<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
(Mark One)
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 [FEE REQUIRED]
 
For the quarterly period ended                DECEMBER 31, 1996
                               -------------------------------------------------
                                       or

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

For the transition period from                        to
                              -----------------------    -----------------------
Commission file number                0-11982
                      ----------------------------------------------------------

       CORPORATE PROPERTY ASSOCIATES 4, A CALIFORNIA LIMITED PARTNERSHIP
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 
          CALIFORNIA                                     13-3126150
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


 
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK                  10020
--------------------------------------------------------------------------------
(Address of principal executive offices)                (Zip Code)
 
Registrant's telephone number, including area code          (212) 492-1100
                                                   -----------------------------

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

         Title of each class                   Name of each exchange on which
                                                        registered

               NONE                                        NONE
------------------------------------        ------------------------------------

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

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


                           LIMITED PARTNERSHIP UNITS
--------------------------------------------------------------------------------
                                (Title of Class)

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

  Indicate by check mark if disclosure of deliquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
                                                    [X]
                                        
  Aggregate market value of the voting stock held by non-affiliates of
Registrant:  There is no active market for Limited Partnership Units.
<PAGE>
 
                                     PART I
                                     ------

Item 1.  Business.
         -------- 

  Registrant is engaged in the business of investing in commercial and
industrial real estate properties which are net leased to commercial and
industrial entities.  Registrant was organized as a California limited
partnership on August 10, 1982.  The General Partners of Registrant are Carey
Corporate Property, Inc. (the "Corporate General Partner"), a Delaware
corporation and William Polk Carey (the "Individual General Partner").  The
Corporate General Partner is 79.9% owned by W. P. Carey & Co., Inc. ("W.P.
Carey"), 10.1% owned by William P. Carey ("Carey"), and 10% owned by Lehman
Brothers Inc.  The Corporate General Partner and the Individual General Partner
and/or certain affiliates are also the General Partners of Corporate Property
Associates ("CPA(R):1"), Corporate Property Associates 2 ("CPA(R):2"), Corporate
Property Associates 3 ("CPA(R):3"), Corporate Property Associates 5
("CPA(R):5"), Corporate Property Associates 6 - a California limited partnership
("CPA(R):6"), Corporate Property Associates 7 - a California limited partnership
("CPA(R):7"), Corporate Property Associates 8, L.P., a Delaware limited
partnership ("CPA(R):8"), Corporate Property Associates 9, L.P., a Delaware
limited partnership ("CPA(R):9") and the advisor of Corporate Property
Associates 10 Incorporated ("CPA(R):10"), Carey Institutional Properties
Incorporated ("CIP(TM)") and Corporate Property Associates 12 Incorporated
("CPA(R):12").  Registrant has a management agreement with Carey Corporate
Property Management Company ("Carey Management"), a division of W.P. Carey.
According to the terms of this agreement, Carey Management performs a variety of
management services for Registrant.  Registrant has entered into an agreement
with Fifth Rock L.P., an affiliate, for the purpose of leasing office space.
Reference is made to the Prospectus of Registrant dated October 28, 1982, as
supplemented by Supplements dated December 2, 1982, January 11, 1983 and May 25,
1983, filed pursuant to Rules 424(b) and 424(c) under the Securities Act of 1933
and such Prospectus and such Supplements are incorporated herein by reference
(said Prospectus, as so supplemented, is hereinafter called the "Prospectus").

  Registrant's operations consist of (a) the investment in and the leasing of
industrial and commercial real estate.  Registrant assumed the operation of a
hotel business in August 1992 in connection with the eviction of a tenant.  In
1996, Registrant transferred ownership of a hotel property in Kenner, Louisiana
for an interest in the operating partnership of a real estate investment trust.
See Selected Financial Data in Item 6 for a summary of Registrant's operations.
Also see the material contained in the Prospectus under the heading INVESTMENT
OBJECTIVES AND POLICIES.

  The properties owned by Registrant are described in Properties in Item 2.
Registrant's entire net proceeds from the public offering, less any return of
capital and a working capital reserve have been fully invested in net leased
commercial and industrial real estate since March 12, 1984, the date of
Registrant's final real estate acquisition.

  For the year ended December 31, 1996, revenues from properties occupied by
lease obligors which accounted for 10% or more of leasing revenues of Registrant
were as follows:  Hughes Markets, Inc. ("Hughes"), 42%, Simplicity Manufacturing
Inc. ("Simplicity"), 22% and Brodart Co. ("Brodart"), 15%.  No other property
owned by Registrant accounted for 10% or more of its total leasing revenues
during 1996.  See Note 9 to the Financial Statements in Item 8.

  Six of Registrant's seven real estate properties are leased to corporate
tenants under long-term net leases.  A net lease generally requires tenants to
pay all operating expenses relating to the leased properties including
maintenance, real estate taxes, insurance and utilities which under other forms
of leases are often paid by the lessor.  Lessees are required to include
Registrant as an additional insured party on all insurance policies relating to
the leased properties.  In addition, substantially all of the net leases include
indemnification provisions which require the lessees to indemnify Registrant and
the General Partners for liabilities on all matters related to the leased
properties.  Registrant's lease with Petrocon Engineering, Inc. ("Petrocon") for
the property in Beaumont, Texas is not a net lease and Registrant absorbs a
portion of the property operating expenses.  The property located in Salisbury,
North Carolina is currently net leased to Family Dollar Stores, Inc. ("Family
Dollar") under a short-term lease.  Registrant believes that the insurance and
indemnity provided on its behalf by its lessees at its net leased properties
provides adequate coverage for property damage and any liability claims which
may arise against Registrant's ownership interests.  In addition to the
insurance and indemnification provisions of the leases, Registrant has
contingent property and liability insurance on its leased properties.  To the
extent that any lessees are not financially able to satisfy indemnification
obligations which exceed insurance reimbursements, Registrant may incur the
costs necessary

                                      -1-
<PAGE>
 
to repair property and settle liabilities.  For properties not subject to net
leases, Registrant also has primary property and liability insurance coverages
which Management believes to be adequate.  Presently, there are no claims
pending for property damages or liability claims known to Registrant that would
have a material adverse effect on Registrant's financial condition or liquidity
even in the event that a lessee is unable to fulfill its indemnity obligation to
the Registrant.

  As described above, lessees other than Petrocon retain the obligation for the
operating expenses of their leased properties so that, other than rental income,
there are no significant operating data (i.e. expenses) reportable on
Registrant's leased properties.  In addition, the Petrocon lease includes
escalation provisions which pass through certain increases in operating expenses
to Petrocon.  As discussed in Registrant's Management's Discussion and Analysis
in Item 7, Registrant's leases generally provide for periodic rent increases
during the initial lease term which are either stated and negotiated at the
inception of the lease or based on formulas indexed to increases in the Consumer
Price Index.  The lease with Petrocon expires in December 1998 and the lease
with Family Dollar was extended for approximately one year through March 1998.
All of Registrant's other leases expire between 1998 and 2008 and provide for
multiple renewal terms of generally five years per renewal term.  Registrant's
lease with Simplicity provides for a purchase option which is exercisable in
1998 at the greater of fair market value, as defined in the lease, or
$9,684,000.

  As Registrant's objective has been to invest in properties which are occupied
by a single corporate tenant and subject to long-term leases with such lease
obligation backed by the credit of the corporate lessee, Registrant's properties
have not been generally subject to the competitive conditions of local and
regional real estate markets.  In selecting its real estate investments,
Registrant's strategy has been to identify properties which included operations
of material importance to the lessee so that the lessee may be more likely to
extend its lease beyond the initial term or exercise a purchase option if such
option was provided for in the lease agreement.  Because Registrant's properties
in Beaumont, Texas and Salisbury, North Carolina are both subject to short-term
leases with one tenant, the properties may be subject to current market
conditions.  The Beaumont property is currently leased at rates the General
Partner believes to be at market and Registrant does not expect rentals to
significantly change in the event that a lease extension is executed.  The
Salisbury property was leased in December 1994 to Family Dollar under a short-
term lease and has been extended two times since the inception of that lease.
Registrant's lease with Continental Casualty Company ("Continental") expires in
October 1998.  Continental elected to extend its lease in 1993 and has a renewal
option which it can exercise at the end of its current term.  Although
Registrant has not received any indication from Continental, Registrant and
Continental amended the lease in February 1995 when Registrant funded $105,000
of improvements to the Continental property which is located in College Station,
Texas.  Because Registrant may be affected by the financial condition of its
lessees rather than the competitive conditions of the real estate marketplace,
Registrant's strategy has been to diversify its investments among tenants,
property types and industries in addition to achieving geographical
diversification.

  Registrant's lease with Hughes for a dairy processing and distribution
facility in Los Angeles, California which initial term expired in April 1996 was
extended for a two-year extension term through April 1998.  Under the extension
agreement, Registrant's share of monthly rent increased from $126,266 to
$279,824.  In addition, Hughes is obligated to pay Registrant a lump sum of
$2,910,000 at the end of the extended lease term.  Such lump sum payment is
supported by an irrevocable letter of credit.  Hughes also has the opportunity
to extend the lease on a month-to-month basis through October 1998.  Registrant
is actively engaged in remarketing the property for both its current use and
alternative uses.

  In July 1996, Registrant exchanged its ownership interests in its hotel
property in Kenner, Louisiana for 427,008 limited partnership units in American
General Hospitality Operating Partnership L.P., which is majority-owned by
American General Hospitality Corporation ("AGH"), a publicly traded real estate
investment trust.  Registrant has the right, after a designated holiday period,
to exchange the units in the operating partnership on a one-for-one basis for
shares of AGH.  Registrant realized cash flow of $1,024,000 in 1995, the last
full year the hotel was operated by Registrant; however, Registrant funded
improvements of $690,000 in 1994.  Registrant expects that the exchange will
eliminate the uncertainty and fluctuation in cash flow related to operating a
single hotel as the operating partnership owns a diversified portfolio of hotel
properties.  As a real estate investment trust, AGH has an obligation to
distribute 95% of its taxable income in order to retain its Federal income tax
status.  Since AGH owns a majority of the operating partnership limited
partnership units, the operating partnership may be expected to distribute a
significant portion of its cash flow so that AGH can meet its tax objectives.
Based on the current distribution rate, Registrant's annual cash flow from this
investment should approximate $700,000.

                                      -2-
<PAGE>
 
  Registrant voluntarily contracted for Phase I environmental reviews of all of
its properties in 1993.  Registrant believes, based on the results of such
reviews and Phase II environmental reviews on certain of its properties in 1994,
that its properties are in substantial compliance with Federal and state
environmental statutes and regulations.  Phase II reviews were only performed on
certain properties based on the recommendations of the Phase I reviews.
Portions of certain properties have been subject to a limited degree of
contamination, principally in connection with either leakage from underground
storage tanks or surface spills from facility activities.  In many instances,
tenants are actively engaged in the remediation process and addressing
identified conditions.  For those conditions which were identified, Registrant
advised its tenants of such findings and of their obligations to perform any
required remediation.  Tenants are generally subject to environmental statutes
and regulations regarding the discharge of hazardous materials and any related
remediation obligations.  In addition, Registrant's leases generally require
tenants to indemnify Registrant from all liabilities and losses related to the
leased properties.  Accordingly, Management believes that the ultimate
resolution of any environmental matters will not have a material adverse effect
on Registrant's financial condition, liquidity or results of operations.

  Registrant does not have any employees.  The Corporate General Partner of
Registrant, together with its affiliates, employ twelve individuals who perform
accounting, secretarial and transfer services for Registrant.  Gemisys Inc. also
performs certain transfer services for Registrant and the Bank of New York
performs certain banking services for Registrant.  In addition, Registrant has
entered into an agreement with Carey Management pursuant to which Carey
Management provides certain management services for Registrant.  W.P. Carey has
substantially the same officers as the Corporate General Partner.

                                      -3-
<PAGE>
 
Item 2.  Properties.
         ---------- 

  Registrant's properties are as follows:

<TABLE> 
<CAPTION> 
      LEASE                                                TYPE OF OWNERSHIP
     OBLIGOR       TYPE OF PROPERTY         LOCATION           INTEREST
-----------------  -----------------      ------------      ---------------
<S>                <C>                    <C>              <C> 
HUGHES MARKETS,    Land and Dairy         Los Angeles,      Ownership of an
INC.               Processing/            California        83.24% interest
                   Distribution                             in land and
                   Facilities                               buildings
                                         
                                         
SIMPLICITY         Land and Manufac-      Port Washington,  Ownership of land
MANUFACTURING,     turing/Product         Wisconsin         and buildings (1)
INC.               Testing Buildings      
                   - 2 locations          
                                         
                                         
CONTINENTAL        Land and Office,       College Station,  Ownership of land
CASUALTY COMPANY   Manufacturing          Texas             and buildings
                   and Warehouse          
                   Buildings              
                                         
                                         
BRODART CO.        Land and Manufac-      Williamsport,     Ownership of land
                   turing, Distribution   Pennsylvania      and buildings (1)
                   and Office Buildings   
                   - 2 locations          


FAMILY DOLLAR      Land and Warehouse/    Salisbury,        Ownership of land
STORES, INC.       Distribution Center    North Carolina    and buildings


PETROCON           Land and Office        Beaumont, Texas   Ownership of land
ENGINEERING,       Building                                 and building
INC.


