <C>         <C>                <C>
Common Share/Unit holders (1)......          $    0.26(2)         10-9-97        9-30-97         9-29-97
                                             $    0.30           12-19-97       12-31-97        12-10-97
                                             $    0.32            4-10-98        3-31-98         3-31-98
                                             $    0.32            7-10-98        6-30-98         6-30-98
                                             $    0.37            10-9-98        9-30-98         9-30-98
                                             $    0.37           12-29-98       12-31-98        12-15-98
Series A Preferred Share holders...          $ 0.56125            3-15-98        3-31-98          3-9-98
                                             $ 0.56125            6-15-98        6-30-98          6-1-98
                                             $ 0.56125            9-15-98        9-30-98          9-1-98
                                             $ 0.56125           12-15-98       12-31-98         12-1-98
Series B Preferred Share holders...          $0.619792(3)         5-15-98        6-30-98          5-1-98
                                             $ 0.65625            8-17-98        9-30-98          8-3-98
                                             $ 0.65625           11-16-98       12-31-98         11-2-98
</TABLE>
 
---------------
 
(1) For federal income tax purposes, 4.3% (unaudited) of the dividends paid in
    1998 represented a non-taxable return of capital and the remaining 95.7%
    (unaudited) represented ordinary income. In addition, 19.03% (unaudited) of
    the dividends paid in 1997 represented a non-taxable return of capital and
    the remaining 80.97% (unaudited) represented ordinary income.
 
(2) Prorated from IPO date of July 11, 1997 based on $.30 for the full quarter.
 
(3) Partial distribution of $0.619792 covers the period from February 19 through
    May 15, 1998.
 
NOTE 12 -- FUTURE MINIMUM RENTS
 
     Future minimum rental receipts due on noncancelable operating leases at the
Office Properties and Parking Facilities as of December 31, 1998 were as
follows:
 
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S>                                                             <C>
1999........................................................          $1,384,661
2000........................................................           1,288,011
2001........................................................           1,129,233
2002........................................................             940,647
2003........................................................             754,906
Thereafter..................................................           2,635,815
                                                                      ----------
  Total.....................................................          $8,133,273
                                                                      ==========
</TABLE>
 
     The Company is subject to the usual business risks associated with the
collection of the above scheduled rents. The future minimum rents from the
Company's investment in unconsolidated joint ventures have not been included in
the above schedule.
 
                                       101
<PAGE>   102
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 13 -- FUTURE MINIMUM LEASE PAYMENTS
 
     As of December 31, 1998, the Company's ownership of 16 Office Properties
and four Parking Facilities are subject to ground leases. Certain of these
leases are subject to rental increases based upon the appraised value of the
Property at specified dates or certain financial calculations of the respective
Property. As disclosed in Note 19, the Company leases its office space from an
affiliate. Future minimum lease obligations under these noncancelable leases as
of December 31, 1998 were as follows:
 
<TABLE>
<CAPTION>
                   (DOLLARS IN THOUSANDS)
<S>                                                             <C>
1999........................................................           $  8,379
2000........................................................              8,593
2001........................................................              8,498
2002........................................................              8,324
2003........................................................              5,665
Thereafter..................................................            499,368
                                                                       --------
  Total.....................................................           $538,827
                                                                       ========
</TABLE>
 
     Rental expense for the year ended December 31, 1998, the period from July
11, 1997 through December 31, 1997, the period from January 1, 1997 through July
10, 1997, and the year ended December 31, 1996 was approximately $11.1 million,
$3.4 million, $3.8 million and $4.5 million, respectively.
 
NOTE 14 -- EXTRAORDINARY ITEMS
 
     The Company incurred an extraordinary loss of approximately $7.5 million
during the year ended December 31, 1998. This loss consisted of approximately
$7.0 million of fees charged upon the termination of $300 million of interest
rate protection agreements in connection with the Series B Preferred Share
Offering and approximately $0.5 million of unamortized deferred financing costs
related to the termination of the $1.0 Billion Credit Facility.
 
     In addition, the Company and Equity Office Predecessors reported an
extraordinary loss of approximately $16.4 million and $0.3 million, for the
period July 11 through December 31, 1997 and January 1 through July 10, 1997,
respectively, related to pre-payment penalties on debt retired prior to maturity
during the respective periods with net proceeds from the IPO and available cash
reserves.
 
                                       102
<PAGE>   103
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 15 -- EARNINGS PER SHARE
 
     The following table sets forth the computation of basic and diluted
earnings per Common Share:
 
<TABLE>
<CAPTION>
                                                                                       FOR THE PERIOD FROM
                                                                FOR THE YEAR ENDED    JULY 11, 1997 THROUGH
                                                                DECEMBER 31, 1998       DECEMBER 31, 1997
                                                                ------------------    ---------------------
       (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                             <C>                   <C>
NUMERATOR:
  Net income available to Common Shares before gain on sales
    of real estate and extraordinary items..................       $   311,900             $    87,303
  Gain on sales of real estate..............................            12,433                     126
  Extraordinary items.......................................            (7,506)                (16,366)
                                                                   -----------             -----------
  Numerator for basic earnings per share -- income available
    to Common Shares........................................           316,827                  71,063
  Minority interest in Operating Partnership................            36,226                   7,010
                                                                   -----------             -----------
  Numerator for diluted earnings per share -- income
    available to Common Shares..............................       $   353,053             $    78,073
                                                                   ===========             ===========
DENOMINATOR:
  Denominator for basic earnings per share -- weighted
    average Common Shares...................................       253,167,037             162,591,477
                                                                   -----------             -----------
  Effect of dilutive securities:
    Redemption of Units to Common Shares....................        28,947,306              16,056,085
    Share options and put options...........................         1,860,189               1,366,465
                                                                   -----------             -----------
  Dilutive potential Common Shares..........................        30,807,495              17,422,550
                                                                   -----------             -----------
  Denominator for diluted earnings per share -- adjusted
    weighted average shares and assumed conversions.........       283,974,532             180,014,027
                                                                   ===========             ===========
BASIC EARNINGS AVAILABLE TO COMMON SHARES PER WEIGHTED
  AVERAGE COMMON SHARE:
  Net income before gain on sales of real estate and
    extraordinary items.....................................       $      1.23             $      0.54
  Gain on sales of real estate..............................              0.05                      --
  Extraordinary items.......................................             (0.03)                  (0.10)
                                                                   -----------             -----------
  Net income per Common Share...............................       $      1.25             $      0.44
                                                                   ===========             ===========
DILUTED EARNINGS AVAILABLE TO COMMON SHARES PER WEIGHTED
  AVERAGE COMMON SHARE:
  Net income before gain on sales of real estate and
    extraordinary items.....................................       $      1.23             $      0.52
  Gain on sales of real estate..............................              0.04                      --
  Extraordinary items.......................................             (0.03)                  (0.09)
                                                                   -----------             -----------
  Net income per Common Share...............................       $      1.24             $      0.43
                                                                   ===========             ===========
</TABLE>
 
     For additional disclosures regarding the employee stock options and the
restricted shares see Note 21.
 
     Options to purchase 2,969,608 Common Shares at a weighted average exercise
price of $30.27 per Common Share, warrants to purchase 5,000,000 Common Shares
at an exercise price of $39.375 per Common Share and the Series B Preferred
Shares at a conversion price of $35.70 per Common Share were outstanding during
the year ended December 31, 1998, and were not included in the computation of
diluted earnings per share for the year ended December 31, 1998, since they
would have an antidilutive effect. In addition, options to purchase 726,500
Common Shares at a weighted average exercise price of $32.93 per Common Share
and warrants to purchase 5,000,000 Common Shares at an exercise price of $39.375
per Common Share were outstanding during 1997 and were not included in the
computation of diluted earnings per share for the period from July 11, 1997
through December 31, 1997 since they would have an antidilutive effect.
 
                                       103
<PAGE>   104
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 16 -- SEGMENT INFORMATION
 
     As discussed in Note 1, the Company's primary business is the ownership and
operation of Office Properties. The Company's long-term tenants are in a variety
of businesses and no single tenant is significant to the Company's business.
Information related to this segment for the years ended December 31, 1998, 1997
and 1996 is below:
 
<TABLE>
<CAPTION>
                                                                       FOR THE YEAR ENDED DECEMBER 31, 1998
                                                          --------------------------------------------------------------
                                                          OFFICE PROPERTIES    CORPORATE AND OTHER    TOTAL CONSOLIDATED
                                                          -----------------    -------------------    ------------------
                 (DOLLARS IN THOUSANDS)
<S>                                                       <C>                  <C>                    <C>
Property Operating Revenues.............................     $ 1,627,881            $  30,539            $ 1,658,420
Property Operating Expenses.............................        (584,353)              (8,353)              (592,706)
                                                             -----------            ---------            -----------
  Net operating income..................................       1,043,528               22,186              1,065,714
                                                             -----------            ---------            -----------
Adjustments to arrive at net income:
  Other revenues........................................           1,879               19,400                 21,279
  Interest expense (1)..................................        (144,989)            (193,622)              (338,611)
  Depreciation and amortization.........................        (294,308)             (11,674)              (305,982)
  Ground rent...........................................          (7,611)                 (50)                (7,661)
  General and administrative............................            (415)             (63,149)               (63,564)
                                                             -----------            ---------            -----------
    Total adjustments to arrive at net income...........        (445,444)            (249,095)              (694,539)
                                                             -----------            ---------            -----------
Income before allocation to minority interests, income
  from investment in unconsolidated joint ventures, gain
  on sales of real estate and extraordinary items.......         598,084             (226,909)               371,175
Minority interests......................................          (1,755)             (36,585)               (38,340)
Income from investment in unconsolidated joint
  ventures..............................................           7,832                3,435                 11,267
Gain on sales of real estate and extraordinary items....          12,433               (7,506)                 4,927
                                                             -----------            ---------            -----------
  Net income............................................     $   616,594            $(267,565)           $   349,029
                                                             ===========            =========            ===========
Capital and tenant improvements.........................     $   200,033            $   7,060            $   207,093
                                                             ===========            =========            ===========
Total Assets............................................     $13,633,546            $ 627,745            $14,261,291
                                                             ===========            =========            ===========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                       FOR THE YEAR ENDED DECEMBER 31, 1997
                                                          --------------------------------------------------------------
                                                          OFFICE PROPERTIES    CORPORATE AND OTHER    TOTAL CONSOLIDATED
                                                          -----------------    -------------------    ------------------
                 (DOLLARS IN THOUSANDS)
<S>                                                       <C>                  <C>                    <C>
Property Operating Revenues.............................     $   711,153            $  22,577            $   733,730
Property Operating Expenses.............................        (273,181)              (5,023)              (278,204)
                                                             -----------            ---------            -----------
  Net operating income..................................         437,972               17,554                455,526
                                                             -----------            ---------            -----------
Adjustments to arrive at net income:
  Other revenues........................................           1,236               17,106                 18,342
  Interest expense(1)...................................        (114,122)             (43,034)              (157,156)
  Depreciation and amortization.........................        (128,137)              (8,243)              (136,380)
  Ground rent...........................................          (4,714)                 (46)                (4,760)
  General and administrative............................            (955)             (33,936)               (34,891)
                                                             -----------            ---------            -----------
    Total adjustments to arrive at net income...........        (246,692)             (68,153)              (314,845)
                                                             -----------            ---------            -----------
Income before allocation to minority interests, income
  from investment in unconsolidated joint ventures, gain
  on sales of real estate and extraordinary items.......         191,280              (50,599)               140,681
Minority interests......................................          (1,376)              (7,335)                (8,711)
Income from investment in unconsolidated joint
  ventures..............................................           2,432                2,723                  5,155
Gain on sales of real estate and extraordinary items....          (3,278)                (726)                (4,004)
                                                             -----------            ---------            -----------
  Net income............................................     $   189,058            $ (55,937)           $   133,121
                                                             ===========            =========            ===========
Capital and tenant improvements.........................     $   156,419            $   2,678            $   159,097
                                                             ===========            =========            ===========
Total Assets............................................     $11,352,556            $ 399,116            $11,751,672
                                                             ===========            =========            ===========
</TABLE>
 
                                       104
<PAGE>   105
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 16 -- SEGMENT INFORMATION -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                       FOR THE YEAR ENDED DECEMBER 31, 1996
                                                          --------------------------------------------------------------
                                                          OFFICE PROPERTIES    CORPORATE AND OTHER    TOTAL CONSOLIDATED
                                                          -----------------    -------------------    ------------------
<S>                                                       <C>                  <C>                    <C>
(DOLLARS IN THOUSANDS)
Property Operating Revenues.............................     $   483,193            $  10,203            $   493,396
Property Operating Expenses.............................        (195,738)              (3,102)              (198,840)
                                                             -----------            ---------            -----------
  Net operating income..................................         287,455                7,101                294,556
                                                             -----------            ---------            -----------
Adjustments to arrive at net income:
  Other revenues........................................           1,954               12,774                 14,728
  Interest expense (1)..................................        (112,500)              (7,095)              (119,595)
  Depreciation and amortization.........................         (92,077)              (4,160)               (96,237)
  Ground rent...........................................          (2,177)                 (50)                (2,227)
  General and administrative............................            (281)             (22,864)               (23,145)
                                                             -----------            ---------            -----------
    Total adjustments to net income.....................        (205,081)             (21,395)              (226,476)
                                                             -----------            ---------            -----------
Income before allocation to minority interests, income
  from investment in unconsolidated joint ventures, gain
  on sales of real estate and extraordinary items.......          82,374              (14,294)                68,080
Minority interests......................................          (1,733)                (353)                (2,086)
Income from investment in unconsolidated joint
  ventures..............................................           2,093                   --                  2,093
Gain on sales of real estate and extraordinary items....           5,338                   --                  5,338
                                                             -----------            ---------            -----------
  Net income............................................     $    88,072            $ (14,647)           $    73,425
                                                             ===========            =========            ===========
</TABLE>
 
---------------
 
(1) Interest expense for the Office Properties does not include allocation of
    interest expense on corporate unsecured debt.
 
