<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                               _________________

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                          COMMISSION FILE NO. 0-17809
         _____________________________________________________________


            COPLEY REALTY INCOME PARTNERS 3; A LIMITED PARTNERSHIP
                                        
            (Exact name of registrant as specified in its charter)


       MASSACHUSETTS                                        04-3005973
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)

 225 FRANKLIN STREET, 25TH FLOOR
    BOSTON, MASSACHUSETTS                                       02110
(Address of principal executive offices)                      (Zip Code)

              Registrant's telephone number, including area code:
                                (617) 261-9000

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

          Securities registered pursuant to Section 12(g) of the Act:
                     Units of Limited Partnership Interest

                               (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.

                              Yes  X     No  ___
                                  ---           

          Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 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]

          No voting stock is held by nonaffiliates of the Registrant .

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------
                                        
                                     None
<PAGE>
 
                                    PART I
                                    ------
                                        
Item 1.   Business.
          -------- 

          Copley Realty Income Partners 3; A Limited Partnership (the
"Partnership") was organized under the Uniform Limited Partnership Act of the
Commonwealth of Massachusetts on February 17, 1988, to invest primarily in newly
constructed and existing income-producing real properties.

          The Partnership was initially capitalized with contributions of $2,000
in the aggregate from Third Income Corp. (the "Managing General Partner") and
GCOP Associates Limited Partnership (the "Associate General Partner")
(collectively, the "General Partners") and $10,000 from Copley Real Estate
Advisors, Inc. (the "Initial Limited Partner"). The Partnership filed a
Registration Statement on Form S-11 (the "Registration Statement") with the
Securities and Exchange Commission on February 23, 1988, with respect to a
public offering of 40,000 units of limited partnership interest at a price of
$1,000 per unit (the "Units") with an option to sell up to an additional 60,000
Units (an aggregate of $100,000,000). The Registration Statement was declared
effective on May 23, 1988.

          The first sale of Units occurred on October 13, 1988, at which time
the Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering terminated and the last group of initial investors was admitted to the
Partnership on June 6, 1989. As of June 6, 1989, a total of 27,641 Units had
been sold, a total of 1,703 investors had been admitted as limited partners (the
"Limited Partners") and a total of $27,140,580 had been contributed to the
capital of the Partnership. The remaining 72,359 Units were de-registered on
June 27, 1989.

          As of December 31, 1998, the Partnership is invested in the two real
property investments described below.  The Partnership has no current plan to
renovate, improve or further develop any of its real property.  In the opinion
of the Managing General Partner of the Partnership, the properties are
adequately covered by insurance.  The Partnership has sold one other investments
during 1997.  The principal terms of the sale of the Partnership's investments
are set forth in the following table:


<TABLE>
<CAPTION>
    INVESTMENT       MONTH/YEAR OF SALE     NET SALE PROCEEDS      DISTRIBUTION/UNIT       DISTRIBUTION
                                                                                             MONTH/YEAR
<S>                  <C>                    <C>                    <C>                     <C>
Investment Three            7/97             $5,715,415              $200.00                 7/97
</TABLE>


          The Partnership has no employees. Services are performed for the
Partnership by the Managing General Partner and affiliates of the Managing
General Partner.

          A.   Industrial Building in Brea, California ("Brea West")
               ---------------------------------------------------- 

               On April 28, 1989, the Partnership acquired a 60% interest in a
joint venture formed with an affiliate of The Muller Company. The Partnership
committed to contribute $8,250,000 to the capital of the joint venture, all of
which was funded. On December 20, 1990, the Partnership increased its investment
in the joint venture by committing to make a deficit loan to the venture in the
maximum amount of $900,000, of which $828,799 was funded. Because the
Partnership's joint venture partner was unable to fund its share of deficits,
the Partnership assumed 100% ownership of the joint venture's assets, effective
June 30, 1991. The property consists primarily of approximately 7.51 acres of
land in Brea, California and a 184,000 square foot industrial facility located
thereon. As of December 31, 1998, the facility was 100% leased to one tenant
until May 2008.
<PAGE>
 
          B.   Industrial Building in Simi Valley, California ("Shasta Way")
               ------------------------------------------------------------ 

               On September 29, 1989, the Partnership acquired a 34.8% interest
in a joint venture formed with Copley Realty Income Partners 4; A Limited
Partnership, an affiliate of the Partnership (the "Affiliate") with a 25.2%
interest, and an affiliate of The Hewson Company (the "Developer"). As of
December 31, 1998, the Partnership had contributed $7,111,757 to the capital of
the joint venture out of a maximum commitment of $7,612,500. Effective January
1, 1996, the joint venture was restructured, resulting in the withdrawal of the
Developer, and the increase of the ownership interests of the Partnership and
its Affiliate to 58% and 42%, respectively. The joint venture agreement entitles
the Partnership and the Affiliate to receive a preferred return on their
respective invested capital at the rate of 10% per annum. The joint venture
agreement also entitles the Partnership to receive 58% of remaining cash flow
and 58% of sale and refinancing proceeds following the return of the
Partnership's and the Affiliate's equity.

               The joint venture owns approximately 12.13 acres of land in Simi
Valley, California and in June 1991 completed construction thereon of a 235,080
square foot industrial building. As of December 31, 1998, the facility was 100%
leased to one tenant until December 2003. The lease includes a five-year renewal
option.
<PAGE>
 
Item 2.  Properties.
         ---------- 

 
          The following table sets forth the annual realty taxes for the
Partnership's properties and information regarding tenants who occupy 10% or
more of gross leasable area (GLA) in the Partnership's properties:

<TABLE>
<CAPTION>
                               ESTIMATED 
                                 1998                                                            ANNUAL
          Property              ANNUAL       NUMBER OF                                          CONTRACT
                                REALTY    TENANTS WITH 10%       NAME(S) OF     SQUARE FEET OF    RENT       LEASE       RENEWAL  
                                 TAXES     OR MORE OF GLA        TENANT(S)       EACH TENANT    PER S. F.  EXPIRATION    OPTIONS  
----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>        <C>               <C>                 <C>             <C>        <C>         <C>        
Industrial Building in Brea,    $ 73,434         1          Nature's Best           184,000        $4.50     11/2008      None   
 CA                                                                                                                               
Industrial Building in Simi     $105,000         1          Bugle Boy               235,080        $5.52     12/2003   One 5-year
 Valley, CA                                                 Industries                                                    option
-----------------------------------------------------------------------------------------------------------------------------------

<CAPTION> 

------------------------------------------------------------------------
                                                  LINE OF BUSINESS   
                                                OF PRINCIPAL TENANTS           
                                               ----------------------          
<S>                                             <C>                            
Industrial Building in Brea,                    Health Food                    
 CA                                             Distributor                    
Industrial Building in Simi                     Apparel Manufacturer            
 Valley, CA                                            
------------------------------------------------------------------------
</TABLE> 

<PAGE>
 
       The following table sets forth for each of the last five years the gross
leasable areas, occupancy rates, rental revenue and net effective rent for the
Partnership's properties:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                                                 NET
                                                                                  RENTAL      EFFECTIVE
                                            GROSS-LEASABLE       YEAR-END        REVENUE         RENT
               PROPERTY                          AREA            OCCUPANCY      RECOGNIZED    ($/SF/YR)/*/
--------------------------------------------------------------------------------------------------------
<S>                                       <C>                  <C>            <C>             <C> 
Industrial Building in Brea, CA
-------------------------------

                 1994                         184,000             100%          $  995,209       $5.41
                 1995                         184,000             100%          $1,001,985       $5.45
                 1996                         184,000             100%          $1,023,187       $5.56
                 1997                         184,000             100%          $  951,224       $5.17
                 1998                         184,000             100%          $  988,047       $4.50
                                                                         
Industrial Building in Simi Valley, CA                                   
--------------------------------------                                   
                 1994                         235,080             100%          $1,157,494       $5.28
                 1995                         235,080             100%          $1,163,851       $4.95
                 1996                         235,080             100%          $1,208,205       $5.14
                 1997                         235,080             100%          $1,205,152       $5.13
                 1998                         235,080             100%          $1,258,609       $5.35
------------------------------------------------------------------------------------------------------
</TABLE> 
 
 /*/   Net Effective Rent calculation is based on average occupancy during the
       respective year.
     
<PAGE>
 
       Set forth below is a schedule of lease expirations for each of the next
ten years for the Partnership's properties based on the annual contract rent in
effect at December 31, 1998:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------- 
                                       TENANT AGING REPORT
                              
          PROPERTY                   # OF LEASE      TOTAL         TOTAL        PERCENTAGE OF
                                    EXPIRATIONS     SQUARE        ANNUAL        GROSS ANNUAL
                                                     FEET
                                                              CONTRACT  RENT*      RENTAL
---------------------------------------------------------------------------------------------  
 
Industrial Building in Brea, CA
-------------------------------
<S>                                 <C>             <C>       <C>               <C>
            1999                            0          0       $        0              0%
            2000                            0          0       $        0              0%
            2001                            0          0       $        0              0%
            2002                            0          0       $        0              0%
            2003                            0          0       $        0              0%
            2004                            0          0       $        0              0%
            2005                            0          0       $        0              0%
            2006                            0          0       $        0              0%
            2007                            0          0       $        0              0%
            2008                            1    184,000       $  828,000            100% 
                                       
Industrial Building in Simi Valley, CA 
-------------------------------------- 
            1999                            0          0       $        0              0%
            2000                            0          0       $        0              0%
            2001                            0          0       $        0              0%
            2002                            0          0       $        0              0%
            2003                            1    235,080       $1,336,571            100%
            2004                            0          0       $        0              0%
            2005                            0          0       $        0              0%
            2006                            0          0       $        0              0%
            2007                            0          0       $        0              0%
            2008                            0          0       $        0              0%
---------------------------------------------------------------------------------------------  
</TABLE> 
 
 
*   Does not include expenses paid by tenants.
<PAGE>
 
      The following table sets forth for each of the Partnership's properties
the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of
depreciation, (iv) life claimed, and (v) accumulated depreciation, with respect
to each property or component thereof for purposes of depreciation:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Depreciable Assets
                                                                Rate of                        Life        Accumulated
           Entity / Property              Tax Basis          Depreciation       Method       in years      Depreciation
                                                                                                          
Brea West                                                                                                 
----------------------------------                                                                        
<S>                                      <C>                 <C>                <C>          <C>           <C>
Building & Improvements                   $ 5,673,186            3.17%            SL            31.5         $1,455,201
Land Improvements                              70,337            6.67%            SL              15             33,844
                                          -----------            ----                                        ----------
Total Depreciable Assets                    5,743,523                                                         1,489,045
                                                                                                            
Shasta Way                                                                                                  
----------------------------------                                                                          
Building & Improvements                     6,643,803            3.17%            SL            31.5          1,498,622
                                          -----------            ----                                        ----------
Total Depreciable Assets                    6,643,803                                                         1,498,622
                                                                                                            
Total Depreciable Assets                  $12,387,326                                                        $2,987,667
                                          ===========                                                        ==========
------------------------------------------------------------------------------------------------------------------------
</TABLE>
SL = Straight-Line
<PAGE>
 
          Following is information regarding the competitive market conditions
for each of the Partnership's properties. This information has been gathered
from sources deemed reliable. However, the Partnership has not independently
verified the information and, as such, cannot guarantee its accuracy or
completeness:

     A.   Industrial Building in Brea, CA.
          --------------------------------

          The property is located within the North Orange County industrial
market. The North Orange County market, which represents 43% of the Orange
County market, includes 2,492 industrial buildings totaling approximately 104
million square feet. New industrial supply in the Orange County market totaled
approximately 3.9 million square feet at year-end 1997. Demand for industrial
space increased approximately 2.7% during 1998, compared to a 6.7% increase in
1997. Year-end 1998 industrial vacancy increased to 7.2% from 6.5% at year-end
1997. Brea continues to be a desirable industrial location due to its close
proximity to Los Angeles County and the central portion of Orange County.


