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 EXCHANGE ACT OF 1934

                     FOR FISCAL YEAR ENDED: JULY 31, 1996

                                      OR

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                     For the transition period from to .

                       Commission File Number: 0-18076

                PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
            (Exact name of registrant as specified in its charter)

        Delaware                                            04-3038480
(State of organization)                                    (I.R.S. Employer
                                                          Identification  No.)

265 Franklin Street, Boston, Massachusetts                             02110
(Address  of principal   executive office)                         (Zip Code)

Registrant's telephone number, including area code (617) 439-8118

         Securities registered pursuant to Section 12(b) of the Act:
                                                Name of each exchange on
Title of each class                                 which registered
       None                                              None

         Securities registered pursuant to Section 12(g) of the Act:
                  Units of Depositary Receipts representing
                      Units of Limited Partner Interests

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No ____

State the aggregate market value of the voting stock held by  non-affiliates  of
the registrant. Not applicable.

                     DOCUMENTS INCORPORATED BY REFERENCE
Documents                                                  Form 10-K Reference
The Prospectus of the registrant                            Parts II and IV
dated April 23, 1987, as supplemented
<PAGE>


               PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
                                1996 FORM 10-K

                              TABLE OF CONTENTS

Part I                                                                Page

Item  1       Business                                                I-1

Item  2       Properties                                              I-3

Item  3       Legal Proceedings                                       I-3

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


Part  II

Item  5       Market for the Registrant's Depositary Units of Limited
                 Partnership Interest and Related Security Holde
                 Matters                                                II-1

Item  6       Selected Financial Data                                   II-1

Item  7       Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                    II-2

Item  8       Financial Statements and Supplementary Data               II-4

Item  9       Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure                    II-4


Part III

Item 10       Directors and Executive Officers of the Partnership      III-1

Item 11       Executive Compensation                                   III-3

Item 12       Security Ownership of Certain Beneficial Owners
                and Management                                         III-3

Item 13       Certain Relationships and Related Transactions           III-3


Part  IV

Item 14       Exhibits, Financial Statement Schedules and
                Reports on Form 8-K                                    IV-1

Signatures                                                             IV-2

Index to Exhibits                                                      IV-3

Financial Statements and Supplementary Data                      F-1 to F-14


<PAGE>

                                    PART I

Item 1.  Business

    PaineWebber  Insured Mortgage  Partners 1-B, L.P. (the  "Partnership")  is a
Delaware limited  partnership formed primarily for the purpose of investing in a
diversified   portfolio  of  federally  insured  or  coinsured   mortgage  loans
("Participating  Insured  Mortgage  Loans")  through  the  purchase  of  certain
mortgage-backed securities ("GNMA Securities") guaranteed as to their payment of
principal and interest by the Government National Mortgage Association ("GNMA").
On May 16, 1988, the Partnership commenced the sale of Limited Partner Interests
(the  "Units"),  which are evidenced by Depositary  Receipts (at $100 per Unit).
Depositary  Receipts  were  offered  to the public by  PaineWebber  Incorporated
("PWI"), as sales agent, pursuant to a Registration Statement on Form S-11 filed
under the Securities Act of 1933  (Registration No.  33-11911).  The Partnership
sold  551,604  Units of  Depositary  Receipts  from May 16, 1988 to May 1, 1989,
representing  capital  contributions of approximately  $55,160,000.  Unitholders
will not be required to make any additional capital contributions.

    The Units  represent  an interest  assigned to persons who  purchased  Units
("Unitholders")  from the initial limited partner of the Partnership pursuant to
the  Partnership  Agreement,  which  interest  is the  equivalent  of a  limited
partnership  interest.  Although  Unitholders  are not  limited  partners of the
Partnership,  as  Unitholders  they are entitled to the same economic  benefits,
including the same share of income, gains, losses, deductions,  credits and cash
distributions,  as if they were limited  partners  holding the number of limited
partnership interests represented by their Units.

    The Partnership  originally invested in three Participating Insured Mortgage
Loans,  which  were  originated  under or in  connection  with  Federal  Housing
Administration   ("FHA")   insurance   programs  to  finance  or  refinance  the
acquisition,  construction or substantial  rehabilitation of privately owned and
operating  multi-family  residential  rental  projects,  (the  "Projects").  The
Partnership  purchased each of the GNMA  Securities with proceeds raised through
its  public   offering  from  an  FHA-approved   mortgagee/coinsurer   and  GNMA
issuer/servicer.  The Partnership was expected to make an investment in a fourth
Participating Insured Mortgage Loan and entered into a commitment to fund a $4.5
million loan on a to-be-built project in Orlando,  Florida.  During fiscal 1991,
the  prospective  borrower  elected not to proceed with the Orlando  development
and, as a result,  the  commitment  to  purchase  the  related  GNMA  securities
subsequently  expired.  The efforts of the General  Partner to obtain a suitable
investment to replace the expired commitment were not successful,  in large part
due to changes  instituted by the  Department  of Housing and Urban  Development
which have made the type of insured financing that the Partnership can invest in
very difficult to obtain. As a result, the General Partner decided to return the
majority of the previously committed funds to the Unitholders. A distribution of
approximately  $4  million  was paid to the  Unitholders  in June of  1991.  The
remainder of the previously  committed funds was added to the Partnership's cash
reserves.  As discussed further below, one of the Partnership's Insured Mortgage
Loans was repaid in full during fiscal 1992,  and the proceeds were  distributed
to the Unitholders in June of 1993.

    Each  Participating  Insured  Mortgage  Loan  has  two  components,  a  base
component  consisting of the principal amount of the mortgage loan plus interest
at a stated rate thereon and a contingent component providing for the payment of
contingent  interest  ("Contingent  Interest")  from net cash flow from  Project
operations  and from  capital  appreciation,  if any,  realized as a result of a
Project sale or  refinancing.  The principal of and the stated  interest on each
Participating  Insured  Mortgage Loan is coinsured by the FHA ("FHA  Insurance")
and is  represented  by a GNMA  Security,  the interest rate on which (the "Base
Interest")  is equal to the stated  interest rate on the  Participating  Insured
Mortgage Loan minus  certain  fixed fees payable to GNMA and the FHA  mortgagee.
Neither FHA  Insurance  nor any GNMA  security  will  provide for or support the
payment of Contingent Interest.

    The  Partnership  has also  invested  in  non-participating  mortgage-backed
securities ("MBS") backed by single-family or multi-family mortgage loans issued
or originated in connection  with the housing  programs of GNMA.  Investments in
non-participating  MBS were  limited  to no more  than 30% of the  original  net
offering proceeds.


<PAGE>


    Until May 1992, the Partnership  held a Participating  Insured Mortgage loan
with respect to an apartment  complex known as Casablanca  Apartments in Boynton
Beach,  Florida.  During  fiscal 1992,  the owner of the  Casablanca  Apartments
complex defaulted on the scheduled debt service payments to the GNMA issuer. The
default  triggered  the  prepayment   provisions  of  the   Partnership's   GNMA
mortgage-backed  security.  Consequently,  on May 26,  1992,  GNMA  prepaid  the
outstanding  balance of the  principal and accrued  interest to the  Partnership
pursuant to the terms of the mortgage-backed security agreement. The Partnership
distributed  the  proceeds  received  from  the  Casablanca  prepayment,   which
aggregated $12,521,000, to the Unitholders concurrent with the regular quarterly
distribution paid on June 15, 1993.

    The  objectives  of  the   Partnership  are  to  protect  and  preserve  the
Partnership's  capital, to make quarterly  distributions of cash attributable to
payments  of  principal  and  interest   (including   Contingent   Interest)  on
Participating  Insured  Mortgage  Loans and MBS and to provide gains through the
appreciation of properties financed with Participating Insured Mortgage Loans.

    Cumulative cash distributions to the Unitholders  through July 31, 1996 have
totalled approximately  $43,799,000,  or $804 per original $1,000 investment for
the Partnership's  earliest  investors.  Such distributions  include a return of
capital totalling  approximately  $395 per $1,000 investment  resulting from the
expired commitment and the prepayment  discussed above, along with the scheduled
amortization  of  mortgage   principal  and  principal   prepayments   from  the
Partnership's mortgage-backed securities. Quarterly distributions have been paid
at a rate of 8.25% per annum on Unitholders'  remaining  invested  capital since
inception.  Unitholders' remaining capital accounts as of July 31, 1996 totalled
approximately $605 per $1,000 investment. Through July 31, 1996, the Partnership
had received  $83,000 of Contingent  Interest  payments  from its  Participating
Insured Mortgage Loans.

    As of July 31, 1996, the Partnership  holds  Participating  Insured Mortgage
Loans secured by GNMA securities as described below.

GNMA
Certificate   Property Name, Size      Date of          Interest      Maturity
Number        and Location (1)         Acquisition      Rate          Date
------        ----------------         -----------      ----          ----

 279985       Quarter Mill Apartments
              266 Units
              Richmond, VA                 08/02/89       8.50%       10/15/31

 279119       Emerald Cove Apartments
              276 Units
              Charlotte, NC                10/16/89       8.75%       08/15/31


(1) See Notes to the  Financial  Statements  filed with this Annual Report for a
    description of the  agreements  through which the  Partnership  has acquired
    these investments.

    The future  performance of the Partnership will depend, in part, upon future
interest  rate  fluctuations,  which  cannot  be  predicted.  In  addition,  the
Partnership's  overall  operating  performance  is  subject  to all of the risks
normally  associated with real estate  investments,  including:  reliance on the
owners' operating skills,  including their ability to maintain occupancy levels,
meet operating  expenses,  maintain the property and maintain adequate insurance
coverage;  adverse changes in general and/or local economic conditions;  changes
in  governmental  regulations,  real estate zoning laws, or tax laws;  and other
circumstances over which the Partnership may have little or no control.

      The  Partnership  is engaged  solely in the  business of investing in real
estate  through  Participating  Insured  Mortgage  Loans and  conventional  MBS,
therefore,   presentation  of  information   about  industry   segments  is  not
applicable.  The Partnership has no employees.  Subject to the General Partner's
overall  authority,  the business of the  Partnership  is managed by PaineWebber
Properties Incorporated ("PWPI"), a wholly-owned subsidiary of PWI.

    The General  Partner of the  Partnership  (the  "General  Partner") is First
Insured Mortgage Partners,  L.P., a Delaware limited partnership.  First Insured
Mortgage  Partners,  Inc.  (the  "Managing  General  Partner"),  a  wholly-owned
subsidiary of PaineWebber Group, Inc.  ("PaineWebber"),  is the Managing General
Partner  of the  General  Partner.  PWI and  Properties  Associates  1988,  L.P.
("PA1988"),  a Virginia  limited  partnership,  are the limited  partners of the
General Partner.  Certain officers and directors of the Managing General Partner
and certain  limited  partners of PA1988 are also  officers and directors of PWI
and  PWPI.  The  initial  limited  partner  of the  Partnership  is  PaineWebber
Depositary Corporation, a wholly-owned subsidiary of PaineWebber.