NOTE 17 -- PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
 
     The pro forma data presented below is included to illustrate the effect on
the Company's operations as a result of the transactions described below.
 
     The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1998, reflects the following
transactions as if they had occurred on January 1, 1998: (a) the acquisition of
28 Office Properties, and two Parking Facilities, acquired during 1998; (b) the
disposition of five office properties; (c) the purchase of the remaining
partnership interests in one of the Company's unconsolidated joint ventures; (d)
the February 1998 $1.5 Billion Notes Offering; (e) the Series B Preferred
Offering and the Series C Preferred Offering; (f) the increase in the $600
Million Credit Facility to $1.0 billion; (g) the UIT Offering in April 1998, (h)
the June 1998 $775 Million Notes Offering and (i) the $48.5 million investment
in preferred shares of Capital Trust.
 
     The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1997 reflects the following
transactions as if they had occurred on January 1, 1997: (a) the acquisition of
66 Office Properties, including 20 Office Properties acquired by Beacon prior to
the Beacon Merger, and seven Parking Facilities, including an interest in four
Parking Facilities, acquired during the year ended December 31, 1997; (b) the
disposition of eight office properties; (c) the $180 Million Notes Offering
which closed on September 3, 1997; (d) the transactions that occurred in
connection with the Consolidation of Equity Office Predecessors and the IPO
which closed on July 11, 1997, and the decrease in interest expense resulting
from the use of the net proceeds for the repayment of mortgage debt; (e) the net
change in interest expense from draws on the $1.5 Billion Credit Facility used
to refinance existing mortgage debt; (f) the Beacon Merger; (g) the acquisition
of 28 Office Properties and two Parking Facilities acquired during 1998; (h) the
purchase of the remaining partnership interest in one of the Company's
unconsolidated joint ventures; (i) the February 1998 $1.5 Billion Notes
Offering; (j) the Series B Preferred Offering and the Series C Preferred
Offering; (k) the increase in the $600 Million Credit Facility to $1.0 billion;
(l) the UIT
 
                                       105
<PAGE>   106
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 17 -- PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) -- (CONTINUED)
Offering; (m) the June 1998 $775 Million Notes Offering and (n) the $48.5
million investment in preferred shares of Capital Trust.
 
     The accompanying unaudited pro forma condensed combined financial
statements have been prepared by management of the Company and do not purport to
be indicative of the results which would actually have been obtained had the
transactions described above been completed on the dates indicated or which may
be obtained in the future.
 
<TABLE>
<CAPTION>
                                                                FOR THE YEARS ENDED DECEMBER 31,
                                                                --------------------------------
                                                                     1998              1997
                                                                --------------    --------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                                             <C>               <C>
Total Revenues..............................................     $ 1,812,898       $ 1,705,598
                                                                 ===========       ===========
Income before extraordinary items...........................     $   348,202       $   279,715
                                                                 ===========       ===========
Net income available for Common Shares......................     $   296,800       $   220,894
                                                                 ===========       ===========
Net income per Common Share -- Basic........................     $      1.14       $       .86
                                                                 ===========       ===========
Common Shares outstanding -- Basic..........................     259,902,000       257,203,000
                                                                 ===========       ===========
Net income per Common Share -- Diluted......................     $      1.14       $       .85
                                                                 ===========       ===========
Common Shares outstanding -- Diluted........................     290,824,000       289,136,000
                                                                 ===========       ===========
</TABLE>
 
NOTE 18 -- QUARTERLY DATA (UNAUDITED)
 
     The quarterly data for the last three years are presented in the tables
below:
 
<TABLE>
<CAPTION>
                                                           FOR THE THREE MONTHS ENDED
                                              -----------------------------------------------------
                                               12/31/98       9/30/98       6/30/98       3/31/98
                                              -----------   -----------   -----------   -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S>                                           <C>           <C>           <C>           <C>
Total revenues..............................  $   469,002   $   436,933   $   399,944   $   373,820
                                              ===========   ===========   ===========   ===========
Income before allocation to minority
  interests, income from investment in
  unconsolidated joint ventures, gain on
  sales of real estate and extraordinary
  items.....................................  $    92,789   $    96,176   $    97,879   $    84,331
                                              ===========   ===========   ===========   ===========
Net income..................................  $    97,938   $    89,423   $    88,926   $    72,742
                                              ===========   ===========   ===========   ===========
Net income available for Common Shares......  $    88,866   $    80,996   $    80,494   $    66,471
                                              ===========   ===========   ===========   ===========
Net income available per weighted average
  Common Shares outstanding -- Basic........  $      0.34   $      0.32   $      0.32   $      0.27
                                              ===========   ===========   ===========   ===========
Net income available per weighted average
  Common Share outstanding -- Diluted.......  $      0.34   $      0.32   $      0.32   $      0.27
                                              ===========   ===========   ===========   ===========
Weighted average Common Shares outstanding
  -- Basic..................................  259,384,934   252,241,995   251,179,221   249,766,440
                                              ===========   ===========   ===========   ===========
Weighted average Common Shares outstanding
  -- Diluted................................  291,437,262   281,929,910   281,200,962   280,327,761
                                              ===========   ===========   ===========   ===========
</TABLE>
 
                                       106
<PAGE>   107
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 18 -- QUARTERLY DATA (UNAUDITED) -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                           FOR THE THREE MONTHS ENDED
                                              -----------------------------------------------------
                                               12/31/97     9/30/97(1)      6/30/97       3/31/97
                                              -----------   -----------   -----------   -----------
 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                           <C>           <C>           <C>           <C>
Total revenues..............................  $   248,400   $   183,886   $   165,219   $   154,567
                                              ===========   ===========   ===========   ===========
Income before allocation to minority
  interests, income from investment in
  unconsolidated joint ventures, gain on
  sales of real estate and extraordinary
  items.....................................  $    46,704   $    45,736   $    23,331   $    24,910
                                              ===========   ===========   ===========   ===========
Net income..................................  $    40,208   $    31,290   $    30,853   $    30,769
                                              ===========   ===========   ===========   ===========
Net income available for Common Shares......  $    39,559   $    31,290   $    30,853   $    30,769
                                              ===========   ===========   ===========   ===========
Net income available per weighted average
  Common Shares outstanding -- Basic........  $      0.23   $      0.21            --            --
                                              ===========   ===========   ===========   ===========
Net income available per weighted average
  Common Shares outstanding -- Diluted......  $      0.22   $      0.21            --            --
                                              ===========   ===========   ===========   ===========
Weighted average Common Shares outstanding
  -- Basic..................................  172,307,010   151,691,121            --            --
                                              ===========   ===========   ===========   ===========
Weighted average Common Shares outstanding
  -- Diluted................................  193,055,145   165,384,651            --            --
                                              ===========   ===========   ===========   ===========
</TABLE>
 
<TABLE>
<CAPTION>
                                                           FOR THE THREE MONTHS ENDED
                                              -----------------------------------------------------
                                               12/31/96       9/30/96       6/30/96       3/31/96
                                              -----------   -----------   -----------   -----------
           (DOLLARS IN THOUSANDS)
<S>                                           <C>           <C>           <C>           <C>
Total revenues..............................  $   154,887   $   126,117   $   116,970   $   110,150
                                              ===========   ===========   ===========   ===========
Income before allocation to minority
  interests, income from investment in
  unconsolidated joint ventures, gain on
  sale of real estate and extraordinary
  items.....................................  $    29,688   $    11,015   $    14,543   $    12,834
                                              ===========   ===========   ===========   ===========
Net income..................................  $    30,383   $    11,024   $    14,040   $    17,978
                                              ===========   ===========   ===========   ===========
</TABLE>
 
---------------
 
(1) This column includes the operations of Equity Office Predecessors from July
    1 through July 10, 1997 and the operations of the Company from July 11
    through September 30, 1997. The earnings per share disclosures pertain only
    to the operations of the Company from July 11 through September 30, 1997.
 
                                       107
<PAGE>   108
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 19 - RELATED PARTY TRANSACTIONS
 
     Affiliates provide various services to the Company. Fees and reimbursements
paid by the Company to affiliates for the years ended December 31, 1998, 1997
and 1996 and payable as of December 31, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                                                       PAYABLE AS OF
                                                    PAID IN YEAR ENDED DECEMBER 31,    DECEMBER 31,
                                                    --------------------------------   -------------
                                                      1998        1997       1996       1998    1997
                                                    ---------   --------   ---------   ------   ----
             (DOLLARS IN THOUSANDS)
<S>                                                 <C>         <C>        <C>         <C>      <C>
Legal fees and expenses(1).......................    $ 3,507     $3,006     $ 3,481    $  978   $550
Insurance reimbursements and brokerage fees(2)...      3,323      2,279       1,868      (139)    32
Development, management and leasing fees(3)......      4,405        434         702        --     --
Office rent(4)...................................      1,792      1,068         777       128     79
Administrative, accounting and consulting
  services(5)....................................        750      1,373       1,893       169     72
Acquisition Fees(6)..............................         --        777       3,068        --     --
Organization and offering expenses(7)............         --        106         778        --     --
Disposition fees.................................         --         --         124        --     --
                                                     -------     ------     -------    ------   ----
     Total.......................................    $13,777     $9,043     $12,691    $1,136   $733
                                                     =======     ======     =======    ======   ====
</TABLE>
 
---------------
 
(1) Represents amounts primarily paid to Rosenberg & Liebentritt, P.C., a law
    firm, for legal fees and expenses incurred in connection with acquisition,
    corporate and leasing activity. A trustee of the Company was a principal of
    this law firm until September 1, 1997.
 
(2) Represents amounts paid to EGI Risk Services Inc. for reimbursement of
    property insurance premiums to an affiliated company and fees for risk
    management services including reviewing, obtaining and/or researching
    various insurance policies. EGI Risk Services, Inc. is a wholly owned
    subsidiary of the Equity Group, of which Samuel Zell is the Chairman of the
    Board
 
(3) In December 1997, the Company acquired ten office properties from an entity
    affiliated with Wright Runstad & Company for approximately $640 million. Mr.
    Runstad, a principal of the Wright Runstad & Company, is a trustee of the
    Company. In addition, the Company and an affiliate of the Equity Group
    acquired a 30% non-controlling interest in WRALP, a subsidiary of Wright
    Runstad & Company, which provides property management, leasing and
    development services. The Company has agreed to make available to WRALP up
    to $20 million in additional financing or credit support for future
    development. As of December 31, 1998, no amounts have been funded. The
    Company recorded income of approximately $1.3 million from it's investment
    in WRALP for the year ended December 31, 1998.
 
    WRALP serves as co-property manager with the Company for the properties
    acquired from its affiliates in December, 1997 in addition to two properties
    acquired during 1998. WRALP also serves as the developer on two projects
    under construction, Sunset North Corporate Campus and Three Bellevue Center.
    The Company has an 80% interest in each development project, and WRALP owns
    the remaining 20% interest. WRALP is the developer of The World Trade in
    Seattle, Washington. The Company has agreed to acquire that building after
    its completion and occupancy by a third party tenant which is scheduled for
    the first quarter of 2000.
 
    The amounts for 1997 and 1996 represent development fees paid to an
    affiliate of the Equity Group to manage the renovation project at the 28
    State Street Office Building.
 
(4) The Company leases its corporate office space from an affiliate of the
    Equity Group.
 
(5) Administrative services include fees paid to EGI for consulting services
    such as economic and demographic research for possible acquisitions and real
    estate tax consulting. In 1997 and 1996, administrative services also
    includes fees paid to EGI for centralized services such as payroll
    processing, employee benefits and telecommunications.
 
                                       108
<PAGE>   109
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 19 - RELATED PARTY TRANSACTIONS -- (CONTINUED)
(6) Represents amounts paid by Equity Office Predecessors to Merrill Lynch, a
    limited partner of the general partner of the ZML Funds.
 
(7) Affiliates of the Equity Group were reimbursed for reasonable costs incurred
    in connection with the organization and the offering of units in the ZML
    Funds, including legal and accounting fees and expenses, printing costs and
    filing fees.
 
     An affiliate of the Equity Group has an indirect minority interest in
Standard Parking Limited Partnership ("SPLP"). An affiliate of SPLP manages the
parking operations at certain Properties owned by the Company. Management
believes that amounts paid to SPLP's affiliate are equal to market for such
services.
 
     On July 28, 1998, the Company completed the purchase of 50,000 shares of
Capital Trust 8.25% Step Up Convertible Trust Preferred Securities, $1,000
liquidation preference per share, for $48.5 million, in a private placement. Mr.
Zell, Chairman of the Board of Trustees of the Company, is also Chairman of the
Board of Capital Trust. The preferred shares are convertible at any time by the
holders into common shares of Capital Trust at a conversion price of $11.70,
reflecting a 30% conversion premium over Capital Trust's common share price at
the close of business on July 24, 1998. The preferred shares are non-callable
for five years, and have a 20-year maturity. The Company earned approximately
$1.7 million in dividends in 1998. The dividend is payable each calendar
quarter; commencing in year seven, the dividend will increase by 75 basis points
per annum. In connection with the investment, Capital Trust has granted the
Company and other investors the right to participate in certain strategic
lending opportunities. The Company classified this investment with other assets
on the balance sheet.
 
Amounts Received from Affiliates
 
     Affiliates of the Company leased space in certain of the Office Properties
owned by the Company. The provisions of the leases are consistent with terms of
unaffiliated tenants' leases. Total rents and other amounts paid by affiliates
under the terms of their respective leases were approximately $0.3 million, $3.0
million and $3.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
 
     The Company entered into various lease agreements with affiliates of SPLP
whereby such affiliates leased certain of the Company's stand-alone Parking
Facilities. Certain of these lease agreements provide such lessees with annual
successive options to extend the term of the lease through various dates. The
rent paid in the years ended December 31, 1998, 1997 and 1996 under these lease
agreements was approximately $13.1 million, $11.0 million and $3.2 million,
respectively. In addition, the Company may receive additional rent based upon
actual gross revenues generated by these Parking Facilities. In accordance with
certain of these leases, the Company may be obligated to make an early
termination payment if agreement is not reached as to rent amounts to be paid
for future periods.
 