WINN-DIXIE         Land and Supermarket   Leeds, Alabama    Ownership of land
STORES, INC.                                                and building

</TABLE> 

(1) These properties are encumbered by mortgage notes payable.

                                      -4-
<PAGE>
 
  The material terms of Registrant's leases with its significant tenants are
summarized in the following table:

<TABLE>
<CAPTION>
                 Partnership's
                 Share of                 Current
                 Current Annual           Rent/Inc-                                         Gross              
Lease            Rents/Operat-   Square   ome Per     Lease       Renewal  Ownership        Terms of           
Obligor          ing Income      Footage  Sq.Ft.(1)   Expiration  Terms    Interest         Purchase Option     Costs (2)
-------          --------------  -------  ---------   ----------  -------  ----------       ---------------     ---------
<S>              <C>             <C>      <C>         <C>         <C>      <C>              <C>                 <C>    
Simplicity                                                                                                         
Manufact-                                                                                                          
uring, Inc.          $1,996,710  419,676   $ 4.76          03/03      YES  100%             The greater of       $12,000,000
                                                                                            fair market value  
                                                                                            of the property at 
                                                                                            purchase date or   
                                                                                            $9,684,000 with    
                                                                                            fair market value  
                                                                                            not to be in excess
                                                                                            of $12,000,000     
Hughes            
Markets,          
Inc.                  3,357,888  390,000    10.34          04/98       NO  83.24%           N/A                    9,784,796
                                                                           interest;                        
                                                                           remaining                        
                                                                           interest owned                   
                                                                           by Corporate                     
                                                                           Property                         
                                                                           Associates 3                     
                                                                                                            
                                                                                                            
Brodart, Co.          1,344,764  521,231     2.58          06/08      YES  100%             N/A                    6,193,555
                                                                                              
Continental                                                                                   
Casualty                                                                                      
Company                 742,123   97,567     7.61          10/98      YES  100%             N/A                    8,615,638
                  
Family            
Dollar            
Stores, Inc.            561,600  311,182     1.80          03/98      YES  100%             N/A                    6,153,179
                  
Petrocon          
Engineering       
Inc.                    210,270   34,300     6.13          11/97      YES  100%             N/A                    1,265,502
                                                                                              
Winn-Dixie                                                                                    
Stores, Inc.            144,713   25,600     5.65          03/04      YES  100%             N/A                    1,245,846
</TABLE>


(1) Represents rate for rent per square foot when combined with rents applicable
    to tenants-in-common.
(2) Includes original cost of investment and net increases or decreases to net
    investment subsequent to purchase.

                                      -5-
<PAGE>
 
  The material terms on the nonrecourse mortgage debt of Registrant's properties
are summarized in the following table (1):
<TABLE>
<CAPTION>
 
                                              Mortgage
                           Annual Interest    Balance    Annual Debt  Maturity  Estimated Payment
    Lease Obligor                Rate         12/31/96     Service      Date    Due at Maturity    Prepayment Provisions
-----------------------    ---------------   ----------  -----------  --------  -----------------  ---------------------
<S>                        <C>               <C>         <C>          <C>       <C>                <C>
Simplicity
Manufact-
uring, Inc.                     10.52%       $5,031,101   $1,062,374  07/01/98     $4,169,000      Prepayable at any time.  Prepay-
                                                                                                   ment premium based on formula.
 
Brodart Co.                      7.60         3,218,698      406,419  01/01/04      1,754,000      No premium if prepaid after 
                                                                                                   1/31/03
</TABLE> 


(1) A loan which was cross-collateralized by properties leased to Family Dollar
    Stores, Inc., Continental Casualty Company and Winn-Dixie Stores, Inc. was
    satisfied in March 1997.

                                      -6-
<PAGE>
 
Item 3.  Legal Proceedings.
         ----------------- 

  As of the date hereof, Registrant is not a party to any material pending legal
proceedings.



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

  No matter was submitted during the fourth quarter of the year ended December
31, 1996 to a vote of security holders, through the solicitation of proxies or
otherwise.



                                    PART II
                                    -------


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

  Information with respect to Registrant's common equity is hereby incorporated
by reference to page 24 of Registrant's Annual Report contained in Appendix A.



Item 6.  Selected Financial Data.
         ----------------------- 

  Selected Financial Data are hereby incorporated by reference to page 1 of
Registrant's Annual Report contained in Appendix A.



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


  Management's Discussion and Analysis are hereby incorporated by reference to
pages 2 to 5 of Registrant's Annual Report contained in Appendix A.



Item 8.  Financial Statements and Supplementary Data.
         ------------------------------------------- 

  The following financial statements and data are hereby incorporated by
reference to pages 6 to 19 of Registrant's Annual Report contained in Appendix
A:
  (i) Report of Independent Accountants.
 (ii) Balance Sheets as of December 31, 1995 and 1996.
(iii) Statements of Income for the years ended December 31, 1994, 1995 and
      1996.
 (iv) Statements of Partners' Capital for the years ended December 31, 1994,
      1995 and 1996.
  (v) Statements of Cash Flows for the years ended December 31, 1994, 1995 and
      1996.
 (vi) Notes to Financial Statements.



Item 9.  Disagreements on Accounting and Financial Disclosure.
         ---------------------------------------------------- 

  NONE

                                      -7-
<PAGE>
 
                                    PART III
                                    --------


Item 10.  Directors and Executive Officers of the Registrant.
          -------------------------------------------------- 


  Registrant has no directors or officers.  The directors and executive officers
of the Corporate General Partner are as follows:

<TABLE> 
<CAPTION>
                                                                    Has Served as a
                                                                    Director and/or
Name                    Age             Positions Held             Officer Since (1)
------------------      ---  ------------------------------------  -----------------
<S>                     <C>  <C>                                   <C>
William Polk Carey       66  Chairman of the Board                             8/82
                             Director
Francis J. Carey         71  President                                         8/82
                             Director
George E. Stoddard       80  Chairman of the Investment Committee              8/82
                             Director
Madelon DeVoe Talley     65  Vice Chairman of the Board                        4/86
                             Director
Lawrence R. Klein        76  Chairman of the Economic Policy                   4/84
                               Committee
                             Director
Barclay G. Jones III     36  Executive Vice President                          8/82
                             Director
Claude Fernandez         44  Executive Vice President                          3/83
                             Chief Administrative Officer
H. Augustus Carey        39  Senior Vice President                             8/88
Anthony S. Mohl          34  Senior Vice President                             9/87
John J. Park             32  Senior Vice President                             7/91
                             Treasurer
Michael D. Roberts       45  First Vice President                              4/89
                             Controller
</TABLE>


(1) Each officer and director of the Corporate General Partner will hold office
    until the next annual meeting of the Board of Directors and thereafter until
    his successor shall have been elected and shall have qualified or until his
    prior death, resignation or removal.


  William Polk Carey and Francis J. Carey are brothers.  H. Augustus Carey is
the nephew of William Polk Carey and the son of Francis J. Carey.

  A description of the business experience of each officer and director of the
Corporate General Partner is set forth below:

  William Polk Carey, Chairman and Chief Executive Officer, has been active in
lease financing since 1959 and a specialist in net leasing of corporate real
estate property since 1964.  Before founding W.P. Carey & Co., Inc. ("W.P.
Carey") in 1973, he served as Chairman of the Executive Committee of Hubbard,

                                      -8-
<PAGE>
 
Westervelt & Mottelay (now Merrill Lynch Hubbard), head of Real Estate and
Equipment Financing at Loeb Rhoades & Co. (now Lehman Brothers), head of Real
Estate and Private Placements, Director of Corporate Finance and Vice Chairman
of the Investment Banking Board of duPont Glore Forgan Inc.  A graduate of the
University of Pennsylvania's Wharton School of Finance and Commerce, Mr. Carey
is a Governor of the National Association of Real Estate Investment Trusts
(NAREIT).  He also serves on the boards of The Johns Hopkins University, The
James A. Baker III Institute for Public Policy at Rice University, Templeton
College of Oxford University and other educational and philanthropic
institutions.  He founded the Visiting Committee to the Economics Department of
the University of Pennsylvania and co-founded with Dr. Lawrence R. Klein the
Economics Research Institute at that University.  Mr. Carey is also a Director
of CPA(R):10, CIP(TM) and CPA(R):12.


  Francis J. Carey was elected President and a Managing Director of W.P. Carey
in April 1987, having served as a Director since its founding in 1973.  Prior to
joining the firm full-time, he was a senior partner in Philadelphia, head of the
Real Estate Department nationally and a member of the executive committee of the
Pittsburgh based firm of Reed Smith Shaw & McClay, counsel for Registrant, the
General Partners, the CPA(R) Partnerships, W.P. Carey and some of its
affiliates.  He served as a member of the Executive Committee and Board of
Managers of the Western Savings Bank of Philadelphia from 1972 until its
takeover by another bank in 1982 and is former chairman of the Real Property,
Probate and Trust Section of the Pennsylvania Bar Association.  Mr. Carey served
as a member of the Board of Overseers of the School of Arts and Sciences of the
University of Pennsylvania from 1983 through 1990.  He has also served as a
member of the Board of Trustees of the Investment Program Association since 1990
and on the Business Advisory Council of the Business Council for the United
Nations since 1994.  He holds A.B. and J.D. degrees from the University of
Pennsylvania.  Mr. Carey is also a Director of CPA(R):10 and CIP(TM).


  George E. Stoddard, Chief Investment Officer, was until 1979 head of the bond
department of The Equitable Life Assurance Society of the United States, with
responsibility for all activities related to Equitable's portfolio of corporate
investments acquired through direct negotiation.  Mr. Stoddard was associated
with Equitable for over 30 years.  He holds an A.B. degree from Brigham Young
University, an M.B.A. from Harvard Business School and an LL.B. from Fordham
University Law School.


  Madelon DeVoe Talley, Vice Chairman, is a member of the New York State
Controller's Investment Committee, a Commissioner of the Port Authority of New
York and New Jersey, former CIO of New York State Common Retirement Fund and a
Trustee of the New York State Teachers Retirement System.  She also served as a
managing director of Rothschild, Inc. and as the President of its asset
management division.  Mrs. Talley was also a former Governor of the N.A.S.D. and
a director of Biocraft Laboratories, a New York Stock Exchange company.  She is
an alumna of Sarah Lawrence College and the graduate school of International and
Public Affairs at Columbia University.


  Lawrence R. Klein, Chairman of the Economic Policy Committee since 1984, is
Benjamin Franklin Professor of Economics Emeritus at the University of
Pennsylvania, having joined the faculty of Economics and the Wharton School in
1958.  He holds earned degrees from the University of California at Berkeley and
Massachusetts Institute of Technology and has been awarded the Nobel Prize in
Economics as well as over 20 honorary degrees.  Founder of Wharton Econometric
Forecasting Associates, Inc., Dr. Klein has been counselor to various
corporations, governments, and government agencies including the Federal Reserve
Board and the President's Council of Economic Advisers.


  Barclay G. Jones III, Executive Vice President, Managing Director, and head of
the Investment Department.  Mr. Jones joined W.P. Carey as Assistant to the
President in July 1982 after his graduation from the Wharton School of the
University of Pennsylvania, where he majored in Finance and Economics.  He was
elected to the Board of Directors of W.P. Carey in April 1992.  Mr. Jones is
also a Director of the Wharton Business School Club of New York.

                                      -9-
<PAGE>
 
  Claude Fernandez, Chief Administrative Officer, Managing Director, and
Executive Vice President, joined W.P. Carey in 1983.  Previously associated with
Coldwell Banker, Inc. for two years and with Arthur Andersen & Co., he is a
Certified Public Accountant.  Mr. Fernandez received his B.S. degree in
accounting from New York University in 1975 and his M.B.A. in finance from
Columbia University Graduate School of Business in 1981.

  H. Augustus Carey, Senior Vice President, returned to W.P. Carey in 1988 and
is President of W.P. Carey's broker-dealer subsidiary.  Mr. Carey previously
worked for W.P. Carey from 1979 to 1981 as Assistant to the President.  Prior to
rejoining W.P. Carey, Mr. Carey served as a loan officer of the North American
Department of Kleinwort Benson Limited in London, England.  He received an A.B.
from Amherst College in 1979 and an M.Phil. in Management Studies from Oxford
University in 1984.  Mr. Carey is a trustee of the Oxford Management Centre
Associates Council.