    The terms of  transactions  between the  Partnership  and  affiliates of the
General  Partner  of the  Partnership  are set forth in Items 11 and 13 below to
which reference is hereby made for a description of such terms and transactions.
<PAGE>
Item 2. Properties

    The  Partnership   owns  no  real  estate.   The  Partnership  has  acquired
Participating Insured Mortgage Loans secured by the properties referred to under
Item 1 above to which  reference is made for the name,  location and description
of each property.

     Occupancy   figures  for  the   properties   securing   the   Partnership's
Participating  Insured Mortgage Loans for each fiscal quarter during 1996, along
with an average for the year, are presented below:

                                        Percent Occupied At
                                -----------------------------------------------
                                                                        Fiscal
                                                                        1996
                                 10/31/95    1/31/96  4/30/96  7/31/96  Average
                                 --------    -------  -------  -------  -------

Quarter Mill Apartments            95%        95%       96%       99%     96%

Emerald Cove Apartments            96%        94%       96%       97%     96%

Item 3.  Legal Proceedings

     In  November  1994,  a series of  purported  class  actions  (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments,  including those offered
by the Partnership.  The lawsuits were brought against PaineWebber  Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied  partnership  investors.  In March  1995,  after the  actions  were
consolidated under the title In re PaineWebber Limited  Partnership  Litigation,
the  plaintiffs  amended their  complaint to assert claims  against a variety of
other defendants, including First Insured Mortgage Partners, Inc. and Properties
Associates 1988  ("PA1988"),  which are the General  Partners of the Partnership
and affiliates of PaineWebber. On May 30, 1995, the court certified class action
treatment of the claims asserted in the litigation.

     The amended complaint in the New York Limited  Partnership  Actions alleged
that, in connection with the sale of interests in PaineWebber  Insured  Mortgage
Partners 1-B,  L.P.,  PaineWebber,  First Insured  Mortgage  Partners,  Inc. and
PA1988 (1) failed to provide adequate disclosure of the risks involved; (2) made
false and misleading representations about the safety of the investments and the
Partnership's  anticipated  performance;  and (3)  marketed the  Partnership  to
investors for whom such  investments  were not  suitable.  The  plaintiffs,  who
purported  to be suing on behalf of all  persons  who  invested  in  PaineWebber
Insured Mortgage Partners 1-B, L.P., also alleged that following the sale of the
partnership interests,  PaineWebber,  First Insured Mortgage Partners,  Inc. and
PA1988  misrepresented  financial  information about the Partnerships  value and
performance.  The amended  complaint  alleged that  PaineWebber,  First  Insured
Mortgage Partners, Inc. and PA1988 violated the Racketeer Influenced and Corrupt
Organizations  Act  ("RICO") and the federal  securities  laws.  The  plaintiffs
sought  unspecified  damages,  including  reimbursement for all sums invested by
them in the  partnerships,  as well as disgorgement of all fees and other income
derived  by  PaineWebber  from  the  limited  partnerships.   In  addition,  the
plaintiffs also sought treble damages under RICO.

      In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding,  PaineWebber  irrevocably  deposited  $125 million into an escrow
fund under the  supervision of the United States District Court for the Southern
District of New York to be used to resolve the  litigation in accordance  with a
definitive  settlement  agreement  and plan of  allocation.  On July  17,  1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and provides for the complete
resolution of the class action  litigation,  including  releases in favor of the
Partnership and the partners of the General  Partner,  and the allocation of the
$125 million  settlement  fund among  investors in the various  partnerships  at
issue in the case. As part of the settlement, PaineWebber also agreed to provide
class  members  with  certain  financial  guarantees  relating  to  some  of the
partnerships.  The details of the  settlement  are  described in a notice mailed
directly to class members at the direction of the court.  A final hearing on the
fairness of the proposed settlement is scheduled to continue in November 1996.
<PAGE>
     In February 1996,  approximately  150 plaintiffs  filed an action  entitled
Abbate v.  PaineWebber  Inc. in  Sacramento,  California  Superior Court against
PaineWebber   Incorporated  and  various  affiliated   entities  concerning  the
plaintiffs' purchases of various limited partnership interests,  including those
offered by the  Partnership.  The complaint  alleges,  among other things,  that
PaineWebber and its related entities committed fraud and  misrepresentation  and
breached  fiduciary  duties  allegedly  owed to the  plaintiffs  by  selling  or
promoting  limited   partnership   investments  that  were  unsuitable  for  the
plaintiffs and by overstating the benefits,  understating  the risks and failing
to  state  material  facts  concerning  the  investments.  The  complaint  seeks
compensatory  damages of $15 million plus punitive damages against  PaineWebber.
In September 1996, the court dismissed many of the plaintiffs'  claims as barred
by the  applicable  statutes  of  limitations.  The  eventual  outcome  of this
litigation and the potential impact,  if any, on the  Partnership's  unitholders
cannot be determined at the present time.

     In July 1996,  approximately 15 plaintiffs filed an action entitled Barstad
v.  PaineWebber  Inc.  in  Maricopa  County,   Arizona  Superior  Court  against
PaineWebber   Incorporated  and  various  affiliated   entities  concerning  the
Plaintiffs' purchases of various limited partnership interests,  including those
offered  by the  Partnership.  The  complaint  is  substantially  similar to the
complaint in the Abbate action described above, and seeks  compensatory  damages
of $752,000 plus punitive damages.

     Under certain limited circumstances,  pursuant to the Partnership Agreement
and other contractual  obligations,  PaineWebber affiliates could be entitled to
indemnification  for  expenses and  liabilities  in  connection  with all of the
litigation  described  above.  However,  PaineWebber  has  agreed  not  to  seek
indemnification  for any amounts it is required  to pay in  connection  with the
settlement of the New York Limited  Partnership  Actions.  At the present time,
the  General  Partner  cannot  estimate  the impact,  if any,  of the  potential
indemnification  claims on the Partnership's  financial  statements,  taken as a
whole.  Accordingly,  no provision for any liability which could result from the
eventual  outcome of these matters has been made in the  accompanying  financial
statements of the Partnership.

Item 4.  Submission of Matters to a Vote of Security Holders
     None.


<PAGE>


                                   PART II

Item 5.  Market for the Registrant's  Depositary Units of Limited Partnership
Interest and Related Security Holder Matters

    At July 31, 1996, there were 3,421 investors holding Depositary  Receipts in
the  Partnership.  There is currently no public  market for the resale of Units,
and it is not  anticipated  that a public  market  for Units will  develop.  The
General Partner will not redeem or repurchase Units.

    The  Partnership  has a  Distribution  Reinvestment  Plan designed to enable
Unitholders  to have  their  distributions  from  the  Partnership  invested  in
additional  Units of the  Partnership.  The  terms of the Plan are  outlined  in
detail  in the  Prospectus,  a copy of which  Prospectus,  as  supplemented,  is
incorporated herein by reference.

    Reference  is made to Item 6 below for a  discussion  of cash  distributions
made to the Unitholders during fiscal 1996.

Item 6.  Selected Financial Data

                 PaineWebber Insured Mortgage Partners 1-B, L.P.
          For the years ended July 31, 1996, 1995, 1994, 1993 and 1992
                      (In thousands, except per Unit data)

                             1996       1995      1994        1993    1992
                             ----       ----      ----        ----    ----

Revenues                  $ 2,331    $  2,410   $ 2,447     $3,283     $3,603

Gain on sale of 
  investments                   -           -         -     $  386          -

Net income                $ 1,806    $  1,898   $ 1,885     $ 3,058    $2,578

Net income per Unit of
  Depositary Receipt      $  3.24    $   3.41   $   3.38    $  5.49    $ 4.63

Cash distributions from
  operations per Unit of
  Depositary Receipt      $  5.08    $   5.22   $   5.34    $  7.33    $ 7.49

Cash distributions from
  investment prepayment
  and other disposition
  transactions per Unit
  of Depositary Receipt         -          -          -     $ 22.70        -

Total assets             $ 29,243     $30,315   $30,888     $31,639   $ 45,191

    The above selected  financial  data should be read in  conjunction  with the
financial  statements  and  related  notes  appearing  elsewhere  in this Annual
Report.

    The above net income and cash  distributions per Unit of Depositary  Receipt
are based  upon the  551,604  Units of  Depositary  Receipt  of the  Partnership
outstanding during each year.



<PAGE>


Item 7.  Management's  Discussion  and  Analysis of Financial  Condition  and
Results of Operations

Liquidity and Capital Resources

    The Partnership  offered  depositary  units (at $100 per Unit)  representing
limited  partnership  interests  to the public  from May 16, 1988 to May 1, 1989
pursuant to a  Registration  Statement  filed under the  Securities Act of 1933.
Gross proceeds of  approximately  $55,160,000  were received by the  Partnership
from the offering and,  after  deducting  selling  expenses and offering  costs,
approximately $42,908,000 was invested in mortgage securities.  Approximately $4
million of uninvested  offering proceeds was returned to the Unitholders in June
of 1991 after a proposed  investment,  for which such funds had been  committed,
could  not be  completed.  The  Partnership  originally  invested  approximately
$30,697,000  in  three  Participating   Insured  Mortgage  Loans  originated  in
connection with Federal Housing  Administration ("FHA") insurance to finance the
construction of multi-family  residential rental projects.  The Partnership also
originally    invested    approximately    $12,211,000   in    non-participating
mortgage-backed   securities   collateralized   by  pools  of  single-family  or
multi-family mortgage loans that are guaranteed by GNMA. In May 1992, one of the
Participating Insured Mortgage Loans was prepaid at par as a result of a default
by the underlying property owner. Proceeds from this prepayment were distributed
to  the   Unitholders  in  June  1993  after  an  examination  of   reinvestment
alternatives failed to identify any suitable replacement investments.