                                       109
<PAGE>   110
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 20 -- NON-CASH INVESTING AND FINANCING ACTIVITIES
 
     Additional supplemental disclosures of non-cash investing and financing
activities of the Company are as follows:
 
<TABLE>
<CAPTION>
                                                                                  FOR THE PERIOD FROM
                                                           FOR THE YEAR ENDED    JULY 11, 1997 THROUGH
                                                           DECEMBER 31, 1998       DECEMBER 31, 1997
                                                           ------------------    ---------------------
                (DOLLARS IN THOUSANDS)
<S>                                                        <C>                   <C>
Mortgage loans and lines of credit assumed through
  Beacon Merger........................................         $     --              $1,160,451
                                                                ========              ==========
Net liabilities assumed through Beacon Merger..........         $     --              $   72,034
                                                                ========              ==========
Common Shares and Units issued through Beacon Merger
  (assuming exercise of 4,732,822 Options).............         $     --              $2,853,266
                                                                ========              ==========
8.98% Series A Cumulative Redeemable Preferred Shares
  exchanged in the Beacon Merger.......................         $     --              $  200,000
                                                                ========              ==========
Common Shares, Units and put options issued through
  property acquisitions (including warrants valued at
  $15.0 million in 1997)...............................         $204,008              $  357,672
                                                                ========              ==========
Mortgage loans assumed/promissory notes issued through
  property acquisitions................................         $406,837              $  263,048
                                                                ========              ==========
Mortgage loans and line of credit assumed in the
  Consolidation........................................         $     --              $2,196,708
                                                                ========              ==========
Net liabilities assumed in the Consolidation...........         $     --              $   62,706
                                                                ========              ==========
Common Shares and Units issued in the Consolidation....         $     --              $2,830,918
                                                                ========              ==========
</TABLE>
 
     In addition, Equity Office Predecessors assumed mortgage debt through
property acquisitions of $92.1 million for the year ended December 31, 1996.
 
NOTE 21 -- SHARE OPTION PLAN AND SHARE AWARD PLAN
 
     In July 1997, the Company adopted the 1997 Share Option and Share Award
Plan, as amended, (the "Employee Plan"). The purpose of the Employee Plan is to
attract and retain highly qualified executive officers, trustees, employees and
consultants. Through the Employee Plan, certain officers, trustees, certain
employees and consultants of the Company are offered the opportunity to acquire
Common Shares pursuant to grants of (i) options to purchase Common Shares
("Options"); and (ii) Share Awards. The Employee Plan is administered by the
Compensation and Option Committee (the "Compensation Committee") which is
appointed by the Board of Trustees of the Company. The Compensation Committee
determines those officers, trustees, key employees and consultants to whom, and
the time or times of which, grants of Options and Share Awards will be made. The
Compensation Committee interprets the Employee Plan, adopts rules relating
thereto and determines the terms and provisions of Options. In 1997 and 1998,
the Common Shares subject to Options and Share Awards under the Employee Plan
were limited to 11,121,786. The maximum aggregate number of Common Shares that
may be granted for all rights under the Plan shall not exceed 6.8% of the
outstanding shares, calculated on a fully diluted basis and determined annually
on the first day of each calendar year. No more than one-half of the maximum
aggregate number of Common Shares shall be granted as Share Awards. To the
extent that Options expire unexercised or are terminated, surrendered or
canceled, the Common Shares allocated to such Options shall become available for
future grants under the Plan, unless the Plan has terminated. The Employee Plan
will terminate at such times as it issues all of the unissued Common Shares
reserved for the Plan. The Board of Trustees may at any time amend or terminate
the
 
                                       110
<PAGE>   111
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 21 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
Employee Plan, but termination will not affect Options and Share Awards
previously granted. Any Options or Share Awards which had vested prior to such
termination would remain exercisable by the holder thereof.
 
     The Compensation Committee determines the vesting schedule of each Option
and the term, which term shall not exceed ten years from the date of the grant.
As to the Options that have been granted through December 31, 1998, the vesting
schedules range from the entire option grant being exercisable as of the grant
date, to one-third of the Options being exercisable as of the first anniversary
of the grant date, an additional one-third being exercisable as of the second
anniversary of the grant date and the remaining one-third of the Options being
exercisable as of the third anniversary of the grant date. The exercise price
for all Options under the Employee Plan shall not be less than the fair market
value of the underlying Common Shares at the time the Option is granted.
 
     In addition, the Employee Plan permits the Company to issue Share Awards to
executive officers, other key employees and trustees upon such terms and
conditions as shall be determined by the Compensation Committee in its sole
discretion. A share award is an award of Common Shares which (i) may be fully
vested upon issuance ("Share Awards") or (ii) may be subject to risk of
forfeiture under Section 83 of the Internal Revenue Code ("Restricted Share
Award"). Generally, for 1997 and 1998, members of the Board of Trustees have
been granted Share Awards pursuant to the Employee Plan as payment of their
board fees. In addition, certain senior officers were issued Share Awards as
part of their bonus for fiscal year 1998. In each case, the number of Share
Awards granted to trustees and senior officers was equal to the dollar value of
the fees or bonus earned divided by the fair market value of the shares on the
date the fee or bonus would have been paid. In addition to these Share Awards,
Restricted Share Awards were granted to certain senior officers in 1997 and
1998. The Restricted Share Awards vest over a five year period as follows: (i)
fifty percent of the restricted Share Awards vest on the third anniversary of
the initial grant date; (ii) an additional twenty-five percent of the restricted
Share Awards vest on the fourth anniversary of the initial grant date; and (iii)
the remaining twenty-five percent of the restricted Share Awards vest on the
fifth anniversary of the initial grant date.
 
     The Company has elected to apply the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25")
in the computation of compensation expense. Under APB No. 25's intrinsic value
method, compensation expense is determined by computing the excess of the market
price of the shares over the exercise price on the measurement date. For the
Company's Options, the intrinsic value on the measurement date (or grant date)
is zero, and no compensation expense is recognized. Financial Accounting
Standards Board No. 123 ("FASB No. 123") requires the Company to disclose pro
forma net income and income per share as if a fair value based accounting method
had been used in the computation of compensation expense. The fair value of the
Options computed under FASB No. 123 would be recognized over the vesting period
of the Options. The fair value for the Company's Options granted in 1998 and
1997 was estimated at the time the Options were granted using the Black-Scholes
option pricing model with the following weighted average assumptions for 1998
and 1997, respectively: risk-free interest rate of 5.4% and 5.6%; dividend
yields of 5.8% and 4.0%; volatility factors of the expected market price of the
Company's Common Shares of 0.30 and 0.24; and a weighted average expected life
of the Options of five years.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's Options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its Options.
 
                                       111
<PAGE>   112
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 21 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
     For purposes of pro forma disclosures, the estimated fair value of the
Options is amortized to expense over the Options' vesting period. The following
is the unaudited pro forma information for the year ended December 31, 1998 and
the period from July 11, 1997 through December 31, 1997:
 
<TABLE>
<CAPTION>
                                                                                   FOR THE PERIOD FROM
                                                            FOR THE YEAR ENDED    JULY 11, 1997 THROUGH
                                                            DECEMBER 31, 1998       DECEMBER 31, 1997
                                                            ------------------    ---------------------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                                         <C>                   <C>
Pro forma net income available to Common Shares before
  gain on sales of real estate and extraordinary
  items.................................................         $310,051               $ 85,654
Gain on sales of real estate and extraordinary items....            4,927                (16,240)
                                                                 --------               --------
Pro forma net income available to Common Shares.........         $314,978               $ 69,414
                                                                 ========               ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                   FOR THE PERIOD FROM
                                                           FOR THE YEAR ENDED     JULY 11, 1997 THROUGH
                                                           DECEMBER 31, 1998        DECEMBER 31, 1997
                                                           ------------------    -----------------------
                                                           BASIC     DILUTED     BASIC           DILUTED
                                                           ------    --------    -----           -------
                  EARNINGS PER SHARE
<S>                                                        <C>       <C>         <C>             <C>
Pro forma net income available to Common Shares before
  gain on sales of real estate and extraordinary
  items................................................    $1.22      $1.22      $ .53            $ .51
Gain on sales of real estate and extraordinary items...      .02        .02      (0.10)           (0.09)
                                                           -----      -----      -----            -----
Pro forma net income per weighted average Common Share
  outstanding..........................................    $1.24      $1.24      $ .43            $ .42
                                                           =====      =====      =====            =====
</TABLE>
 
     The table below summarizes the Option activity of the Employee Plan for the
year ended December 31, 1998 and the period from July 11, 1997 through December
31, 1997:
 
<TABLE>
<CAPTION>
                                                  COMMON SHARES SUBJECT TO    WEIGHTED AVERAGE EXERCISE
                                                     OPTIONS OR AWARDS         PRICE PER COMMON SHARE
                                                  ------------------------    -------------------------
<S>                                               <C>                         <C>
Balance at July 11, 1997......................                  --                     $   --
Options granted...............................           5,814,583                      22.22
Options cancelled.............................             (67,275)                     21.16
                                                         ---------                     ------
Balance at December 31, 1997..................           5,747,308                      22.23
Options granted...............................           4,695,072                      26.38
Options cancelled.............................             (93,145)                     25.54
Options exercised.............................            (916,451)                     19.74
                                                         ---------                     ------
Balance at December 31, 1998..................           9,432,784                     $24.50
                                                         =========                     ======
</TABLE>
 
     As of December 31, 1998, there were 2,678,831 Options under the Employee
Plan that were exercisable and 6,753,953 Options that were not exercisable.
Exercise prices for the 9,432,784 Options outstanding as of December 31, 1998
ranged from $12.09 to $33.00, with a weighted average exercise price of $24.50.
Expiration dates ranged from July 11, 2007 to December 31, 2008. The remaining
weighted average contractual life of Options was 9.06 years. The weighted
average grant date fair value of Options granted during 1998 and 1997 was $4.88
and $4.44, respectively. In addition, there were 380,000 and 298,000 Restricted
Shares issued during 1998 and 1997, respectively, which vest over three to five
years.
 
                                       112
<PAGE>   113
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 22 -- COMMITMENTS AND CONTINGENCIES
 
Concentration of Credit Risk
 
     The Company maintains its cash and cash equivalents at financial
institutions. The combined account balances at each institution periodically
exceed FDIC insurance coverage and, as a result, there is a concentration of
credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Management of the Company believes that the risk is not significant. The Company
from time to time enters into interest rate protection agreements to effectively
convert floating rate debt to a fixed rate basis, as well as to hedge
anticipated financing transactions. The Company believes it has limited exposure
to the extent of non-performance by the swap counterparties since each
counterparty is a major U.S. financial institution, and management does not
anticipate its non-performance. Currently, the Company has one interest rate
protection agreement which effectively fixed the interest rate on a $93.6
million loan at 6.94% through the maturity of the loan on June 30, 2000.
 
Environmental
 
     The Company, as an owner of real estate, is subject to various
environmental laws of federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on the Company's
financial condition and results of operations, and management does not believe
it will have such an impact in the future. However, the Company cannot predict
the impact of new or changed laws or regulations on its current Properties or on
properties that it may acquire in the future.
 
Litigation
 
     The Company has become a party to various legal actions resulting from the
operational activities transferred to the Operating Partnership in connection
with the Consolidation and the Beacon Merger. These actions are incidental to
the transferred business and management does not believe that these actions will
have a material adverse effect on the Company.
 
     Neither the Company nor any of the Properties is presently subject to any
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Properties, other than actions
which the Company does not believe to be material, or routine actions for
negligence and other claims and administrative proceedings arising in the
ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse effect on the liquidity, business, results of operations or
financial condition of the Company.
 
Geographical
 
     The Company carries earthquake insurance on all of the Properties,
including those located in California, subject to coverage limitations which the
Company believes are commercially reasonable. In light of the California
earthquake risk, California building codes since the early 1970s have
established construction standards for all new buildings. The current and
strictest construction standards were adopted in 1987. Of the 44 Properties
located in California, 13 have been built since January 1, 1988 and the Company
believes that all of the Properties were constructed in full compliance with the
applicable standards existing at the time of construction. No assurance can be
given that material losses in excess of insurance proceeds will not occur in the
future.
 
Commitments
 
     In February 1998, the Company entered into a contract to purchase the Rand
Tower Garage in Minneapolis, Minnesota upon completion of the parking structure.
The purchase price for this 589 space parking facility will be approximately
$19.0 million and is scheduled for completion in the second quarter of
 
                                       113
<PAGE>   114
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 22 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
1999. This transaction is contingent upon certain terms and conditions as set
forth in the purchase agreement. There can be no assurance that this transaction
will be consummated as described above.
 
     In March 1998, the Board of Trustees of the Company approved the purchase
of Prominence, an office building development in Atlanta, Georgia. The property
will consist of approximately 425,706 square feet of office space and 1,350
parking spaces, and is expected to be acquired upon its completion in the third
quarter of 1999. The purchase price for the described assets and amounts to be
incurred for tenanting the property is expected to be approximately $87.0
million. The purchase price does not include the acquisition of an 11.88-acre
site that may be used to develop Phase II of Prominence. This transaction is
contingent upon certain terms and conditions as set forth in the purchase
agreement. There can be no assurance that this transaction will be consummated
as described above.
 
     In July 1998, the Company entered into an agreement to purchase the World
Trade Center project in Seattle, Washington. The property will consist of
approximately 186,787 square feet of office space, is scheduled for shell
completion in the first quarter of 2000 and is 100% preleased to a single
tenant. After the tenant takes full occupancy in early 2000, the Company is
expected to purchase the building for approximately $39.0 million. This
transaction is contingent upon certain terms and conditions as set forth in the
purchase agreement. There can be no assurance that this transaction will be
consummated as described above.
 
     In accordance with the agreement governing the Company's investment in
WRALP (see Note 6), the Company agreed to make available to WRALP up to $20.0
million in additional financing or credit support for future development. As of
December 31, 1998, no amounts have been funded pursuant to this agreement.
 