     B.   Industrial Building in Simi Valley, CA.
          -------------------------------------- 

          The property is located within the Simi Valley industrial submarket,
which is part of the Ventura County industrial market.  The Ventura County
industrial market (1,296 industrial buildings, totaling approximately 47.7
million square feet) had a 1998 year-end industrial vacancy rate of
approximately 7.0%, 13% lower than at year-end 1997.  Total 1998 leasing
activity in Ventura County equaled approximately 2.4 million square feet,
approximately 6.7% less than 1997's total activity.  The Simi Valley industrial
sub-market, which consists of 163 industrial buildings totaling approximately
6.9 million square feet, experienced a 1998 year-end vacancy rate of
approximately 9.1%, higher than the 1997 year-end vacancy rate of 7.8% mainly
due to the addition of one new building totaling 281,000 square feet in the
fourth quarter of 1998.

Item 3.   Legal Proceedings.
          ----------------- 

          The Partnership is not a party to, nor are any of its properties
subject to, any material pending legal proceedings.

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

          No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
<PAGE>
 
                                    PART II
                                    -------
                                        
Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.
          --------------------------------------------------------------------- 

          There is no active market for the Units.  Trading in the Units is
sporadic and occurs solely through private transactions.

          As of December 31, 1998, there were 1,710 holders of Units.

          The Partnership's Amended and Restated Agreement of Limited
Partnership dated October 13, 1988, as amended to date (the "Partnership
Agreement"), requires that any Distributable Cash (as defined therein) be
distributed quarterly to the Partners in specified proportions and priorities.
There are no restrictions on the Partnership's present or future ability to make
distributions of Distributable Cash. For the year ended December 31, 1998, cash
distributions paid in 1998, or distributed after year end with respect to 1998
to the Limited Partners as a group totaled $1,437,332. For the year ended 1997,
cash distributions paid in 1997, or distributed after year end with respect to
1997 to the Limited Partners as a group totaled $7,225,081, including $5,528,200
($200 per limited partnership unit), representing proceeds from the sale of one
property.

          Total cash distributions exceeded net income in 1998 and, therefore,
resulted in a reduction of partners' capital.  Regular cash distributions from
operations also exceeded cash provided by operating activities in 1998.
Reference is made to the Partnership's Statement of Partners' Capital (Deficit)
and Statement of Cash Flows in Item 8 hereof.
<PAGE>
 
Item 6.  Selected Financial Data.
         ----------------------- 


<TABLE>
<CAPTION>
                                For Year          Year            For Year        For Year        For Year
                                Ended or         Ended or         Ended or        Ended or        Ended or
                                 As of:           As of:            As of:         As of:          As of:
                                12/31/98        12/31/97 (1)      12/31/96       12/31/95         12/31/94 (2)
                                --------        ------------      --------       ---------        ------------
<S>                             <C>             <C>               <C>            <C>              <C>        
Revenues                        $ 1,454,158     $ 1,673,318       $ 1,993,178    $ 1,749,606      $ 1,650,992


Net Income (Loss)               $   799,412     $ 2,303,492       $ 1,058,287    $ 1,025,324      $(1,451,876)


Net Income (Loss)
per Limited
Partnership Unit                $     28.63     $     82.50       $     37.90    $     36.72      $    (52.00)


Total Assets                    $14,006,600     $14,687,268       $19,622,775    $20,250,786      $20,750,350


Total Cash
Distributions
per Limited
Partnership Unit,
including amounts
distributed after
year end with
respect to such
year                            $     53.00     $    262.39       $     60.00    $     57.50      $     50.00
                                -----------     -----------       -----------    -----------      -----------
</TABLE> 

(1) Net Income in 1997 includes a gain from the sale of one property of
    $1,490,313.  Cash Distributions include a return of capital of $200.00 per
    Limited Partnership Unit.

(2)  Net Income (Loss) in 1994 includes a charge of $2,400,000 related to
     impairment of the carrying value of an investment.
<PAGE>
 
Item 7.
-------

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

Liquidity and Capital Resources
-------------------------------

   The Partnership completed its offering of units of limited partnership
interest in June 1989 and a total of 27,641 units were sold.  The Partnership
received proceeds of $24,458,317, net of selling commissions and other offering
costs, which have been used for investments in real estate, related acquisition
costs, or were retained as working capital reserves.

   On July 22, 1997, the South Bay property was sold to the sole tenant which
exercised the purchase option under its lease for gross consideration of
$5,850,000.  The Partnership received net proceeds of $5,715,415, after closing
costs, and recognized a gain of $1,490,313 ($53.38 per limited partnership unit)
on the sale.  A disposition fee of $29,250 was accrued but not paid to AEW Real
Estate Advisors, Inc. ("AEW").  On July 24, 1997, the Partnership made a capital
distribution of $5,528,200 ($200 per limited partnership unit) from the proceeds
of the sale.  This distribution reduced the adjusted capital contribution to
$800 per unit.

   At December 31, 1998, the Partnership had $2,163,411 in cash, cash
equivalents, and short-term investments, of which $362,963 was used for cash
distributions to partners on January 28, 1999; the remainder is being retained
for working capital reserves.  The source of future liquidity and cash
distributions to partners will be cash generated by the Partnership's real
estate and interest on its cash and cash equivalents.  The annualized
distribution rate related to the first two quarters of 1997 was 6.5% on the
original capital contribution.  The annualized distribution related to the third
and fourth quarters of 1997 was increased to 7.0%, based on the weighted average
adjusted capital contribution of $851.11 and the adjusted capital contribution
of $800, respectively.  The annualized distribution rate relating to all four
quarters of 1998 was 6.5% on the adjusted capital contribution of $800.

   The carrying value of real estate investments in the financial statements at
December 31, 1998 is at depreciated cost, or if the investment's carrying value
is determined not to be recoverable through expected undiscounted future cash
flows, the carrying value is reduced to estimated fair market value.  The fair
market value of such investments is further reduced by the estimated costs of
sale for properties held for sale.  Carrying value may be greater or less than
current appraised value.  At December 31, 1998, the aggregate appraised value of
the Partnership's investments was approximately $3,950,000 greater than their
aggregate carrying value.  The current appraised value of real estate
investments has been estimated by the Managing General Partner and is generally
based on a combination of traditional appraisal approaches performed by AEW and
independent appraisers.  Because of the subjectivity inherent in the valuation
process, the current appraised value may differ significantly from that which
could be realized if the real estate were actually offered for sale in the
marketplace.

Year 2000 Readiness Disclosure
------------------------------

   The Year 2000 Issue is a result of computer programs being written using two
digits rather than four to define the applicable year.  Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000.  This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business operations.

   The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of AEW Real Estate Advisors, Inc., to generate
financial information and to provide other services which are dependent on the
use of computers. The Partnership has obtained assurances from AEW Capital
Management that:

   .   AEW Capital Management has developed a Year 2000 Plan (the "Plan")
       consisting of five phases: inventory, assessment, testing,
       remediation/repair and certification.
<PAGE>
 
   .   As of September 30, 1998, AEW Capital Management had completed the
       inventory and assessment phases of this Plan and had commenced the
       testing and remediation/repair of internal systems.

   .   AEW Capital Management expects to conclude the internal testing,
       remediation/repair and certifications of its Plan no later than June 30,
       1999.

   The Partnership also relies on joint venture partners and/or property
managers to supply financial and other data with respect to its real properties.
The Partnership is in the process of surveying these third party providers and
assessing their compliance with Year 2000 requirements. To date, the Partnership
is not aware of any problems that would materially impact its results of
operations, liquidity or capital resources. However, the Partnership has not yet
obtained written assurances that these providers would be Year 2000 compliant.

   The Partnership currently does not have a contingency plan in the event of a
particular provider or system not being Year 2000 compliant. Such a plan will be
developed if it becomes clear that a provider (including AEW Capital Management)
is not going to achieve its scheduled compliance objectives by June 30, 1999.
The inability of one of these providers to complete its Year 2000 resolution
process could materially impact the Partnership. In addition, the Partnership is
also subject to external forces that might generally affect industry and
commerce, such as utility or transportation company Year 2000 compliance
failures and related service interruptions. Given the nature of its operations, 
the Partnership will not incur any costs associated with Year 2000 compliance. 
All such costs are borned by A.E.W Capital Management and the property managers.

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

       Form of Real Estate Investments

       The Brea West investment is a wholly-owned property.  The South Bay
investment was structured as a joint venture with a real estate
management/development firm.  Effective January 1, 1996, however, the venture
was restructured and the venture partner's ownership interest was assigned to
the Partnership.  Accordingly, as of that date, this investment was accounted
for as a wholly-owned property.  The South Bay investment was sold on July 22,
1997, as discussed above.  The Shasta Way investment had been structured as a
joint venture with a real estate management/development firm and an affiliate of
the Partnership.  As of January 1, 1996, the ownership was restructured, and the
management/development firm's interest was assigned to the Partnership and its
affiliate in proportion to their respective ownership interests.  The
Partnership's ownership percentage increased to 58%.

       Operating Factors

       The Brea West property was 100% leased to a single tenant at December 31,
1998, 1997 and 1996.  A new 11-year lease was signed with the tenant at Brea
West which commenced on September 1, 1997 at a slightly lower rental rate than
the previous rate.

       The South Bay property was 100% leased to a single tenant through the
sale date of July 22, 1997.  The lease term began in May, 1994 for 83% of the
building for the first year, and 100% of the building thereafter through
September, 2001.