  Anthony S. Mohl, Senior Vice President and Director of Portfolio Management,
joined W.P. Carey & Co., in 1987 as Assistant to the President after receiving
his M.B.A. from the Columbia University Graduate School of Business.  Mr. Mohl
was employed as an analyst in the strategic planning group at Kurt Salmon
Associates after receiving an undergraduate degree from Wesleyan University.

  John J. Park, Senior Vice President, Treasurer and Director of Research,
joined W.P. Carey as an Investment Analyst in December 1987.  Mr. Park received
his undergraduate degree from Massachusetts Institute of Technology and his
M.B.A. in Finance from New York University.

  Michael D. Roberts joined W. P. Carey as a Second Vice President and Assistant
Controller in April 1989 and is currently First Vice President and Controller.
Prior to joining W.P. Carey, Mr. Roberts was employed by Coopers & Lybrand for
over 8 years, where he attained the title of audit manager.  A certified public
accountant, Mr. Roberts received a B.A. in sociology from Brandeis University
and an M.B.A. from Northeastern University.


  The officers and directors of W.P. Carey are substantially the same as above.


Item 11.  Executive Compensation.
          ---------------------- 

  Under the Amended Agreement of Limited Partnership of Registrant (the
"Agreement"), 5% of Distributable Cash From Operations, as defined, is payable
to the Corporate General Partner and 1% of Distributable Cash From Operations is
payable to the Individual General Partner.  The Corporate General Partner and
the Individual General Partner received $222,704 and $41,542, respectively, from
Registrant as their share of Distributable Cash From Operations during the year
ended December 31, 1996.  As owner of 200 Limited Partnership Units, the
Corporate General Partner received cash distributions of $9,786 during the year
ended December 31, 1996.  See Item 6 for the net income allocated to the General
Partners under the Agreement.  Registrant is not required to pay, and has not
paid, any remuneration to the officers or directors of the Corporate General
Partner, W.P. Carey or any other affiliate of Registrant during the year ended
December 31, 1996.

  In the future, the Corporate General Partner will continue to receive 5% of
Distributable Cash From Operations, the Individual General Partner will continue
to receive 1% of Distributable Cash From Operations and each General Partner
will continue to be allocated the same percentage of the profits and losses of
Registrant as had been allocated in the past.  For a description of the
subordinated interest of the Corporate General Partner and the Individual
General Partner in Cash From Sales and Cash From Financings, reference is made
to the materials contained in the Prospectus under the heading MANAGEMENT
COMPENSATION.

                                      -10-
<PAGE>
 
Item 12.  Security Ownership of Certain Beneficial Owners and
          ---------------------------------------------------
          Management.
          ---------- 

  As of December 31, 1996, no person owned of record, or was known by Registrant
to own beneficially more than 5% of the Limited Partnership Units of Registrant.

  The following table sets forth as of March 15, 1997 certain information as to
the ownership by directors and executive officers of securities of Registrant:

<TABLE>
<CAPTION>
                                                   Number of Units
                               Name of             and Nature of       Percent
Title of Class             Beneficial Owner     Beneficial Ownership  of Class
----------------------  ----------------------  --------------------  ---------
<S>                     <C>                     <C>                  <C>
 
Limited
  Partnership Units     William Polk Carey (1)        205  units           .24%
                        Francis J. Carey
                        George E. Stoddard
                        Madelon DeVoe Talley
                        Barclay G. Jones III
                        Lawrence R. Klein
                        Claude Fernandez
                        H. Augustus Carey
                        Anthony S. Mohl
                        John J. Park
                        Michael D. Roberts            ___                  ____


All executive officers
and directors as a
group (11 persons)                                    205  units           .24%
                                                      ===                 ====
</TABLE> 


  (1) As of March 15, 1997, the Corporate General Partner, Carey Corporate
Property, Inc. ("Carey Property"), owned 200 Limited Partnership Units of
Registrant.  William Polk Carey, the majority shareholder of Carey Property, is
the beneficial owner of these Units.

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



Item 13.  Certain Relationships and Related Transactions.
          ---------------------------------------------- 

  For a description of transactions and business relationships between
Registrant and its affiliates and their directors and officers, see Notes 2 and
3 to the Consolidated Financial Statements in Item 8.  Michael B. Pollack,
Senior Vice President and Secretary of the Corporate General Partner, is a
partner of Reed Smith Shaw & McClay which is engaged to perform legal services
for Registrant.

  No officer or director of the Corporate General Partner, W.P. Carey or any
other affiliate of Registrant or any member of the immediate family or
associated organization of any such officer or director was indebted to
Registrant at any time since the beginning of Registrant's last fiscal year.

                                      -11-
<PAGE>
 
                                    PART IV
                                    -------



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


  (a)  1.  Financial Statements:
           -------------------- 

     The following financial statements are filed as a part of this Report:

Report of Independent Accountants.

Balance Sheets, December 31, 1995 and 1996.

Statements of Income, for the years ended December 31, 1994, 1995 and 1996.

Statements of Partners' Capital, for the years ended December 31, 1994, 1995
and 1996.

Statements of Cash Flows, for the years ended December 31, 1994, 1995 and
1996.

Notes to Financial Statements.



The financial statements are hereby incorporated by reference to pages 6 to 19
of Registrant's Annual Report contained in Appendix A.



(a)  2.  Financial Statement Schedule:
         ---------------------------- 

     The following schedule is filed as a part of this Report:

Schedule III - Real Estate and Accumulated Depreciation as of December 31,
1996.

Notes to Schedule III.


Schedule III and notes thereto are hereby incorporated by reference to pages
20 to 22 of Registrant's Annual Report contained in Appendix A.



     Financial Statement Schedules other than those listed above are omitted
because the required information is given in the Financial Statements, including
the Notes thereto, or because the conditions requiring their filing do not
exist.

                                      -12-
<PAGE>
 
  (a)  3.  Exhibits:
           -------- 

  The following exhibits are filed as part of this Report.  Documents other than
those designated as being filed herewith are incorporated herein by reference.

<TABLE>
<CAPTION>
Exhibit                                                                       Method of
No.                               Description                                  Filing
---------  ---------------------------------------------------------  -------------------------
<S>        <C>                                                        <C>
  3.1      Amended Agreement of Limited Partnership of                Exhibit 3(B) to Regis-
           Registrant dated as of September 30, 1982                  tration Statement (Form
                                                                      S-11) No. 2-79041
 
  4.1      $4,500,000 Promissory Note dated December 30,              Exhibit 4(B)(1) to Post-
           1982 from Registrant to The Mutual Benefit                 Effective Amendment No. 1
           Life Insurance Company                                     to Registration Statement
                                                                      (Form S-11) No. 2-79041
 
  4.2      Mortgage and Security Agreement dated                      Exhibit 4(B)(4) to Post-
           December 30, 1982 between Registrant and                   Effective Amendment No. 1
           The Mutual Benefit Life Insurance Company                  to Registration Statement
                                                                      (Form S-11) No. 2-79041
 
  4.3.     Assignment of Lessor's and Landlord's                      Exhibit 4(B)(5) to Post-
           Interest in Leases, Rents and Profits                      Effective Amendment No. 1
           dated December 30, 1982 from Registrant                    to Registration Statement
           to The Mutual Benefit Life Insurance                       (Form S-11) No. 2-79041
           Company.
 
  4.4      $8,000,000 Promissory Note dated March 3,                  Exhibit 4.1 to Form 8-K
           1983 from Registrant to Sunkist Service                    filed March 17, 1983
           Company.
 
  4.5      Mortgage with Assignment of Leases and                     Exhibit 4.3 to Form 8-K
           Rents and Security Agreement dated as of                   filed March 17, 1983
           March 3, 1983 from Registrant to Sunkist
           Service Company.
 
  4.6      Assignment of Lease and Rents dated                        Exhibit 4.4 to Form 8-K
           March 3, 1983 from Registrant to Sunkist                   filed March 17, 1983
           Service Company                                          
 
  4.12     $3,800,000 Promissory Note dated July 1,                   Exhibit 4.1 to Form 8-K
           1983 from Registrant to CP 4 Corp.                         dated July 14, 1983
 
  4.13     Mortgage and Security Agreement dated                      Exhibit 4.2 to Form 8-K
           July 1, 1983 from Registrant to CP 4 Corp.                 dated July 14, 1983
 
  4.14     Assignment of Leases, Rents and Profits                    Exhibit 4.3 to Form 8-K
           dated July 1, 1983 from Registrant to                      dated July 14, 1983
           CP 4 Corp.
 
  4.15     $2,750,000 Promissory Note dated                           Exhibit 4.1 to Form 8-K
           August 11, 1983 from Registrant to FCA                     dated November 2, 1983
           American Mortgage Corporation ("FCA").
 
  4.16     Deed of Trust, Mortgage with Assignments of Leases         Exhibit 4.2 to Form 8-K
           and Rents and Security Agreements dated as of              dated November 2, 1983
           August 11, 1983 from Registrant to Harry M. Roberts, Jr.,
           as trustee for FCA.
</TABLE> 

                                      -13-
<PAGE>
 
<TABLE>
<CAPTION>
Exhibit                                                          Method of
No.                        Description                            Filing
---------  --------------------------------------------  -------------------------
<S>        <C>                                           <C>
 
  4.17     Assignment of Lease and Rents dated           Exhibit 4.3 to Form 8-K
           August 11, 1983 from Registrant to FCA        dated November 2, 1983
 
  4.18     $4,300,000 Promissory Note dated              Exhibit 4.4 to Form 8-K
           October 17, 1983 from Registrant to           dated November 2, 1983
           Bankers Life Company ("Bankers")            
 
  4.19     Deed of Trust dated October 17, 1983          Exhibit 4.5 to Form 8-K
           from Registrant to Howard T. Ayres, Jr.,      dated November 2, 1983
           as trustee for Bankers.
 
  4.20     Collateral Assignment of Lease and            Exhibit 4.6 to Form 8-K
           Agreement dated October 17, 1983 from         dated November 2, 1983
           Registrant, as assignor, ARC Automation
           Services, Inc. ("ARC"), as lessee, and
           American Express Insurance Services,
           Inc. ("American Express"), as guarantor,
           to Bankers, as assignee.
 
  4.21     $3,500,000 Deed of Trust Note dated           Exhibit 4.21 to Form 10-K
           December 14, 1983 from Registrant to          dated March 31, 1984
           Mellon Bank, N.A. ("Mellon").
 
  4.22     Deed of Trust and Security Agreement          Exhibit 4.22 to Form 10-K
           dated December 14, 1983 between               dated March 31, 1984
           Registrant and John H. Noblitt, as
           trustee for Mellon.
 
  4.23     Assignment of Rentals and Leases dated        Exhibit 4.23 to Form 10-K
           December 14, 1983 from Registrant to          dated March 31, 1984
           Mellon.
 
  4.24     Agreement for Sale and Sale of Property and.  Exhibit 4.1 to Form 10-K
           Escrow Instructions, dated October 17, 1986,  dated November 6, 1986
           by and between Registrant and CPA(R):3,
           collectively as Seller, and Kraft, Inc.
           ("Kraft"), as Purchaser.
 
  4.25     Agreement for Sale and Sale of Property and.  Exhibit 4.2 to Form 10-K
           Escrow Instructions, dated October 17, 1986,  dated November 6, 1986
           by and between Registrant and CPA(R):3,
           collectively as Seller, and Hughes Markets,
           Inc. ("Hughes"), as Purchaser.
 
  4.26     Letter Agreement dated October 17, 1986 from  Exhibit 4.3 to Form 8-K
           Registrant and CPA(R):3, and agreed to and..  dated November 6, 1986
           accepted by Kraft and Hughes.
 
  4.27     Guaranty made as of October 21, 1986 by       Exhibit 4.4 to Form 8-K
           Hughes, as Guarantor, to Registrant and       dated November 6, 1986
           CPA(R):3.
 
  10.3     Real Estate Purchase Agreement dated          Exhibit 10.1 to Form 8-K
           January 19, 1983 between Allis-Chalmers       filed March 17, 1983
           Corporation, as seller and Gibson
           Realty, Inc., as purchaser.
</TABLE> 

                                      -14-
<PAGE>
 
<TABLE>
<CAPTION>
Exhibit                                                           Method of
No.                         Description                             Filing
----------  --------------------------------------------  --------------------------
<S>         <C>                                           <C>
   10.4     Assignment of Real Estate Purchase            Exhibit 10.2 to Form 8-K
            Agreement dated March 3, 1983 from Gibson     filed March 17, 1983
            Realty, Inc., as assignor, to Registrant,
            as assignee.
 