Contingencies
 
     Effective as of August 13, 1998, the Company amended a pre-existing put
option agreement with certain sellers of the Wright Runstad Properties (the "WR
Holders"). The WR Holders have the option on August 13, 1999 to require the
Company to purchase all or a portion of the 3,435,688 Common Shares, issued at
acquisition, at a price equal to $31.50 per Common Share. Prior to August 13,
1999, if the WR Holders sell all or a portion of their Common Shares to a third
party for a price less than $29.10625 per Common Share, then the Company shall
pay to the WR Holders an amount equal to the difference between such sales price
and $29.10625 multiplied by the number of Common Shares sold, not to exceed
$3.00 per Common Share. Any amounts paid by the Company as a result of such
sale, calculated as the difference between the sales price and $29.10625 not
exceeding $3.00 per Common Share, shall be recorded as a reduction of
shareholders' equity. For options exercised on August 13, 1999, any amounts paid
up to $29.10625 per Common Share would be reflected as a reduction to
shareholders' equity; the portion of any amounts paid in excess of $29.10625 per
Common Share (not to exceed $31.50 per Common Share) would be expensed by the
Company. The portion expensed would not exceed $2.39375 per Common Share.
 
     Effective as of September 3, 1998, the Company amended its pre-existing put
option agreement with the seller of the Columbus America Properties (the "CA
Holder") related to 1,692,546 Units issued at acquisition. The CA Holder has the
option at any time after January 1, 1999 until the earlier of a) September 3,
2000 or b) the date the CA Holder has converted all of its Units to Common
Shares, to require the Company to purchase the Units at a price equal to $29.00
per Unit. Under the terms of the agreement, prior to September 3, 1999, the
option shall be limited to an aggregate of 846,273 Units. In the event of any
option exercise, the Company will recognize any cash paid as a reduction of
minority interest.
 
     In connection with the acquisition of Worldwide Plaza on October 1, 1998,
the Company issued a transferable put option on Units exercisable only on the
third anniversary of closing with an estimated fair value of approximately $27.4
million. This option entitles its holder to additional Common Shares, the number
of which shall be determined using a formula based on the extent, if any, that
the Common Shares are then trading at less than $29.05 per share.
                                       114
<PAGE>   115
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 23 -- SUBSEQUENT EVENTS
 
     1)   On January 7, 1999, the Company acquired Texas Commerce Tower located
          in Irving, Texas from an unaffiliated party for approximately $55.2
          million in cash. The office building contains approximately 357,121
          square feet of office space and approximately 12,013 square feet of
          retail space and was approximately 96.8% occupied as of December 31,
          1998.
 
     2)   On January 7, 1999, the Company acquired Computer Associates Tower
          located in Irving, Texas from an unaffiliated party for approximately
          $51.2 million in cash. The office building contains approximately
          345,539 square feet of office space and approximately 15,276 square
          feet of retail space and was approximately 97.5% occupied as of
          December 31, 1998.
 
     3)   On January 15, 1999, the Board of Trustees of the Company declared a
          first quarter distribution for the Series B Preferred Shares of
          $0.65625 per share. The distribution was paid on February 16, 1999 to
          holders of record as of February 1, 1999.
 
     4)   On January 26, 1999, the Company issued $1.0 billion of unsecured
          notes (the "1.0 Billion Notes") in an offering to institutional
          investors (the "1.0 Billion Notes Offering"). The offering consisted
          of three tranches: $200 million of 6.375% notes due 2002, $300 million
          of 6.5% notes due 2004, and $500 million of 6.8% notes due 2009. Total
          proceeds to the Company, net of discounts and selling commissions,
          were approximately $990.1 million. The net proceeds were used to pay
          down certain secured debt and borrowings under the $1.0 Billion Credit
          Facility. Including amortized offering expenses, the weighted average
          interest cost of the notes is 6.8%.
 
     5)   On January 28, 1999, the Company acquired City Center Bellevue located
          in Bellevue, Washington from an unaffiliated party for approximately
          $115.3 million in cash. The office building contains approximately
          448,881 square feet of office space and approximately 23,706 square
          feet of retail space and was approximately 99.0% occupied as of
          December 31, 1998.
 
     6)   On February 16, 1999, the Board of Trustees of the Company declared a
          first quarter dividend for the Series A Preferred Shares and the
          Series C Preferred Shares of $0.56125 and $0.580989583, respectively.
          The Series A distribution will be paid on March 15, 1999 to holders of
          record as of March 1, 1999. The Series C distribution represents a pro
          rata distribution from December 8, 1998 through March 14, 1999 and
          will be paid on March 15, 1999 to holders of record as of March 1,
          1999.
 
                                       115
<PAGE>   116
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
     None.
 
                                       116
<PAGE>   117
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     Information about Trustees of the Company is incorporated by reference from
the discussion under Proposal 1 of our Proxy Statement for the 1999 Annual
Meeting of Shareholders. The balance of the response to this item is contained
in the discussion entitled Executive and Senior Officers of the Company in Part
I of this report.
 
ITEM 11.  EXECUTIVE COMPENSATION.
 
     Information about executive compensation is incorporated by reference from
the discussion under the heading Executive Compensation in our Proxy Statement
for the 1999 Annual Meeting of Shareholders.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     Information about security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under the heading
Equity Office Common Share and Unit Ownership by Trustees and Executive Officers
in our Proxy Statement for the 1999 Annual Meeting of Shareholders.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     Information about certain relationships and transactions with related
parties is incorporated herein by reference from the discussion under the
heading Certain Relationships and Related Transactions in our Proxy Statement
for the 1999 Annual Meeting of Shareholders.
 
                                       117
<PAGE>   118
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 
(a)(1) and (2) Financial Statements and Schedules:
 
FINANCIAL STATEMENTS
 
     Report of Independent Auditors
 
     Consolidated Balance Sheets of Equity Office Properties Trust as of
December 31, 1998 and 1997
 
     Consolidated Statements of Operations of Equity Office Properties Trust for
the year ended December 31, 1998 and the period from July 11, 1997 through
December 31, 1997, and the Combined Statements of Operations of Equity Office
Predecessors for the period from January 1, 1997 through July 10, 1997 and the
year ended December 31, 1996
 
     Consolidated Statements of Shareholders' Equity of Equity Office Properties
Trust for the year ended December 31, 1998 and the period from July 11, 1997
through December 31, 1997, and the Combined Statements of Owners' Equity of
Equity Office Predecessors for the period from January 1, 1997 through July 10,
1997 and the year ended December 31, 1996
 
     Consolidated Statements of Cash Flows of Equity Office Properties Trust for
the year ended December 31, 1998 and the period from July 11, 1997 through
December 31, 1997, and the Combined Statements of Cash Flows of Equity Office
Predecessors for the period from January 1, 1997 through July 10, 1997 and the
year ended December 31, 1996
 
     Notes to Consolidated and Combined Financial Statements
 
SCHEDULES
 
     Schedule III -- Real Estate and Accumulated Depreciation
 
     All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
 
(a)(3) Exhibits:
 
<TABLE>
<CAPTION>
EXHIBIT
  NO      DESCRIPTION
-------   -----------
<C>       <S>                                                            <C>
  3.1     Articles of Amendment and Restatement of Declaration of Trust of the
          Company (incorporated herein by reference to Exhibit 4.1 to the
          Company's Registration Statement on Forms S-11 (Reg. No. 333-26629)
  3.2*    Articles Supplementary of the Company, dated December 15, 1997 and
          filed with the Maryland State Department of Assessments and Taxation on
          December 17, 1997
  3.3*    Articles Supplementary of the Company, dated February 18, 1998 and
          filed with the Maryland State Department of Assessments and Taxation on
          February 19, 1998
  3.4     Articles Supplementary of the Company, dated December 1, 1998 as filed
          with the Maryland State Department of Assessments and Taxation on
          December 4, 1998 (incorporated herein by reference to Exhibit 4.3 of
          the Company's Registration Statement on Form 8-A dated December 1,
          1998)
  3.5     Bylaws of the Company (incorporated herein by reference to Exhibit 3.2
          of the Company's Current Report on Form 8-K filed with the SEC on June
          30, 1998.)
  4.1*    Indenture, dated as of September 2, 1997, between the Operating
          Partnership and State Street Bank and Trust Company
</TABLE>
 
                                       118
<PAGE>   119
 
<TABLE>
<CAPTION>
EXHIBIT
  NO      DESCRIPTION
-------   -----------
<C>       <S>                                                            <C>
  4.2*    First Supplemental Indenture, dated as of February 9, 1998, between the
          Operating Partnership and State Street Bank and Trust Company
  4.3     Form of 6.375% Note due 2003 (incorporated herein by reference to
          Exhibit 4.10 of the Operating Partnership's Registration Statement on
          Form S-4 (Reg. No. 333-61469))
  4.4     Form of 6.625% Note due 2005
  4.5     Form of 6.750% Note due 2008 (incorporated herein by reference to
          Exhibit 4.11 of the Operating Partnership's Registration Statement on
          Form S-4 (Reg. No. 333-61469))
  4.6     Form of 7.250% Note due 2018
  4.7     Form of 6.376% Mandatory Par Put Remarketed Securities due 2012
          (incorporated herein by reference to Exhibit 4.12 of the Operating
          Partnership's Registration Statement on Form S-4 (Reg. No. 333-61469))
  4.8     $30,000,000 7.24% Senior Note due 2004
  4.9     $50,000,000 7.36% Senior Note due 2005
  4.10    $50,000,000 7.44% Senior Note due 2006
  4.11    $50,000,000 7.41% Senior Note due 2007
  4.12    Form of 6.50% Notes due 2004 (incorporated herein by reference to
          Exhibit 4.3 of the Operating Partnership's Registration Statement on
          Form S-4 (Reg. No. 333-61469))
  4.13    Form of 6.763% Notes due 2007 (incorporated herein by reference to
          Exhibit 4.4 of the Operating Partnership's Registration Statement on
          Form S-4 (Reg. No. 333-61469))
  4.14    Form of 7.25% Notes due 2028 (incorporated herein by reference to
          Exhibit 4.5 of the Operating Partnership's Registration Statement on
          Form S-4 (Reg. No. 333-61469))
  4.15    Debt Warrant Agreement, dated as of June 15, 1998 between the Company
          and the Warrant Agent (incorporated herein by reference to Exhibit 4.8
          of the Operating Partnership's Registration Statement on Form S-4 (Reg.
          No. 333-61469))
  4.16    Form of Global Debt Warrant Certificate (incorporated herein by
          reference to Exhibit 4.9 of the Operating Partnership's Registration
          Statement on Form S-4 (Reg. No. 333-61469))
  4.17    Form of 6.375% Note due 2002 (incorporated herein by reference to
          Exhibit 4.1 of the Operating Partnership's Current Report on Form 8-K
          filed with the SEC on January 25, 1999)
  4.18    Form of 6.5% Note due 2004 (incorporated herein by reference to Exhibit
          4.2 of the Operating Partnership's Current Report on Form 8-K filed
          with the SEC on January 25, 1999)
  4.19    Form of 6.8% Note due 2009 (incorporated herein by reference to Exhibit
          4.3 of the Operating Partnership's Current Report on Form 8-K filed
          with the SEC on January 25, 1999)
  4.20    Term Loan Agreement for $328,000,000 Term Credit Facility dated as of
          August 14, 1998
  4.21    Term Loan Agreement for $200,000,000 Term Credit Facility dated as of
          September 22, 1998
 10.1*    Agreement of Limited Partnership of the Operating Partnership, dated as
          of July 3, 1997, as amended
 10.2*    Registration Rights Agreement, dated as of July 11, 1997, among the
          Company and the persons named therein
 10.3*    Noncompetition Agreement between the Company and Samuel Zell
 10.4*    Contribution Agreement, dated as of April 30, 1997, among the Company
          and the persons named therein
 10.5*    Merger Agreement, dated as of April 30, 1997, among the Company and the
          persons named therein
</TABLE>
 
                                       119
<PAGE>   120
 
<TABLE>
<CAPTION>
EXHIBIT
  NO      DESCRIPTION
-------   -----------
<C>       <S>                                                           <C>
          Each member of the Company's Board of Trustees and each Executive
 10.6*    Officer of the Company has entered into an Indemnification Agreement
          with the Company. These Indemnification Agreements are identical in all
          material respects. The schedule below sets forth the terms of each
          Indemnification Agreement not filed which differ from the copy of the
          example Indemnification Agreement (between the Company and Samuel Zell,
          dated as of October 9, 1996), which is filed as Exhibit 10.6 to the
          Company's Annual Report on Form 10-K for the year ended December 31,
          1997, as amended:

          NAME                                                          DATE AS OF
          ------------------------------------------------------------  ----------
          Timothy H. Callahan.........................................    10/9/96
          Richard D. Kincaid..........................................    3/14/97
          Sheli Z. Rosenberg..........................................    3/12/97
          Thomas E. Dobrowski.........................................    7/11/97
          James D. Harper, Jr.........................................    7/11/97
          Jerry M. Reinsdorf..........................................    7/11/97
          William M. Goodyear.........................................    7/11/97
          David K. McKown.............................................    7/11/97
          H. Jon Runstad..............................................   12/18/97
          Edwin N. Sidman.............................................   12/24/97
          D.J. Andre de Bock..........................................    5/15/98
          Michael A. Steele...........................................    10/9/96
          Stanley M. Stevens..........................................    10/9/96
          Jeffrey L. Johnson..........................................    3/14/97

 10.7     Agreement and Plan of Merger, dated September 15, 1997, as amended,
          among the Company, the Operating Partnership, Beacon and Beacon
          Partnership (incorporated herein by reference to Exhibit 2.1 to the
          Company's Current Report on Form 8-K dated September 15, 1997)
 12.1     Statement Regarding Computation of Ratios
 21.1     List of Subsidiaries of the Company
 23.1     Consent of Ernst & Young LLP
 24.1     Power of Attorney (included in signature page)
 27.1     Financial Data Schedule
 99.1     Equity Office Properties Trust 1997 Non-Qualified Employee Share
          Purchase Plan Financial Statements as of and for the year ended
          December 31, 1998.
</TABLE>
 
---------------
 
* Incorporated herein by reference to the same-numbered exhibit to the Company's
  Annual Report on Form 10-K for the year ended December 31, 1997, as amended
 
(b) Reports on Form 8-K:
 
     -- Dated December 8, 1998 including Item 5 (Other Events)
 
(c) Exhibits
 
     See Item 14(a)(3) above.
 