    The  Partnership's  investments  are structured to provide maximum safety of
principal. The Partnership's principal investments in both Participating Insured
Mortgage Loans and conventional  mortgage-backed  securities are 100% guaranteed
by GNMA in the event of defaults by the underlying property owners.  Obligations
of GNMA are backed by the full faith and credit of the Federal  government.  The
Partnership  does face potential  market risk in the event that the Partnership,
as expected,  liquidates its investments in Participating Insured Mortgage Loans
and non-participating mortgage-backed securities prior to the scheduled maturity
dates of such  investments.  Depending on the general  level of market  interest
rates  at the  time of the sale of any of the  Partnership's  mortgage  security
investments, the market value of the investments may be higher or lower than the
outstanding  principal  balances.  Nonetheless,  since  the  Partnership  is not
required to be liquidated prior to the scheduled maturity dates,  management can
limit the exposure to market risk by attempting to time the  liquidation  of the
Partnership's investments to coincide with a period of favorable interest rates.
However,  management is not  prohibited  from selling any security at a loss and
may do so if it is believed  that such a sale would be in the best  interests of
the Partnership.  The market value of the  Partnership's  Participating  Insured
Mortgage Loans is also affected by the value,  if any, that is attributed to the
participation  features  of such loans.  Such value is impacted by overall  real
estate  market  conditions  and by the specific  performance  of the  properties
securing  the   Partnership's   participation   interests.   The   Partnership's
non-participating  MBS have coupon  interest  rates  ranging  from 7.5% to 9.5%.
Based on current  market  interest rate levels,  the  aggregate  market value of
these securities at the present time would be expected to be slightly above both
their face value and amortized cost, which includes any unamortized discounts or
premiums. As of July 31, 1996, the Partnership's  Participating Insured Mortgage
Loans, which carry coupon interest rates of 8.5% and 8.75%, had estimated market
values  slightly above their face values due to a variety of factors,  including
the   participation   features.   Increases  in  market  interest  rates  and/or
deterioration  in general real estate  market  conditions in the near term could
cause the aggregate market value of the Participating Insured Mortgage Loans and
the portfolio of MBS investments to fall below face value and/or amortized cost.
However,  fluctuating  market  conditions  will not result in realized  gains or
losses  unless  the  Partnership's  investments  are  prepaid  or sold  prior to
maturity.  Secondary market sales of the Partnership's  investments would likely
only occur as part of a formal plan of liquidation for the Partnership.

    The Partnership is also subject to possible  reinvestment risk to the extent
that its principal  investments are prepaid prior to the Partnership's  expected
liquidation  period.  Depending on the general level of market interest rates at
the time of such a prepayment, the Partnership or an individual Unitholder might
be unable to earn a comparable yield on a similar  low-risk  investment upon the
reinvestment  of such funds.  Over the past several years,  generally low market
interest rates have prompted a high level of refinancing activity,  resulting in
significant prepayments on the Partnership's  non-participating  mortgage-backed
securities.  Such prepayments have reduced the  Partnership's  investment income
and increased the outstanding balance of the Partnership's cash reserves.



<PAGE>


     The  Partnership's two remaining  Participating  Insured Mortgage Loans are
secured by the Emerald Cove and Quarter Mill  apartment  complexes.  The average
occupancy level at Emerald Cove remained  relatively  stable during fiscal 1996,
averaging 96% for the year. As previously reported, during fiscal 1995 the owner
of the Emerald Cove  Apartments  received an offer to purchase the  property.  A
similar  offer to purchase  the  property  had been  proposed in fiscal 1994 but
could not be completed.  Prepayment of the Partnership's  Participating  Insured
Mortgage  Loan is  restricted  through March 1997 and then requires a prepayment
penalty which declines ratably,  from 5% to 2%, over the next four years.  Based
on the fiscal 1995 sale offer, the Emerald Cove Project Owner made a proposal to
the Partnership to accept prepayment on its Participating  Insured Mortgage Loan
at  a  premium  in  return  for  the  Partnership's  waiver  of  the  prepayment
restrictions.  Management  had evaluated  such proposal and,  during the quarter
ended October 31, 1995, had agreed to allow the proposed  transaction.  However,
subsequent to the end of the first quarter of fiscal 1996, the  Partnership  was
notified that the potential  buyer and the owner were not able to agree on final
terms for a sale and the offer to purchase the property  was  withdrawn.  During
the quarter ended  January 31, 1996,  the owner of Emerald Cove received two new
offers to purchase the property  and, in  connection  with these  offers,  again
requested permission to prepay the Partnership's  participating loan. During the
quarter ended April 30, 1996,  based on an analysis of the economic  benefits to
the Partnership,  the Partnership  responded with terms on which it would accept
prepayment of the Participating Insured Mortgage Loan. As has been the case with
previous  prepayment  requests,  the most recent offers to purchase the property
did not result in a sale. There are no ongoing  prepayment  discussions with the
Emerald Cove owner at the present time.

     The Quarter Mill  Apartments  continued  its strong  operating  performance
during  fiscal  1996,  ending  the year  with a 96%  occupancy  level.  Property
operations  continue to generate small amounts of excess cash flow, a portion of
which is payable to the Partnership as Contingent Interest.  During fiscal 1995,
the Partnership received  approximately  $37,000,  representing its 30% share of
the  surplus  cash,  as defined,  generated  by the Quarter  Mill  property  for
calendar years 1991,  1992,  1993 and 1994.  During fiscal 1996, the Partnership
received approximately $46,000,  representing its 30% share of the surplus cash,
as defined,  generated by the Quarter Mill property for calendar year 1995.  The
Quarter Mill  Participating  Insured  Mortgage Loan is open to prepayment with a
specified  prepayment  penalty which declines ratably,  from 10% to 2%, over the
next five years. To date, the Quarter Mill project owner has given no indication
of an intent to prepay the outstanding loan in the near term.

     At July  31,  1996,  the  Partnership  had cash  and  cash  equivalents  of
approximately $3,637,000. Such amounts will be utilized for distributions to the
Unitholders and for the working capital  requirements  of the  Partnership.  The
source of future  liquidity and  distributions to the Unitholders is expected to
be  primarily  through  interest  income  and  principal   repayments  from  the
Partnership's  mortgage securities,  money-market  interest income from invested
cash  reserves,  and to a  lesser  extent  from the  cash  reserves  themselves,
contingent  interest from  Participating  Insured Mortgage Loans and net project
residuals  from  the  sale  or  refinancing  of  the  properties  securing  such
investments.

Results of Operations
1996 Compared to 1995

     For the year ended July 31, 1996,  the  Partnership  reported net income of
$1,806,000,  which  represents a decrease in net income of $92,000 when compared
to fiscal 1995.  This decrease is primarily due to a decrease in total  revenues
of $79,000.  The decrease in total revenues can be attributed to the decrease in
interest income from Participating  Insured Mortgage Loans and non-participating
MBS which  aggregated  $94,000.  This  decrease  resulted  from a decline in the
average  outstanding  principal  balances of such  investments  due to scheduled
principal amortization on all of the debt securities and prepayments on the MBS.
Partially  offsetting  this decrease in total  revenues was an increase in money
market interest of $15,000. The increase in money market interest was mainly due
to an increase  in the average  outstanding  balance of the  Partnership's  cash
reserves resulting from the MBS prepayment activity.  The decrease in net income
was also partly due to an increase  in general  and  administrative  expenses of
$24,000 which resulted mainly from an increase in certain required  professional
services  during the current fiscal year.  Management  fees decreased by $11,000
during  fiscal  1996 due to the  lower  outstanding  principal  balances  of the
Partnership's  debt  securities  on which  the fees are  partially  based.  Such
decreases  have  occurred  since  the  Partnership  was  fully  invested  due to
scheduled    principal    amortization   and   prepayment    activity   in   the
non-participating MBS pools.


<PAGE>


1995 Compared to 1994

     For the year ended July 31, 1995,  the  Partnership  reported net income of
$1,898,000, which represented an increase in net income of $13,000 when compared
to fiscal 1994.  This  increase in net income  resulted from declines in general
and  administrative  and management fee expenses.  Management  fees decreased by
$27,000  during  fiscal  1995  due to the  decline  in the  average  outstanding
principal  balances of the Partnership's  investments,  upon which such fees are
partially  based.  General and  administrative  expenses  declined by $22,000 in
fiscal 1995 mainly due to certain  non-recurring  professional  fees incurred in
the prior year. The decline in expenses during fiscal 1995 was partially  offset
by  a  reduction  in  total  revenues  of  $37,000.  Interest  income  from  the
Partnership's  debt  securities  declined  by  $142,000,  despite the receipt of
contingent  interest of  approximately  $37,000 from the Quarter Mill investment
during fiscal 1995. The decrease in interest income from  Participating  Insured
Mortgage Loans and  non-participating MBS resulted from a decline in the average
outstanding  principal  balances of such investments due to scheduled  principal
amortization  and  prepayments  on the  MBS.  The high  level  of MBS  principal
prepayments  experienced during fiscal 1994 substantially  increased the balance
of the Partnership's cash reserves and contributed to an increase of $105,000 in
money market interest income for fiscal 1995. The increased earnings on invested
cash  reserves was also  partially  attributable  to the higher  interest  rates
earned during fiscal 1995.

1994 Compared to 1993

     For the year ended July 31, 1994,  the  Partnership  reported net income of
$1,885,000,  which  represented  a  decrease  in net income of  $1,172,000  when
compared  to fiscal  1993.  This  decrease  was the result of a decline in total
revenues of $836,000, along with a gain of $386,000 recognized in fiscal 1993 on
the sale of investments. These unfavorable changes in net income were offset, in
part, by a decrease in general and administrative and management fee expenses of
$49,000 in fiscal 1994.  Revenues  decreased  primarily due to the return to the
Unitholders  of the  Casablanca  prepayment  proceeds  in the fourth  quarter of
fiscal  1993.  In order  to make  this  distribution  payment,  the  Partnership
liquidated a U.S.  Treasury Note  investment and certain  non-participating  MBS
investments in which such proceeds had been invested pending  examination of the
reinvestment alternatives. During fiscal 1993, the Partnership recorded interest
income of approximately $513,000 from the Treasury Note investment.  The decline
of $346,000 in interest  income earned on  non-participating  MBS in fiscal 1994
was primarily attributable to this Casablanca distribution  liquidation as well.
In  addition,  the high  level of  prepayment  activity  prompted  by low market
interest  rates  contributed  to the  decline in interest  income  earned on the
non-participating  MBS in fiscal  1994.  The sale of the  Treasury  Note and MBS
generated the $386,000 gain in fiscal 1993. Management fees decreased by $34,000
in fiscal 1994 due to the decline in the average outstanding  principal balances
of the  Partnership's  investments,  upon which such fees are  partially  based,
mainly as a result of the  distribution of the Casablanca  prepayment  proceeds.
General  and  administrative  expenses  were higher in fiscal 1993 mainly due to
certain  professional fees and cash management fees incurred associated with the
temporary  investment of proceeds and the  exploration of  reinvestment  options
resulting from the Casablanca prepayment.

Inflation

    The  Partnership  completed  its seventh full year of  operations  in fiscal
1996.  The  effects of  inflation  and  changes  in prices on the  Partnership's
operating results to date have not been significant.

    Inflation  in future  periods is likely to cause  increases  in  Partnership
operating  expenses  without a  corresponding  increase in  revenues,  which are
principally derived from fixed interest rates on debt securities.

Item 8.  Financial Statements and Supplementary Data

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

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

    None.