       The Shasta Way venture completed the construction of its industrial
facility in 1991.  A lease was executed for 80% of the building commencing April
1, 1993, and as of May 1, 1994, the tenant leased the entire building through
December 31, 1998.  An extension has been agreed upon which will keep the tenant
at Shasta Way through December 31, 2003.

       Two tenants each contributed more than 10% of the rental revenue from the
Partnership's investments (collectively 100%) for 1998.  The two sole tenants at
Brea West and Shasta Way were current with regard to lease payments at December
31, 1998; management is not aware of any impairment in the tenants' ability to
continue to perform in accordance with the terms of their respective leases.
<PAGE>
 
         Investment Results

         1998 Compared to 1997

         Aggregate operating results from real estate investments were $923,198
and $965,851 in 1998 and 1997, respectively. The decline was due to the sale of
the South Bay property in July 1997, resulting in decreased operating income of
approximately $174,000. This decline was partially offset by an increase in
operations at Brea West of $95,000 due to a base rental increase and a decrease
in accounting and legal expenses. Furthermore, joint venture earnings at Shasta
Way increased by $36,000 due to an increase in revenue.

         Interest on cash equivalents and short-term investments decreased by
$9,000 or 8%, due to lower average invested balances, as well as lower
short-term yields.

         Cash provided by operations decreased by approximately $212,000 between
1997 and 1998. The difference is attributable to the decrease in operating
results discussed above, partially offset by the funding of $163,000 in
commissions related to the new lease at Brea West in 1997.

         1997 Compared 1996

         Aggregate real estate operating results were $965,851 and $1,222,744 in
1997 and 1996, respectively. The variance is due to the sale of South Bay
nullifying the opportunity to collect the operating income after the sale. As
previously mentioned, South Bay was sold on July 27, 1997.

         Interest on cash equivalents and short-term investments increased by
$14,000 or 13%, primarily due to an increase in short-term yields as well as a
higher average invested balances.

         Cash flow provided by operations decreased by approximately $306,000
primarily due to the decrease in operating loss discussed above and the funding
of $163,000 in commissions related to the new lease at Brea West.

         Portfolio Expenses

         General and Administrative expenses primarily consist of appraisal,
printing, accounting, legal and servicing agent fees. These expenses decreased
approximately $12,000, or 12% between 1997 and 1998, primarily due to a decrease
in accounting fees as well as decreases in franchise taxes and investor
servicing fees. General and administrative expenses decreased $2,000, or 2%
between 1996 and 1997, primarily due to a decrease in appraisal fees. The
Partnership management fee is 9% of distributable cash flow from operations
after any increase or decrease in working capital reserves, as determined by the
Managing General Partner. Management fees increased in 1996 and 1997 due to the
increases in distributable cash flow.

Inflation
---------

         By their nature, real estate investments tend not be adversely affected
by inflation. Inflation may result in appreciation in the value of the
Partnership's real estate investments over time, if rental rates and replacement
costs increase. Declines in real property values during the period of
Partnership operations, due to market and economic conditions, have overshadowed
the positive effect inflation may have on the value of the Partnership's
investments.

Item 7A.     Quantitative and Qualitative Disclosures about Market Risk:
             ----------------------------------------------------------

The partnership was not party to derivative financial instruments or derivative
commodity instruments at or during the year ended December 31, 1998. The
Partnership's only other financial instruments (as defined by Financial
Accounting Standards Board Statement No. 107) are its cash and cash equivalents
for which cost approximates market value.
<PAGE>
 
Item 8.       Financial Statements and Supplementary Data.
              -------------------------------------------

              See the Financial Statements of the Partnership included as a part
              of this Annual Report on Form 10-K.

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

              The Partnership has had no disagreements with its accountants on
any matters of accounting principles or practices or financial statement
disclosure.


                                   PART III
                                   --------

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

           (a) and (b) Identification of Directors and Executive Officers.

The following table sets forth the names of the directors and executive officers
of the Managing General Partner and the age and position held by each of them as
of December 31, 1998.

<TABLE> 
<CAPTION> 
Name                           Position(s) with the Managing General Partner                     Age
----                           ---------------------------------------------                     ---
<S>                            <C>                                                               <C> 
J. Christopher Meyer, III      President, Chief Executive Officer and Director                   51
Pamela J. Herbst               Vice President and Director                                       43
J. Grant Monahon               Vice President and Director                                       53
James J. Finnegan              Vice President                                                    38
Karin J. Lagerlund             Treasurer and Principal Financial and Accounting Officer          34
</TABLE> 

           (c)    Identification of Certain Significant Employees.
                  -----------------------------------------------

                  None.

           (d)    Family Relationships.
                  --------------------

                  None.

           (e)    Business Experience.
                  -------------------

                  The Managing General Partner was incorporated in Massachusetts
on February 17, 1988. The background and experience of the executive officers
and directors of the Managing General Partner are as follows:

         J. Christopher Meyer, III. joined AEW Real Estate Advisors, Inc.
("AEW") , formerly known as Copley Real Estate Advisors, Inc., in 1987 and has
been an officer at AEW since then. AEW is a subsidiary of AEW Capital
Management, L.P. ("AEW Capital Management"), of which he is also a Director.
Prior to joining AEW, he had senior positions with several regional real estate
development concerns, including Chief Financial Officer of Ford Motor Land
Development Corporation. His career at AEW has included asset management
responsibility for the company's Eastern Region, and portfolio manager for
several commingled real estate funds. Presently, Mr. Meyer has overall
responsibility for all the partnerships advised by AEW whose securities are
registered under the Securities and Exchange Act of 1934, and for several
commingled funds. He received a B.A. in Statistics from Princeton University and
an MBA from the Wharton School of the University of Pennsylvania.

         Pamela J. Herbst directs AEW Capital Management's Institutional Real
Estate Services, with oversight responsibility for the asset and portfolio
management areas. Ms. Herbst is a member of AEW Capital Management's Investment
Policy Group and Management Committee. She came to AEW Capital Management in
December 1996 as a result of the firm's merger with Copley Real Estate Advisors,
Inc., where she held various senior level positions in asset and portfolio
management, acquisitions, and corporate 
<PAGE>
 
operations since 1982. Ms. Herbst is a graduate of the University of
Massachusetts (B.A.) and Boston University (M.B.A.).

         J. Grant Monahon is AEW Capital Management's General Counsel and a
member of the firm's Management Committee and Investment Policy Group. He has
over 25 years of experience in real estate law and investments. Prior to joining
the predecessor of AEW Capital Management in 1987, Mr. Monahon was a partner
with a major Boston law firm. As the head of that firm's real estate finance
department, he represented a wide variety of institutional clients, both
domestic and international, in complex equity and debt transactions. He is the
former Chairman of the General Counsel section of the National Association of
Real Estate Investment Managers. Mr. Monahon is a graduate of Dartmouth College
(B.A.) and Georgetown University Law Center (J.D.).

         James J. Finnegan is the Assistant General Counsel of AEW Capital
Management. Mr. Finnegan served as Vice President and Assistant General Counsel
of Aldrich, Eastman & Waltch, L.P., a predecessor to AEW Capital Management. Mr.
Finnegan has over ten years of experience in real estate law, including seven
years of experience in private practice with major New York City and Boston law
firms. Mr. Finnegan also serves as AEW's securities and regulatory compliance
officer. Mr. Finnegan is a graduate of the University of Vermont (B.A.) and
Fordham University School of Law (J.D.).

         Karin J. Lagerlund directs the Institutional Real Estate Services
Portfolio Accounting Group at AEW Capital Management, overseeing portfolio
accounting, performance measurement and client financial reporting for AEW's
private equity investment portfolios. Ms. Lagerlund is a Certified Public
Accountant and has over ten years experience in real estate consulting and
accounting. Prior to joining AEW Capital Management in 1994, she was an Audit
Manager at EY/Kenneth Leventhal LLP. Ms. Lagerlund is a graduate of Washington
State University (B.A.).

(f)      Involvement in Certain Legal Proceedings.
         ----------------------------------------

         None.

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

         Under the Partnership Agreement, the General Partners and their
affiliates are entitled to receive various fees, commissions, cash
distributions, allocations of taxable income or loss and expense reimbursements
from the Partnership. See Notes 1 and 6 of Notes to Financial Statements.

         The following table sets forth the amounts of the fees and cash
distributions and reimbursements of out-of-pocket expenses which the Partnership
paid to or accrued for the account of the General Partners and their affiliates
for the year ended December 31, 1998. Cash distributions to General Partners
include amounts distributed after year-end with respect to 1998.

<TABLE> 
<CAPTION> 
                                                                                  Amount of Compensation
Receiving Entity                         Type of Compensation                      and Reimbursement
----------------                         --------------------                      -----------------
<S>                                      <C>                                       <C> 
AEW Real Estate Advisors, Inc.           Management Fees and Reimbursement of             $  155,590      
                                         Expenses                                                         
                                                                                                          
General Partners                         Share of Distributable Cash                          14,798      
                                                                                                          
New England Securities Corporation       Servicing Fees and Reimbursement of                   3,014      
                                         Expenses                                                         
                                                                                                          
Back Bay Advisors, L.P.                  Servicing Fee                                         2,014      
                                                                                          ----------      
                                         TOTAL                                            $  175,416      
                                                                                          ==========      
</TABLE> 

         For the year ended December 31, 1998, the Partnership allocated $10,669
of taxable income to the General Partners.
<PAGE>
 
Item 12.      Security Ownership of Certain Beneficial Owners and Management.
              --------------------------------------------------------------

              (a)  Security Ownership of Certain Beneficial Owners.
                   -----------------------------------------------

              As of December 31, 1998, Alexander Hamilton Life Insurance Company
of America, whose address is 2700 Sanders Road, Prospect Heights, IL., 60070,
owned 5,000 Units, approximately 18% of the total number of Units outstanding.
No other person or group is known by the Partnership to be the beneficial owner
of more than 5% of the outstanding Units at December 31, 1997. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain opinions
of counsel or judicial decisions.

              Except as expressly provided in the Partnership Agreement, the
right to manage the business of the Partnership is vested exclusively in the
Managing General Partner.

              (b) Security Ownership of Management.
                  --------------------------------

                  The General Partners of the Partnership owned no Units at
December 31, 1998.

              (c) Changes in Control.
                  ------------------

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

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

              The Partnership has no relationships or transactions to report
other than as reported in Item 11, above.


                                    PART IV
                                    -------


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

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

                  (1) Financial Statements--The Financial Statements listed on
the accompanying Index to Financial Statements and Schedule and Financial
Statements Index No. 2 are filed as part of this Annual Report.