(c) Financial Statement Schedules:
 
     None
 
                                       120
<PAGE>   121
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Chicago, Illinois, as of the 16th day of March, 1999.
 
                                          EQUITY OFFICE PROPERTIES TRUST
 
                                                /s/ TIMOTHY H. CALLAHAN
                                          By:
                                          --------------------------------------
 
                                                    Timothy H. Callahan
                                               President and Chief Executive
                                                           Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated as of the 16th day of March, 1999.
 
     Each person whose signature appears below hereby constitutes and appoints
Samuel Zell and Timothy H. Callahan, and each of them, his attorney-in-fact and
agent, with full power of substitution and resubstitution for him in any and all
capacities, to sign any or all amendments to this annual report on Form 10-K for
the fiscal year ended December 31, 1998, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that such attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof.
 
<TABLE>
<CAPTION>
SIGNATURE                                           TITLE
---------                                           -----
<C>                                                 <S>
            /s/ TIMOTHY H. CALLAHAN                 President, Chief Executive Officer and Trustee
------------------------------------------------    (principal executive officer)
              Timothy H. Callahan
 
             /s/ RICHARD D. KINCAID                 Chief Financial Officer (principal financial
------------------------------------------------    officer and principal accounting officer)
               Richard D. Kincaid
 
                /s/ SAMUEL ZELL                     Chairman of the Board of Trustees
------------------------------------------------
                  Samuel Zell
 
               /s/ D.J.A. DE BOCK                   Trustee
------------------------------------------------
                 D.J.A. de Bock
 
            /s/ THOMAS E. DOBROWSKI                 Trustee
------------------------------------------------
              Thomas E. Dobrowski
 
            /s/ WILLIAM M. GOODYEAR                 Trustee
------------------------------------------------
              William M. Goodyear
 
            /s/ JAMES D. HARPER, JR.                Trustee
------------------------------------------------
              James D. Harper, Jr.
</TABLE>
 
                                       121
<PAGE>   122
 
<TABLE>
<CAPTION>
SIGNATURE                                           TITLE
---------                                           -----
<C>                                                 <S>
              /s/ DAVID K. MCKOWN                   Trustee
------------------------------------------------
                David K. McKown
 
             /s/ JERRY M. REINSDORF                 Trustee
------------------------------------------------
               Jerry M. Reinsdorf
 
             /s/ SHELI Z. ROSENBERG                 Trustee
------------------------------------------------
               Sheli Z. Rosenberg
 
                                                    Trustee
------------------------------------------------
                 H. Jon Runstad
 
              /s/ EDWIN N. SIDMAN                   Trustee
------------------------------------------------
                Edwin N. Sidman
</TABLE>
 
                                       122
<PAGE>   123
 
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
 
                                                                                                             INITIAL COST TO COMPANY
                                                                                                             --------------
                                                                                     ENCUMBRANCES
     DESCRIPTION                                      NOTES         LOCATION         AT 12/31/98     NOTES        LAND
     -----------                                      ------        --------        --------------   ------  --------------
<C>  <S>                                              <C>     <C>                   <C>              <C>     <C>
     Office Properties:
  1  60 Spear Street Building.......................   (3)    San Francisco, CA     $           --           $    2,125,200
  2  San Felipe Plaza...............................   (3)    Houston, TX               52,306,400               13,471,300
  3  5100 Brookline.................................   (3)    Oklahoma City, OK                 --                  570,700
  4  Summit Office Park.............................   (3)    Ft. Worth, TX                     --                1,421,100
  5  Intercontinental Center........................   (3)    Houston, TX                       --                1,752,200
  6  Four Forest....................................   (3)    Dallas, TX                        --                4,767,900
  7  Dominion Tower.................................   (3)    Norfolk, VA                       --                4,643,700
  8  Northborough Tower.............................   (3)    Houston, TX                       --                1,705,400
  9  500 Marquette Building.........................   (3)    Albuquerque, NM                   --                2,219,800
 10  Atrium Towers..................................   (3)    Oklahoma City, OK                 --                  749,100
 11  Community Corporate Center.....................   (3)    Columbus, OH              16,675,100                3,018,900
 12  Sarasota City Center...........................   (3)    Sarasota, FL                      --                2,239,600
 13  Denver Corporate Center II and III.............   (3)    Denver, CO                        --                6,059,400
 14  University Tower...............................   (3)    Durham, NC                        --                2,085,100
 15  Shelton Pointe.................................   (3)    Shelton, CT                       --                1,513,900
 16  San Jacinto Center.............................   (3)    Austin, TX                        --                5,074,500
 17  1111 19th Street...............................   (3)    Washington, D.C.                  --                5,024,000
 18  Bank One Center / Tower........................   (3)    Indianapolis, IN                  --               14,608,200
 19  North Central Plaza Three......................   (3)    Dallas, TX                        --                3,632,100
 20  The Quadrant...................................   (3)    Englewood, CO                     --                4,357,300
 21  Canterbury Green...............................  (3)(4)  Stamford, CT              19,070,700                       --
 22  Three Stamford Plaza...........................   (3)    Stamford, CT              16,594,500                3,956,600
 23  Union Square...................................   (3)    San Antonio, TX                   --                2,368,500
 24  One North Franklin.............................   (3)    Chicago, IL                       --                9,830,500
 25  1620 L Street..................................   (3)    Washington, DC                    --                2,708,200
 26  300 Atlantic Street............................   (3)    Stamford, CT                      --                4,632,300
 27  One & Two Stamford Plaza.......................   (3)    Stamford, CT                      --                8,267,700
 28  Sterling Plaza.................................   (3)    Dallas, TX                        --                3,810,600
 29  1700 Higgins...................................   (3)    Des Plaines, IL            3,298,100    (5)         1,323,100
 30  Franklin Plaza.................................   (3)    Austin, TX                33,265,100    (5)         6,502,400
 31  Northwest Center...............................   (3)    San Antonio, TX            6,309,000    (5)         1,948,000
 32  One Columbus Building..........................   (3)    Columbus, OH              28,677,500    (5)         4,956,300
 33  One Crosswoods Center..........................   (3)    Columbus, OH               3,366,000    (5)         1,058,900
 34  One Lakeway....................................   (3)    Metairie, LA               9,463,500    (5)         2,803,900
 35  Three Lakeway..................................   (3)    Metairie, LA              16,608,000    (5)         4,695,000
 36  Two Lakeway....................................   (3)    Metairie, LA              14,338,100    (5)         4,643,500
 37  NationsBank Plaza..............................   (3)    Nashville, TN                     --                3,049,200
 38  The Plaza at La Jolla Village..................   (3)    San Diego, CA             57,575,400               11,838,900
 39  Interco Corporate Tower........................   (3)    Clayton, MO               21,809,200                4,688,400
 40  9400 NCX.......................................   (3)    Dallas, TX                        --                3,570,000
 41  Four Stamford Plaza............................   (3)    Stamford, CT              15,855,600                4,470,900
 
<CAPTION>
                                    COSTS CAPITALIZED
                                      SUBSEQUENT TO             GROSS AMOUNT CARRIED AT
   IAL COST TO COMPANY
          -------------------   -------------------------   --------------------------------
               BUILDING AND                  BUILDING AND                     BUILDING AND                        ACCUMULATED
               IMPROVEMENTS        LAND      IMPROVEMENTS        LAND         IMPROVEMENTS        TOTAL(1)       DEPRECIATION
          -   ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
<C>           <C>               <C>          <C>            <C>              <C>               <C>               <C>
 
  1           $    19,126,500   $       --   $   228,100    $    2,125,200   $    19,354,600   $    21,479,800   $    (700,500)
  2               117,984,000           --     3,185,600        13,471,300       121,169,600       134,640,900      (4,805,000)
  3                 4,236,500           --       317,700           570,700         4,554,200         5,124,900        (193,300)
  4                12,789,700           --       770,300         1,421,100        13,560,000        14,981,100        (561,300)
  5                14,420,200           --       264,600         1,752,200        14,684,800        16,437,000        (536,500)
  6                42,911,400           --       882,300         4,767,900        43,793,700        48,561,600      (1,709,600)
  7                41,091,200           --       733,900         4,643,700        41,825,100        46,468,800      (1,577,000)
  8                12,198,900        7,000       429,800         1,712,400        12,628,700        14,341,100        (504,300)
  9                19,978,600           --       771,600         2,219,800        20,750,200        22,970,000        (850,100)
 10                 6,741,600           --       540,000           749,100         7,281,600         8,030,700        (351,400)
 11                27,169,800           --       693,200         3,018,900        27,863,000        30,881,900      (1,103,100)
 12                20,156,700           --       530,400         2,239,600        20,687,100        22,926,700        (782,100)
 13                36,534,300           --       821,900         6,059,400        37,356,200        43,415,600      (1,383,000)
 14                18,766,100           --       650,800         2,085,100        19,416,900        21,502,000        (748,900)
 15                13,625,200           --       378,300         1,513,900        14,003,500        15,517,400        (531,800)
 16                45,670,600           --     1,545,500         5,074,500        47,216,100        52,290,600      (1,871,300)
 17                45,216,000           --       410,000         5,024,000        45,626,000        50,650,000      (1,699,200)
 18               131,473,600           --     2,376,500        14,608,200       133,850,100       148,458,300      (5,025,200)
 19                32,689,300           --       679,500         3,632,100        33,368,800        37,000,900      (1,387,400)
 20                39,215,300           --     1,306,100         4,357,300        40,521,400        44,878,700      (1,567,900)
 21                41,987,100           --     1,319,800                --        43,306,900        43,306,900      (1,614,100)
 22                35,609,800           --       372,500         3,956,600        35,982,300        39,938,900      (1,366,200)
 23                14,236,000           --       624,300         2,368,500        14,860,300        17,228,800        (609,900)
 24                88,474,400           --       880,700         9,830,500        89,355,100        99,185,600      (3,303,100)
 25                24,374,000           --       812,000         2,708,200        25,186,000        27,894,200      (1,087,100)
 26                41,690,900           --       644,400         4,632,300        42,335,300        46,967,600      (1,613,600)
 27                74,409,300           --     2,020,400         8,267,700        76,429,700        84,697,400      (2,967,700)
 28                34,295,500           --       984,500         3,810,600        35,280,000        39,090,600      (1,384,900)
 29                11,907,900           --        97,500         1,323,100        12,005,400        13,328,500        (449,100)
 30                58,521,300           --     2,153,000         6,502,400        60,674,300        67,176,700      (2,495,000)
 31                17,531,900           --       448,300         1,948,000        17,980,200        19,928,200        (672,900)
 32                44,606,400           --       782,900         4,956,300        45,389,300        50,345,600      (1,699,900)
 33                 9,529,800           --       497,600         1,058,900        10,027,400        11,086,300        (422,400)
 34                25,235,500           --     1,105,800         2,803,900        26,341,300        29,145,200      (1,058,700)
 35                43,517,200       59,300     1,567,600         4,754,300        45,084,800        49,839,100      (1,885,800)
 36                41,791,800       49,200     1,594,200         4,692,700        43,386,000        48,078,700      (1,709,800)
 37                27,443,100           --       318,600         3,049,200        27,761,700        30,810,900      (1,045,400)
 38                98,243,100       19,300       629,700        11,858,200        98,872,800       110,731,000      (3,638,500)
 39                42,195,200       83,900     1,232,400         4,772,300        43,427,600        48,199,900      (1,652,700)
 40                32,129,700           --     2,578,800         3,570,000        34,708,500        38,278,500      (1,466,100)
 41                40,237,900       24,500       577,900         4,495,400        40,815,800        45,311,200      (1,519,700)
 
<CAPTION>
 
       DATE OF             DATE          DEPRECIABLE
     CONSTRUCTION        ACQUIRED         LIVES(2)
     ------------   ------------------   -----------
<C>  <C>            <C>                  <C>
 
  1         1967              09/29/87       40
  2         1984              09/29/87       40
  3         1974              03/01/89       40
  4         1974              03/01/89       40
  5         1983              06/28/89       40
  6         1985              06/29/89       40
  7         1987              07/25/89       40
  8         1983              08/03/89       40
  9         1985              08/15/89       40
 10         1980              12/15/89       40
 11         1987              06/14/90       40
 12         1989              09/28/90       40
 13   1981/93-97              12/20/90       40
 14         1987              10/16/91       40
 15         1985              11/26/91       40
 16         1987              12/13/91       40
 17         1979              12/18/91       40
 18         1990              03/24/92       40
 19         1986              04/21/92       40
 20         1985              12/01/92       40
 21         1987              12/15/92       40
 22         1980              12/15/92       40
 23         1986              12/23/92       40
 24         1991              12/31/92       40
 25         1989              02/05/93       40
 26         1987              03/30/93       40
 27         1986              03/30/93       40
 28         1984              06/25/93       40
 29         1986              11/12/93       40
 30         1987              11/12/93       40
 31         1984              11/12/93       40
 32         1987              11/12/93       40
 33         1984              11/12/93       40
 34         1981              11/12/93       40
 35         1987              11/12/93       40
 36         1984              11/12/93       40
 37         1977              12/01/93       40
 38    1987-1990              03/10/94       40
 39         1986              05/27/94       40
 40         1981              06/24/94       40
 41         1979              08/31/94       40
</TABLE>
<PAGE>   124
<TABLE>
<CAPTION>
 