<PAGE>

                                   PART III

Item 10.  Directors and Executive Officers of the Partnership

      Under the Partnership Agreement,  exclusive management  responsibility for
and control over the affairs of the Partnership  rests with the General Partner,
First Insured Mortgage Partners,  L.P., a Delaware limited partnership formed in
February 1987. The day-to-day  operating  responsibility  for the Partnership is
delegated to PWPI by the General Partner.  However,  the General Partner retains
general   responsibility  for  partnership  business  and  oversees  partnership
activities.  The General Partner also supervises the  registration and marketing
of the Units,  approves  all  budgets for the  Partnership  prepared by PWPI and
makes all final  decisions  with respect to the  Partnership's  investments  and
their acquisition and disposition.

      Certain of the officers and directors of the Managing  General  Partner of
the  General  Partner,  First  Insured  Mortgage  Partners,   Inc.,  a  Delaware
corporation  and a  wholly-owned  subsidiary of  PaineWebber,  are also officers
and/or  directors of PWI and PWPI.  Such officers and directors will devote only
so much of their time to the business of the Partnership as in their judgment is
reasonably required.

      The directors of First  Insured  Mortgage  Partners,  Inc. had the primary
responsibility  for  selecting  and  negotiating  investments  on  behalf of the
Partnership after  consultation with the GNMA issuer.  Before any investment was
consummated,  it required  approval by both a majority of the Board of Directors
of First Insured Mortgage Partners,  Inc. and by a majority of the disinterested
directors  of First  Insured  Mortgage  Partners,  Inc. For the purposes of this
section,  "disinterested director" meant any member of the Board of Directors of
First Insured Mortgage Partners,  Inc. who was not an officer or director of the
GNMA issuer.

      (a) and (b) The names and ages of the directors and executive  officers of
the Managing General Partner of the General Partner are as follows:
                                                                    Date elected
  Name                    Office                               Age   to Office
  ----                    ------                               ---   ---------

Bruce J. Rubin           President and Director                37     8/22/96
Terrence E. Fancher      Director                              43     9/10/96
Walter V. Arnold         Senior Vice President and 
                           Chief Financial Officer             49     2/23/87*
James A. Snyder          Senior Vice President                 51     7/6/92
David F. Brooks          First Vice President and 
                           Assistant Treasurer                 54     2/23/87*
Timothy J. Medlock       Vice President and Treasurer          35     2/25/92
Dorothy F. Haughey       Secretary                             70     2/23/87*

*  The date of incorporation of the Managing General Partner.

    (c) There are no other  significant  employees of First  Insured  Mortgage
Partners, Inc. in addition to the directors and officers mentioned above.

    (d) There is no family relationship among any of the foregoing directors and
officers of the  Managing  General  Partner of the General  Partner.  All of the
foregoing  directors  and  officers  have been  elected to serve  until the next
annual meeting of the Managing General Partner.

    (e) A number of the directors and officers of the Managing  General  Partner
hold similar positions in affiliates of the Managing General Partner,  which are
the  corporate  general  partners  of other  real  estate  limited  partnerships
sponsored by PWI. The business  experience of each of the directors and officers
of the Managing General Partner is as follows:


<PAGE>


    Bruce  J.  Rubin  is  President  and  Director  of  the  Managing  General
Partner.  Mr. Rubin was named  President and Chief  Executive  Officer of PWPI
in August 1996. Mr. Rubin joined  PaineWebber Real Estate  Investment  Banking
in November  1995 as a Senior Vice  President.  Prior to joining  PaineWebber,
Mr.  Rubin was  employed  by Kidder,  Peabody and served as  President  for KP
Realty Advisers,  Inc. Prior to his association  with Kidder,  Mr. Rubin was a
Senior Vice  President  and  Director of Direct  Investments  at Smith  Barney
Shearson.  Prior  thereto,  Mr.  Rubin was a First Vice  President  and a real
estate  workout  specialist  at  Shearson  Lehman  Brothers.  Prior to joining
Shearson  Lehman  Brothers in 1989, Mr. Rubin practiced law in the Real Estate
Group at  Willkie  Farr &  Gallagher.  Mr.  Rubin is a  graduate  of  Stanford
University and Stanford Law School.

    Terrence E.  Fancher was  appointed  a Director  of the  Managing  General
Partner in September  1996. Mr. Fancher is the Managing  Director in charge of
PaineWebber's  Real Estate Investment  Banking Group. He joined PaineWebber as
a result  of the  firm's  acquisition  of  Kidder,  Peabody.  Mr.  Fancher  is
responsible  for the origination  and execution of all of  PaineWebber's  REIT
transactions,  advisory assignments for real estate clients and certain of the
firm's real estate debt and principal  activities.  He joined Kidder,  Peabody
in 1985 and,  beginning in 1989, was one of the senior executives  responsible
for  building   Kidder,   Peabody's  real  estate   department.   Mr.  Fancher
previously  worked for a major law firm in New York City.  He has a J.D.  from
Harvard  Law  School,  an M.B.A.  from  Harvard  Graduate  School of  Business
Administration and an A.B. from Harvard College.

    Walter V. Arnold is a Senior Vice President and Chief  Financial  Officer of
the Managing  General  Partner and a Senior Vice  President and Chief  Financial
Officer of PWPI which he joined in 1985.  Mr. Arnold joined PWI in 1983 with the
acquisition  of Rotan Mosle,  Inc.  where he had been First Vice  President  and
Controller  since 1978, and where he continued until joining PWPI. Mr. Arnold is
a Certified Public Accountant licensed in the State of Texas.

    James A. Snyder is a Senior Vice President of the Managing  General  Partner
and a Senior Vice  President of PWPI.  Mr.  Snyder  re-joined  PWPI in July 1992
having  served  previously  as an officer of PWPI from July 1980 to August 1987.
From  January  1991 to July  1992,  Mr.  Snyder  was with the  Resolution  Trust
Corporation,  where he  served as the Vice  President  of Asset  Sales  prior to
re-joining PWPI.  During the period August 1987 to February 1989, Mr. Snyder was
Executive  Vice  President  and Chief  Financial  Officer of Southeast  Regional
Management  Inc.,  a real estate  development  company.  From  February  1989 to
October  1990,  he was  President  of  Kan Am  Investors,  Inc.,  a real  estate
investment company.

    David F. Brooks is a First Vice  President  and  Assistant  Treasurer of the
Managing  General Partner and a First Vice President and Assistant  Treasurer of
PWPI. Mr. Brooks joined PWPI in March 1980. From 1972 to 1980, Mr. Brooks was an
Assistant Treasurer of Property Capital Advisors, Inc. and also, from March 1974
to February  1980,  the  Assistant  Treasurer of Capital for Real Estate,  which
provided real estate investment, asset management and consulting services.

    Timothy J. Medlock is a Vice President and Treasurer of the Managing General
Partner and a Vice President and Treasurer of PWPI which he joined in 1986. From
1986 to August of 1989,  Mr.  Medlock  served as the  Controller of the Managing
General  Partner and PWPI.  From 1983 to 1986, Mr.  Medlock was associated  with
Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate  University in 1983
and received his Masters in Accounting from New York University in 1985.

    Dorothy  F.  Haughey  is  Secretary  of  the  Managing  General  Partner,
Assistant  Secretary of PaineWebber  and Secretary of PWI. Ms. Haughey joined
PaineWebber in 1962.

    (f) None of the directors  and officers  were involved in legal  proceedings
which are  material to an  evaluation  of his or her ability or  integrity  as a
director or officer.

    (g)  Compliance  With  Exchange  Act  Filing  Requirements:  The  Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's  limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial  holders are required by SEC  regulations to furnish the  Partnership
with copies of all Section 16(a) forms they file.

    Based  solely on its review of the copies of such forms  received by it, the
Partnership  believes  that,  during  the year  ended  July 31,  1996 all filing
requirements  applicable to the officers and  directors of the Managing  General
Partner and ten-percent beneficial holders were complied with.
<PAGE>
Item 11.  Executive Compensation

    The  directors  and  officers of the  Managing  General  Partner  receive no
current or proposed remuneration from the Partnership.

    The General Partner is entitled to receive a share of the Partnership's cash
distributions and a share of profits and losses. These items are described under
Item 13.

    The  Partnership  has  paid  cash  distributions  to  the  Unitholders  on a
quarterly basis at a rate of 8.25% per annum on remaining  invested capital from
November 15, 1988 to the present. However, the Partnership's Units of Depositary
Receipts are not actively traded on any organized exchange, and, accordingly, no
accurate price information exists for these Units.  Therefore, a presentation of
historical Unitholder total returns would not be meaningful.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

    (a) The Partnership is a limited  partnership issuing Depositary Units which
represent units of assigned limited partnership interest, not voting securities.
All the  outstanding  stock  of the  Managing  General  Partner  of the  General
Partner, First Insured Mortgage Partners, Inc., is owned by PaineWebber.  PA1988
is a  Virginia  limited  partnership,  the  limited  partners  of which are also
officers of PWPI.  PaineWebber  Depositary  Corporation (the "Corporate  Limited
Partner"),  a Delaware  corporation and an affiliate of the General Partner,  is
the Initial  Limited  Partner.  No Unitholder is known by the Partnership to own
beneficially more than 5% of the outstanding interests of the Partnership.

    (b) The  directors  and  officers  of the  Managing  General  Partner do not
directly own any Units of limited  partnership  interest of the Partnership.  No
director or officer of the Managing General Partner possesses a right to acquire
beneficial   ownership  of  Units  of  limited   partnership   interest  of  the
Partnership.

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

Item 13.  Certain Relationships and Related Transactions

    The General Partner of the Partnership is First Insured  Mortgage  Partners,
L.P. (the "General  Partner"),  a wholly-owned  subsidiary of PaineWebber  Group
Inc.  ("PaineWebber").  The Managing  General  Partner of the General Partner is
First Insured  Mortgage  Partners,  Inc.,  (the  "Managing  General  Partner") a
wholly-owned  subsidiary of PaineWebber.  Certain  officers and directors of the
Managing  General  Partner are also  officers  and/or  directors of  PaineWebber
Properties  Incorporated  ("PWPI").  Properties Associates 1988, L.P. ("PA1988")
and  PaineWebber  Incorporated  ("PWI") are the limited  partners of the General
Partner.  PA1988 is a Virginia limited  partnership in which certain officers of
PWPI are the  individual  limited  partners.  Subject  to the  Managing  General
Partner's overall authority, the business of the Partnership is managed by PWPI,
which is a  wholly-owned  subsidiary  of PWI.  The  General  Partner  and  other
PaineWebber  affiliates  will receive fees and  compensation,  determined  on an
agreed-upon  basis, in consideration of various services performed in connection
with  the  sale  of the  Units,  the  management  of  the  Partnership  and  the
acquisition, management, financing and disposition of Partnership investments.