                  (2) Financial Statement Schedules--The Financial Statement
Schedule listed on the accompanying Index to Financial Statements and Schedule
is filed as part of this Annual Report.

                  (3) Exhibits--The Exhibits listed in the accompanying Exhibit
Index are filed as a part of this Annual Report and incorporated in this Annual
Report as set forth in said Index.

              (b) Reports on Form 8-K. No Current Report on Form 8-K was filed
during the fourth quarter of 1998.
<PAGE>
 
                       Copley Realty Income Partners 3;
                             A Limited Partnership








                             Financial Statements


                                 * * * * * * *






                               December 31, 1998
<PAGE>
 
                       COPLEY REALTY INCOME PARTNERS 3;
                             A LIMITED PARTNERSHIP

                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



         Report of Independent Accountants

         Financial Statements

                  Balance Sheets - December 31, 1998 and 1997

                  Statements of Operations - For the Years Ended December 31,
                   1998, 1997 and 1996


                  Statements of Partners' Capital (Deficit) - For the Years
                   Ended December 31, 1998, 1997 and 1996

                  Statements of Cash Flows - For the Years Ended December 31,
                   1998, 1997 and 1996

                  Notes to Financial Statements

         Financial Statement Schedule:

                  Schedule III - Real Estate and Accumulated Depreciation at
                   December 31, 1998, 1997 and 1996
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ---------------------------------

To the Partners

COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

In our opinion, based upon our audits and the reports of other auditors for the
years ended December 31, 1998, 1997 and 1996, the financial statements listed in
the accompanying index present fairly, in all material respects, the financial
position of Copley Realty Income Partners 3; A Limited Partnership (the
"Partnership") at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Third Income Corp., the Managing
General Partner of the Partnership; our responsibility is to express an opinion
on these financial statements based on our audits. We did not audit the
financial statements of the Partnership's Shasta Way joint venture investee for
the year ended December 31, 1996 which results of operations are recorded using
the equity method of accounting in the Partnership's financial statements.
Equity in joint venture income for Shasta Way was $328,348 for the year ended
December 31, 1996. We also did not audit the financial statements of South Bay
Associates, a wholly-owned property, for the year ended December 31, 1996 which
statements reflect operating income of $431,682 for the year then ended. We also
did not audit the financial statements of Brea West, a wholly-owned property,
for the year ended December 31, 1996 which statements reflect operating income
of $891,127 . Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for the equity in joint venture income for
Shasta Way for the year ended December 31, 1996 ,and for operating income for
South Bay Associates and Brea West for the year ended December 31, 1996, is
based solely on the reports of the other auditors. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by the Managing General Partner, and
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors for the years ended December 31, 1998,
1997 and 1996 provide a reasonable basis for the opinion expressed above.




/s/  PricewaterhouseCoopers LLP
-------------------------------
Boston, Massachusetts
March 9, 1999
<PAGE>
 
COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

BALANCE SHEETS


<TABLE> 
<CAPTION> 
                                                                    December 31,                   
                                                        ------------------------------------
                                                          1998                        1997         
                                                        --------                    --------  
<S>                                                   <C>                         <C>  
ASSETS                                            
                                                  
Real estate investments:                          
 Joint ventures                                       $   4,819,346               $  5,071,717       
 Property, net                                            7,023,843                  7,314,926       
                                                      -------------               ------------       
                                                         11,843,189                 12,386,643       
                                                                                                     
Cash and cash equivalents                                 2,163,411                  2,101,633       
Short-term investments                                                                 198,992       
                                                      -------------               ------------       
                                                      $  14,006,600               $ 14,687,268       
                                                      =============               ============       
                                                                                                     
LIABILITIES AND PARTNERS' CAPITAL                                                                    
                                                                                                     
Accounts payable                                      $      52,798               $     50,345       
Accrued management fee                                       35,897                     38,659       
Deferred disposition fee                                     29,250                     29,250       
                                                      -------------               ------------       
Total liabilities                                           117,945                    118,254       
                                                      -------------               ------------       
                                                                                                     
Partners' capital (deficit):                                                                         
 Limited partners ($800 per unit;                                                                    
  100,000 units authorized;                                                                          
  27,641 units issued and outstanding)                   13,936,821                 14,610,376       
 General partners                                           (48,166)                   (41,362)      
                                                      -------------               ------------       
Total partners' capital                                  13,888,655                 14,569,014       
                                                      -------------               ------------       
                                                                                                     
                                                      $  14,006,600               $ 14,687,268       
                                                      =============               ============
</TABLE> 


               (See accompanying notes to financial statements)
<PAGE>
 
COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS

<TABLE> 
<CAPTION> 
                                                         Year ended December 31,                      
                                            --------------------------------------------              
                                               1998               1997           1996                 
                                            -----------       ------------    ----------              
<S>                                         <C>               <C>             <C> 
INVESTMENT ACTIVITY                                                                                   
                                                                                                      
Property rentals                             $   988,047      $ 1,234,451     $1,559,843              
Property operating expenses                     (105,723)        (195,179)      (237,034)             
Depreciation and amortization                   (315,530)        (393,374)      (428,413)             
                                             -----------      -----------     ----------              
                                                 566,794          645,898        894,396              
                                                                                                      
Joint venture earnings                           356,404          319,953        328,348              
                                             -----------      -----------     ----------              
 Gain on sale of property                        923,198          965,851      1,222,744              
                                                                                                      
                                                      --        1,490,313        104,987
                                             -----------      -----------     ----------              
  Total real estate activity                     923,198        2,456,164      1,222,744              
                                                                                                      
Interest on cash equivalents                                                                          
 and short-term investments                      109,707          118,914        104,987              
                                             -----------      -----------     ----------              
                                                                                                      
   Total investment activity                   1,032,905        2,575,078      1,327,731              
                                             -----------      -----------     ----------              
                                                                                                      
PORTFOLIO EXPENSES                                                                                    
                                                                                                      
Management fee                                   143,590          169,519        165,680              
General and administrative                        89,903          102,067        103,764              
                                             -----------      -----------     ----------              
                                                 233,493          271,586        269,444              
                                             -----------      -----------     ----------              
                                                                                                      
NET INCOME                                   $   799,412      $ 2,303,492     $1,058,287              
                                             ===========      ===========     ==========              
                                                                                                      
Net income  per limited                                                                               
  partnership unit                           $     28.63      $     82.50     $    37.90              
                                             ===========      ===========     ==========              
                                                                                                      
Cash distributions per limited               $     53.00      $    262.39     $    60.00              
                                             ===========      ===========     ==========              
  partnership unit                                                                                    
                                                                                                      
Number of limited partnership                                                                         
  units outstanding during the year               27,641           27,641         27,641              
                                             ===========      ===========     ==========               
</TABLE> 

               (See accompanying notes to financial statements)
<PAGE>
 
COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)

<TABLE> 
<CAPTION> 
                                                                        Year ended December 31,            
                                    ----------------------------------------------------------------------------------------------
                                                 1998                                 1997                        1996             
                                     -----------------------------       -----------------------------   -------------------------
                                     General          Limited             General        Limited         General        Limited
                                     Partners         Partners            Partners       Partners         Partner       Partners
<S>                                <C>             <C>               <C>            <C>               <C>            <C> 
Balance at beginning of year       $  (41,362)     $  14,610,376     $   (46,978)   $   19,582,641    $   (40,809)   $ 20,193,397
                                                                                                        
Cash distributions                    (14,798)        (1,464,973)        (17,419)       (7,252,722)       (16,752)     (1,658,460)
                                                                                                        
Net income                              7,994            791,418          23,035         2,280,457         10,583       1,047,704
                                   ----------      -------------     -----------    --------------    -------------   ------------
                                                                                                        
Balance at end of year             $  (48,166)     $  13,936,821     $   (41,362)   $   14,610,376    $   (46,978)   $ 19,582,641 
                                   ===========     =============     ============   ==============    =============   ============
</TABLE> 

               (See accompanying notes to financial statements)
<PAGE>
 
COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

<TABLE> 
<CAPTION> 
                                                                     Year ended December 31,                      
                                                      -----------------------------------------------------
                                                           1998                 1997             1996
                                                           ----                 ----             ----
<S>                                                 <C>                 <C>                <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                         $     799,412       $    2,303,492     $    1,058,287
  Adjustments to reconcile net                                                               
     income to net cash provided                                                             
      by operating activities:                                                               
  Depreciation and amortization                           315,530              393,374            428,413
  Equity in joint venture earnings                       (356,404)            (319,953)          (328,348)
  Cash distributions from joint ventures                  601,959              772,792            694,437
  Gain on sale of property                                      -           (1,490,313)                 -
Increase in deferred lease commission                      (6,911)                   -                  -
Decrease (increase) in investment                                                            
      income receivable                                     2,628                4,492               (681)
  Increase (decrease) in operating                                                           
     liabilities                                             (309)               1,892            (11,085)
  Decrease (increase) in other net assets                 (10,720)            (107,829)            22,751
                                                    -------------       --------------     -------------- 
      Net cash provided by operating activities         1,345,185            1,557,947          1,863,774
                                                    -------------       --------------     -------------- 
                                                                                             
CASH FLOWS FROM INVESTING ACTIVITIES:                                                        
 Net proceeds from sale of property                             -            5,686,165                  -
 Deferred disposition fee                                       -               29,250                  -
 Investment in property                                         -                    -           (186,836)
 Decrease in short-term                                                                      
    investments, net                                      196,364              299,627            101,879
                                                    -------------       --------------     -------------- 
Net cash provided by (used in)                                                               
            investing activities                          196,364            6,015,042            (84,957)
                                                                                             
CASH FLOWS FROM FINANCING ACTIVITY:                                                          
 Distributions to partners                             (1,479,771)          (7,270,141)        (1,675,212)
                                                    -------------       --------------     -------------- 
           Net cash used in financing activity         (1,479,771)          (7,270,141)        (1,675,212)
                                                    -------------       --------------     -------------- 
Net increase (decrease) in cash and cash                                                     
 equivalents                                               61,778              302,848            103,605
Cash and cash equivalents                                                                    
 Beginning of year                                      2,101,633            1,798,785          1,695,180
                                                    -------------       --------------     -------------- 
 End of year                                        $   2,163,411       $    2,101,633     $    1,798,785
                                                    =============       ==============     ==============
</TABLE> 


Non-cash transaction:

         Effective January 1, 1996, the Partnership's joint venture investment
in South Bay/CRIP 3 Associates was converted to a wholly-owned property. The
carrying value of this investment at conversion was $4,180,704.