                                                                                                             INITIAL COST TO COMPANY
                                                                                                             --------------
                                                                                     ENCUMBRANCES
     DESCRIPTION                                      NOTES         LOCATION         AT 12/31/98     NOTES        LAND
     -----------                                      ------        --------        --------------   ------  --------------
<C>  <S>                                              <C>     <C>                   <C>              <C>     <C>
 42  1920 Main Plaza................................   (3)    Irvine, CA                        --                5,480,600
 43  Paces West.....................................   (3)    Atlanta, GA                       --               12,833,700
 44  One Market.....................................   (3)    San Francisco, CA        149,374,800               34,814,400
 45  2010 Main Plaza................................   (3)    Irvine, CA                        --                5,197,100
 46  1100 Executive Tower...........................   (3)    Orange, CA                        --               10,121,800
 47  28 State Street................................   (3)    Boston, MA                        --                9,512,600
 48  850 Third Avenue...............................   (3)    New York, NY                      --                9,605,900
 49  161 North Clark................................   (3)    Chicago, IL              124,843,200               15,881,800
 50  Wachovia Center................................   (3)    Charlotte, NC             26,026,800                5,061,000
 51  Central Park...................................   (3)    Atlanta, GA               55,284,600                9,162,600
 52  One American Center............................   (3)    Austin, TX                        --                       --
 53  Pasadena Towers................................   (3)    Pasadena, CA              47,056,900                7,087,500
 54  580 California.................................   (3)    San Francisco, CA         29,518,400                7,491,200
 55  1601 Market Street.............................   (3)    Philadelphia, PA                  --                5,780,800
 56  Promenade II...................................   (3)    Atlanta, GA               94,479,400               14,850,000
 57  Two California Plaza...........................   (3)    Los Angeles, CA                   --                       --
 58  BP Tower.......................................   (3)    Cleveland, OH             84,983,900               17,402,500
 59  Sun Trust Center...............................   (3)    Orlando, FL                       --               11,023,600
 60  Reston Town Center.............................   (3)    Reston, VA                90,568,000               21,482,600
 61  Colonnade I....................................   (3)    San Antonio, TX                   --                1,413,600
 62  One Phoenix Plaza..............................   (3)    Phoenix, AZ                       --                6,191,900
 63  49 East Thomas Road............................   (3)    Phoenix, AZ                       --                   65,300
 64  177 Broad Street...............................  (3)(6)  Stamford, CT                      --                3,941,200
 65  Preston Commons................................   (3)    Dallas, TX                        --                5,723,400
 66  Oakbrook Terrace Tower.........................   (3)    Oakbrook Terrace, IL              --               11,950,200
 67  One Maritime Plaza.............................   (3)    San Francisco, CA                 --               11,530,700
 68  Smith Barney Tower.............................   (3)    San Diego, CA                     --                2,657,700
 69  201 Mission Street.............................   (3)    San Francisco, CA                 --                8,870,700
 70  30 N. LaSalle Street...........................   (3)    Chicago, IL                       --               12,489,000
 71  LL&E Tower.....................................          New Orleans, LA           37,500,000    (7)         6,185,800
 72  Texaco Center..................................          New Orleans, LA           42,500,000    (7)         6,686,300
 73  Prudential Portfolio...........................   (8)    Various                           --               28,463,400
 74  550 South Hope Street..........................          Los Angeles, CA                   --               10,016,200
 75  10 & 30 South Wacker...........................          Chicago, IL                       --               48,411,300
 76  Four and Five Valley Square....................          Blue Bell, PA                     --                  865,700
 77  Four Falls Corporate Center....................          Conshohocken, PA                  --                4,938,900
 78  Oak Hill Plaza.................................          King of Prussia, PA               --                2,208,200
 79  One Devon Square...............................          Wayne, PA                         --                1,024,900
 80  Three Devon Square.............................          Wayne, PA                         --                  412,500
 81  Two Devon Square...............................          Wayne, PA                         --                  659,200
 82  Two Valley Square..............................          Blue Bell, PA                     --                  879,000
 83  Walnut Hill Plaza..............................          King of Prussia, PA       14,566,500                2,045,000
 84  One Lafayette Centre...........................          Washington, D.C.                  --                8,262,400
 85  One Valley Square..............................          Blue Bell, PA                     --                  717,200
 86  Three Valley Square............................          Blue Bell, PA                     --                1,012,100
 
<CAPTION>
                                    COSTS CAPITALIZED
                                      SUBSEQUENT TO             GROSS AMOUNT CARRIED AT
   IAL COST TO COMPANY
          -------------------   -------------------------   --------------------------------
               BUILDING AND                  BUILDING AND                     BUILDING AND                        ACCUMULATED
               IMPROVEMENTS        LAND      IMPROVEMENTS        LAND         IMPROVEMENTS        TOTAL(1)       DEPRECIATION
          -   ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
<C>           <C>               <C>          <C>            <C>              <C>               <C>               <C>
 42                47,525,800           --     1,293,700         5,480,600        48,819,500        54,300,100      (2,048,600)
 43                75,024,500           --     2,095,200        12,833,700        77,119,700        89,953,400      (3,153,400)
 44               313,329,700           --    22,827,000        34,814,400       336,156,700       370,971,100     (14,258,400)
 45                46,773,700           --       606,000         5,197,100        47,379,700        52,576,800      (1,816,400)
 46                41,598,600           --       586,100        10,121,800        42,184,700        52,306,500      (1,639,500)
 47                85,613,100           --    40,315,400         9,512,600       125,928,500       135,441,100      (4,963,000)
 48                86,453,200           --     2,487,600         9,605,900        88,940,800        98,546,700      (3,504,100)
 49               142,936,100           --    18,625,600        15,881,800       161,561,700       177,443,500      (6,737,200)
 50                45,548,900           --       678,200         5,061,000        46,227,100        51,288,100      (1,695,700)
 51                82,463,000           --     1,343,100         9,162,600        83,806,100        92,968,700      (3,210,400)
 52                70,811,600           --     2,118,400                --        72,930,000        72,930,000      (2,742,400)
 53                63,787,500           --     2,067,700         7,087,500        65,855,200        72,942,700      (2,645,700)
 54                67,420,900           --     2,276,900         7,491,200        69,697,800        77,189,000      (2,862,700)
 55                52,027,500           --     2,103,400         5,780,800        54,130,900        59,911,700      (2,059,900)
 56               133,650,200           --     4,701,100        14,850,000       138,351,300       153,201,300      (5,486,400)
 57               156,197,000           --    15,563,600                --       171,760,600       171,760,600      (9,509,000)
 58               157,260,200           --     2,187,600        17,402,500       159,447,800       176,850,300      (5,716,300)
 59                99,212,300           --     2,074,100        11,023,600       101,286,400       112,310,000      (3,802,800)
 60               154,576,300       18,500       766,500        21,501,100       155,342,800       176,843,900      (5,713,100)
 61                12,725,200       82,800       558,100         1,496,400        13,283,300        14,779,700        (565,900)
 62                55,726,900           --            --         6,191,900        55,726,900        61,918,800      (2,029,400)
 63                   587,900           --        10,400            65,300           598,300           663,600         (21,500)
 64                35,470,800           --       514,600         3,941,200        35,985,400        39,926,600      (1,186,200)
 65                51,510,300        5,100     1,986,800         5,728,500        53,497,100        59,225,600      (2,077,300)
 66               107,551,700      485,700     2,384,300        12,435,900       109,936,000       122,371,900      (4,076,900)
 67               103,776,000           --     6,222,100        11,530,700       109,998,100       121,528,800      (4,041,500)
 68                23,919,400           --     1,767,800         2,657,700        25,687,200        28,344,900      (1,246,800)
 69                79,836,500           --       473,900         8,870,700        80,310,400        89,181,100      (2,976,800)
 70               112,400,700           --     2,016,200        12,489,000       114,416,900       126,905,900      (4,271,500)
 71                55,672,200       46,000     1,521,400         6,231,800        57,193,600        63,425,400      (1,860,400)
 72                60,177,000        9,500     1,430,600         6,695,800        61,607,600        68,303,400      (2,053,800)
 73               256,216,100           --    12,142,500        28,463,400       268,358,600       296,822,000      (8,663,800)
 74                90,146,000           --       262,500        10,016,200        90,408,500       100,424,700      (2,758,800)
 75               435,701,300           --     1,984,600        48,411,300       437,685,900       486,097,200     (13,267,300)
 76                 7,793,200           --       105,800           865,700         7,899,000         8,764,700        (238,800)
 77                44,458,300       55,000       302,900         4,993,900        44,761,200        49,755,100      (1,387,600)
 78                19,878,500           --       161,200         2,208,200        20,039,700        22,247,900        (606,700)
 79                 9,226,700           --       111,200         1,024,900         9,337,900        10,362,800        (286,500)
 80                 3,712,600           --            --           412,500         3,712,600         4,125,100        (111,900)
 81                 5,935,000           --       216,900           659,200         6,151,900         6,811,100        (215,000)
 82                 7,913,300           --       264,700           879,000         8,178,000         9,057,000        (252,400)
 83                18,409,900           --       200,600         2,045,000        18,610,500        20,655,500        (561,100)
 84                74,362,000           --       171,600         8,262,400        74,533,600        82,796,000      (2,257,000)
 85                 6,456,900           --       147,700           717,200         6,604,600         7,321,800        (185,900)
 86                 9,111,300           --       107,600         1,012,100         9,218,900        10,231,000        (256,600)
 
<CAPTION>
 
       DATE OF             DATE          DEPRECIABLE
     CONSTRUCTION        ACQUIRED         LIVES(2)
     ------------   ------------------   -----------
<C>  <C>            <C>                  <C>
 42         1988              09/29/94       40
 43         1988              10/31/94       40
 44         1976              11/22/94       40
 45         1988              12/13/94       40
 46         1987              12/15/94       40
 47    1968/1997              01/23/95       40
 48         1960              03/20/95       40
 49         1992              07/26/95       40
 50         1972              09/01/95       40
 51         1986              10/17/95       40
 52         1984              11/01/95       40
 53    1990-1991              12/14/95       40
 54         1984              12/21/95       40
 55         1970              01/18/96       40
 56         1990              06/14/96       40
 57         1992              08/23/96       40
 58    1985/1989    09/04/96, 01/29/98       40
 59         1988              09/18/96       40
 60         1990              10/22/96       40
 61         1983              12/04/96       40
 62         1989              12/04/96       40
 63         1974              12/11/96       40
 64         1989              01/29/97       40
 65         1986              03/21/97       40
 66         1988              04/16/97       40
 67         1967              04/21/97       40
 68         1987              04/28/97       40
 69         1981              04/30/97       40
 70         1974              06/13/97       40
 71         1987              09/03/97       40
 72         1984              09/03/97       40
 73      Various              10/01/97       40
 74         1991              10/06/97       40
 75    1983-1987              10/07/97       40
 76         1988              10/07/97       40
 77         1988              10/07/97       40
 78         1982              10/07/97       40
 79         1984              10/07/97       40
 80         1985              10/07/97       40
 81         1985              10/07/97       40
 82         1990              10/07/97       40
 83         1985              10/07/97       40
 84         1980              10/17/97       40
 85         1982              11/21/97       40
 86         1984              11/21/97       40
</TABLE>
<PAGE>   125
<TABLE>
<CAPTION>
 
                                                                                                             INITIAL COST TO COMPANY
                                                                                                             --------------
                                                                                     ENCUMBRANCES
     DESCRIPTION                                      NOTES         LOCATION         AT 12/31/98     NOTES        LAND
     -----------                                      ------        --------        --------------   ------  --------------
<C>  <S>                                              <C>     <C>                   <C>              <C>     <C>
 87  1600 Duke Street...............................          Alexandria, VA                    --                1,105,600
 88  Fair Oaks Plaza................................          Fairfax, VA                       --                2,412,000
 89  Lakeside Square................................          Dallas, TX                        --                8,262,200
 90  LaSalle Plaza..................................          Minneapolis, MN                   --                9,680,600
 91  1001 Fifth Avenue..............................          Portland, OR              20,515,000    (9)         5,383,300
 92  1111 Third Avenue..............................          Seattle, WA               30,567,300    (9)         9,899,900
 93  Calais Office Center...........................          Anchorage, AK              8,513,700    (9)                --
 94  First Interstate...............................          Seattle, WA               83,085,700    (9)        21,360,700
 95  Nordstrom Medical Tower........................          Seattle, WA                9,949,800    (9)         1,763,600
 96  One Bellevue Center............................          Bellevue, WA              23,489,600    (9)                --
 97  Rainer Plaza...................................          Bellevue, WA              29,541,600    (9)                --
 98  Second and Seneca..............................          Seattle, WA               40,517,100    (9)        10,922,500
 99  101 N. Wacker..................................          Chicago, IL                       --               10,067,600
100  10880 Wilshire Boulevard.......................          Los Angeles, CA                   --                       --
101  10960 Wilshire Boulevard.......................          Los Angeles, CA                   --               16,841,300
102  1300 N. 17th Street............................          Rosslyn, VA                       --                9,810,700
103  1333 H Street..................................          Washington, D.C.                  --                6,715,400
104  150 Federal Street.............................          Boston, MA                56,080,000               14,131,400
105  1616 N. Fort Myer Drive........................          Rosslyn, VA                       --                6,960,700
106  175 Federal Street.............................          Boston, MA                        --                4,893,900
107  2 Oliver Street - 147 Milk Street..............          Boston, MA                        --                5,017,400
108  200 West Adams.................................          Chicago, IL                       --               11,723,300
109  225 Franklin Street............................          Boston, MA                        --               34,607,800
110  AT&T Plaza.....................................          Oak Brook, IL                     --                4,834,200
111  Center Plaza...................................          Boston, MA                59,917,700               18,942,300
112  Centerpointe I and II..........................          Fairfax, VA               30,099,900                8,837,800
113  Civic Opera House..............................          Chicago, IL               31,237,400               12,771,300
114  Crosby Corporate Center........................          Bedford, MA                       --                5,957,800
115  EJ Randolph....................................          McLean, VA                15,939,600    (10)        3,936,600
116  EJ Randolph II vacant land.....................          McLean, VA                        --                5,770,000
117  John Marshall I and II.........................          McLean, VA                20,637,100                5,216,400
118  Lake Marriott Business Park....................          Santa Clara, CA                   --                9,090,800
119  Lakeside Office Park...........................          Atlanta, GA                       --                4,792,500
120  New England Executive Park.....................          Burlington, MA                    --               15,636,600
121  Northridge I...................................          Herndon, VA               14,452,600    (10)        3,224,900
122  One Canal Park.................................          Cambridge, MA                     --                2,006,000
123  Perimeter Center...............................          Atlanta, GA              215,715,100               65,886,100
124  Presidents Plaza...............................          Chicago, IL                       --               13,435,500
125  Riverview I and II.............................          Cambridge, MA                     --                5,937,600
126  Russia Wharf...................................          Boston, MA                        --                3,891,500
127  Shoreline Technology Park......................          Mountain View, CA                 --               31,575,400
128  South Station..................................          Boston, MA                        --                       --
129  Sunnyvale Business Center......................          Sunnyvale, CA                     --                4,890,000
130  Ten Canal Park.................................          Cambridge, MA                     --                2,383,100
131  Tri-State International........................          Lincolnshire, IL                  --               10,925,300
 