    The  Partnership  entered  into a Sales  Agreement  with PWI under which PWI
acted as sales agent for the offering of Units.  In connection  with the sale of
Units,  PWI  was  to be  paid  sales  commissions  of up to 6% of  the  offering
proceeds. Sales commissions paid to PWI aggregated $3,278,000 through the end of
the offering period.

    Origination  fees were  payable  directly  to the  General  Partner  and its
affiliates by project  owners in  recognition  of the  participation  feature of
their  Participating  Insured  Mortgage  Loans in an  amount  equal to 2% of the
principal balance of each Participating Insured Mortgage Loan.

    In  connection  with the  acquisition  of mortgage  securities,  the General
Partner and its affiliates were to receive  acquisition fees in an amount not to
exceed 1.5% of the gross offering  proceeds for services  rendered in connection
with the investment by the Partnership in mortgage securities.  Acquisition fees
of  $827,000  were  paid  by the  Partnership  to the  General  Partner  and its
affiliates.   The  General   Partner  and  its   affiliates   also   received  a
non-accountable  acquisition  expense  allowance  of 1.5% of the Gross  Offering
Proceeds.  Acquisition expenses in excess of 1.5% of the Gross Offering Proceeds
were  to be  paid  by the  General  Partner.  Acquisition  expenses  aggregating
$827,000 were paid to the General Partner and its affiliates.

    For  services  rendered in managing  the  business of the  Partnership,  the
Partnership shall pay the General Partner and its affiliates an Asset Management
Fee  equal to  0.75%  per  annum of the  outstanding  principal  balance  of the
mortgage  securities of the Partnership.  Asset management fees of $184,000 were
earned by the  General  Partner and its  affiliates  for the year ended July 31,
1996. PWPI also furnishes  additional asset management and advisory  services to
the Partnership and receives  additional  asset  management fees as compensation
for such  services.  The  additional  management  fees  paid by the  Partnership
totalled $38,000 for the year ended July 31, 1996.
<PAGE>
    Generally, all distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 97% to the Unitholders,  1% to the General
Partner and 2% to PWPI as the additional asset management fee referred to above.
Capital distributions  (including distributions of principal repayments) will be
distributed 100% to the Unitholders until they have received the return of their
capital  contributions  and then to the General  Partner until it has received a
return of its capital contribution.  Thereafter,  capital distributions shall be
distributed in varying  proportions to the Unitholders and General  Partner,  as
specified in the Partnership Agreement.

    Pursuant to the terms of the Partnership  Agreement,  taxable income or loss
of the Partnership  will be allocated 98.98% to the Unitholders and 1.02% to the
General Partner. Income or loss arising from a sale or refinancing of investment
properties  will  be  allocated  to the  Unitholders  and  the  General  Partner
generally as residual proceeds are distributed.

    An  affiliate  of the  General  Partner  performs  certain  accounting,  tax
preparation, securities law compliance and investor communications and relations
services  for the  Partnership.  The total costs  incurred by this  affiliate in
providing  such services are allocated  among  several  entities,  including the
Partnership.  Included in general and administrative expenses for the year ended
July 31, 1996 is $88,000,  representing  reimbursements to this affiliate of the
General Partner for providing such services to the Partnership.

    The  Partnership  uses  the  services  of  Mitchell  Hutchins  Institutional
Investors,  Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a  subsidiary  of  Mitchell  Hutchins  Asset  Management,  Inc.,  an
independently operated subsidiary of PaineWebber.  Mitchell Hutchins earned fees
of $18,000  (included in general and  administrative  expenses) for managing the
Partnership's  cash  assets for the year ended July 31,  1996.  Fees  charged by
Mitchell  Hutchins are based on a percentage  of invested  cash  reserves  which
varies  based on the total  amount of  invested  cash  which  Mitchell  Hutchins
manages on behalf of PWPI.


<PAGE>







                                    PART IV


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

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

        (1) and (2)    Financial Statements and Schedules:

             The  response to this portion of Item 14 is submitted as a separate
             Section  of this  Report.  See Index to  Financial  Statements  and
             Financial Statement Schedules at page F-1.


        (3)  Exhibits:

             The exhibits listed on the  accompanying  index to exhibits at Page
             IV-3 are filed as part of this Report.


   (b)  No  reports on Form 8-K were  filed  during  the last  quarter of fiscal
        1996.


   (c)  Exhibits

             See (a)(3) above.


   (d)  Financial Statement Schedules

             The  response to this portion of Item 14 is submitted as a separate
             Section  of this  Report.  See Index to  Financial  Statements  and
             Financial Statement Schedules at page F-1.






<PAGE>


                                  SIGNATURES


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

                  PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.


                              By:  First Insured Mortgage Partners, Inc.
                                   Managing General Partner



                              By:/s/ Bruce J. Rubin
                                     Bruce J. Rubin
                                     President


                              By /s/ Walter V. Arnold
                                     Walter V. Arnold
                                     Senior Vice President and
                                     Chief Financial Officer



Dated:  October 25, 1996

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  Partnership in
the capacity and on the dates indicated.


By /s/ Bruce J. Rubin                    Date:  October 25, 1996
   ---------------------                        ----------------
   Bruce J. Rubin
   Director



By:/s/ Terrence E. Fancher               Date:  October 25, 1996
   ----------------------                       ----------------
   Terrence E. Fancher
   Director



<PAGE>


                          ANNUAL REPORT ON FORM 10-K
                                Item 14(a)(3)

               PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.

                              INDEX TO EXHIBITS



                                                         Page  Number   in   the
                                                         Report    or      Other
 Exhibit No.         Description of Document             Reference
---------------     -------------------------------      ----------------------

(3) and (4)         Prospectus  of the  Registrant       Filed       with    the
                    dated  April  23,   1987,   as       Commission pursuant  to
                    supplemented.                        Rule      424(c)    and
                                                         incorporated herein  by
                                                         reference.

(10)                Material contracts  previously       Filed     with      the
                    filed    as     exhibits    to       Commission pursuant  to
                    registration   statements  and       Section 13 or  15(d) of
                    amendments   thereto   of  the       the Securities Exchange
                    registrant  together  with all       Act  of    1934     and
                    such   contracts    filed   as       incorporated herein  by
                    exhibits of  previously  filed       reference.
                    Forms 8-K and  Forms  10-K are
                    hereby  incorporated herein by
                    reference.

(13)                Annual Reports to Unitholders      No Annual  Report for the
                                                       year ended July 31,  1996
                                                       has  been   sent  to  the
                                                       Unitholders.   An  Annual
                                                       Report  will  be  sent to
                                                       the           Unitholders
                                                       subsequent     to    this
                                                       filing.

(27)                Financial data schedule            Filed  as the  last  page
                                                       of    EDGAR    submission
                                                       following  the  Financial
                                                       Statements  and Financial
                                                       Statement        Schedule
                                                       required by Item 14.


<PAGE>


                          ANNUAL REPORT ON FORM 10-K
                       Item 14(a) (1) and (2) and 14(d)

               PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.

                      INDEX TO FINANCIAL STATEMENTS AND
                        FINANCIAL STATEMENT SCHEDULES



                                                                    Reference

PaineWebber Insured Mortgage Partners 1-B, L.P.:

  Report of independent auditors                                        F-2

  Balance sheets as of July 31, 1996 and 1995                           F-3

  Statements of income for the years ended July 31, 1996, 
     1995 and 1994                                                      F-4

  Statements  of changes in  partners'  capital  for the years
     ended July 31, 1996, 1995 and 1994                                 F-5

  Statements of cash flows for the years ended July 31, 1996, 
     1995 and 1994                                                      F-6

  Notes to financial statements                                         F-7

  Schedule IV - Investments in Mortgage Loans on Real Estate            F-14


  Other  schedules  have been  omitted  since the  required  information  is not
present or not  present  in amounts  sufficient  to  require  submission  of the
schedule,  or because the  information  required  is  included in the  financial
statements, including the notes thereto.


<PAGE>




                        REPORT OF INDEPENDENT AUDITORS






The Partners
PaineWebber Insured Mortgage Partners 1-B, L.P.:

    We have  audited the  accompanying  balance  sheets of  PaineWebber  Insured
Mortgage  Partners  1-B,  L.P.  as of July 31,  1996 and 1995,  and the  related
statements of income,  changes in partners' capital,  and cash flows for each of
the three years in the period ended July 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 Partnership'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 financial position of PaineWebber Insured Mortgage
Partners 1-B, L.P. at July 31, 1996 and 1995,  and the results of its operations
and its cash  flows for each of the three  years in the  period  ended  July 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.

    As discussed in Note 2 to the financial statements, in 1994, the Partnership
adopted  Statement of Financial  Accounting  Standards No. 115,  "Accounting for
Certain Investments in Debt and Equity Securities."







                                ERNST & YOUNG LLP

Boston, Massachusetts
October 23, 1996


<PAGE>


               PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.

                                BALANCE SHEETS
                            July 31, 1996 and 1995
                   (In thousands, except for per Unit data)

                                    ASSETS

                                                        1996             1995
                                                        ----             ----
Investments in Debt Securities:
   Mortgage-Backed Securities available for sale      $  6,280       $  7,521
   Participating Insured Mortgage Loans available
      for sale                                          18,539         18,639
                                                        24,819         26,160

Cash and cash equivalents                                3,637          3,274
Interest and other receivables                             172            182
Deferred expenses, net of accumulated
  amortization of $535 ($451 in 1995)                      615            699
                                                      --------       --------
                                                      $ 29,243       $ 30,315
                                                      ========       ========

                         LIABILITIES AND PARTNERS' CAPITAL


Accounts payable - affiliates                         $     30       $     34
Accounts payable and accrued expenses                       51             36
                                                      --------       --------
      Total liabilities                                     81             70

Partners' capital:
   General Partner:
     Capital contributions                                   1              1
     Cumulative net income                                 221            202
     Cumulative cash distributions                        (221)          (202)

   Corporate  Limited Partner and Unitholder  
      Interests ($100 per Unit,  
      551,604 Units issued):
     Capital contributions, net of offering costs       50,779         50,779
     Cumulative net income                              21,466         19,679
     Net unrealized holding gain on debt securities        715            783
     Cumulative cash distributions                     (43,799)       (40,997)
                                                      --------       --------
      Total partners' capital                           29,162         30,245
                                                      --------       --------
                                                      $ 29,243       $ 30,315
                                                      ========       ========











                           See accompanying notes.


<PAGE>


                PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.