               (See accompanying notes to financial statements)
<PAGE>
 
COPLEY REALTY INCOME PARTNERS 3;
A LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS
----------------------------------

General
-------

         Copley Realty Income Partners 3; A Limited Partnership (the
"Partnership") is a Massachusetts limited partnership organized for the purpose
of investing primarily in newly constructed and existing income-producing real
properties. The Partnership commenced operations in October 1988, and acquired
the two real estate investments it currently owns prior to the end of 1989. It
intended to dispose of its investments within nine years of their acquisition,
and then liquidate; however, the managing general partner expects to extend the
investment period into 1999, having determined it to be in the best interest of
the limited partners.

         The Managing General Partner of the Partnership is Third Income Corp.,
a wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"), formerly
known as Copley Real Estate Advisors ("Copley"). The associate general partner
is GCOP Associates Limited Partnership, a Massachusetts limited partnership.
Subject to the Managing General Partner's overall authority, the business of the
Partnership is managed by AEW pursuant to an advisory contract.

         On December 10, 1996, Copley's parent, New England Investment
Companies, Limited Partnership ("NEIC"), a publicly traded master limited
partnership, acquired certain assets subject to then existing liabilities from
Aldrich, Eastman & Waltch, Inc. and its affiliates and principals (collectively,
"the AEW Operations"). Simultaneously, a new entity, AEW Capital Management L.P.
was formed, into which NEIC contributed its interests in Copley and its
affiliates. As a result, the AEW Operations were combined with Copley to form
the business operations of AEW Capital Management, L.P. At year end 1997, NEIC
completed a restructuring plan under which it contributed all of its operations
to a newly formed private partnership, NEIC Operating Partnership, L.P., in
exchange for a general partnership interest in the newly formed entity.
Accordingly, at December 31, 1997, AEW Capital Management, L.P. was wholly owned
by NEIC Operating Partnership, L.P. AEW is a subsidiary of AEW Capital
Management, L.P. Effective April 1, 1998, NEIC changed its name to Nvest, L.P.
and NEIC Operating Partnership changed its name to Nvest Companies, L.P.

         Prior to August 30, 1996, New England Mutual Life Insurance Company
("The New England") was NEIC's principal unit holder and owner of all the
outstanding stock of NEIC's general partner. On August 30, 1996, The New England
merged with and into Metropolitan Life Insurance Company ("Met Life"). Met Life
is the surviving entity and, therefore, through a wholly-owned subsidiary,
became the owner of the units of partnership interest previously owned by The
New England and of the stock of NEIC's general partner.

Management
----------

         AEW, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash flow from operations, as defined, before deducting such fees.
AEW is also reimbursed for expenses incurred in connection with administering
the Partnership ($12,000 in 1998, $12,000 in 1997, and $12,000 in 1996).
Acquisition fees were based on 3% of the gross proceeds from the offering and
paid at the time commitments were initially funded. Disposition fees are limited
to the lesser of 3% of the selling price of the property, or 50% of the standard
real estate commission customarily charged by an independent real estate broker.
Payments of disposition fees are subject to the prior receipt by the limited
partners of their capital contributions plus a stipulated return thereon.
<PAGE>
 
         New England Securities Corporation, an indirect subsidiary of Met Life,
is engaged by the Partnership to act as its unit holder servicing agent. Fees
and out-of-pocket expenses for such services totaled $3,014, $2,834 and $2,702
in 1998, 1997 and 1996, respectively. Fees to Back Bay Advisors, L.P., a
wholly-owned subsidiary of Nvest Companies, L.P., for short-term investment
advisory services totaled $2,014, $1,726 and $1,808 in 1998, 1997 and 1996,
respectively.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

Accounting Estimates
--------------------

         The preparation of financial statements in conformity with generally
accepted accounting principles requires the Managing General Partner to make
estimates affecting the reported amounts of assets and liabilities, and of
revenues and expenses. In the Partnership's business, certain estimates require
an assessment of factors not within management's control, such as the ability of
tenants to perform under long-term leases and the ability of the properties to
sustain their occupancies in changing markets. Actual results, therefore, could
differ from those estimates.

Real Estate Joint Ventures
--------------------------

         Investments in joint ventures, including loans made to joint ventures
which are in substance real estate investments, are stated at cost, plus (minus)
equity in undistributed joint venture income (losses). Allocations of joint
venture income (losses) were made to the Partnership's venture partners as long
as they had substantial economic equity in the project. Currently, the
Partnership records an amount equal to 100% of the operating results of the
property, after the elimination of all inter-entity transactions, except for the
venture which includes an affiliate of the Partnership, which has substantial
economic equity in the project. Joint ventures are consolidated with the
accounts of the Partnership if, and when, the venture partner no longer shares
in the control of the business.

Property
--------

         Property includes land and buildings and improvements, which are stated
at cost less accumulated depreciation, plus other operating assets and
liabilities. The Partnership's initial carrying value of a property previously
owned by a joint venture equals the Partnership's carrying value of the
predecessor investment on the conversion date.

Capitalized Costs, Depreciation and Amortization
------------------------------------------------

         Maintenance and repair costs are expensed as incurred; significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on the estimated useful lives of the buildings and
improvements.

         Acquisition fees have been capitalized as part of the cost of real
estate investments. Amounts not related to land are being amortized using the
straight-line method over the estimated useful lives of the underlying real
property.

         Leases


         Leases are accounted for as operating leases. Leasing commissions are
amortized over the terms of the respective leases. Rental income is recognized
on a straight-line basis over the terms of the respective leases.
<PAGE>
 
Realizability of Real Estate Investments
----------------------------------------

         The Partnership considers a real estate investment to be impaired when
it determines the carrying value of the investment is not recoverable through
expected undiscounted cash flows from the operations and disposition of the
property. The impairment loss is based on the excess of the investment's
carrying value over its estimated fair market value. For investments being held
for disposition, the impairment loss also includes estimated costs of sale.
Investments held for disposition are not depreciated during the holding period.

         The carrying value of an investment may be more or less than its
current appraised value. At December 31, 1998 and 1997, the appraised value of
each investment exceeded its carrying value; the aggregate excess was
approximately $3,950,000 and $2,400,000, respectively.

         The current appraised value of real estate investments has been
estimated by the Managing General Partner and is generally based on a
combination of traditional appraisal approaches performed by AEW and independent
appraisers. Because of the subjectivity inherent in the valuation process, the
current appraised value may differ significantly from that which could be
realized if the real estate were actually offered for sale in the marketplace.

Cash Equivalents and Short-Term Investments
-------------------------------------------

         Cash equivalents are stated at cost, plus accrued interest. The
Partnership considers all highly liquid debt instruments purchased with a
maturity of ninety days or less to be cash equivalents; otherwise, they are
classified as short-term investments.

         The Partnership has the positive intent and ability to hold all
short-term investments to maturity; therefore, short-term investments are
carried at cost plus accrued interest, which approximates market value. At
December 31, 1997, all short-term investments are in commercial paper with less
than two months remaining to maturity.

Income Taxes
------------

         A partnership is not liable for income taxes and, therefore, no
provision for income taxes is made in the financial statements of the
Partnership. A proportionate share of the Partnership's income is reportable on
each partner's tax return.

Per Unit Computations
---------------------

         Per unit computations are based on the number of units of limited
partnership interest outstanding during the year. The actual per unit amount
will vary by partner depending on the date of admission to, or withdrawal from,
the Partnership.

Segment Data
------------

         Effective January 1, 1998, the Partnership adopted Financial
Accounting Standards Board Statement No. 131, "Disclosures about Segments on an
Enterprise and Related Information" (FAS 131). Based on criteria established in
FAS 131, the Managing General Partner has determined that the Partnership
operates in one operating segment which is investing in real estate properties
which are domiciled in the United States of America.
<PAGE>
 
NOTE 3 - REAL ESTATE JOINT VENTURES
-----------------------------------

         The Partnership had invested in two real estate joint ventures
organized as general partnerships with a real estate management/development firm
and, in one case, with an affiliate of the Partnership. The ownership of both
ventures was restructured in 1996, as described below. The Partnership made
capital contributions to the ventures, which are subject to preferential cash
distributions at a specified rate and to priority distributions with respect to
sale or refinancing proceeds. The Partnership also made a mortgage loan to one
of the ventures. The joint venture agreements provide for the funding of cash
flow deficits by the venture partners in proportion to ownership interests, and
for the dilution of ownership share in the event a venture partner does not
contribute proportionately.

         The respective real estate management/development firms were
responsible for day-to-day development and operating activities, although
overall authority and responsibility for the business was shared by the
venturers. The real estate management/development firms, or their affiliates,
also provide various services to the joint ventures for a fee.

                  The following is a summary of cash invested in joint ventures,
net of returns of capital and excluding investment acquisition fees:


                        Rate of        Ownership          December 31,        
                                                    -------------------------- 
Investment/Location  Return/Interest    Interest       1998           1997 
-------------------  ---------------  ------------  -----------  -------------
                                                                  
Shasta Way                                                        
 Simi Valley, CA     10.0%      (C)   58%           $ 6,726,051   $ 6,726,051


(C) Capital contribution



Shasta Way
----------

         On September 29, 1989, the Partnership entered into a joint venture
with an affiliate of the Partnership, and with an affiliate of The Hewson
Company, to construct and operate an industrial facility in Simi Valley,
California. The Partnership committed to make, and as of December 31, 1997 had
completely funded, capital contributions of up to $7,612,500. The venture owns
land on which it completed construction of an industrial building in 1991.
Effective January 1, 1996, the joint venture was restructured, and the Hewson
Company's interest was assigned to the Partnership and its affiliate in
proportion to their respective ownership interests. The Partnership's ownership
percentage increased from 34.8% to 58%; its affiliate's interest was increased
to 42%.

         The aggregate minimum rents due to the venture under a non-cancelable
lease are: 1999 - $1,297,641; 2000 - $1,297,641; 2001- $1,310,618; 
2002 - $1,323,594; 2003 - $1,323,594.