   10.5     Lease Agreement dated March 3, 1983           Exhibit 10.3 to Form 8-K
            between Registrant, as landlord, and          filed March 17, 1983
            Simplicity Manufacturing, Inc. as
            tenant, for two properties in Port
            Washington, Wisconsin.
 
   10.6     Management Agreement between Registrant       Exhibit 10(B) to Amendment
            and Carey Corporate Property Management,      No. 2 to Registration
            Inc.                                          Statement (Form S-11)
                                                          No. 2-79041
 
   10.7     Support Agreement among Registrant,           Exhibit 10(C) to Amendment
            Fourth Carey Corporate Property, Inc.         No. 2 Registration
            and W.P. Carey & Co., Inc.                    Statement (Form S-11)
                                                          No. 2-79041
 
   10.8     Lease Agreement dated June 1, 1983 between    Exhibit 10.1 to Form 8-K
            Registrant and CPA(R):3, as landlord, and     dated June 22, 1983
            Knudsen Corporation, as tenant.
 
   10.9     Agreement dated June 1, 1983 between          Exhibit 10.2 to Form 8-K
            Registrant and CPA(R):3, as landlord, and     dated June 22, 1983
            Knudsen, as tenant.
 
   10.11    Lease Agreement dated July 1, 1983 between    Exhibit 10.1 to Form 8-K
            Registrant, as landlord, and Broco, as        dated July 14, 1983
            tenant.
 
   10.13    Lease Agreement dated October 17, 1983        Exhibit 10.2 to Form 8-K
            between Registrant, as landlord, and          dated November 2, 1983
            ARC, as tenant.
 
   10.15    Purchase Agreement dated February 23, 1983    Exhibit 10.15 to Form 10-K
            between J.D.N. Enterprises, Inc. and          dated March 31, 1984
            Winn-Dixie Montgomery, Inc. ("Winn-Dixie")
 
   10.16    Assignment of Purchase Agreement dated        Exhibit 10.16 to Form 10-K
            March 7, 1984 from Winn-Dixie to              dated March 31, 1984
            Registrant.
 
   10.18    Lease Agreement dated March 7, 1984.          Exhibit 10.18 to Form 10-K
            between Registrant, as landlord, and          dated March 31, 1984
            Winn-Dixie, as tenant.
 
   10.19    Lease Guaranty dated March 7, 1984            Exhibit 10.19 to Form 10-K
            from Winn-Dixie, Stores, Inc. to              dated March 31, 1984
            Registrant.
 
   10.20    Second Amendment of Lease entered into as of  Exhibit 10.1 to Form 8-K
            October 21, 1986, by and between Registrant   dated November 6, 1986
            and CPA(R):3, collectively as Landlord, and
            Santee Dairies, Inc., as Tenant.
</TABLE>

                                      -15-
<PAGE>
 
<TABLE>
<CAPTION>
Exhibit                                                           Method of
No.                         Description                            Filing
----------  -------------------------------------------  ---------------------------
<S>         <C>                                          <C>
 
   10.21    Lease Agreement dated June 14, 1988          Exhibit 10.1 to Form 8-K
            by and between Registrant and CPA(R);8,      dated June 29, 1988
            together, as Landlord, and Integra,
            as Tenant.
 
   28.1     Exchange and Conveyance of Property Deed     Exhibit 28.1 to Form 8-K
            dated June 14, 1988 from Integra, as         dated June 29, 1988
            Transferor, to Registrant, as Transferee.
 
   28.2     Bill of Sale dated June 14, 1988 from        Exhibit 28.2 to Form 8-K
            Integra, as Seller, to Registrant and        dated June 29, 1988
            CPA(R):8, together, as Purchaser.
 
   28.3     Seller/Lessee's Certificate dated June 14,   Exhibit 28.3 to Form 8-K
            1988 from Integra, as Seller, to Registrant  dated June 29, 1988
            and CPA(R):8, together, as Purchaser.
 
   28.4     Prospectus of Registrant                     Exhibit 28.4 to Form 10-K/A
            dated October 28, 1982                       dated September 24, 1993
 
   28.5     Supplement dated December 2, 1982            Exhibit 28.5 to Form 10-K/A
            to Prospectus dated October 28, 1982.        dated September 24, 1993
 

   28.6     Supplement dated January 11, 1983            Exhibit 28.6 to Form 10-K/A
            to Prospectus dated October 28, 1982.        dated September 24, 1993
 

   28.7     Supplement dated May 25, 1983                Exhibit 28.7 to Form 10-K/A
            to Prospectus dated October 28, 1982.        dated September 24, 1993
 

   28.8     Press release dated June 30, 1993            Exhibit 28.1 to Form 8-K
            announcing the suspension of secondary       dated July 12, 1993
            market sales of Limited Partnership Units.
</TABLE> 


  (b)  Reports on Form 8-K
       -------------------

  During the quarter ended December 31, 1996 the Registrant was not required to
file any reports on Form 8-K.

                                      -16-
<PAGE>
 
                                   SIGNATURES
                                   ----------

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

                         CORPORATE PROPERTY ASSOCIATES 4
                         (a California limited partnership)

                         BY:  CAREY CORPORATE PROPERTY, INC.

    4/3/97               BY:    /s/ Claude Fernandez
 --------------              ------------------------------
     Date                    Claude Fernandez
                             Executive Vice President and
                             Chief Administrative Officer
                             (Principal Financial Officer)


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

                    BY:  CAREY CORPORATE PROPERTY, INC.

                         William P. Carey
                         Chairman of the Board
                         and Director
                         (Principal Executive Officer)

                         Francis J. Carey
                         President and Director
 
                         George E. Stoddard        BY:  /s/ George E. Stoddard
                         Chairman of the Investment    -----------------------
                         Committee and Director        George E. Stoddard
                                                       Attorney in fact
                                                       April 3, 1997
                         Dr. Lawrence R. Klein
                         Chairman of the Economic Policy
                         Committee and Director

                         Madelon DeVoe Talley
                         Vice Chairman of the Board of
                         Directors and Director

    4/3/97          BY:  /s/ Claude Fernandez
 --------------          ---------------------
     Date                Claude Fernandez
                         Executive Vice President and
                         Chief Administrative Officer
                         (Principal Financial Officer)

    4/3/97          BY:  /s/ Michael D. Roberts
 --------------          -----------------------
     Date                Michael D. Roberts
                         First Vice President and Controller
                         (Principal Accounting Officer)

                                      -17-
<PAGE>
 
                                          APPENDIX A TO FORM 10-K



                        CORPORATE PROPERTY ASSOCIATES 4,
                        A CALIFORNIA LIMITED PARTNERSHIP



                                  1996 ANNUAL REPORT
<PAGE>
 
SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------



(In thousands except per unit amounts)
<TABLE>
<CAPTION>
                                     1992     1993     1994       1995       1996
                                    -------  -------  -------  -----------  -------
<S>                                 <C>      <C>      <C>      <C>          <C>
OPERATING DATA:
 
 Revenues                           $ 8,723  $ 9,253  $ 8,443  $ 8,062      $ 9,322
 
 Income before
   extraordinary item (1):            3,698    4,741    4,443    8,679        6,914
 
 
 Income before extraordinary
   item allocated:
  To General Partners                   222      284      266      879         415
  To Limited Partners                 3,476    4,457    4,177    7,800       6,499
  Per unit                            40.63    52.08    48.81    91.16       75.95
 
 Distributions attributable (2):
  To General Partners                   290      292      293      323         268
  To Limited Partners                 4,539    4,570    4,590    8,667       4,193
  Per unit                            53.04    53.41    53.64   101.29 (3)   49.00
 
Payment of mortgage
principal (4)                           645      806    1,168    1,158         898
 

BALANCE SHEET DATA:

Total assets                         58,331   57,497   56,108   48,508      42,067

Long-term
obligations (5)                      10,029   26,418   24,999   18,540       9,796
</TABLE> 


(1) Net income for 1993 includes an extraordinary gain on the extinguishment
    debt of $345,000
(2) Includes distributions attributable to the fourth quarter of each fiscal
    year payable in the following fiscal year less distributions in the first
    fiscal quarter attributable to the prior year.
(3) The 1995 figure includes a $50 per Unit special distribution to the Limited
    Partners.
(4) Represents scheduled mortgage principal amortization paid.
(5) Represents mortgage obligations due after more than one year.

                                      -1-
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------


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

  Net Income for the year ended December 31, 1996 decreased by $1,765,000 as
compared with the prior year, primarily due to a gain in 1995 of $3,330,000 on
the sale of real estate.  The increase in income before gains on sale of
$1,565,000 as compared with the prior year was primarily due to an increase in
lease revenues and a decrease in interest expense.  In addition, cash provided
by operating activities increased by $1,068,000.

  The increase in lease revenues was attributable to the May 1996 lease
extension agreement with Hughes Markets, Inc. ("Hughes").  Under the extension
agreement, annual rent increased by $1,843,000 for the two-year extension term
and Hughes agreed to pay a lump sum rental payment of $2,913,000 at the end of
the term.  For financial reporting purposes, rent in 1996 includes a pro rata
portion of the lump sum payment being recognized as rental revenue on a
straight-line basis over the extension term.  Of the increased revenues reported
from the Hughes lease in 1996, $1,314,000 was due to the increases in rents
received and $971,000 was due to the recognition of the straight-line adjustment
required under generally accepted accounting principles.  On both a reporting
and a cash flow basis, the increase from the Hughes lease more than offset the
loss of $1,048,000 of lease revenues earned in 1995 from the Genesco, Inc.
("Genesco") lease.  The Genesco property was sold in June 1995.  The decrease in
interest expense was due to the transfer of the debt obligation on the hotel
property in July 1996, the continuing principal amortization on other mortgage
debt, the payment of the loan on the Genesco property in June 1995, and the
$4,500,000 partial prepayment of the loan collateralized by the Winn-Dixie
Stores, Inc. ("Winn-Dixie"), Family Dollar Stores, Inc. ("Family Dollar") and
Continental Casualty Company (""Continental") properties in November 1996.  Of
the $584,000 decrease in interest expense, $263,000 was due to satisfaction of
the Genesco loan in 1995 and $144,000 was due to the decrease from the transfer
of the loan on the hotel property in July 1996 as interest was incurred on that
loan for the entire year in 1995.

  Net income increased by $4,235,000 for the year ended 1995 as compared with
1994.  Of this increase, $3,330,000 was attributable to the gain on the sale of
the Genesco property in 1995.  Of the $905,000 increase in income before gains
on sale, $340,000 was due to an increase in hotel operating income, $184,000 was
due to several nonrecurring items which are included in other income in 1995 on
the accompanying financial statements with the remaining increase primarily due
to a decrease in property expenses and an increase in interest income.  The
decrease in lease revenues and interest expense was primarily attributable to
the sale of the Genesco property and repayment of the Genesco mortgage loan in
connection with the sale.  Interest expense decreased by $297,000, almost
entirely as a result of the payoff of the Genesco loan upon the sale of the
Genesco property in June 1995.  Interest expense relating to other fixed rate
mortgage loans decreased by $63,000 due to declining balances on those loans.
The interest on the Partnership's sole variable rate loan increased by $61,000
due to increases in interest rates.  The decrease in property expense in 1995
was primarily due to approximately $538,000 of costs incurred in 1994 related to
the evaluation of the Partnership's liquidity alternatives which costs included
environmental reviews and property valuations.  Other interest income increased
due to higher cash balances generated from the sale of the Genesco property and
higher interest rates during the year.  Leasing revenues decreased by $713,000
in 1995 solely as a result of the Genesco sale.  As a result of the sale,
Genesco rentals were $1,048,000 lower in 1995 than in 1994.  The decrease
resulting from the Genesco sale was partially offset by revenue increases of
$313,000 from the rental of the Salisbury, North Carolina property to Family
Dollar  for the full year, as such property had been vacant for a period in
1994, a rent increase resulting from a lease modification with Continental, a
modest increase from the lease with Petrocon Engineering, Inc. ("Petrocon") and
a rent increase in November 1995 on the lease with Hughes.