                             STATEMENTS OF INCOME
               For the years ended July 31, 1996, 1995 and 1994
                     (In thousands, except per Unit data)


                                               1996        1995       1994
                                               ----        ----       ----
Revenues:
   Interest income - Debt Securities       $  2,139    $  2,233     $ 2,375
   Interest income - Money Market               192         177          72
                                           --------    --------     -------
                                              2,331       2,410       2,447

Expenses:
   General and administrative                   219         195         217
   Management fees                              222         233         260
   Amortization expense                          84          84          85
                                           --------    --------     -------
                                                525         512         562
                                           --------    --------     -------
 
Net income                                 $  1,806    $  1,898     $ 1,885
                                           ========    ========     =======


Net income per Unit of Depositary Receipt    $  3.24     $  3.41     $  3.38
                                             =======     =======     =======

Cash distributions per Unit 
  of Depositary Receipt                      $  5.08     $  5.22     $  5.34
                                             =======     =======     =======



The above net income and cash  distributions per Unit of Depositary  Receipt are
based upon the 551,604 Units outstanding during each year.






















                           See accompanying notes.


<PAGE>


                 PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                For the years ended July 31, 1996, 1995 and 1994
                                 (In thousands)


                                                    Corporate
                                                    Limited
                                        General     Partner and
                                        Partner     Unitholders    Total
                                        -------     -----------    -----

Balance at July 31, 1993                 $    7     $ 31,539    $ 31,546

Adjustment to reflect change 
   in accounting principle (Note 2)           -          359         359

Net income                                   19         1,866       1,885

Cash distributions                          (25)       (2,946)     (2,971)
                                          -----     ---------     -------

Balance at July 31, 1994                      1        30,818      30,819

Net unrealized holding gain on
   debt securities                            -           424         424

Net income                                   19         1,879       1,898

Cash distributions                          (19)       (2,877)     (2,896)
                                         ------     ---------    --------

Balance at July 31, 1995                      1        30,244      30,245

Net unrealized holding loss on
   debt securities                            -           (68)        (68)

Net income                                   19         1,787       1,806

Cash distributions                          (19)       (2,802)     (2,821)
                                         ------     ---------    --------

Balance at July 31, 1996                 $    1      $ 29,161    $ 29,162
                                         ======      ========    ========












                           See accompanying notes.

<PAGE>


               PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.

                           STATEMENTS OF CASH FLOWS

                For the years ended July 31, 1996, 1995 and 1994
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

                                                 1996       1995         1994
                                                 ----       ----         ----
Cash flows from operating activities:
  Net income                                   $ 1,806     $ 1,898     $1,885
  Adjustments to reconcile net income to net
   cash provided by operating activities:
     Amortization expense                           84          84         85
     Amortization of discount/premium on
         mortgage securities                        17          17         17
     Changes in assets and liabilities:
      Interest and other receivables                10           7         25
      Accounts payable - affiliates                 (4)         (2)       (21)
      Accounts payable and accrued expenses         15           3         (3)
                                               --------   --------   --------
         Total adjustments                         122         109        103
                                               --------   --------   --------
             Net cash provided by 
              operating activities               1,928       2,007      1,988
                                               -------    --------   --------

Cash flows from investing activities:
  Principal collections on Mortgage-Backed
    Securities                                    1,185      1,049      3,285
  Principal collections on Participating 
    Insured Mortgage Loans                           71         64         59
                                               --------   --------   --------
         Net cash provided by 
           investing activities                  1,256       1,113      3,344
                                               --------   --------   --------

Cash flows from financing activities:
  Distributions to Unitholders and partners     (2,821)     (2,896)    (2,971)
                                               -------    --------   --------
         Net cash used in financing 
           activities                           (2,821)     (2,896)    (2,971)
                                               --------   --------   --------

Net increase in cash and cash equivalents          363         224      2,361

Cash and cash equivalents, beginning of year     3,274       3,050        689
                                               -------    --------    -------

Cash and cash equivalents, end of year        $  3,637     $ 3,274    $ 3,050
                                              ========     =======    =======














                           See accompanying notes.


<PAGE>


               PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
                        Notes to Financial Statements


1.  Organization

        PaineWebber  Insured  Mortgage  Partners 1-B,  L.P., a Delaware  limited
    partnership,  was  organized  for the purpose of investing in a  diversified
    portfolio of federally insured or coinsured  mortgage loans  ("Participating
    Insured  Mortgage  Loans")  through the purchase of certain  mortgage-backed
    securities  ("GNMA  securities").  The  Partnership  has  also  invested  in
    non-participating mortgage-backed securities ("MBS") backed by single-family
    or  multi-family  mortgage loans issued or originated in connection with the
    housing programs of the Government National Mortgage  Association  ("GNMA").
    On May 16, 1988, the Partnership  commenced the sale of Limited  Partnership
    Interests (the "Units"), which are evidenced by Depositary Receipts (at $100
    per Unit).

        The  Partnership's  initial  capital  was $3,000,  representing  capital
    contributions  of $1,000 by the General  Partner and $2,000 by the Corporate
    Limited Partner (PaineWebber Depositary Corporation). The Partnership issued
    551,604  Units  from  May 16,  1988  to May 1,  1989,  representing  capital
    contributions  of $55,160,425.  The Units represent an interest  assigned to
    persons who purchased Units ("Unitholders") from the initial limited partner
    of the Partnership pursuant to the Partnership Agreement,  which interest is
    the equivalent of a limited partnership  interest.  Although Unitholders are
    not limited partners of the Partnership, as Unitholders they are entitled to
    the same  economic  benefits,  including  the same share of  income,  gains,
    losses, deductions, credits and cash distributions,  as if they were limited
    partners holding the number of limited partnership  interests represented by
    their Units.

2.  Summary of Significant Accounting Policies

         The accompanying financial statements have been prepared on the accrual
    basis  of  accounting  in  accordance  with  generally  accepted  accounting
    principles which requires  management to make estimates and assumptions that
    affect the reported  amounts of assets and  liabilities  and  disclosures of
    contingent  assets and liabilities as of July 31, 1996 and 1995 and revenues
    and  expenses for each of the three years in the period ended July 31, 1996.
    Actual results could differ from the estimates and assumptions used.

        Prior to July 31, 1994, the Partnership's investments in debt securities
    were carried at amortized cost. As of July 31, 1994, the Partnership elected
    application  of  Statement  of  Financial   Accounting  Standards  No.  115,
    "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
    115).  Under the provisions of SFAS No. 115,  investments in debt and equity
    securities are classified as either trading securities, held-to-maturity, or
    available for sale based on  management's  intentions  as to their  ultimate
    disposition.  The  Partnership's  debt  securities  have been  classified as
    available for sale as of July 31, 1996 and 1995 and are stated at fair value
    on the  accompanying  balance sheets at those dates. In accordance with SFAS
    No. 115,  the net  unrealized  holding  gain or loss as of the date that the
    statement  was first applied was recorded as an adjustment of the balance of
    a separate component of equity. Future unrealized holding gains or losses on
    securities  classified as available for sale are reported as a net amount in
    the separate component of equity until realized.  Information  regarding the
    fair value of the Partnership's  debt securities is disclosed in Notes 4 and
    5. The related  discounts  or premiums for these GNMA  securities  are being
    amortized using the straight-line  method,  which approximates the effective
    interest method, over a period of 15 years.

        In  addition to the debt  securities  which are carried at fair value on
    the Partnership's  balance sheets,  the cash and cash equivalents,  accounts
    receivable,   accounts  payable  and  accrued  expenses   appearing  on  the
    accompanying balance sheets represent financial  instruments for purposes of
    Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
    Value of Financial  Instruments."  The  carrying  amount of these assets and
    liabilities  approximates  their fair  value as of July 31,  1996 due to the
    short-term maturities of these instruments.

        Deferred  expenses consist of legal fees incurred in connection with the
    organization  of  the  Partnership  and  acquisition  fees  and  acquisition
    expenses paid to the General Partner and its affiliates as compensation  for
    analyzing,   structuring  and  negotiating  the  Partnership's  investments.
    Organizational costs have been amortized using the straight-line method over
    a five-year period.  Acquisition fees and expenses are being amortized using
    the  straight-line  method over 15 years (the expected holding period of the
    investments).

        For purposes of reporting  cash flows,  the  Partnership  considers  all
    highly liquid investments with original  maturities of 90 days or less to be
    cash equivalents.  The Partnership's  cash reserves and excess cash flow are
    generally  invested  in  money  market  instruments,  principally  overnight
    investment-grade commercial paper.

        No provision  for income taxes has been made as the  liability  for such
    taxes is that of the partners and Unitholders rather than the Partnership.

3.  The Partnership Agreement and Related Party Transactions

         The  General  Partner  of the  Partnership  is First  Insured  Mortgage
    Partners,  L.P.  (the  "General  Partner"),  a  wholly-owned  subsidiary  of
    PaineWebber Group Inc. ("PaineWebber").  The Managing General Partner of the
    General  Partner is First Insured  Mortgage  Partners,  Inc., (the "Managing
    General Partner") a wholly-owned subsidiary of PaineWebber. Certain officers
    and  directors  of the Managing  General  Partner are also  officers  and/or
    directors  of  PaineWebber  Properties  Incorporated  ("PWPI").   Properties
    Associates 1988, L.P.  ("PA1988") and PaineWebber  Incorporated  ("PWI") are
    the limited  partners of the General  Partner.  PA1988 is a Virginia limited
    partnership  in which certain  officers of PWPI are the  individual  limited
    partners.  Subject to the Managing General Partner's overall authority,  the
    business  of the  Partnership  is managed by PWPI,  which is a  wholly-owned
    subsidiary of PWI. The General Partner and other PaineWebber affiliates will
    receive  fees and  compensation,  determined  on an  agreed-upon  basis,  in
    consideration of various  services  performed in connection with the sale of
    the  Units,   the  management  of  the  Partnership  and  the   acquisition,
    management, financing and disposition of Partnership investments.

        The Partnership  entered into a Sales Agreement with PWI under which PWI
    acted as sales agent for the offering of Units.  In connection with the sale
    of Units,  PWI was to be paid sales  commissions of up to 6% of the offering
    proceeds.  Sales commissions paid to PWI aggregated  $3,278,000  through the
    end of the offering period.

        Origination  fees were payable  directly to the General  Partner and its
    affiliates by project owners in recognition of the participation  feature of
    their  Participating  Insured Mortgage Loans in an amount equal to 2% of the
    principal balance of each Participating Insured Mortgage Loan.

        In connection with the acquisition of mortgage  securities,  the General
    Partner and its affiliates were to receive acquisition fees in an amount not
    to exceed  1.5% of the gross  offering  proceeds  for  services  rendered in
    connection  with the investment by the  Partnership in mortgage  securities.
    Acquisition  fees of $827,000  were paid by the  Partnership  to the General
    Partner and its  affiliates.  The General  Partner and its  affiliates  also
    received a  non-accountable  acquisition  expense  allowance  of 1.5% of the
    Gross Offering Proceeds. Acquisition expenses in excess of 1.5% of the Gross
    Offering  Proceeds  were  to be  paid by the  General  Partner.  Acquisition
    expenses  aggregating  $827,000  were paid to the  General  Partner  and its
    affiliates.