South Bay Associates
--------------------

         Effective January 1, 1996, this joint venture was restructured and the
joint venture partner's ownership interest was assigned to the Partnership. The
investment was accounted for as a wholly-owned property through the date of sale
on July 27, 1997.
(See Note 4).
<PAGE>
 
Summarized Financial Information
--------------------------------

The following summarized financial information is presented in the aggregate for
the joint ventures:

                            Assets and Liabilities
                            ----------------------
 
<TABLE> 
<CAPTION> 
                                                                 December 31,                  
                                                      -----------------------------------    
                                                         1998                   1997           
                                                      ----------              -----------      
<S>                                                   <C>                  <C>                 
Assets                                                                                         
 Real property, at cost less                                                                   
  accumulated depreciation                                                                     
  of $1,084,004 and                                                                            
  $2,132,388 at December 31, 1998 and 1997,                                                    
  respectively                                        $   7,146,195        $     7,565,996     
 Other                                                      153,318                165,813     
                                                      -------------        ---------------     
                                                          7,299,513              7,731,809     
                                                                                               
Liabilities                                                  70,400                 81,052     
                                                      -------------        ---------------     
                                                                                               
   Net assets                                         $   7,229,113        $     7,650,757     
                                                      =============        ===============      
</TABLE> 

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

<TABLE> 
<CAPTION> 
                                                          Year ended December 31,                      
                                         -----------------------------------------------------------
                                             1998                   1997                  1996      
                                         ---------------      -----------------      ---------------
<S>                                      <C>                  <C>                    <C> 
Revenue                                                                           
 Rental income                           $     1,258,609      $       1,205,152      $     1,208,205
 Other                                             2,269                  5,914                3,636
                                         ---------------      -----------------      ---------------
                                               1,260,878              1,211,066            1,211,841
                                         ---------------      -----------------      ---------------
                                                                                  
Expenses                                                                          
  Depreciation and amortization                  460,785                460,785              460,785
  Operating expenses                             183,877                196,910              183,211
                                         ---------------      -----------------      ---------------
                                                 644,662                657,695              643,996
                                         ---------------      -----------------      ---------------
                                                                                  
Net income                               $       616,216      $         553,371      $       567,845
                                         ===============      =================      ===============
</TABLE> 

         Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to our joint ventures) its affiliate on behalf of
their various financing arrangements with the joint ventures.
 
<PAGE>
 
NOTE 4 - INVESTMENT IN PROPERTY
-------------------------------

The following is a summary of the Partnership's investment in property:

<TABLE> 
<CAPTION> 
                                                                           December 31,                        
                                                       --------------------------------------------------------
                                                             1998                                  1997        
                                                       ------------------                   ------------------
      <S>                                              <C>                                  <C> 
      Land                                             $        2,991,854                   $        2,991,854
      Buildings and improvements                                5,978,755                            5,978,755
      Accumulated depreciation                                 (2,239,389)                          (1,960,425)
      Deferred costs, net                                         352,489                              375,329
      Other net assets (liabilities)                              (59,866)                             (70,587)
                                                       ------------------                   ------------------
         Net carrying value                            $        7,023,843                   $        7,314,926
                                                       ==================                   ==================
</TABLE> 

         The net carrying value at December 31, 1998 and 1997 is comprised
solely of the Brea West property.

         Brea West
         ---------

         On April 28, 1989, the Partnership entered into a joint venture
agreement to construct and operate an industrial facility in Brea, California.
The Partnership contributed $9,078,799 to the capital of the venture. The
venture partner was unable to fund its proportionate share of the cost overruns
and, effective June 30, 1991, the venture partner's ownership share was reduced
to zero and the property became wholly-owned by the Partnership.

         The building is being depreciated over 30 years. Tenant improvements
are being depreciated over the original lease term. Minimum annual future rent
payments are as follows: 1999 - $914,952; 2000 - $893,214; 2001 - $879,750; 2002
- $890,100; 2003 - $912,353 thereafter - $4,829,042.

         South Bay Associates
         --------------------  

         On May 18, 1989, the Partnership entered into a joint venture with an
affiliate of South Bay Construction and Development Co. Inc., to acquire and
operate a research and development facility in San Jose, California. The
Partnership invested $7,028,247 in the joint venture in the form of capital
contributions and a mortgage loan. Effective January 1, 1996, the joint venture
was restructured and the joint venture partner's ownership interest was assigned
to the Partnership. The carrying value of the joint venture investment at
conversion ($4,180,704) was allocated to land, building and improvements, an
investment valuation allowance, and other net operating assets.

         On July 22, 1997, the South Bay property was sold to the sole tenant
which exercised the purchase option under its lease for gross consideration of
$5,850,000. The Partnership received net proceeds of $5,715,415, after closing
costs, and recognized a gain of $1,490,313 ($53.38 per limited partnership unit)
on the sale. A disposition fee of $29,250 was accrued but not paid to AEW. On
July 24, 1997, the Partnership made a capital distribution of $5,528,200 ($200
per limited partnership unit) from the proceeds of the sale.
<PAGE>
 
NOTE 5 - INCOME TAXES
---------------------

         The Partnership's income for federal income tax purposes differs from
that reported in the accompanying statement of operations as follows:

<TABLE> 
<CAPTION> 
                                                                             Year ended December 31,                        
                                                         -------------------------------------------------------------      
                                                                1998                   1997                  1996             
                                                         --------------           -------------          -------------         
<S>                                                      <C>                                             <C>                 
Net income per financial
 statements                                              $      799,412           $   2,303,492          $   1,058,287

Timing differences:
  Joint venture earnings (losses)                               173,100                 (85,995)               167,259
  Rental revenue                                                      -                  79,451                 24,517
  Expenses                                                        6,814                  11,090                  7,096
  Depreciation                                                   85,597                  79,040                 73,015
  Loss on sale                                                        -              (2,008,862)                     -
                                                         --------------           -------------          -------------

Taxable income                                           $    1,064,923           $     378,216          $   1,330,174
                                                         ==============           =============          =============
</TABLE> 

NOTE 6 - PARTNERS' CAPITAL
--------------------------

         Allocation of net income (losses) from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partners. Cash distributions are made
quarterly.

         Net sales proceeds and financing proceeds will be allocated first to
limited partners to the extent of their contributed capital plus a stipulated
return thereon, as defined, second to pay disposition fees, and then 85% to the
limited partners and 15% to the general partners. Income from sales will be
allocated in proportion to the distribution of related proceeds, provided that
the general partners are allocated at least 1%. Income or losses from sales, if
there are no residual proceeds after the repayment of the related debt, will be
allocated 99% to the limited partners and 1% to the general partners.

NOTE 7 - SUBSEQUENT EVENT
-------------------------

         Distributions of cash from operations relating to the quarter ended
December 31, 1998 were made on January 28, 1999 in the aggregate amount of
$362,963 ($13.00 per limited partnership unit).
<PAGE>
 
                       COPLEY REALTY INCOME PARTNERS 3;
                             A LIMITED PARTNERSHIP
                                 SCHEDULE III

                   REAL ESTATE AND ACCUMULATED DEPRECIATION
                               DECEMBER 31, 1998

<TABLE> 
<CAPTION> 
                                                                   Initial Cost to                       Costs Capitalized       
                                                                  the Partnership                   Subsequent to Acquisition   
-----------                                         ----------    ----------------    -------   ----------   ---------   ---------  
                                                                     Buildings &       Other     Carrying    Improve-       
Description                        Encumbrance         Land         Improvements       (Net)       Costs       ments       Other
-----------                       -------------     ----------    ----------------    -------   ----------   ---------   ---------  
<S>                               <C>               <C>           <C>                <C>        <C>          <C>        <C>       
A single-story industrial                                                                                                         
building on 7.51 acres in         Note A & B        $2,917,098      $5,974,055      ($ 81,193)    $74,756     $  4,700    $725,056
Brea California.                                                                                                                  
                                                                                                                                  
A single-story industrial                                                                                                         
building on 6.7 acres             Note B and C      $1,699,290      $2,115,672       $365,742     $     0     $186,836   ($259,815)
in San Jose, California.                                                                                                          
                                                                                                                                  
                                                    ----------      ----------       --------     -------     --------    -------- 
      Total Wholly-Owned                            $4,616,388      $8,089,727       $284,549     $74,756     $191,536    $465,241
                                                    ==========      ==========       ========     =======     ========    ========  
                                                                                                                                  
                                                    
58% Interest in Hewson Shasta                                                                                                     
Way Joint Venture.  Owner of                                                                                                      
an industrial building on 12.13   ----------------------------------------------------------- See Note C -------------------------  
acres in Simi Valley, California.              

          
      Total Joint Ventures 
                     
<CAPTION>                                                                                                                          
                                           Gross amount at which
                                         Carried at Close of Period   
                                  ----------   ----------------    -------     
                                                  Buildings &                              Accumulated             
Description                          Land        Improvements       Other        Total     Depreciation      Sales
-----------                       ----------   ----------------    -------     ----------  ------------    ---------   
<S>                               <C>          <C>                 <C>        <C>          <C>           <C>       
A single-story industrial                                                                                           
building on 7.51 acres in         $2,991,854       $5,978,755      $643,863   $ 9,614,472   $2,590,629    $        0
Brea California.                                                                                                    
                                                                                                                    
A single-story industrial                                                                                           
building on 6.7 acres                                                                                               
in San Jose, California.          $1,699,290       $2,302,508      $105,927   $ 4,107,725   $  118,242   ($3,989,483)         
                                                                                                                    
                                  ----------       ----------      --------   -----------   ----------   -----------    
      Total Wholly-Owned          $4,691,144       $8,281,263      $749,790   $13,722,197   $2,708,871   ($3,989,483)  
                                  ==========       ==========      ========   ===========   ==========   ===========    
                                                                                                                     
58% Interest in Hewson Shasta                                                                                        
Way Joint Venture.  Owner of                                                                                         
an industrial building on 12.13   -----------------------------------------   $ 4,819,346          N/A    $        0 
acres in Simi Valley, California.                                                                                    

                                                                              -----------                -----------
      Total Joint Ventures                                                    $ 4,819,346                 $        0 
                                                                              ===========                ===========

<CAPTION> 
                                           Date of        Date          Date      Depreciable
Description                             Construction    Acquired        Sold          Life  
-----------                             ------------    --------        ----      -----------
<S>                                     <C>             <C>           <C>         <C>                                     
A single-story industrial                                                                   
building on 7.51 acres in                   1990        08/30/91                    30 Years
Brea California.                                                                            
                                                                                            
A single-story industrial                                                                   
building on 6.7 acres                                                                       
in San Jose, California.                    1976        05/18/89      07/22/97      30 Years 
                                                                                            
                                                                                            
                                                                                            
      Total Wholly-Owned                                                                    
                                                                                            
                                                                                            
58% Interest in Hewson Shasta                                                               
Way Joint Venture.  Owner of                                                                
an industrial building on 12.13             1991         9/29/89                  31.5 Years 
acres in Simi Valley, California. 