  In July 1996, the Partnership exchanged its ownership interests in the hotel
property in exchange for 427,000 units in American General Hospitality Operating
Partnership L.P. (the "Operating Partnership") at which time the Partnership
transferred the hotel operation to the Operating Partnership.  Although
operation of the hotel represented approximately 25% of earnings in 1994 and
1995 (exclusive of the gain on the sale of real estate), Management believes
that the Partnership would have had to continue to invest significant resources
to fund the capital improvements needed to keep the operation competitive.  The
Partnership realized cash flow after debt service in 1995 of $1,024,000;
however, the Partnership funded

                                      -2-
<PAGE>
 
improvements of $690,000 in 1994.  Management expects that the exchange will
eliminate the uncertainty and fluctuation in cash flow related to operating a
single hotel as the operating partnership owns a diversified portfolio of hotel
properties.  For the five-month period since the exchange, the Partnership has
received approximately $290,000 in distributions (including a distribution in
January 1997 for the quarter ended December 31, 1996) and for the year ended
December 31, 1996 recognized equity income of $265,000.  On an annualized basis,
distributions from this investment, at current distribution rates, approximate
$700,000.  In July 1997 the Partnership will have the right to exchange its
427,000 units on a one-for-one basis for shares of common stock of American
General Hospitality Corporation ("AGH").  AGH is a publicly-traded real estate
investment trust.  The quoted market value of a share of AGH common stock at
March 15, 1997 was $28 resulting in an aggregate value of approximately
$11,956,000.  The carrying value of this investment as of December 31, 1996 was
approximately $4,000,000.

  The Partnership's lease with Family Dollar has been extended from April 30,
1997, to March 1998.  Annual rent from the Family Dollar lease is currently
$562,000.  If the property is vacated, the Partnership estimates the annual
carrying costs for insurance, real estate and maintenance and security would be
approximately $80,000.  In addition to the lump sum rental payment due from
Hughes in April 1998, rent increases are scheduled in 1998 on the leases with
Brodart, Co. ("Brodart"), Simplicity Manufacturing, Inc. ("Simplicity") and
Continental.  As a result of satisfying the loan on the hotel property in
connection with the exchange transaction, the partial prepayment of $4,500,000
on the variable rate loan collateralized by three Partnership properties and a
payment in March 1997 to pay off the remaining balance on the variable rate
loan, interest expense will decrease significantly.

  The Partnership's lease for an office building in Beaumont, Texas with
Petrocon is not a net lease and, therefore, the Partnership pays real estate
taxes, insurance and maintenance costs; however, the lease includes certain
escalation provisions so that as certain operating costs increase, a portion of
such increases are passed through to the tenant.  The lease with Petrocon, which
has been extended by one year through December 1998, provided gross rentals of
$371,000 in 1996.  Any renewals or extensions of the lease will be subject to
the prevailing market conditions in Beaumont at that time.  Management believes
that the prospects for further lease renewals are positive, although there can
be no assurance that the Petrocon lease will be extended.  When the Hughes lease
extension ends in April 1998, the Partnership expects that rents will not
sustain a similar level with any new lessee.  Although the lease provides Hughes
with a holdover period of up to six months, the Partnership is currently engaged
in attempting to remarket the property in order to try to prevent any extended
period of vacancy at the property.  The Partnership is currently evaluating
whether it will need to invest any resources in retrofitting the facility for
other uses after the Hughes lease term ends.

  The Partnership's leases are primarily net leases and long-term in nature and,
as such, inflation and changing prices have not unfavorably affected the
Partnership's revenue and net income nor have they had an impact on the
continuing operations of the Partnership's properties.  Substantially all of the
Partnership's net leases have either periodic mandated rent increases, periodic
rent increases based on formulas indexed to increases in the Consumer Price
Index ("CPI") or sales overrides which have the potential to increase the future
rentals from the Partnership's current tenants.  Future rent increases may be
affected by changes in the method of how the CPI is calculated.  Although there
are indications that there may be legislation which considers changes to the
method of how the CPI is calculated, the Partnership cannot predict the outcome
of any proposal relating to the CPI formula.

  Financial Condition
  -------------------

  Other than the Salisbury and Beaumont properties which are subject to short-
term leases, the Partnership's properties are net leased to corporate tenants.
Under a net lease, the tenants are generally required to pay all operating
expenses relating to the leased properties.  The Partnership depends on a stable
cash flow from net leases to meet operating expenses, service its debt, fund
distributions and maintain adequate cash reserves.  In addition, the Partnership
maintains a cash reserve to fund major outlays such as capital improvements and
balloon debt payments.  Such expenditures may also be funded from additional
borrowing on the Partnership's real estate portfolio.

  Since its inception, the Partnership has distributed a substantial portion of
its cash flow to its partners.  Cash flows provided from operations of
$7,168,000 in 1996 was sufficient to pay $4,453,000 of

                                      -3-
<PAGE>
 
quarterly distributions from operations to partners and scheduled mortgage
principal installments of $898,000.  As cash flow from operating activities may
exceed earnings, distributions to partners may also be in excess of net income.
During the five-year period ended December 31, 1996, distributions have exceeded
net income for three of the years including 1995 when a special distribution of
$50 per Limited Partnership Unit was declared and paid.  Management gives
primary consideration to projections of the Partnership's cash flows provided
from operations and/or investing activities as well as the current cash balances
rather than reported earnings in determining distributions.  Reported earnings
are reduced by charges which do not impact operating cash flow such as
depreciation and amortization.

  The Partnership's investing activities in 1996 primarily consisted of
converting its interest in a hotel property in Kenner, Louisiana to units in the
Operating Partnership.  With this investment, the Partnership's need to commit
funds for capital improvements has been substantially reduced.

  The Partnership's  financing activities consist of using cash provided from
operating activities to pay quarterly distributions to partners and meeting
scheduled principal payments on the Partnership's mortgage debt.  In November
1996, the Partnership made a partial prepayment of $4,500,000 from its cash
reserves on a loan collateralized by three Partnership properties.  The loan
with a balance of $2,450,000 at December 31, 1996, scheduled to mature in June
1998, provides for a floating interest rate at the London Inter-Bank Offered
Rate plus 3% per annum.  The loan was satisfied in March 1997 when the entire
outstanding principal balance was prepaid.

  As a real estate investment trust, AGH has an obligation to distribute 95% of
its taxable income in order to retain its special Federal income tax status.
Since AGH owns a majority of the operating partnership limited partnership
units, the operating partnership may be expected to distribute a significant
portion of its cash flow so that AGH can meet the tax distribution objective.
Accordingly, with the exchange, the Partnership should achieve less fluctuation
in cash flow.  Further, with the option to exchange operating partnership units
for AGH shares, the Partnership will have the opportunity to sell its interests
at a readily determinable market value.

  The Partnership's cash balances have decreased to $4,669,000 at December 31,
1996 from $7,579,000 at December 31, 1995 primarily due to the loan prepayment.
The Partnership's cash balances will continue to benefit from the Hughes lease
extension which contributed $1,228,000 to 1996 annual cash flow; however, the
lease with Hughes is scheduled to end in April 1998.  Additionally, the
Partnership's cash balances will benefit from the $2,913,000 lump sum payment
due at that time.  Given these conditions, management expects to be able to
sustain the rate of distributions.  As a result of its ability to maintain
adequate cash reserves, the Partnership has no lines of credit or other short-
term financing arrangements.  Management believes the Partnership has additional
borrowing capacity based on its operating cash flow and the unleveraged portion
of its real estate portfolio; however, there are currently no plans to utilize
such capacity.

  Cash balances may be affected by the Partnership's ability to refinance
balloon payments scheduled for 1998 on the mortgage loan on the property leased
to Simplicity and a loan collateralized by three properties.  In the case of
mortgage financing which does not fully amortize over its term, the Partnership
would be responsible for the balloon payment required only to the extent of its
interest in the encumbered property because the holder of each such obligation
has recourse only to the property collateralizing such debt.  The Partnership
could seek to refinance the loans, restructure the debt with existing lenders,
evaluate its ability to satisfy the mortgages from existing reserves or sell the
property and use the sales proceeds to satisfy the mortgage debt.  When lessees
obligate themselves to remain as tenants, the Partnership's ability to refinance
loans is usually enhanced.  Accordingly, the Partnership believes it should be
successful in refinancing the Simplicity loan; however, this will not be
necessary if Simplicity elects to exercise its option to purchase the property,
as the exercise would occur before the balloon payment is scheduled.

                                      -4-
<PAGE>
 
      Simplicity has a purchase option exercisable in April 1998 for the
greater of $9,684,000 or fair market value capped at $12,000,000.  The
Partnership has entered into preliminary discussions with Simplicity to have
Simplicity remain as a tenant at the property.  In the event that Simplicity
exercises its option, the Partnership could realize no less than $5,362,000
before any necessary costs and after paying the outstanding debt on the mortgage
loan on the property.  Annual cash flow from the property (rents net of debt
service on the mortgage loan) is $934,000.

     All of the Partnership's properties are currently leased to corporate
tenants, which leases are subject to environmental statutes and regulations
regarding the discharge of hazardous materials and related remediation
obligations.  The Partnership generally structures a lease to require the tenant
to comply with all laws.  In addition, substantially all of the Partnership's
net leases include provisions which require tenants to indemnify the Partnership
from all liabilities and losses related to their operations at the leased
properties.  If the Partnership undertakes to clean up or remediate any of its
properties, the General Partners believe that in most cases the Partnership will
be entitled to reimbursement from tenants for such costs.  In the event that the
Partnership absorbs a portion of such costs because of a tenant's failure to
fulfill its obligations, the General Partners believe such expenditures will not
have a material adverse effect on the Partnership's financial condition,
liquidity or results of operations.

     In 1994, the Partnership voluntarily conducted Phase II environmental
reviews of certain of its properties based on the results of Phase I
environmental reviews conducted in 1993.  The Partnership believes, based on the
results of such reviews, that its properties are in substantial compliance with
Federal and state environmental statutes and regulations.  Portions of certain
properties have been documented as having a limited degree of contamination,
principally in connection with surface spills from facility activities.  For
those conditions which were identified, the Partnership advised the affected
tenants of the Phase I findings and of their obligations, if any, to perform
required remediation.

     The General Partners are continuing to investigate ways to provide
liquidity for limited partners on a tax-effective basis.

                                      -5-
<PAGE>
 
                       REPORT of INDEPENDENT ACCOUNTANTS



To the Partners of
 Corporate Property Associates 4,
 a California limited partnership


  We have audited the accompanying balance sheets of Corporate Property
Associates 4, a California limited partnership, as of December 31, 1995 and
1996, and the related statements of income, partners' capital and cash flows for
each of the three years in the period ended December 31, 1996.  We have also
audited the financial statement schedule included on pages 20 to 22 of this
Annual Report.  These financial statements and financial statement schedule are
the responsibility of the General Partners.  Our responsibility is to express an
opinion on these financial statements and financial statement 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 audits 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 the General Partners, 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 Corporate Property Associates
4, a California limited partnership, as of December 31, 1995 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.  In addition, in our opinion, the Schedule of Real Estate and
Accumulated Depreciation as of December 31, 1996, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the financial information required to be included therein
pursuant to Securities and Exchange Commission Regulation S-X Rule 12-28.



                                              /s/ Coopers & Lybrand L.L.P.
New York, New York
March 21, 1997

                                      -6-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                                 BALANCE SHEETS

                           December 31, 1995 and 1996
<TABLE>
<CAPTION>
 
 
                                                       1995         1996
                                                    -----------  -----------
<S>                                                 <C>          <C>
    ASSETS:
Real estate leased to others:
 Accounted for under the
   operating method:
     Land                                           $ 4,294,809  $ 4,294,809
     Buildings                                       22,770,152   22,770,152
                                                    -----------  -----------
                                                     27,064,961   27,064,961
     Accumulated depreciation                        12,626,558   13,487,845
                                                    -----------  -----------
                                                     14,438,403   13,577,116
 Net investment in direct financing leases           18,224,428   18,193,555
                                                    -----------  ----------- 
     Real estate leased to others                    32,662,831   31,770,671
Operating real estate, net of accumulated
 depreciation of $735,950 in 1995                     7,033,830
Cash and cash equivalents                             7,579,071    4,668,645
Accrued interest and rents receivable                   203,651      269,543
Other assets, net of accumulated amortization of
 $435,047 in 1995 and $399,342 in 1996                1,028,692    1,358,488
Equity investment                                                  3,999,632
                                                    -----------  ----------- 

       Total assets                                 $48,508,075  $42,066,979
                                                    ===========  ===========

  LIABILITIES:
Mortgage notes payable                              $19,486,882  $10,699,799
Accrued interest payable                                136,087       82,827
Accounts payable and accrued expenses                   435,977      288,509
Accounts payable to affiliates                           87,461      146,447
Prepaid rental income                                                 46,800
                                                    -----------  ----------- 

       Total liabilities                             20,146,407   11,264,382
                                                    -----------  -----------

Commitments and contingencies

    PARTNERS' CAPITAL:
General Partners                                         62,061      210,626
Limited Partners (85,568 and 85,528
   Limited Partnership Units issued
   and outstanding in 1995 and 1996)                 28,299,607   30,591,971
                                                    -----------  -----------
       Total partners' capital                       28,361,668   30,802,597
                                                    -----------  -----------

       Total liabilities and
       partners' capital                            $48,508,075  $42,066,979
                                                    ===========  ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