        For services  rendered in managing the business of the Partnership,  the
    Partnership  shall  pay the  General  Partner  and its  affiliates  an Asset
    Management Fee equal to 0.75% per annum of the outstanding principal balance
    of the mortgage  securities of the  Partnership.  Asset  management  fees of
    $184,000,  $193,000 and $209,000 were earned by the General  Partner and its
    affiliates for the years ended July 31, 1996,  1995 and 1994,  respectively.
    PWPI also furnishes additional asset management and advisory services to the
    Partnership and receives  additional  asset  management fees as compensation
    for such services.  The additional  management  fees paid by the Partnership
    totalled  $38,000,  $40,000 and  $51,000 for the years ended July 31,  1996,
    1995 and 1994, respectively.  Accounts payable - affiliates at July 31, 1996
    and 1995 includes  $30,000 and $31,000,  respectively,  of  management  fees
    payable to the General Partner and its affiliates.

        Generally,  all  distributable  cash,  as defined,  for each fiscal year
    shall be distributed quarterly in the ratio of 97% to the Unitholders, 1% to
    the General  Partner and 2% to PWPI as the additional  asset  management fee
    referred to above.  Accounts  payable - affiliates at July 31, 1995 includes
    $3,000  of   distributions   payable  to  the   General   Partner.   Capital
    distributions  (including  distributions  of principal  repayments)  will be
    distributed  100% to the Unitholders  until they have received the return of
    their  capital  contributions  and then to the General  Partner until it has
    received  a  return  of  its  capital  contribution.   Thereafter,   capital
    distributions shall be distributed in varying proportions to the Unitholders
    and General Partner, as specified in the Partnership Agreement.

        Pursuant to the terms of the  Partnership  Agreement,  taxable income or
    tax loss of the Partnership  will be allocated 98.98% to the Unitholders and
    1.02%  to the  General  Partner.  Income  or  loss  arising  from a sale  or
    refinancing of investment  properties  will be allocated to the  Unitholders
    and the General  Partner  generally as residual  proceeds  are  distributed.
    Allocations  of income or loss for  financial  reporting  purposes have been
    made in conformity with  allocations of taxable income or tax loss set forth
    in the Partnership Agreement.

        Included in general and administrative expenses for the years ended July
    31, 1996,  1995 and 1994 is $88,000,  $100,000 and  $105,000,  respectively,
    representing  reimbursements  to an  affiliate  of the  General  Partner for
    providing certain financial,  accounting and investor communication services
    to the Partnership.

        The  Partnership  uses the services of Mitchell  Hutchins  Institutional
    Investors,  Inc.  ("Mitchell  Hutchins")  for the  managing of cash  assets.
    Mitchell  Hutchins is a subsidiary of Mitchell  Hutchins  Asset  Management,
    Inc., an independently operated subsidiary of PaineWebber. Mitchell Hutchins
    earned  fees of  $18,000,  $14,000  and  $31,000  (included  in general  and
    administrative  expenses) for managing the Partnership's  cash assets during
    fiscal 1996, 1995 and 1994, respectively.

4.      Mortgage-Backed Securities

        At July  31,  1996  and  1995  the  Partnership  held  non-participating
    mortgage-backed  securities  ("MBS") backed by single-family or multi-family
    mortgage loans issued or originated in connection with the housing  programs
    of the Government National Mortgage Association ("GNMA"),  and guaranteed by
    GNMA, as follows (in thousands):

                            July 31, 1996                   July 31, 1995
                    ---------------------------      ------------------------
                     Estimated                        Estimated
                     Market      Face   Amortized     Market   Face  Amortized
     Description     Value       Value    Cost        Value    Value    Cost
     -----------     -----       -----    ----        -----    -----    ----

    9.5% GNMA Pool  $ 2,228    $ 2,071  $ 2,055       $2,575 $ 2,427  $ 2,407

    9.0% GNMA Pool      362        347      358          533     501      513

    8.0% GNMA Pool    3,363      3,326    3,468        4,050   3,968    4,124

    7.5% GNMA Pool      327        330      328          363     363      360
                    -------    -------  -------       ------  ------  -------
                    $ 6,280    $ 6,074  $ 6,209       $7,521  $7,259  $ 7,404
                    =======    =======  =======       ======  ======  =======
        As discussed further in Note 2, the Partnership's investments in MBS are
    carried at fair value as of July 31, 1996 and 1995.  Investments  in MBS are
    valued  based  on  quoted  market  prices.  The  amortized  cost  of the MBS
    represents the face value of the  securities  net of unamortized  premium or
    discount.  Investments in non-participating MBS were limited to no more than
    30% of the original net offering proceeds per the terms of the Partnership's
    offering prospectus.

        The 9.5% MBS,  which were  purchased at a discount on December 14, 1988,
    carry a coupon  interest  rate of 9.5% per  annum  and  include  loans  with
    scheduled  maturities  between  June 2009 and December  2009.  The 9.0% MBS,
    which were  purchased  at a premium on  November  16,  1989,  carry a coupon
    interest rate of 9.0% per annum and include loans with scheduled  maturities
    between June 2001 and September  2002. The 8.0% MBS, which were purchased at
    a premium on July 30, 1992,  carry a coupon  interest rate of 8.0% per annum
    and include  loans with  scheduled  maturities  in June 2022.  The 7.5% MBS,
    which were  purchased  at a discount  on October  30,  1992,  carry a coupon
    interest rate of 7.50% per annum and include loans with scheduled maturities
    in March  2022.  The  loans  included  in these  GNMA pool  programs  may be
    prepaid, without penalty, at any time.

5.  Investments in Participating Insured Mortgage Loans

        Participating   Insured   Mortgage  Loans  secured  by  GNMA  securities
    outstanding  at July 31, 1996 and 1995 are  comprised of the  following  (in
    thousands):

                                       July 31, 1996         July 31, 1995
                                   --------------------  ------------------
    GNMA                           Estimated              Estimated
    Certificate          Interest  Market     Amortized   Market    Amortized
    Number    Property   Rate      Value      Cost        Value     Cost
    ------    --------   ----      -----      ----        -----     ----

    279985  Quarter Mill  8.50%   $ 7,441     $ 7,198     $ 7,492   $ 7,228
    279119  Emerald Cove  8.75%    11,098      10,697      11,147    10,745
                                  -------     -------     -------   -------
                                  $18,539     $17,895     $18,639   $17,973
                                  =======     =======     =======   =======

        As  discussed  further  in  Note 2,  the  Partnership's  investments  in
    Participating  Insured  Mortgage  Loans are carried at fair value as of July
    31, 1996 and 1995.  Investments in Participating Insured Mortgage Loans, for
    which quoted market prices are not  available,  are valued by an independent
    pricing  service  which  determines  the  valuations  based on the  reported
    financial  results of the  underlying  properties and a comparison of recent
    market trades of securities  with similar  characteristics.  Descriptions of
    the properties  financed by the Partnership's  loans and the loan agreements
    themselves are summarized below:

         Quarter Mill Apartments

         The  Partnership  acquired a Participating  Insured  Mortgage Loan with
    respect to a 266-unit  apartment  complex  known as Quarter Mill  Apartments
    located in Richmond, Virginia (the "Virginia Project").  Construction of the
    Virginia Project was completed in November of 1990.  Initial closing of this
    Participating  Insured  Mortgage  loan took  place on August  2,  1989.  The
    project  owner  is  Amurcon   Corporation.   The  Base   Component  of  this
    Participating  Insured  Mortgage Loan is coinsured by FHA and represented by
    GNMA  Securities  with an  initial  face  value of  $7,316,600,  which  GNMA
    Securities  bore interest at the rate of 10.25% during  construction  of the
    Virginia  Project  and  8.50%   thereafter.   Effective  May  1,  1991,  the
    construction loan was converted to a permanent loan with a principal balance
    of  $6,525,000.  On  June  21,  1991  an  additional  $791,600  was  funded,
    completing the Partnership's  investment of $7,316,600.  Monthly payments of
    principal  and  interest  totalling  approximately  $53,528  are due through
    maturity,  on October 15, 2031.  Scheduled principal  repayments of $118,421
    have been received through July 31, 1996.

         Emerald Cove Apartments

         The  Partnership  acquired a Participating  Insured  Mortgage Loan with
    respect to a 276-unit  apartment complex known as Emerald Cove Apartments in
    Charlotte, North Carolina (the "North Carolina Project"). Initial closing of
    this Participating Insured Mortgage Loan took place on October 16, 1989. The
    project  owners are Ronald Curry and Ralph  Abercia.  The Base  Component of
    this Participating Insured Mortgage Loan is coinsured by FHA and represented
    by GNMA  Securities  with an initial face value of  $10,783,900  at closing,
    which  GNMA   Securities   bore  interest  at  the  rate  of  10.25%  during
    construction  of the North  Carolina  Project and 8.75%  thereafter.  During
    fiscal  1992,  the  Partnership  funded  its  remaining  commitment  on  the
    investment of  approximately  $1,184,000  and,  effective  May 1, 1992,  the
    investment  was  converted to a permanent  loan with a principal  balance of
    $10,776,500.  The Partnership  paid a premium of $107,840 to the GNMA issuer
    to obtain the original  loan  commitment  due to the fact that the permanent
    loan  interest rate was higher than  comparable  market rates at the time of
    the initial  closing.  The premium is being  amortized on the  straight-line
    method,  which  approximates the effective  interest method,  over 15 years.
    Monthly payments of principal and interest totalling  approximately  $81,105
    are due through maturity, on August 15, 2031. Scheduled principal repayments
    of $151,513 have been received through July 31, 1996.

    Provisions  Applicable to Both of the Participating Insured Mortgage Loans
of the Partnership:

         The closing of the Participating  Insured Mortgage Loans was subject to
    conditions  with respect to  satisfactory  completion of  construction.  The
    Partnership  purchased the GNMA  Securities  representing  each of the above
    Participating Insured Mortgage Loans with proceeds raised through its public
    offering from an FHA-approved mortgagee/coinsurer and GNMA issuer/servicer.

         As required by the Partnership's investment criteria, the Participating
    Insured Mortgage Loans may not be repaid by the applicable project owner, in
    whole  or in part,  for a  period  of five  years  from the date of  initial
    endorsement  of  each  such  Loan  for FHA  Insurance  (unless  required  or
    permitted  by HUD or as a result  of the  partial  or total  destruction  or
    condemnation of the Project).  The Participating  Insured Mortgage Loans may
    thereafter  be prepaid  at  various  premiums  which  decline  over the next
    four-to-five-year  period.  After nine or ten years from the date of initial
    endorsement of a Participating Insured Mortgage Loan for FHA Insurance, such
    loan may be prepaid  without  premium.  Although the permanent phase of each
    such  Participating  Insured Mortgage Loan will have a term of approximately
    40  years,  payable  in  substantially  equal  installments   consisting  of
    principal  and interest over such term,  each loan provides the  Partnership
    with the option to require such loan be repaid in full  beginning  not later
    than the  twelfth  anniversary  of its date of initial  endorsement  for FHA
    Insurance.