      Total Joint Ventures
</TABLE> 

     Note (A) South Bay/CRIP 3 investment restructured from joint venture to
     wholly-owned property effective 1/1/96.
<PAGE>
 
                       COPLEY REALTY INCOME PARTNERS 3;
                             A LIMITED PARTNERSHIP

                             SCHEDULE III - NOTE B
                   REAL ESTATE AND ACCUMULATED DEPRECIATION
                     DECEMBER 31, 1995, 1996, 1997 & 1998

<TABLE> 
<CAPTION>                                                                              
Reconciliation of Real                                                                 1995                        
Estate Owned                                           1995              1995        INVESTMENT                  
                                  BALANCE AT        CAPITALIZED          OTHER       VALUATION     BALANCE      
  DESCRIPTION                     AT 12/3/94        IMPROVEMENTS      NET ASSETS     ALLOWANCE   AT 12/31/95   
---------------                  ------------       ------------     -----------     ---------   -----------   
<S>                              <C>                <C>              <C>             <C>         <C> 
  Brea West                      $  9,555,442       $          0       ($19,149)     $       0   $ 9,536,293    
                                 ------------       ------------     ----------      ---------   ----------- 
                                 $  9,555,442       $          0       ($19,149)     $       0   $ 9,536,293    
                                 ============       ============     ==========      =========   ===========     
                                                                                                       
                                                                                      1996   
                                                      1996             1996         INVESTMENT                      
                                  BALANCE AT        CAPITALIZED        OTHER         VALUATION     BALANCE   
                                  AT 12/3/94        IMPROVEMENTS     NET ASSETS      ALLOWANCE   AT 12/31/96 
                                 ------------       ------------     -----------     ---------   -----------   
  Brea West                      $  9,538,293       $          0       ($26,221)     $       0   $ 9,510,072 
                                                                                                            
South Bay / CRIP 3                  4,180,704 {A}        188,836        (40,904)             0     4,326,635 
                                 ------------       ------------     ----------      ---------   -----------   
                                 $ 13,716,997       $    188,836       ($67,125)     $       0   $13,836,708 
                                 ============       ============     ==========      =========   ===========
                                                                                                            
[A] Carrying value at conversion (1/1/96)                                              1997                  
                                                       1997             1997         INVESTMENT             
                                  BALANCE AT        CAPITALIZED         OTHER        VALUATION     BALANCE   
                                  AT 12/3/96        IMPROVEMENTS      NET ASSETS     ALLOWANCE   AT 12/31/97 
                                 ------------       ------------     -----------     ---------   -----------   
  Brea West                      $  9,510,072       $          0        $88,768      $       0   $ 9,596,840 
                                                                                                                           
South Bay / CRIP 3               $  4,326,636       $          0       (198,509)     $       0     4,130,127 
                                 ------------       ------------     ----------      ---------   -----------   
                                 $ 13,836,708       $          0      ($109,741)     $       0   $13,726,967 
                                 ============       ============     ==========      =========   ===========

                                                                                       1998  
                                                        1998            1998         INVESTMENT
                                    BALANCE         CAPITALIZED         OTHER        VALUATION     BALANCE   
                                  AT 12/31/97       IMPROVEMENTS      NET ASSETS     ALLOWANCE   AT 12/31/98 
                                 ------------       ------------     -----------     ---------   -----------   
  Brea West                      $  9,595,840       $          0        $17,632      $       0   $ 9,614,472   
                                                                                                             
South Bay / CRIP 3                          0                  0              0              0             0  
                                 ------------       ------------     ----------      ---------   -----------   
                                 $  9,595,840       $          0        $17,632      $       0   $ 9,614,472
                                 ============       ============     ==========      =========   ===========     

<CAPTION>                     
                                                              ACCUMULATED
                                                1995         DEPRECIATION 
                           & AMORTIZATION     DEPRECIATION  & AMORTIZATION
                               BALANCE       & AMORTIZATION     BALANCE         1995       BALANCE (NET)  
  DESCRIPTION               AT 12/31/94         EXPENSE      AT 12/31/95       SALES       AT 12/31/95  
---------------            --------------    -------------  -------------   -----------    ------------ 
<S>                        <C>               <C>            <C>             <C>            <C>              
  Brea West                $    1,304,001    $     322,163  $   1,626,164   $         0    $  7,910,129
                           --------------    -------------  -------------   -----------    ------------ 
South Bay / CRIP 3         $    1,304,001    $     322,163  $   1,626,164   $         0    $  7,910,129
                           ==============    =============  =============   ===========    ============   

                                                              ACCUMULATED
                                                1995         DEPRECIATION
                           & AMORTIZATION     DEPRECIATION  & AMORTIZATION 
                               BALANCE       & AMORTIZATION     BALANCE         1995       BALANCE (NET) 
                            AT 12/31/95         EXPENSE      AT 12/31/95       SALES       AT 12/31/96      
                           --------------    -------------  -------------   -----------    ------------
  Brea West                $    1,626,164    $     322,163  $   1,948,327   $         0    $  7,561,745    
                                                                              
South Bay / CRIP 3                      0           99,154         99,154             0       4,227,482   
                           --------------    -------------  -------------   -----------    ------------ 
                           $    1,626,164    $     421,317      2,047,481   $         0    $ 11,789,227                  
                           ==============    =============  =============   ===========    ============ 

                                                              ACCUMULATED                                
                                                1995         DEPRECIATION
                             AMORTIZATION     DEPRECIATION  & AMORTIZATION          
                               BALANCE       & AMORTIZATION     BALANCE         1995       BALANCE (NET)  
                            AT 12/31/96         EXPENSE      AT 12/31/95       SALES       AT 12/31/97    
                           --------------    -------------  -------------   -----------    ------------    
  Brea West                $    1,948,327    $     333,587  $   2,281,914   $         0    $  7,314,926
                                                                                                                  
South Bay / CRIP 3                 93,154           52,691        151,845    (3,978,282)              0   
                           --------------    -------------  -------------   -----------    ------------
                           $    2,047,481    $     385,278  $   2,433,759   ($3,978,282)   $  7,314,926           
                           ==============    =============  =============   ===========    ============

                                                              ACCUMULATED
                                                1995         DEPRECIATION
                           & AMORTIZATION     DEPRECIATION  & AMORTIZATION
                               BALANCE       & AMORTIZATION     BALANCE         1995       BALANCE (NET) 
                            AT 12/31/97         EXPENSE      AT 12/31/95       SALES       AT 12/31/98   
                           --------------    -------------  -------------   -----------    ------------
  Brea West                $    2,281,914    $     308,715  $   2,590,629   $         0     $ 7,023,843   
                                                                             
South Bay / CRIP 3                      0                0              0             0               0
                           --------------    -------------  -------------   -----------    ------------
                           $    2,281,914    $     308,715  $   2,590,629   $         0    $  7,023,843   
                           ==============    =============  =============   ===========    ============ 
</TABLE> 
<PAGE>
 
                       COPLEY REALTY INCOME PARTNERS 3;
                             A LIMITED PARTNERSHIP

                             SCHEDULE III - NOTE C
                   REAL ESTATE AND ACCUMULATED DEPRECIATION
                     DECEMBER 31, 1995, 1996, 1997 & 1998

<TABLE> 
<CAPTION> 
                                                                                              1995                       1995   
                                       PERCENT OF                   BALANCE             CASH INVESTMENT               EQUITY IN   
      DESCRIPTION                      OWNERSHIP                  AT 12/31/94          IN JOINT VENTURE             INCOME (LOSS) 
      -----------                      --------                   -----------          ----------------             -------------
<S>                                    <C>                        <C>                  <C>                          <C>    
  South Bay / CRIP 3                     71.07%                    $4,173,588                 $68,687                   $315,789  
                                                                                                                                  
 Shasta Way Associates                    34.8%                     6,120,287                       0                    312,772  
                                                                  -----------                 -------                   --------
                                                                  $10,293,875                 $68,687                   $628,561  
                                                                  ===========                 =======                   ========
                                                                                                                                  
                                                                                                                                  
                                                                                             1996                        1996     
                                       PERCENT OF                   BALANCE             CASH INVESTMENT               EQUITY IN   
                                        OWNERSHIP                  AT 12/31/95          IN JOINT VENTURE             INCOME (LOSS) 
                                        ---------                  -----------          ----------------             -------------
  South Bay / CRIP 3                      100%                     $ 4,180,704                     $0                   $      0  
                                                                                                                                  
 Shasta Way Associates                     58%                       5,860,464                      0                    328,348  
                                                                   -----------           ------------                   -------- 
                                                                   $10,041,168                     $0                   $328,348  
                                                                   ===========           ============                   ========
                                                                                                                                  
                                                                                                                                  
                                                                                             1997                        1997     
                                       PERCENT OF                   BALANCE             CASH INVESTMENT               EQUITY IN   
                                       OWNERSHIP                  AT 12/31/96          IN JOINT VENTURE             INCOME (LOSS) 
                                       ---------                  -----------          ----------------             -------------
 Shasta Way Associates                    58%                      $5,531,652                      $0                   $319,953  

                                                                   ----------           -------------                   -------- 
                                                                   $5,531,652                      $0                   $319,953  
                                                                   ==========           =============                   ========
                                                                                                                                  
                                                                                                                                  
                                                                                               1998                        1998   
                                         PERCENT OF                   BALANCE             CASH INVESTMENT               EQUITY IN 
                                         OWNERSHIP                  AT 12/31/97          IN JOINT VENTURE             INCOME (LOSS
                                         ---------                  -----------          ----------------             ------------
 Shasta Way Associates                      58%                      $5,071,717                      $0                   $356,404

                                                                     ----------             -----------                   --------
                                                                     $5,071,717                      $0                   $356,404
                                                                     ==========             ===========                   ======== 
<CAPTION> 
                                                                    
                                          1995                1995 CASH               1995              CONVERSION        
                                     AMORTIZATION OF         DISTRIBUTIONS         INVESTMENT               TO           
                                     ACQUISITION                FROM               VALUATION           WHOLLY-OWNED        
      DESCRIPTION                        FEES              JOINT VENTURE           ALLOWANCE             PROPERTY          
      -----------                        ----              -------------           ---------             --------  
<S>                                  <C>                   <C>                     <C>                 <C>      
  South Bay / CRIP 3                     ($3,360)             ($374,000)                  $0                   $0         
                                                                                                                          
 Shasta Way Associates                    (7,096)              (565,499)                   0                    0         
                                        --------              ---------            ---------            ---------
                                        ($10,456)             ($939,499)                  $0                   $0         
                                        ========              ==========           =========            =========
                                                                                                                          
                                                                                                          1996            
                                         1996                1996 CASH               1996              CONVERSION         
                                   AMORTIZATION OF         DISTRIBUTIONS          INVESTMENT               TO             
                                     ACQUISITION                FROM              VALUATION           WHOLLY-OWNED        
                                         FEES              JOINT VENTURE          ALLOWANCE             PROPERTY          
                                         ----              -------------           ---------             --------      
  South Bay / CRIP 3                          $0                     $0                   $0          ($4,180,704)[A]     
                                                                                                                          