                                      -7-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                              STATEMENTS of INCOME

              For the years ended December 31, 1994, 1995 and 1996

<TABLE>
<CAPTION>
                                                    1994         1995         1996
                                                 -----------  -----------  -----------
<S>                                              <C>          <C>          <C>
Revenues:
 Rental income                                    $2,921,429   $3,260,022   $5,546,662
 Interest income from direct financing leases      5,414,500    4,362,928    3,310,601
 Other interest income                               106,798      254,935      370,765
 Other income                                                     183,768       94,345
                                                  ----------   ----------   ----------
                                                   8,442,727    8,061,653    9,322,373
                                                  ----------   ----------   ----------
Expenses:
 Interest on mortgages                             2,396,017    2,098,857    1,515,248
 Depreciation                                      1,141,143    1,149,525      921,702
 General and administrative                          444,307      454,000      447,901
 Property expense                                    983,409      327,528      551,785
 Amortization                                        124,601      113,835       90,529
                                                  ----------   ----------   ----------
                                                   5,089,477    4,143,745    3,527,165
                                                  ----------   ----------   ----------
   Income before income from equity
    investments and gain on sale                   3,353,250    3,917,908    5,795,208

Hotel operating income                             1,090,130    1,430,580      853,262
Income from equity investment                                                  265,056
                                                  ----------   ----------   ----------

   Income before gain on sale                      4,443,380    5,348,488    6,913,526

Gain on sale of real estate                                     3,330,098
                                                  ----------   ----------   ----------

   Net income                                     $4,443,380   $8,678,586   $6,913,526
                                                  ==========   ==========   ==========

Net income allocated to:
 Individual General Partner                       $   44,434   $  205,754   $   69,135
                                                  ==========   ==========   ==========

 Corporate General Partner                        $  222,169   $  672,659   $  345,676
                                                  ==========   ==========   ==========

 Limited Partners                                 $4,176,777   $7,800,173   $6,498,715
                                                  ==========   ==========   ==========

Net income per Limited
 Partnership Unit
 (85,568 Units outstanding in 1994 and
  1995 and 85,548 weighted average Limited
  Partnership Units in 1996):                         $48.81       $91.16       $75.97
                                                  ==========   ==========   ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

                                      -8-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                        STATEMENTS of PARTNERS' CAPITAL

              For the years ended December 31, 1994, 1995 and 1996

<TABLE>
<CAPTION>
                                          Partners' Capital Accounts
                                     -------------------------------------
                                                                             Limited
                                                                             Partners'
                                                    General     Limited      Amount Per
                                        Total       Partners    Partners     Unit  (a)
                                     ------------  ----------  -----------   ----------   
<S>                                  <C>           <C>         <C>           <C>
Balance, December 31, 1993           $29,220,489   $(460,188)  $29,680,677   $ 347

Distributions                         (4,878,286)   (292,697)   (4,585,589)    (54)

Net income, 1994                       4,443,380     266,603     4,176,777      49
                                     -----------   ---------   -----------   -----

Balance, December 31, 1994            28,785,583    (486,282)   29,271,865     342

Distributions                         (9,102,501)   (330,070)   (8,772,431)   (102)

Net income, 1995                       8,678,586     878,413     7,800,173      91
                                     -----------   ---------   -----------   -----

Balance, December 31, 1995            28,361,668      62,061    28,299,607     331

Distributions                         (4,452,597)   (266,246)   (4,186,351)    (49)

Purchase of Limited Partner Units        (20,000)                  (20,000)

Net income, 1996                       6,913,526     414,811     6,498,715      76
                                     -----------   ---------   -----------   -----

Balance, December 31, 1996           $30,802,597   $ 210,626   $30,591,971   $ 358
                                     ===========   =========   ===========   =====
</TABLE>


(a) Based on weighted average Units issued and outstanding during all periods.

The accompanying notes are an integral part of the financial statements.

                                      -9-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                            STATEMENTS of CASH FLOWS
              For the years ended December 31, 1994, 1995 and 1996

<TABLE>
<CAPTION>
                                                                1994          1995           1996
                                                            ------------  -------------  ------------
<S>                                                         <C>           <C>            <C>
Cash flows from operating activities:
  Net income                                                $ 4,443,380   $  8,678,586   $ 6,913,526
  Adjustments to reconcile net income
   to net cash provided by operating activities:
   Depreciation and amortization                              1,265,744      1,263,360     1,012,231
   Cash receipts on operating and direct financing
    leases greater (less) than straight line adjustments
    and amortization of unearned income                          21,994          9,808      (945,667)
   Equity income in excess of distributions received                                        (147,800)
   Gain on sale of real estate                                              (3,330,098)
   Net change in operating assets and liabilities                40,985       (522,176)      335,351
                                                            -----------   ------------   -----------
      Net cash provided by operating activities               5,772,103      6,099,480     7,167,641
                                                            -----------   ------------   -----------


Cash flows from investing activities:
  Proceeds from sale of real estate                                         15,200,000
  Purchase of equity investment and related costs                                           (198,969)
  Additional capitalized costs                                 (845,935)      (246,658)       (8,182)
                                                            -----------   ------------   -----------
      Net cash (used in) provided by
        investing activities                                   (845,935)    14,953,342      (207,151)
                                                            -----------   ------------   -----------


Cash flows from financing activities:
  Distributions to partners                                  (4,878,286)    (9,102,501)   (4,452,597)
  Payments of mortgage principal                             (1,168,014)    (1,158,193)     (898,319)
  Prepayments of mortgages payable                                          (5,722,508)   (4,500,000)
  Deferred financing costs                                         (366)
  Purchase of Limited Partner Units                                                          (20,000)
                                                            -----------   ------------   -----------
      Net cash used in financing activities                  (6,046,666)   (15,983,202)   (9,870,916)
                                                            -----------   ------------   -----------

      Net (decrease) increase in cash and
        cash equivalents                                     (1,120,498)     5,069,620    (2,910,426)

Cash and cash equivalents, beginning of year                  3,629,949      2,509,451     7,579,071
                                                            -----------   ------------   -----------

      Cash and cash equivalents, end of year                $ 2,509,451   $  7,579,071   $ 4,668,645
                                                            ===========   ============   ===========
</TABLE>

Supplemental disclosure of noncash investing and financing activities:

In July 1996, the Partnership exchanged its interest in a hotel property and
related assets and liabilities for 427,008 units in the operating partnership of
a publicly-traded real estate investment trust.  The assets and liabilities
transferred are as follows:

<TABLE>
<CAPTION>
<S>                                                  <C>
    Real estate, net of accumulated depreciation     $ 6,981,597
    Mortgage note payable                             (3,388,764)
    Other assets and liabilities transferred, net         60,030
                                                     -----------
      Equity investment                              $ 3,652,863
                                                     ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

                                      -10-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                         NOTES to FINANCIAL STATEMENTS



1.      Summary of Significant Accounting Policies:
        ------------------------------------------ 

     Use of Estimates:
     ---------------- 

      The preparation of financial statements in conformity with generally
        accepted accounting principles requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities
        and disclosure of contingent assets and liabilities at the date of the
        financial statements and the reported amounts of revenues and expenses
        during the reporting period.  Actual results could differ from those
        estimates.

     Real Estate Leased to Others:
     ---------------------------- 

      Real estate is generally leased to others on a net lease basis.  In a net
        lease the tenant is generally responsible for all operating expenses
        relating to the property, including property taxes, insurance,
        maintenance, repairs, renewals and improvements.

      Corporate Property Associates 4 (the "Partnership") diversifies its real
        estate investments among various corporate tenants engaged in different
        industries and by property type throughout the United States.

      The leases are accounted for under either the direct financing or
        operating methods.  Such methods are described below:

            Direct financing method - Leases accounted for under the direct
            -----------------------                                        
            financing method are recorded at their net investment (Note 5).
            Unearned income is deferred and amortized to income over the lease
            terms so as to produce a constant periodic rate of return on the
            Partnership's net investment in the lease.

            Operating method - Real estate is recorded at cost, revenue is
            ----------------                                              
            recognized as rentals are earned and expenses (including
            depreciation) are charged to operations as incurred.

      The Partnership assesses the recoverability of its real estate assets,
        including residual interests, based on projections of cash flows over
        the life of such assets.  In the event that such cash flows are
        insufficient, the assets are adjusted to their estimated net realizable
        value.

      Substantially all of the Partnership's leases provide for either scheduled
        rent increases, periodic rent increases based on formulas indexed to
        increases in the Consumer Price Index or sales overrides.

     Operating Real Estate:
     --------------------- 

      Land, building and personal property are carried at cost.  Major renewals
        and improvements are capitalized to the property accounts, while
        replacements, maintenance and repairs which do not improve or extend the
        lives of the respective assets are expensed currently.  As more fully
        described in Note 11, the Partnership transferred operating real estate
        in 1996 in connection with an exchange transaction.

                                   Continued

                                     -11-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                    NOTES to FINANCIAL STATEMENTS, Continued


     Depreciation:
     ------------ 

      Depreciation is computed using the straight-line method over the estimated
        useful lives of components of the particular properties, which range
        from 10 to 40 years.

     Cash Equivalents:
     ---------------- 

      The Partnership considers all short-term, highly-liquid investments that
        are both readily convertible to cash and have a maturity of generally
        three months or less at the time of purchase to be cash equivalents.
        Items classified as cash equivalents include commercial paper and money
        market funds.  Substantially all of the Partnership's cash and cash
        equivalents at December 31, 1995 and 1996 were held in the custody of
        three financial institutions.

     Other Assets:
     ------------ 

      Included in other assets are deferred rental income and deferred charges.
        Deferred rental income is the aggregate difference for operating leases
        between scheduled rents which vary during the lease term and income
        recognized on a straight-line basis.  Deferred costs incurred in
        connection with mortgage note refinancings are amortized over the terms
        of the mortgages.


     Equity Investment:
     ----------------- 

      The Partnership's interest in American General Hospitality Operating
        Partnership, L.P. is accounted for under the equity method; i.e. at
        cost, increased by the Partnership's share of earnings or loss and
        reduced by distributions received (see Note 11).

     Income Taxes:
     ------------ 

      A partnership is not liable for Federal income taxes as each partner
        recognizes his proportionate share of the partnership income or loss in
        his tax return.  Accordingly, no provision for income taxes is
        recognized for financial statement purposes.

     Reclassifications:
     ----------------- 

      Certain 1994 and 1995 amounts have been reclassified to conform with the
        1996 presentation.

2.    Partnership Agreement:
      --------------------- 

      The Partnership was organized on August 10, 1982 under the Uniform Limited
        Partnership Act of the State of California for the purpose of engaging
        in the business of investing in and leasing industrial and commercial
        real estate.  The Corporate General Partner purchased 200 limited
        partnership units in connection with the Partnership's public offering.
        The Partnership will terminate on December 31, 2020, or sooner, in
        accordance with the terms of the Amended Agreement of Limited
        Partnership (the "Agreement").

                                   Continued

                                     -12-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                    NOTES to FINANCIAL STATEMENTS, Continued


      The Agreement provides that the General Partners are allocated 6% (1% to
        the Individual General Partner, William P. Carey, and 5% to the
        Corporate General Partner, Carey Corporate Property, Inc.) and the
        Limited Partners are allocated 94% of the profits and losses, except as
        described below, as well as distributions of Distributable Cash From
        Operations, as defined. The partners are also entitled to receive net
        proceeds from the sale of the Partnership properties as defined in the
        Agreement. The General Partners may be entitled to receive a
        subordinated preferred return, measured based upon the cumulative
        proceeds arising from the sale of Partnership assets. Pursuant to the
        subordination provisions of the Agreement, the preferred return may be
        paid only after the limited partners receive 100% of their initial
        investment from the proceeds of asset sales and a cumulative annual
        return of 6% since the inception of the Partnership. The General
        Partners interest in such preferred return amounts to $857,754 based
        upon the cumulative proceeds from the sale of assets since the inception
        of the Partnership through December 31, 1996. The Partnership's ability
        to satisfy the subordination provisions of the Agreement may not be
        determinable until liquidation of a substantial portion of the
        Partnership's assets has been made.

      The Agreement provides that profits from asset dispositions are allocated
        to partners with negative capital balances until such negative balances
        are eliminated.  Accordingly, the General Partners were allocated a
        portion of the 1995 gain on sale of property as well as the related tax
        gain in order to eliminate their negative balances.  The Partnership
        paid a special distribution of $4,321,618 in 1995 related to such sale
        which distribution was allocated 1% to the Individual General Partner
        and 99% to the Limited Partners in accordance with the Agreement.


3.    Transactions with Related Parties:
      --------------------------------- 

      The Partnership's ownership interest in certain properties are jointly
        held with affiliates as tenants-in-common.  The Partnership has an
        83.24% ownership interest in a property which is jointly held.