<CAPTION>
                                    COSTS CAPITALIZED
                                      SUBSEQUENT TO             GROSS AMOUNT CARRIED AT
   IAL COST TO COMPANY
          -------------------   -------------------------   --------------------------------
               BUILDING AND                  BUILDING AND                     BUILDING AND                        ACCUMULATED
               IMPROVEMENTS        LAND      IMPROVEMENTS        LAND         IMPROVEMENTS        TOTAL(1)       DEPRECIATION
          -   ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
<C>           <C>               <C>          <C>            <C>              <C>               <C>               <C>
 87                 9,950,000           --        59,300         1,105,600        10,009,300        11,114,900        (279,700)
 88                21,707,600       29,000       122,100         2,441,000        21,829,700        24,270,700        (615,100)
 89                47,368,800           --     1,274,700         8,262,200        48,643,500        56,905,700      (1,423,000)
 90                87,125,100           --     1,477,800         9,680,600        88,602,900        98,283,500      (2,559,100)
 91                48,633,700           --       576,800         5,383,300        49,210,500        54,593,800      (1,324,800)
 92                89,570,700           --     1,122,700         9,899,900        90,693,400       100,593,300      (2,469,700)
 93                16,630,800           --       881,400                --        17,512,200        17,512,200        (539,400)
 94               193,528,600           --       909,200        21,360,700       194,437,800       215,798,500      (5,068,200)
 95                16,026,200           --         4,400         1,763,600        16,030,600        17,794,200        (418,300)
 96                56,223,100           --       557,800                --        56,780,900        56,780,900      (1,562,500)
 97                79,928,100           --       428,000                --        80,356,100        80,356,100      (2,124,800)
 98                98,927,300           --       710,300        10,922,500        99,637,600       110,560,100      (2,711,600)
 99                90,608,800           --       172,600        10,067,600        90,781,400       100,849,000      (2,361,300)
100               149,841,200           --     3,486,800                --       153,328,000       153,328,000      (3,954,700)
101               151,573,900           --     4,048,400        16,841,300       155,622,300       172,463,600      (4,034,200)
102                88,295,900           --        73,800         9,810,700        88,369,700        98,180,400      (2,310,800)
103                60,438,200           --       253,400         6,715,400        60,691,600        67,407,000      (1,581,800)
104               127,182,200           --     8,439,500        14,131,400       135,621,700       149,753,100      (3,672,700)
105                62,646,300           --       544,700         6,960,700        63,191,000        70,151,700      (1,633,200)
106                44,045,200           --     1,119,800         4,893,900        45,165,000        50,058,900      (1,180,200)
107                45,157,000           --     1,040,900         5,017,400        46,197,900        51,215,300      (1,248,100)
108               105,509,500           --       594,400        11,723,300       106,103,900       117,827,200      (2,841,300)
109               311,470,600           --     1,561,800        34,607,800       313,032,400       347,640,200      (8,300,000)
110                43,507,900       36,000       437,400         4,870,200        43,945,300        48,815,500      (1,196,600)
111               170,480,400           --     1,952,100        18,942,300       172,432,500       191,374,800      (4,525,300)
112                79,540,200      344,700      (204,900)        9,182,500        79,335,300        88,517,800      (2,077,900)
113               114,941,900           --     1,597,700        12,771,300       116,539,600       129,310,900      (3,166,200)
114                53,620,400       49,800       507,900         6,007,600        54,128,300        60,135,900      (1,403,100)
115                35,429,100        7,000       164,100         3,943,600        35,593,200        39,536,800        (927,100)
116                        --           --       136,400         5,770,000           136,400         5,906,400              --
117                46,814,100       16,900        52,200         5,233,300        46,866,300        52,099,600      (1,225,200)
118                84,967,100           --     1,616,400         9,090,800        86,583,500        95,674,300      (1,641,500)
119                43,132,300           --       236,900         4,792,500        43,369,200        48,161,700      (1,148,200)
120               140,729,200      102,400     4,002,100        15,739,000       144,731,300       160,470,300      (3,397,200)
121                29,024,400           --            --         3,224,900        29,024,400        32,249,300        (755,800)
122                18,054,000           --        44,600         2,006,000        18,098,600        20,104,600        (485,500)
123               429,131,000      114,600     3,128,200        66,000,700       432,259,200       498,259,900     (11,847,400)
124               120,919,200           --     1,241,200        13,435,500       122,160,400       135,595,900      (3,269,400)
125                53,438,100        6,300       310,100         5,943,900        53,748,200        59,692,100      (1,394,500)
126                35,022,800           --       731,600         3,891,500        35,754,400        39,645,900      (1,419,100)
127               190,894,500           --       180,400        31,575,400       191,074,900       222,650,300      (4,648,000)
128                31,073,800           --       458,300                --        31,532,100        31,532,100        (809,800)
129                44,010,000           --        11,600         4,890,000        44,021,600        48,911,600      (1,146,100)
130                21,447,900           --        18,700         2,383,100        21,466,600        23,849,700        (558,600)
131                98,327,300      141,200     1,557,400        11,066,500        99,884,700       110,951,200      (2,762,600)
 
<CAPTION>
 
       DATE OF             DATE          DEPRECIABLE
     CONSTRUCTION        ACQUIRED         LIVES(2)
     ------------   ------------------   -----------
<C>  <C>            <C>                  <C>
 87         1985              11/24/97       40
 88         1986              11/24/97       40
 89         1987              11/24/97       40
 90         1991              11/25/97       40
 91         1980              12/17/97       40
 92         1980              12/17/97       40
 93         1975              12/17/97       40
 94         1983              12/17/97       40
 95         1986              12/17/97       40
 96         1983              12/17/97       40
 97         1986              12/17/97       40
 98         1991              12/17/97       40
 99         1980              12/19/97       40
100         1970              12/19/97       40
101         1971              12/19/97       40
102         1980              12/19/97       40
103         1982              12/19/97       40
104         1988              12/19/97       40
105         1974              12/19/97       40
106         1977              12/19/97       40
107         1988              12/19/97       40
108         1985              12/19/97       40
109         1966              12/19/97       40
110         1984              12/19/97       40
111         1969              12/19/97       40
112    1998/1990              12/19/97       40
113         1929              12/19/97       40
114         1996              12/19/97       40
115         1983              12/19/97       40
116          N/A              12/19/97       40
117         1981              12/19/97       40
118         1981              12/19/97       40
119    1972-1978              12/19/97       40
120    1970-1985              12/19/97       40
121         1988              12/19/97       40
122         1987              12/19/97       40
123    1970-1989              12/19/97       40
124    1980-1982              12/19/97       40
125    1985-1986              12/19/97       40
126    1978-1982              12/19/97       40
127    1985-1991              12/19/97       40
128         1988              12/19/97       40
129         1990              12/19/97       40
130         1987              12/19/97       40
131         1986              12/19/97       40
</TABLE>
<PAGE>   126
<TABLE>
<CAPTION>
 
                                                                                                             INITIAL COST TO COMPANY
                                                                                                             --------------
                                                                                     ENCUMBRANCES
     DESCRIPTION                                      NOTES         LOCATION         AT 12/31/98     NOTES        LAND
     -----------                                      ------        --------        --------------   ------  --------------
<C>  <S>                                              <C>     <C>                   <C>              <C>     <C>
132  Wellesley Office Park..........................          Wellesley, MA             55,193,300               16,492,700
133  Westbrook Corporate Center.....................          Westchester, IL          109,619,300               24,896,800
134  Westwood Business Center.......................          Wellesley, MA                     --                2,719,600
135  100 Summer Street..............................          Boston, MA                        --               22,271,000
136  Westbrook Corporate Center vacant land.........          Westchester, IL                   --                3,972,800
137  Denver Post Tower..............................          Denver, CO                        --                       --
138  301 Howard Street..............................          San Francisco, CA                 --                7,050,800
139  410 17th Street................................          Denver, CO                        --                4,473,700
140  Tabor Center...................................          Denver, CO                47,810,600               27,948,500
141  Trinity Place..................................          Denver, CO                        --                1,903,400
142  Dominion Plaza.................................          Denver, CO                        --                5,990,100
143  Millennium Plaza...............................          Englewood, CO                     --                7,757,100
144  Polk and Taylor Buildings......................          Arlington, VA                     --               16,942,500
145  Columbia SeaFirst Center.......................          Seattle, WA                       --               40,175,000
146  Northland Plaza................................          Bloomington, MN                   --                4,705,100
147  4949 S. Syracuse...............................          Denver, CO                        --                  822,300
148  Metropoint I...................................          Denver, CO                        --                4,374,900
149  Metropoint III vacant land.....................          Denver, CO                        --                2,000,000
150  One Park Square................................          Albuquerque, NM                   --                3,634,300
151  Park Avenue Tower..............................          New York, NY                      --               48,976,000
152  Terrace Building...............................          Englewood, CO                     --                1,546,400
153  The Solarium...................................          Englewood, CO                     --                1,951,100
154  Second and Spring..............................          Seattle, WA                       --                1,968,400
155  Colonnade I and II.............................          Dallas, TX                        --                9,043,800
156  Worldwide Plaza................................          New York, NY             263,620,300              124,919,000
157  Central Park vacant land.......................          Atlanta, GA                       --                3,975,400
                                                                                    --------------           --------------
     Subtotal Office Properties.....................                                $2,278,417,400           $1,384,586,100
                                                                                    --------------           --------------
     Development Properties:
158  Reston Town Center Garage......................   (11)   Reston, VA            $           --           $    1,942,500
159  150 California.................................   (11)   San Francisco, CA                 --               12,566,800
160  175 Wyman Street...............................   (11)   Walthan, MA                       --               16,871,000
161  Crosby Corporate Center II.....................   (11)   Bedford, MA                       --                9,384,600
162  John Marshall III..............................   (11)   McLean, VA                        --                9,950,000
163  Media Center...................................   (11)   Burbank, CA                       --               15,000,000
164  Riverside Center...............................   (11)   Newton, MA                        --               24,000,000
165  Tower at New England Executive Park............   (11)   Burlington, MA                    --                2,792,900
166  215 Fremont Street.............................   (11)   San Francisco, CA                 --                2,404,400
167  Colonnade III..................................   (11)   Dallas, TX                        --                6,152,000
168  Prominence.....................................   (12)   Atlanta, GA                       --                       --
169  World Trade Center.............................   (12)   Seattle, WA                       --                       --
170  Rand Tower Garage..............................   (12)   Minneapolis, MN                   --                       --
                                                                                    --------------           --------------
     Subtotal Development Properties................                                $           --           $  101,064,200
                                                                                    --------------           --------------
 
<CAPTION>
                                    COSTS CAPITALIZED
                                      SUBSEQUENT TO             GROSS AMOUNT CARRIED AT
   IAL COST TO COMPANY
          -------------------   -------------------------   --------------------------------
               BUILDING AND                  BUILDING AND                     BUILDING AND                        ACCUMULATED
               IMPROVEMENTS        LAND      IMPROVEMENTS        LAND         IMPROVEMENTS        TOTAL(1)       DEPRECIATION
          -   ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
<C>           <C>               <C>          <C>            <C>              <C>               <C>               <C>
132               148,434,200       20,400     1,155,900        16,513,100       149,590,100       166,103,200      (3,917,900)
133               224,071,100       30,100     2,780,200        24,926,900       226,851,300       251,778,200      (6,026,700)
134                24,476,300           --       250,800         2,719,600        24,727,100        27,446,700        (653,900)
135               200,439,300           --     1,787,900        22,271,000       202,227,200       224,498,200      (4,000,400)
136                        --           --            --         3,972,800                --         3,972,800              --
137                52,937,200           --     1,393,600                --        54,330,800        54,330,800        (993,300)
138                58,920,400           --     1,005,600         7,050,800        59,926,000        66,976,800      (1,066,100)
139                40,263,700           --       673,000         4,473,700        40,936,700        45,410,400        (731,800)
140               116,536,200           --       832,600        27,948,500       117,368,800       145,317,300      (2,082,300)
141                17,130,400           --       419,700         1,903,400        17,550,100        19,453,500        (323,400)
142                53,911,200           --     1,881,700         5,990,100        55,792,900        61,783,000        (874,900)
143                38,313,800           --        18,700         7,757,100        38,332,500        46,089,600        (600,400)
144               152,482,800           --     2,803,900        16,942,500       155,286,700       172,229,200      (2,673,600)
145               361,574,800           --     2,176,400        40,175,000       363,751,200       403,926,200      (4,910,200)
146                42,346,000           --       219,900         4,705,100        42,565,900        47,271,000        (486,400)
147                 7,400,800           --        12,600           822,300         7,413,400         8,235,700         (85,300)
148                39,374,500           --       174,500         4,374,900        39,549,000        43,923,900        (454,900)
149                        --           --            --         2,000,000                --         2,000,000              --
150                32,708,700           --       174,800         3,634,300        32,883,500        36,517,800        (378,200)
151               195,903,900           --       635,000        48,976,000       196,538,900       245,514,900      (2,273,400)
152                13,917,900           --       142,000         1,546,400        14,059,900        15,606,300        (159,800)
153                17,560,100           --       196,400         1,951,100        17,756,500        19,707,600        (207,600)
154                17,715,700           --        14,100         1,968,400        17,729,800        19,698,200        (203,100)
155                81,394,100           --       143,600         9,043,800        81,537,700        90,581,500        (595,900)
156               499,676,100           --            --       124,919,000       499,676,100       624,595,100      (2,602,500)
157                        --           --            --         3,975,400                --         3,975,400              --
              ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
              $11,485,232,700   $1,844,200   $265,076,100   $1,386,430,300   $11,750,308,800   $13,136,739,100   $(342,895,500)
              ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
 