         The Contingent  Component of the  Participating  Insured Mortgage Loans
    provides  for the  payment of  Contingent  Interest  equal to 25% of the Net
    Project Cash Flow, if any, (30% for the Virginia Project) and 25% of the Net
    Project Residuals,  if any, derived from the applicable  Project;  provided,
    however, that to the extent the applicable Project fails to generate certain
    minimum amounts of Net Project Cash Flow, the share of Net Project Residuals
    to which the  Partnership  is  entitled  may be  increased  to up to 50%. In
    addition to the deduction for the outstanding principal balance of the first
    mortgage relating to each  Participating  Insured Mortgage Loan, Net Project
    Residuals shall also be reduced by certain  FHA-approved  development  costs
    and by certain amounts advanced by the applicable project owner from its own
    funds  to  fund  operating  deficits  or  provide  working  capital  for the
    applicable  Project.  The  obligation of a project  owner to pay  Contingent
    Interest will be evidenced by a Subordinated Promissory Note of such project
    owner which will in turn be secured by a second  mortgage on the  applicable
    Project. The obligations of each project owner to pay Contingent Interest is
    or will be secured by a lien on all of the interests in such project  owner.
    Neither FHA  Insurance nor any GNMA Security will provide for the payment of
    Contingent Interest with respect to any Participating Insured Mortgage Loan.
    No  Contingent  Interest  has been earned with  respect to the Emerald  Cove
    Participating  Insured  Mortgage Loan to date.  During fiscal 1996 and 1995,
    the Partnership received  approximately  $46,000 and $37,000,  respectively,
    representing its 30% share of the surplus cash generated by the Quarter Mill
    property.  Such amounts are included in interest income on the  accompanying
    1996 and 1995 statements of income.  No amounts of Contingent  Interest were
    received prior to fiscal 1995.

         The future  performance of the Partnership  will depend,  in part, upon
    future interest rate fluctuations,  which cannot be predicted.  In addition,
    the  Partnership's  overall  operating  performance is subject to all of the
    risks normally associated with real estate investments,  including: reliance
    on the  owners'  operating  skills,  including  their  ability  to  maintain
    occupancy  levels,  meet  operating  expenses,  maintain  the  property  and
    maintain  adequate  insurance  coverage;  adverse  changes in general and/or
    local economic conditions;  changes in governmental regulations, real estate
    zoning laws, or tax laws; and other circumstances over which the Partnership
    may have little or no control.

6.  Contingencies

         In November  1994, a series of purported  class  actions (the "New York
     Limited  Partnership  Actions")  were filed in the United  States  District
     Court  for  the  Southern  District  of  New  York  concerning  PaineWebber
     Incorporated's   sale  and  sponsorship  of  various  limited   partnership
     investments,  including those offered by the Partnership. The lawsuits were
     brought  against  PaineWebber  Incorporated  and Paine  Webber  Group  Inc.
     (together   "PaineWebber"),   among  others,   by  allegedly   dissatisfied
     partnership  investors.  In March 1995, after the actions were consolidated
     under the  title In re  PaineWebber  Limited  Partnership  Litigation,  the
     plaintiffs  amended their  complaint to assert claims  against a variety of
     other  defendants,  including  First Insured  Mortgage  Partners,  Inc. and
     Properties  Associates 1988  ("PA1988"),  which are the General Partners of
     the Partnership  and affiliates of PaineWebber.  On May 30, 1995, the court
     certified class action treatment of the claims asserted in the litigation.

         The  amended  complaint  in the New York  Limited  Partnership  Actions
     alleged  that,  in  connection  with the sale of interests  in  PaineWebber
     Insured Mortgage  Partners 1-B, L.P.,  PaineWebber,  First Insured Mortgage
     Partners,  Inc. and PA1988 (1) failed to provide adequate disclosure of the
     risks  involved;  (2) made false and misleading  representations  about the
     safety of the investments and the  Partnership's  anticipated  performance;
     and (3) marketed the  Partnership  to investors  for whom such  investments
     were not suitable.  The plaintiffs,  who purported to be suing on behalf of
     all persons who invested in  PaineWebber  Insured  Mortgage  Partners  1-B,
     L.P.,  also alleged that following the sale of the  partnership  interests,
     PaineWebber,   First   Insured   Mortgage   Partners,   Inc.   and   PA1988
     misrepresented  financial  information  about  the  Partnerships  value and
     performance. The amended complaint alleged that PaineWebber,  First Insured
     Mortgage  Partners,  Inc. and PA1988 violated the Racketeer  Influenced and
     Corrupt  Organizations  Act ("RICO") and the federal  securities  laws. The
     plaintiffs sought unspecified damages, including reimbursement for all sums
     invested by them in the  partnerships,  as well as disgorgement of all fees
     and other income derived by PaineWebber from the limited  partnerships.  In
     addition, the plaintiffs also sought treble damages under RICO.

         In January 1996,  PaineWebber signed a memorandum of understanding with
     the plaintiffs in the New York Limited  Partnership  Actions  outlining the
     terms under which the parties  have agreed to settle the case.  Pursuant to
     that memorandum of understanding,  PaineWebber  irrevocably  deposited $125
     million  into an escrow  fund under the  supervision  of the United  States
     District Court for the Southern  District of New York to be used to resolve
     the  litigation in accordance  with a definitive  settlement  agreement and
     plan of allocation.  On July 17, 1996, PaineWebber and the class plaintiffs
     submitted a definitive  settlement  agreement which has been  preliminarily
     approved by the court and provides for the complete resolution of the class
     action  litigation,  including releases in favor of the Partnership and the
     partners of the General  Partner,  and the  allocation  of the $125 million
     settlement fund among investors in the various partnerships at issue in the
     case. As part of the settlement,  PaineWebber  also agreed to provide class
     members  with  certain  financial   guarantees  relating  to  some  of  the
     partnerships.  The  details of the  settlement  are  described  in a notice
     mailed  directly to class  members at the  direction of the court.  A final
     hearing on the fairness of the proposed settlement is scheduled to continue
     in November 1996.

         In February 1996, approximately 150 plaintiffs filed an action entitled
     Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
     PaineWebber  Incorporated and various  affiliated  entities  concerning the
     plaintiffs' purchases of various limited partnership  interests,  including
     those  offered by the  Partnership.  The  complaint  alleges,  among  other
     things,  that  PaineWebber  and its related  entities  committed  fraud and
     misrepresentation  and  breached  fiduciary  duties  allegedly  owed to the
     plaintiffs by selling or promoting  limited  partnership  investments  that
     were  unsuitable  for  the  plaintiffs  and by  overstating  the  benefits,
     understating  the risks and failing to state material facts  concerning the
     investments.  The complaint seeks compensatory  damages of $15 million plus
     punitive  damages  against  PaineWebber.   In  September  1996,  the  court
     dismissed  many  of the  plaintiffs'  claims  as  barred by the  applicable
     statutes of  limitations.  The eventual  outcome of this litigation and the
     potential  impact,  if any,  on the  Partnership's  unitholders  cannot  be
     determined at the present time.
<PAGE>
         In July 1996,  approximately  15  plaintiffs  filed an action  entitled
     Barstad v.  PaineWebber  Inc. in Maricopa  County,  Arizona  Superior Court
     against PaineWebber Incorporated and various affiliated entities concerning
     the  Plaintiffs'  purchases  of  various  limited  partnership   interests,
     including those offered by the Partnership.  The complaint is substantially
     similar to the complaint in the Abbate action  described  above,  and seeks
     compensatory damages of $752,000 plus punitive damages.

         Under  certain  limited  circumstances,  pursuant  to  the  Partnership
     Agreement and other contractual  obligations,  PaineWebber affiliates could
     be entitled to  indemnification  for expenses and liabilities in connection
     with all of the litigation described above. However, PaineWebber has agreed
     not to  seek  indemnification  for any  amounts  it is  required  to pay in
     connection  with  the  settlement  of  the  New  York  Limited  Partnership
     Actions.   At the present time,  the General  Partner  cannot  estimate the
     impact,   if  any,  of  the   potential   indemnification   claims  on  the
     Partnership's  financial  statements,  taken  as a whole.  Accordingly,  no
     provision for any liability which could result from the eventual outcome of
     these matters has been made in the accompanying financial statements.

7.  Subsequent Event

         On September  15, 1996,  the  Partnership  distributed  $688,000 to the
    Unitholders,  $16,000 to the General Partner and $30,000 to PWPI as an asset
    management fee for the quarter ended July 31, 1996.



<PAGE>
<TABLE>

Schedule IV - Investments in Mortgage Loans on Real Estate

                                        PAINEWEBBER INSURED MORTGAGE PARTNERS 1-B, L.P.
                                                         July 31, 1996
                                                        (In thousands)
<CAPTION>
                                                                                         Carrying          Amount of loans
                     Coupon          Final maturity    Periodic          Face amount     amount of         subject to delinquent
Description          Interest rate   date              payment terms     of mortgages    mortgages         principal or interest
-----------          -------------   ----              -------------     ------------    ---------         ---------------------
<S>                    <C>          <C>                <C>                 <C>             <C>             <C>
GNMA Single Loan Pool:

Quarter Mill Apts.     8.50%        10/15/2031         Interest and        $  7,198        $  7,441        N/A
Apartment Complex                                      principal payable
Richmond, VA                                           monthly ($53,525)
Pool #279985                                           through maturity.


Emerald Cove Apts.     8.75%         8/15/2031         Interest and          10,632         11,098         N/A
Apartment Complex                                      principal payable
Charlotte, NC                                          monthly ($81,105)
Pool #279119                                           through maturity.
                                                                           --------        -------
TOTALS                                                                     $ 17,830        $18,539
                                                                           ========        =======


                                            1996              1995            1994
                                            ----              ----            ----

   Balance at beginning of year          $18,639           $18,374           $18,110
     Collections of principal                (71)              (64)              (59)
     Amortization of premium                  (7)               (7)               (7)
     Adjustment to reflect
       change in accounting
       principle and net unrealized
       holding gains (losses) (1)            (22)              336               330
                                         -------           -------           -------
   Balance at close of year              $18,539           $18,639           $18,374
                                         =======           =======           =======

Notes:
<FN>
(1) See Note 2 to the accompanying  financial statements for a discussion of the
change in accounting principle effective July 31, 1994.
</FN>
</TABLE>