      Under the Agreement, a division of W.P. Carey & Co., Inc. ("W.P. Carey")
        is also entitled to receive a property management fee and reimbursement
        of certain expenses incurred in connection with the Partnership's
        operations. General and administrative expense reimbursements consist
        primarily of the actual cost of personnel needed in providing
        administrative services necessary for the operation of the Partnership.
        Property management fees and general and administrative expense
        reimbursements are summarized as follows:

<TABLE>
<CAPTION>
                                         1994      1995      1996
                                       --------  --------  --------
        <S>                            <C>       <C>       <C>
        Property management fee        $ 98,187  $ 91,564  $210,254
         General and administrative
          expense reimbursements        160,125    95,644   148,728
                                       --------  --------  --------
                                       $258,312  $187,208  $358,982
                                       ========  ========  ========
</TABLE>

      During 1994, 1995 and 1996, fees aggregating $172,675, $28,683 and
        $68,895, respectively, were incurred for legal services performed by a
        firm in which the Secretary of the Corporate General Partner and other
        affiliates is a partner.

      The Partnership is a participant in an agreement with W.P. Carey and
        certain affiliates for the purpose of leasing office space used for the
        administration of the real estate entities and W.P. Carey and for
        sharing the associated costs.  Pursuant to the terms of the agreement,
        the Partnership's share of rental, occupancy and leasehold improvement
        costs is based on adjusted gross revenues as defined.  Net expenses
        incurred in 1994, 1995 and 1996 were $56,446, $130,986 and $72,775,
        respectively.  The 1995 amount included certain nonrecurring costs
        incurred in connection with the relocation of the Partnership's offices.

                                   Continued

                                     -13-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                    NOTES to FINANCIAL STATEMENTS, Continued


4.      Real Estate Leased to Others Accounted for Under the Operating
        --------------------------------------------------------------
        Method and Operating Real Estate:
        -------------------------------- 

        A. Real Estate Leased to Others
           ----------------------------

           Scheduled future minimum rents, exclusive of renewals, under
            noncancellable operating leases amount to approximately $4,667,000
            in 1997, $4,939,000 in 1998; and $145,000 in each of the years 1999
            through 2001 and aggregate approximately $10,371,000 through 2004.

           Contingent rents were approximately $181,000 in 1994, $195,000 in
            1995 and $91,000 in 1996.

        B. Operating Real Estate:
           --------------------- 

           Operating real estate, at cost, as of December 31, 1995 is summarized
           as follows:

<TABLE>
           <S>                                   <C>
           Land                                  $  850,000
           Building                               6,818,635
           Personal property                        101,145
                                                 ----------
                                                  7,769,780
           Less: Accumulated depreciation           735,950
                                                 ----------
                                                 $7,033,830
                                                 ==========
</TABLE>

      The Partnership disposed of its operating real estate in 1996 (see Note
        11).


5.  Net Investment in Direct Financing Leases:
    ----------------------------------------- 

    Net investment in direct financing leases is summarized as follows:

<TABLE>
<CAPTION>
                                                 December 31,
                                           ------------------------
                                              1995         1996
                                           -----------  -----------
<S>                                        <C>          <C>
   Minimum lease payments
     receivable                            $28,653,756  $26,038,257
            Unguaranteed residual value     13,382,979   13,382,979
                                           -----------  -----------
                                            42,036,735   39,421,236
            Less: Unearned income           23,812,307   21,227,681
                                           -----------  -----------
                                           $18,224,428  $18,193,555
                                           ===========  ===========
</TABLE>

      Scheduled future minimum rents, exclusive of renewals, under
        noncancellable direct financing leases amount to approximately
        $2,616,000 in each of the years 1997 to 2001; and aggregate
        approximately $26,038,000 through 2008.

      Contingent rents were approximately $1,253,000, $990,000 and $726,000 in
        1994, 1995 and 1996, respectively.

                                   Continued

                                     -14-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                    NOTES to FINANCIAL STATEMENTS, Continued



6.      Mortgage Notes Payable:
        ---------------------- 

      The Partnership's mortgage loans are limited recourse obligations and are
        collateralized by lease assignments and by real property.  The
        encumbered properties have an aggregate carrying amount of $34,208,000,
        before accumulated depreciation.  As of December 31, 1996, mortgage
        notes payable bear interest at rates varying from 7.60% to 10.52% per
        annum and mature from 1998 to 2004.

      Scheduled principal payments during each of the next five years following
        December 31, 1996 and thereafter are as follows:

<TABLE>
<CAPTION>
Year Ending December 31,
-----------------------
<S>                         <C>
 
   1997                      $   903,766
   1998                        6,918,837
   1999                          191,464
   2000                          206,750
   2001                          223,256
   Thereafter                  2,255,726
                             -----------
     Total                   $10,699,799
                             ===========
 
</TABLE>

      Interest paid was $2,408,669, $2,156,609 and $1,568,508 for 1994, 1995 and
        1996, respectively.

7.      Distributions to Partners:
        ------------------------- 

    Distributions are declared and paid to partners quarterly and are summarized
        as follows:

<TABLE>
<CAPTION>
 
Limited
Year Ending                  Distributions Paid to  Distributions Paid to  Partners' Per
December 31,                   General Partners       Limited Partners      Unit Amount
---------------------------  ---------------------  ---------------------  -------------
<S>                          <C>                    <C>                    <C>
 
    1994                             $292,697             $4,585,589          $ 53.59
                                     ========             ==========          =======
    1995:   Quarterly                                                         
            distributions            $286,854             $4,494,031          $ 52.52
                                                                              
            Special                                                           
            distribution                                                      
            - Note 10                  43,216              4,278,400            50.00
                                     --------             ----------          -------
                                     $330,070             $8,772,431          $102.52
                                     ========             ==========          =======
                                                                              
    1996                             $266,246             $4,186,351          $ 48.93
                                     ========             ==========          =======
</TABLE>

    Distributions of $67,039 to the General Partners and $1,050,284 to the
    Limited Partners for the quarter ended December 31, 1996 were declared and
    paid in January 1997.

                                   Continued

                                     -15-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                    NOTES to FINANCIAL STATEMENTS, Continued


8.      Income for Federal Tax Purposes:
        ------------------------------- 

      Income for financial statement purposes differs from income for Federal
        income tax purposes because of the difference in the treatment of
        certain items for income tax purposes and financial statement purposes.
        A reconciliation of accounting differences is as follows:

<TABLE>
<CAPTION>
                                                         1994          1995         1996
                                                     ------------  ------------  -----------
<S>                                                  <C>           <C>           <C>
 
  Net income per Statements of Income                $ 4,443,380   $ 8,678,586   $6,913,526
  Excess tax depreciation                             (1,746,077)   (1,242,601)    (877,624)
  Excess tax gain related to sale of property                        9,318,375
  Cash receipts on operating and direct financing
   leases greater (less) than income recognized                          9,808     (945,667)
  Other                                                 (234,766)     (221,282)     (40,470)
                                                     -----------   -----------   ----------
    Income reported for
   Federal income tax purposes                       $ 2,462,537   $16,542,886   $5,049,765
                                                     ===========   ===========   ==========
</TABLE>

9.      Industry Segment Information:
        ---------------------------- 

      The Partnership's operations consist of the investment in and the leasing
        of industrial and commercial real estate.

      In 1994, 1995 and 1996, the Partnership earned its total leasing revenues
        (rental income plus interest income from direct financing leases) from
        the following lease obligors:

<TABLE>
<CAPTION>
                                      1994      %       1995      %       1996      %
                                   ----------  ----  ----------  ----  ----------  ----
<S>                                <C>         <C>   <C>         <C>   <C>         <C>
 
 Hughes Markets, Inc.............  $1,429,421   17%  $1,443,715   19   $3,714,792   42%
 Simplicity Manufacturing, Inc...   1,996,710   24    1,996,710   26    1,996,710   22
 Brodart Co......................   1,322,770   16    1,318,708   17    1,313,891   15
 Continental Casualty Company....     709,027    9      755,614   10      759,849    9
 Family Dollar Stores, Inc.......     280,800    3      547,200    7      556,800    6
 Petrocon Engineering, Inc.......     357,468    4      368,780    5      370,508    4
 Winn-Dixie Stores, Inc..........     144,713    2      144,713    2      144,713    2
 Genesco, Inc....................   2,095,020   25    1,047,510   14
                                   ----------  ---   ----------  ---   ----------  ---
                                   $8,335,929  100%  $7,622,950  100%  $8,857,263  100%
                                   ==========  ===   ==========  ===   ==========  ===
</TABLE>

                                   Continued

                                     -16-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                    NOTES to FINANCIAL STATEMENTS, Continued


10.   Gain on Sale of Real Estate:
      --------------------------- 

      On June 30, 1995, the Partnership sold a property to Genesco, Inc.
        ("Genesco"), the lessee, for $15,200,000.  The Partnership recognized a
        gain on the sale of $3,330,098, net of certain costs.  In connection
        with the sale, the Partnership paid off the limited recourse mortgage
        loan on the property for $5,722,508.

      The Partnership used a portion of the net proceeds of $9,477,492 to pay a
        special distribution to Limited Partners of $4,278,400 ($50 per Limited
        Partnership Unit) and $43,216 to the Individual General Partner.  The
        special distribution was declared and paid in July 1995.


11.  Hotel Property in Kenner, Louisiana:
     ----------------------------------- 

      The Partnership and Corporate Property Associates 8 ("CPA(R):8"), an
        affiliate, purchased a hotel property in Kenner, Louisiana, in June 1988
        as tenants-in-common with 46.383% and 53.617% interests, respectively.
        The Partnership and CPA(R):8 assumed operating control of the hotel in
        1992 after evicting the lessee due to its financial difficulties.  On
        July 30, 1996, the Partnership and CPA(R):8 completed a transaction with
        American General Hospitality Operating Partnership L.P. (the "Operating
        Partnership"), the operating partnership of a newly-formed real estate
        investment trust, American General Hospitality Corporation, ("AGH"), in
        which the Partnership and CPA(R):8 received 920,672 limited partnership
        units (of which the Partnership's share was 427,008 units) in exchange
        for the hotel property and its operations.  In connection with the
        transfer, the Partnership and CPA(R):8 paid a cash contribution of
        $391,221 (of which the Partnership's share was $181,460) and the
        Operating Partnership's assumed the mortgage loan obligation
        collateralized by the hotel property (of which the Partnership's share
        was $3,388,764).  AGH owns an 81.3% equity interest in the Operating
        Partnership

      The exchange of the hotel property for limited partnership units has been
        treated as a nonmonetary exchange for tax and financial reporting
        purposes.  The Partnership's interest in the Operating Partnership is
        being accounted for under the equity method.  After one year, the
        Partnership will have the right to convert its Operating Partnership
        Units to shares of common stock in AGH on a one-for-one basis.  AGH
        completed an initial public offering during 1996.  The Partnership's
        carrying value for the limited partnership units at the time of the
        exchange of $3,851,832 was based on the historical basis of assets
        transferred, net of liabilities assumed by the Operating Partnership;
        cash contributed and costs incurred to complete the exchange.

      As of September 30, 1996, the audited consolidated financial statements of
        AGH reported total assets of $187,870,000 and shareholders' equity of
        $127,408,000 and for the period from inception (July 31, 1996) through
        September 30, 1996, revenues of $5,251,000, income before minority
        interest of $2,850,000 and net income of $2,302,000.  As of March 15,
        1997, AGH's quoted per share market value was $28 resulting in an
        aggregate value of approximately $11,956,000.  The carrying value of the
        equity interest in the Operating Partnership as of December 31, 1996 was
        approximately $4,000,000.  For the period from July 31, 1996 to December
        31, 1996, the Partnership's share of Operating Partnership earnings was
        $265,056.

      Between January 1995 and July 1996, the Partnership and CPA(R):8 had
        engaged an affiliate of AGH to manage the operations of Kenner on their
        behalf.