158           $            --   $       --   $   994,700    $    1,942,500   $       994,700   $     2,937,200   $          --
159                        --           --     4,370,900        12,566,800         4,370,900        16,937,700              --
160                        --           --     3,129,400        16,871,000         3,129,400        20,000,400              --
161                        --           --    25,501,300         9,384,600        25,501,300        34,885,900              --
162                        --           --     8,131,200         9,950,000         8,131,200        18,081,200              --
163                        --           --     4,899,500        15,000,000         4,899,500        19,899,500              --
164                        --           --     9,635,000        24,000,000         9,635,000        33,625,000              --
165                25,136,500           --     3,172,700         2,792,900        28,309,200        31,102,100        (266,500)
166                21,639,200           --     2,183,300         2,404,400        23,822,500        26,226,900              --
167                55,367,700           --     2,524,500         6,152,000        57,892,200        64,044,200        (611,800)
168                   534,700           --            --                --           534,700           534,700              --
169                    17,400           --            --                --            17,400            17,400              --
170                    70,700           --            --                --            70,700            70,700              --
              ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
              $   102,766,200   $       --   $64,542,500    $  101,064,200   $   167,308,700   $   268,372,900   $    (878,300)
              ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
 
<CAPTION>
 
       DATE OF             DATE          DEPRECIABLE
     CONSTRUCTION        ACQUIRED         LIVES(2)
     ------------   ------------------   -----------
<C>  <C>            <C>                  <C>
132    1963-1984              12/19/97       40
133    1985-1996              12/19/97       40
134         1985              12/19/97       40
135    1974/1990              03/18/98       40
136          N/A              04/02/98       40
137         1984              04/21/98       40
138         1988              04/29/98       40
139         1978              04/30/98       40
140         1985              04/30/98       40
141         1983              04/30/98       40
142         1983              05/14/98       40
143         1982              05/19/98       40
144         1970              05/22/98       40
145         1985              06/26/98       40
146         1985              07/02/98       40
147         1982              07/15/98       40
148         1987              07/15/98       40
149          N/A              07/15/98       40
150         1985              07/15/98       40
151         1986              07/15/98       40
152         1982              07/15/98       40
153         1982              07/15/98       40
154    1906/1989              07/29/98       40
155    1983-1985              09/30/98       40
156         1989              10/01/98       40
157          N/A              11/03/98       40
 
158          N/A              10/22/96      N/A
159          N/A              12/19/97      N/A
160          N/A              12/19/97      N/A
161         1998              12/19/97       40
162          N/A              12/19/97      N/A
163          N/A              12/19/97      N/A
164          N/A              12/19/97      N/A
165    1971/1998              03/31/98       40
166          N/A              04/29/98      N/A
167         1998              09/30/98       40
168          N/A                   N/A      N/A
169          N/A                   N/A      N/A
170          N/A                   N/A      N/A
 
</TABLE>
<PAGE>   127
<TABLE>
<CAPTION>
 
                                                                                                             INITIAL COST TO COMPANY
                                                                                                             --------------
                                                                                     ENCUMBRANCES
     DESCRIPTION                                      NOTES         LOCATION         AT 12/31/98     NOTES        LAND
     -----------                                      ------        --------        --------------   ------  --------------
<C>  <S>                                              <C>     <C>                   <C>              <C>     <C>
     Parking Facilities:
  1  203 North LaSalle Garage.......................   (3)    Chicago, IL           $   32,661,500    (13)   $    3,784,600
  2  Theatre District Garage........................   (3)    Chicago, IL                       --                3,372,300
  3  Capitol Commons Garage.........................   (3)    Indianapolis, IN           4,368,800                       --
  4  Boston Harbor Garage...........................   (3)    Boston, MA                34,640,100                6,087,300
  5  Milwaukee Center...............................   (3)    Milwaukee, WI                     --                       --
  6  1111 Sansom Street Garage......................   (3)    Philadelphia, PA                  --                1,476,500
  7  15th & Sansom Streets Garage...................   (3)    Philadelphia, PA                  --                  726,400
  8  1602-34 Chancellor Garage......................   (3)    Philadelphia, PA                  --                  735,900
  9  1616 Sansom Street Garage......................   (3)    Philadelphia, PA                  --                  432,900
 10  Juniper/Locust Streets Garage..................   (3)    Philadelphia, PA                  --                  574,400
 11  Adams-Wabash Garage............................          Chicago, IL                       --                2,525,000
 12  601 Tchoupitoulas Garage.......................          New Orleans, LA                   --    (7)         1,180,000
 13  Stanwix Garage.................................          Pittsburgh, PA                    --                1,794,500
 14  Forbes and Allies Garages......................          Pittsburgh, PA                    --                       --
                                                                                    --------------           --------------
     Subtotal Parking Facilities....................                                $   71,670,400           $   22,689,800
                                                                                    --------------           --------------
     Management Business -- Furniture, fixtures and
     equipment......................................                                $           --           $           --
                                                                                    --------------           --------------
     Investment in Real Estate......................                                $2,350,087,800           $1,508,340,100
                                                                                    ==============           ==============
 
<CAPTION>
                                    COSTS CAPITALIZED
                                      SUBSEQUENT TO             GROSS AMOUNT CARRIED AT
   IAL COST TO COMPANY
          -------------------   -------------------------   --------------------------------
               BUILDING AND                  BUILDING AND                     BUILDING AND                        ACCUMULATED
               IMPROVEMENTS        LAND      IMPROVEMENTS        LAND         IMPROVEMENTS        TOTAL(1)       DEPRECIATION
          -   ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
<C>           <C>               <C>          <C>            <C>              <C>               <C>               <C>
  1           $    34,061,500   $       --   $   652,500    $    3,784,600   $    34,714,000   $    38,498,600   $  (1,295,500)
  2                30,326,400           --       102,600         3,372,300        30,429,000        33,801,300      (1,112,300)
  3                14,428,500           --         1,200                --        14,429,700        14,429,700        (526,500)
  4                54,785,300           --     1,446,200         6,087,300        56,231,500        62,318,800      (2,251,100)
  5                 7,798,800           --       289,600                --         8,088,400         8,088,400        (312,000)
  6                        --        6,800            --         1,483,300                --         1,483,300            (700)
  7                 6,537,600           --        11,300           726,400         6,548,900         7,275,300        (237,300)
  8                 6,622,700           --       441,300           735,900         7,064,000         7,799,900        (240,100)
  9                 3,896,200           --        (3,000)          432,900         3,893,200         4,326,100         (91,900)
 10                 5,169,900           --       242,600           574,400         5,412,500         5,986,900        (188,800)
 11                22,725,300           --       215,500         2,525,000        22,940,800        25,465,800        (784,500)
 12                10,619,800           --         1,300         1,180,000        10,621,100        11,801,100        (342,700)
 13                16,160,000           --       650,300         1,794,500        16,810,300        18,604,800        (462,000)
 14                31,250,900           --            --                --        31,250,900        31,250,900              --
              ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
              $   244,382,900   $    6,800   $ 4,051,400    $   22,696,600   $   248,434,300   $   271,130,900   $  (7,845,400)
              ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
              $            --   $       --   $ 7,576,400    $           --   $     7,576,400   $     7,576,400   $    (639,600)
              ---------------   ----------   ------------   --------------   ---------------   ---------------   -------------
              $11,832,381,800   $1,851,000   $341,246,400   $1,510,191,100   $12,173,628,200   $13,683,819,300   $(352,258,800)
              ===============   ==========   ============   ==============   ===============   ===============   =============
 
<CAPTION>
 
       DATE OF             DATE          DEPRECIABLE
     CONSTRUCTION        ACQUIRED         LIVES(2)
     ------------   ------------------   -----------
<C>  <C>            <C>                  <C>
  1         1985              06/09/95       40
  2         1987              06/09/95       40
  3         1987              06/29/95       40
  4         1972              12/10/96       40
  5         1988              12/18/96       40
  6          N/A              12/27/96       40
  7    1950/1954              12/27/96       40
  8    1945/1955              12/27/96       40
  9         1950              12/27/96       40
 10    1949/1952              12/27/96       40
 11         1990              08/11/97       40
 12         1982              09/03/97       40
 13         1989              11/25/97       40
 14         1954              12/17/98       40
</TABLE>
<PAGE>   128
 
---------------
The initial costs to the Company for certain properties acquired in connection
with the Beacon merger on 12/19/97 have been reallocated as a result of
finalizing purchase price allocation based on relative fair value and include
adjustments for additional acquisitions costs incurred in 1998.
 
 (1) The aggregate cost for Federal Income Tax purposes as of December 31, 1998
     was approximately $9.7 billion.
 
 (2) The life to compute depreciation on building is 40 years. The life to
     compute depreciation on building improvements is 4-40 years.
 
 (3) The date acquired represents the date these Properties were acquired by
     Equity Office Predecessors. The acquisition of the Properties, or interest
     therein, by the Company from Equity Office Predecessors in connection with
     the Consolidation on July 11, 1997, was accounted for using the purchase
     method of accounting in accordance with Accounting Principles Board Opinion
     No. 16. Accordingly, the assets were recorded by the Company at their fair
     values.
 
 (4) This Property contains 106 residential units in addition to 224,405 square
     feet of office space.
 
 (5) These loans are subject to cross default and collateralization provisions.
 
 (6) This Property contains 161 residential units in addition to 187,573 square
     feet of office space.
 
 (7) These loans are subject to cross default and collateralization provisions.
 
 (8) The Prudential Portfolio consists of six Office Buildings located in
     Philadelphia, PA, Dallas, TX, and Houston, TX. These Office Buildings were
     constructed between 1969 and 1984.
 
 (9) These loans are subject to cross default and collateralization provisions.
 
(10) These loans are subject to cross default and collateralization provisions.
 
(11) These properties are in various development stages. During the development
     period certain operating costs, including real estate taxes together with
     interest incurred during the development stages will be capitalized.
 
(12) During 1998, the Company committed to acquire these properties upon their
     completion. The costs reflected above include legal and other professional
     fees incurred in connection with the Company's potential acquisition of
     these projects. These transactions are contingent upon certain terms and
     conditions as set forth in their respective purchase agreements. There can
     be no assurance that these transactions will be consummated.
 
(13) The encumbrance on the 203 North LaSalle Garage is also secured by a first
     lien on the Theatre District Garage.
<PAGE>   129
 
A SUMMARY OF ACTIVITY OF INVESTMENT IN REAL ESTATE AND ACCUMULATED DEPRECIATION
IS AS FOLLOWS:
 
     The changes in investment in real estate for the year ended December 31,
1998, the period from July 11, 1997 through December 31, 1997, the period from
January 1, 1997 through July 10, 1997 and for the year ended December 31, 1996
are as follows:
 
<TABLE>
<CAPTION>
                                                    FOR THE PERIOD    FOR THE PERIOD
                                                         FROM              FROM
                                                     JULY 11, 1997    JANUARY 1, 1997
                                                        THROUGH           THROUGH
                                   DECEMBER 31,      DECEMBER 31,        JULY 10,        DECEMBER 31,
                                       1998              1997              1997              1996
                                   ------------     --------------    ---------------    ------------
<S>                               <C>               <C>               <C>               <C>
Balance, beginning of the
  period........................  $11,041,014,100   $             0   $3,549,707,600    $2,571,851,300
  Additions during period:
     Acquisitions...............    2,556,978,300    10,941,428,100      531,968,000       860,995,000
     Improvements...............      207,093,000        99,586,000       59,511,000       129,485,300
  Deductions during period:
     Properties disposed of.....     (121,266,100)                       (67,193,400)       (9,633,600)
     Write-off of fully
       depreciated assets which
       are not longer in
       service..................                                                   0        (2,990,400)
                                  ---------------   ---------------   --------------    --------------
Balance, end of period..........  $13,683,819,300   $11,041,014,100   $4,073,993,200    $3,549,707,600
                                  ===============   ===============   ==============    ==============
</TABLE>
 
     The changes in accumulated depreciation for the year ended December 31,
1998, the period from July 11, 1997 through December 31, 1997, the period from
January 1, 1997 through July 10, 1997 and for the year ended December 31, 1996
are as follows:
 
<TABLE>
<CAPTION>
                                                    FOR THE PERIOD    FOR THE PERIOD
                                                         FROM              FROM
                                                     JULY 11, 1997    JANUARY 1, 1997
                                                        THROUGH           THROUGH
                                   DECEMBER 31,      DECEMBER 31,        JULY 10,        DECEMBER 31,
                                       1998              1997              1997              1996
                                   ------------     --------------    ---------------    ------------
<S>                               <C>               <C>               <C>               <C>
Balance, beginning of the
  period........................  $   (64,695,100)  $            --   $ (257,893,300)   $ (178,448,600)
  Additions during period:
     Depreciation...............     (291,213,400)      (64,695,100)     (57,379,300)      (82,905,300)
  Deductions during period:
     Properties disposed of.....        3,649,700                --        8,517,200           470,200
     Write-off of fully
       depreciated assets which
       are not longer in
       service..................                                 --               --         2,990,400
                                  ---------------   ---------------   --------------    --------------
Balance, end of period..........  $  (352,258,800)  $   (64,695,100)  $ (306,755,400)   $ (257,893,300)
                                  ===============   ===============   ==============    ==============
</TABLE>