                                   Continued

                                     -17-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                    NOTES to FINANCIAL STATEMENTS, Continued



      Summarized operating results of the Partnership's share of the hotel
        operation through the date of disposal (July 30,1996) are as follows:

<TABLE>
<CAPTION>
                                               1994          1995          1996
                                           ------------  ------------  ------------
<S>                                        <C>           <C>           <C>
  Revenues                                 $ 3,127,894   $ 3,834,671   $ 2,314,569
  Fees paid to hotel management company        (95,660)     (112,713)      (83,062)
  Other operating expenses                  (1,942,104)   (2,291,378)   (1,378,245)
                                           -----------   -----------   -----------
 
  Hotel operating income                   $ 1,090,130   $ 1,430,580   $   853,262
                                           ===========   ===========   ===========
</TABLE>

12.  Property Leased to Hughes Markets, Inc.:
     --------------------------------------- 

      The Partnership and Corporate Property Associates 3 ("CPA(R):3"), an
        affiliate, own a dairy processing facility in Los Angeles, California as
        tenants-in-common with 83.24% and 16.76% ownership interests,
        respectively.  On May 1, 1996, the Partnership and CPA(R):3 entered into
        a lease amendment agreement with the lessee, Hughes Markets, Inc.
        ("Hughes"), to extend the lease term from April 30, 1996 to April 30,
        1998.  Under the extension agreement, Hughes' monthly rent increased to
        $336,166 (of which the Partnership's share is $279,825) from $151,686
        (of which the Partnership's share was $126,266).  At the end of the
        lease term, Hughes is obligated to pay a lump sum rental payment of
        $3,500,000 (of which the Partnership's share will be approximately
        $2,913,000).  Hughes has an option to extend the lease on a month-to-
        month basis for up to six months at a rental of $500,000 per month.

      In accordance with the lease amendment agreement, Hughes has provided the
        Partnership and CPA(R):3 with an irrevocable letter of credit in the
        amount of $3,500,000, an amount equal to Hughes' lump sum payment
        obligation.  For financial reporting purposes, the Partnership's share
        of the $3,500,000 lump sum rental payment due at the end of the lease
        term is being recognized on a straight-line basis over the lease
        extension term.  For the year ended December 31, 1996, the difference
        between scheduled rents under the lease and rent recognized for
        financial reporting purposes with the adjustment for the lump sum
        payment was $971,133.


13.     Environmental Matters:
        --------------------- 

      Based on the results of Phase I environmental reviews performed in 1993,
        the Partnership voluntarily conducted Phase II environmental reviews on
        certain of its properties in 1994.  The Partnership believes, based on
        the results of Phase I and Phase II reviews, that its properties are in
        substantial compliance with Federal and state environmental statutes and
        regulations.  Portions of certain properties have been documented as
        having a limited degree of contamination, principally in connection with
        surface spills from facility activities.  For the conditions that were
        identified, the Partnership has advised the affected tenants of the
        Phase II findings and of their obligations to perform required
        remediation.

                                      -18-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

                    NOTES to FINANCIAL STATEMENTS, Continued



      All of the Partnership's properties are subject to environmental statutes
        and regulations regarding the discharge of hazardous materials and
        related remediation obligations.  All of the Partnership's properties
        are currently leased to corporate tenants.  The Partnership generally
        structures a lease to require the tenant to comply with all laws.  In
        addition, substantially all of the Partnership's net leases include
        provisions which require tenants to indemnify the Partnership from all
        liabilities and losses related to their operations at the leased
        properties.  The costs for remediation, which are expected to be
        performed and paid by the affected tenant, are not expected to be
        material.  In the event that the Partnership absorbs a portion of any
        costs because of a tenant's failure to fulfill its obligations, the
        General Partners believe such expenditures will not have a material
        adverse effect on the Partnership's financial condition, liquidity or
        results of operations.



14.     Disclosures About Fair Value of Financial Instruments:
        ------------------------------------------------------

      The carrying amounts of cash, receivables and accounts payable and accrued
        expenses approximate fair value because of the short maturity of these
        items.

      The Partnership estimates that the fair value of mortgage notes payable at
        December 31, 1996 approximates the carrying value of such mortgage notes
        at December 31, 1996.  The fair value of debt instruments was evaluated
        using a discounted cash flow model with discount rates which take into
        account the credit of the tenants and interest rate risk.

                                      -19-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

              SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION

                            as of December 31, 1996

<TABLE>
<CAPTION>
                                           Initial Cost to          Cost                          Gross Amount at which Carried  
                                             Partnership        Capitalized     Decrease In     Carried at Close of Period  (d)(e)  
                                       ----------------------   Subsequent to       Net        -------------------------------------
Description              Encumbrances     Land      Buildings  Acquisition (a)  Investment (b)    Land       Buildings      Total   
-----------              ------------  ----------  ----------- ---------------  -------------- -----------  -----------  -----------
<S>                      <C>           <C>          <C>           <C>           <C>              <C>          <C>          <C>
Operating method:                                                                         
Dairy processing,                                                                         
 distribution and                                                                         
 office facilities                                                                        
 leased to Hughes                                                                         
 Markets, Inc.                         $1,689,536   $ 8,073,617   $ 21,643                    $1,711,179   $ 8,073,617  $ 9,784,796
                                                                                          
Office building in                                                                        
 Beaumont, Texas                                                                          
 partially leased                                                                         
 to Petrocon                                                                              
 Engineering, Inc.                        510,000     4,490,000    612,462      $(4,346,960)     278,801       986,701    1,265,502
                                                                                            
                                                                                            
Office, manufacturing                                                                       
 and warehouse                                                                              
 buildings leased to                                                                        
 a subsidiary of                                                                            
 Continental Casualty                                                                       
 Company                 $1,311,193     1,800,000     6,710,638    105,000                     1,800,000     6,815,638    8,615,638
                                                                                            
Warehouse and                                                                               
 distribution center                                                                        
 leased to Family                                                                           
 Dollar Stores, Inc.        946,865       291,540     5,708,460    153,179                       291,540     5,861,639    6,153,179
                                                                                            
Supermarket leased                                                                          
 to Winn-Dixie                                                                              
 Stores, Inc.               191,942       213,289     1,032,557                                  213,289     1,032,557    1,245,846
                         ----------    ----------   -----------  ----------     -----------   ----------   -----------  -----------
                         $2,450,000    $4,504,365   $26,015,272  $  892,284     $(4,346,960)  $4,294,809   $22,770,152  $27,064,961
                         ==========    ==========   ===========  ==========     ===========   ==========   ===========  ===========
<CAPTION>
                                                                Life On which
                                                                Depreciation
                                                                  in Latest
                                                                 Statement of
                                Accumulated                         Income
Description                  Depreciation (e)   Date Acquired    is computed
-----------                  ----------------   -------------   -------------
<S>                          <C>                <C>             <C>
Operating method:            
Dairy processing,            
 distribution and            
 office facilities           
 leased to Hughes            
 Markets, Inc.                 $ 5,361,496      June 1, 1983     10-36 YRS.
                             
Office building in           
 Beaumont, Texas             
 partially leased            
 to Petrocon                 
 Engineering, Inc.                 498,078      August 11, 1983  30 YRS.      
                             
                             
Office, manufacturing        
 and warehouse               
 buildings leased to         
 a subsidiary of             
 Continental Casualty                           October 20,
 Company                         5,115,164         1983          15-40 YRS.
                             
Warehouse and                
 distribution center         
 leased to Family                               December 16,
 Dollar Stores, Inc.             2,069,770         1983          30 YRS.
                             
Supermarket leased           
 to Winn-Dixie                                  March 12,
 Stores, Inc.                     443,337          1984          30 YRS.
                              -----------  
                              $13,487,845
                              ===========
</TABLE>

See accompanying notes to Schedule.

                                      -20-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

              SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION

                            as of December 31, 1996



 
<TABLE>
<CAPTION>
 
 
                                                 Initial Cost to                        Gross Amount at which Carried
                                                   Partnership         Decrease In          at Close of Period  (d)
                                           -------------------------        Net        -----------------------------
Description                  Encumbrances     Land        Buildings    Investment (c)             Total               Date Acquired
--------------------------   ------------  ----------  -------------  ---------------  -----------------------------  -------------
<S>                          <C>           <C>         <C>            <C>              <C>                            <C>
Direct financing method:
Manufacturing and
 product testing
 buildings leased
 to Simplicity
 Manufacturing, Inc.          $5,031,101    $472,700     $11,527,300                             $12,000,000          March 3, 1983
 
Manufacturing,
 distribution and
 office buildings
 leased to
 Brodart Co.                   3,218,698     241,550       6,141,429   $  (189,424)                6,193,555          June 15, 1988
                              ----------    --------     -----------   -----------               -----------
                              $8,249,799    $714,250     $17,668,729   $  (189,424)              $18,193,555
                              ==========    ========     ===========   ===========               ===========
</TABLE>

See accompanying notes to Schedule.

                                      -21-
<PAGE>
 
                        CORPORATE PROPERTY ASSOCIATES 4,
                        a California limited partnership

         NOTES TO SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION



   (a) Consists of the cost of improvements and acquisition costs, including
       legal fees, appraisal fees, title costs and other related fees.

   (b) Represents writedowns of property to net realizable value.

   (c) The decrease in net investment is due to the amortization of unearned
       income producing a constant periodic rate of return on the net
       investment, which is less than lease payments received.

   (d) At December 31, 1996, the aggregate cost of real estate owned for
       Federal income tax purposes is $49,794,900.

   (e)

<TABLE>
<CAPTION>
                           Reconciliation of Real Estate Accounted
                           ---------------------------------------
                              for Under the Operating Method
                              ------------------------------
 
                                         December 31,
                                   ------------------------
                                      1995         1996
                                   -----------  -----------
<S>                                <C>          <C>
     Balance at beginning
       of period                   $26,959,961  $27,064,561
 
     Additions during period           105,000
                                   -----------  -----------
 
     Balance at close of period    $27,064,961  $27,064,961
                                   ===========  ===========
</TABLE>


<TABLE>
<CAPTION>
                           Reconciliation of Accumulated Depreciation
                           ------------------------------------------
 
                                         December 31,
                                   ------------------------
                                      1995         1996
                                   -----------  -----------
<S>                                <C>          <C>
     Balance at beginning
       of period                   $11,717,884  $12,626,558
 
     Depreciation expense for
       the period                      908,674      861,287
                                   -----------  -----------
 
     Balance at close of period    $12,626,558  $13,487,845
                                   ===========  ===========
</TABLE>

                                      -22-
<PAGE>
 
PROPERTIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEASE              TYPE OF OWNERSHIP
OBLIGOR            TYPE OF PROPERTY        LOCATION           INTEREST
-----------------  -----------------     ------------      ---------------
<S>                <C>                   <C>               <C>
HUGHES MARKETS,    Land and Dairy        Los Angeles,      Ownership of an
INC.               Processing/           California        83.24% interest
                   Distribution                            in land and
                   Facilities                              buildings


SIMPLICITY         Land and Manufac-     Port Washington,  Ownership of land
MANUFACTURING,     turing/Product        Wisconsin         and buildings (1)
INC.               Testing Buildings
                   - 2 locations


CONTINENTAL        Land and Office,      College Station,  Ownership of land
CASUALTY COMPANY   Manufacturing         Texas             and buildings
                   and Warehouse
                   Buildings


BRODART CO.        Land and Manufac-     Williamsport,     Ownership of land
                   turing, Distribution  Pennsylvania      and buildings (1)
                   and Office Buildings
                   - 2 locations


FAMILY DOLLAR      Land and Warehouse/   Salisbury,        Ownership of land
STORES, INC.       Distribution Center   North Carolina    and buildings


PETROCON           Land and Office       Beaumont, Texas   Ownership of land
ENGINEERING,       Building                                and building
INC.


WINN-DIXIE         Land and Supermarket  Leeds, Alabama    Ownership of land
STORES, INC.                                               and building
</TABLE> 

(1)  These properties are encumbered by mortgage notes payable.

                                      -23-
<PAGE>
 
MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED
     UNITHOLDER MATTERS
--------------------------------------------------------------------------------

  Except for limited or sporadic transactions, there is no established public
trading market for the Limited Partnership Units of the Partnership.  As of
December 31, 1996 there were 3,034 holders of record of the Limited Partnership
Units of the Partnership.

  In accordance with the requirements of the Partnership's Amended Agreement of
Limited Partnership (the "Agreement") contained as Exhibit A to the Prospectus,
the Corporate General Partner expects to continue to make quarterly
distributions of Distributable Cash From Operations as defined in the Agreement.
The following table shows the frequency and amount of distributions paid per
Unit since 1993:

<TABLE>
<CAPTION>
                    Cash Distributions Paid Per Unit
                    ---------------------------------
                       1994        1995        1996
                    ----------  -----------  --------
  <S>               <C>         <C>          <C>
  First quarter        $ 13.38     $13.43     $12.20
  Second quarter         13.39      13.44      12.22
  Third quarter          13.40      63.50 (a)  12.24
  Fourth quarter         13.42      12.15      12.27
                       -------    -------     ------
                        $53.59    $102.52     $48.93
                       =======    =======     ======
</TABLE>


(a)  Includes a special distribution of $50 per unit.



REPORT ON FORM 10-K
--------------------------------------------------------------------------------


  The Corporate General Partner will supply to any owner of Limited Partnership
Units, upon written request and without charge, a copy of the Annual Report on
Form 10-K for the year ended December 31, 1996 as filed with the Securities and
Exchange Commission.

                                      -24-