 Shasta Way Associates                    (7,096)              (650,064)                   0                    0         
                                         -------              ---------           ----------          -----------
                                         ($7,096)             ($650,064)                  $0          ($4,180,704)        
                                         =======              =========           ==========          ============
                                                                                                                          
                                                                                                                          
                                         1997                1997 CASH               1997              CONVERSION         
                                   AMORTIZATION OF         DISTRIBUTIONS          INVESTMENT               TO             
                                     ACQUISITION                FROM              VALUATION           WHOLLY-OWNED        
                                         FEES              JOINT VENTURE          ALLOWANCE             PROPERTY          
                                         ----              -------------           ---------             --------         
 Shasta Way Associates                   ($7,096)             ($772,792)                  $0                   $0         

                                         -------              ---------          -----------          ----------- 
                                         ($7,096)             ($772,792)                  $0                   $0         
                                         =======              =========          ===========          =========== 
                                                                                                                          
                                                                                                                          
                                           1997                1997 CASH               1997              CONVERSION       
                                     AMORTIZATION OF         DISTRIBUTIONS          INVESTMENT               TO           
                                       ACQUISITION                FROM              VALUATION           WHOLLY-OWNED      
                                           FEES              JOINT VENTURE          ALLOWANCE             PROPERTY        
                                           ----              -------------          ---------             --------
 Shasta Way Associates                     ($6,816)             ($601,959)                  $0                   $0       

                                           -------              ---------           ----------                   --    
                                           ($6,816)             ($601,959)                  $0                   $0       
                                           =======              =========           ==========                   == 
<CAPTION>                                                                 
                                                                         
                                                    BALANCE              
      DESCRIPTION                                 AT 12/31/95            
<S>                                               <C> 
  South Bay / CRIP 3                               $4,180,704            
                                                                         
 Shasta Way Associates                              5,860,464            
                                                  -----------
                                                  $10,041,168            
                                                  ===========
                                                                         
                                                                         
                                                    BALANCE              
                                                  AT 12/31/96            
                                                  -----------
  South Bay / CRIP 3                                       $0            
                                                                         
 Shasta Way Associates                              5,531,652            
                                                   ----------
                                                   $5,531,652            
                                                   ==========
                                                                         
                                                                         
                                                                         
                                                                         
                                                      1997         BALANCE  
                                                     SALES       AT 12/31/97
                                                     -----       -----------
 Shasta Way Associates                                     $0     $5,071,717

                                                    ---------     ----------
                                                           $0     $5,071,717  
                                                    =========     ==========
                                                                              
                                                                              
                                                        1997        BALANCE  
                                                       SALES      AT 12/31/98
                                                       -----      -----------
 Shasta Way Associates                                     $0     $4,819,346

                                                    ---------     ----------
                                                           $0     $4,819,346
                                                    =========     ==========
</TABLE> 
<PAGE>
 
                             FINANCIAL STATEMENTS
                                  INDEX NO. 2

                   AUDITOR'S REPORT AND FINANCIAL STATEMENTS

                           OF SHASTA WAY ASSOCIATES



Report of Independent Auditors from PricewaterhouseCoopers LLP

Balance Sheets - December 31, 1998 and 1997

Statements of Operations - For the Years ended December 31, 1998, 1997 and 1996

Statements of Partners' Capital - For the Years ended December 31, 1998, 1997
and 1996

Statements of Cash Flows - For the Years ended December 31, 1998, 1997 and 1996

Notes to Financial Statements
<PAGE>
 
SHASTA WAY ASSOCIATES
(A California General Partnership)
DECEMBER 31, 1998
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS


March 9, 1999

To the Partners
Shasta Way Associates

In our opinion, the accompanying consolidated balance sheet and the related 
consolidated statements of operations, of partners' capital and of cash flows 
present fairly, in all material respects, the financial position of Shasta Way 
Associates (a California general partnership) (the "Partnership") at December 
31, 1998, and the results of its operations and its cash flows for the year in 
conformity with generally accepted accounting principles. These financial 
statements are the responsibility of the Partnership's management; our 
responsibility is to express an opinion on these financial statements based on 
our audit. We conducted our audit of these statements in accordance with 
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are 
free of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements, 
assessing the accounting principles used and significant estimates made by 
management, and evaluating the overall financial statement presentation. We 
believe that our audit provides a reasonable basis for the opinion expressed 
above. The Partnership's financial statements for the years ended December 31, 
1997 and 1996 were audited by other independent accountants whose report dated 
January 20, 1998 expressed an unqualified opinion on those statements.


PricewaterhouseCoopers LLP
Boston, MA
<PAGE>
 
SHASTA WAY ASSOCIATES
(A California General Partnership)
December 31, 1998
BALANCE SHEET
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                                       December 31,                     
                                                               1998                   1997                
                                                          -----------------------------------             
<S>                                                       <C>                   <C> 
ASSETS                                                                                              
      Cash                                                $    150,180          $       8,718             
      Tenant Receivables                                             -                116,212            
      Rental Property                                                                                    
              Land                                           2,977,867              2,977,867            
              Buildings                                      6,807,151              6,803,913            
              Accumulated depreciation                      (2,575,455)            (2,146,952)           
                                                          ------------          -------------           
                                                             7,209,563              7,634,828    
      Other Assets - net of accumulated                                                                 
        amortization of $ 216,646 and $181,717                                                          
        at December 31, 1998 and 1997.                           5,953                 40,883      
                                                                                                        
                                                          $  7,365,696          $   7,800,641    
                                                          ============          =============       
                                                                                                        
LIABILITIES AND PARTNERS' CAPITAL                                                                       
      Security deposits                                   $     62,400          $      62,400             
      Accounts payable and accrued expenses                      8,000                 18,652
      Due to partners                                                                                    
              CRIP 3                                         2,104,381              1,802,692              
              CRIP 4                                         1,523,709              1,305,250             
      Partners' capital                                      3,667,206              4,611,647              
                                                          ------------          -------------               
                                                                                                           
                                                          $  7,365,696          $   7,800,641               
                                                          ============          =============               
</TABLE> 
<PAGE>
 
SHASTA WAY ASSOCIATES
(A California General Partnership)  
For the period ended December 31, 1998
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION>
                                                                          Year ended December 31,
                                                         1998                     1997                     1996
                                                   ---------------------------------------------------------------------
<S>                                                <C>                     <C>                      <C>     
REVENUE
        Rental income                                  $   1,092,432            $   1,045,432            $    1,045,432
        Tenant reimbursments                                                                         
        Interest and other income                            166,176                  159,720                   162,773
                                                               2,269                    5,914                     3,636
                                                   ------------------      -------------------      --------------------

                                                           1,260,877                1,211,066                 1,211,841
                                                   ------------------      -------------------      --------------------

EXPENSES
        Rental operating expenses                            172,796                  184,831                   160,800      
        General and administrative                            11,081                   12,079                    22,411 
        Depreciation and amortization                        463,433                  463,433                   463,433 
        Guaranteed payments
            CRIP 3                                           903,648                  881,430                   868,326 
            CRIP 4                                           654,360                  638,272                   628,733 
                                                   ------------------      -------------------      --------------------
                                                           2,205,318                2,180,045                 2,143,703    

NET LOSS                                           $        (944,441)           $    (968,979)           $     (931,862)         
                                                   ==================      ===================      ====================
</TABLE> 
<PAGE>
 
SHASTA WAY ASSOCIATES
(A California General Partnership)
For the period ended December 31, 1998
STATEMENT OF PARTNERS' CAPITAL
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                              Hewson Shasta       Copley Realty        Copley Realty
                                                Way L.P.        Income Partners 3    Income Partners 4         Total
                                        --------------------------------------------------------------------------------
<S>                                     <C>                     <C>                  <C>                   <C> 
Partners' capital - (deficit)
      December 31, 1995                        $  (604,984)       $   4,128,133       $   2,989,339        $  6,512,488
Transfer of interest                               604,984             (350,891)           (254,093)                  -      
Net loss - 1996                                         -             (540,480)           (391,382)           (931,862)  
                                        --------------------------------------------------------------------------------
Partners' capital
      December 31, 1996                                  -            3,236,762           2,343,864           5,580,626 
Net loss - 1997                                          -             (562,008)           (406,971)           (968,979) 
                                        --------------------------------------------------------------------------------
Partners' capital
      December 31, 1997                                  -            2,674,754           1,936,893           4,611,647 
Net loss - 1998                                         -             (547,776)           (396,665)           (944,441) 
                                        --------------------------------------------------------------------------------
Partners' capital
      December 31, 1998                        $         -        $   2,126,978       $   1,540,228        $  3,667,206
                                        ================================================================================
</TABLE> 
<PAGE>
 
SHASTA WAY ASSOCIATES
(A California General Partnership)
For the period ended December 31, 1998
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                                                   Year ended December 31,
                                                                           1998             1997             1996
                                                                      --------------------------------------------------
<S>                                                                   <C>                <C>             <C> 
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                              $ (944,441)       $ (968,979)     $ (931,862)   
         Adjustments to reconcile net loss to net cash
         provided by operating activities
            Depreciation and amortization                                     463,433           463,433         463,433 
            Decrease in tenant receivable                                     116,212           154,082         151,238 
            (Decrease) / Increase in accounts payable and                                                
              accrued expenses                                                (10,652)            6,467           4,014
            Increase in due to partners                                       520,148           187,302         376,259 
                                                                      --------------------------------------------------
         Total adjustments                                                  1,089,141           811,284         994,944 

         Net cash (used in) provided by operating activities                  144,700          (157,695)         63,082 
                                                                      --------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Additions to rental property                                              (3,238)                -               -
                                                                      --------------------------------------------------

Net (decrease) increase in cash                                               141,462          (157,695)         63,082 
Cash beginning of year                                                          8,718           166,413         103,331 
                                                                      --------------------------------------------------
Cash at year end                                                           $  150,180        $    8,718      $  166,413
                                                                      ==================================================
</TABLE> 
<PAGE>
 
SHASTA WAY ASSOCIATES
(A California General Partnership
NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

1.   ORGANIZATION AND OTHER MATTERS

Shasta Way Associates (a California general partnership), formerly Hewson Shasta
Way Associates (the "Partnership"), was formed September 29, 1989 as a
California general partnership for the purpose of developing and operating a
commercial industrial property in Simi Valley, California. The percentage
ownership interests through December 31, 1995 were as follows:

          Hewson Shasta Way L.P., a California limited 
            partnership (Hewson)                             40.0%
          Copley Realty Income Partners 3 (CRIP 3)           34.8%
          Copley Realty Income Partners 4 (CRIP 4)           25.2%

CRIP 3 and CRIP 4 were committed to contribute an aggregate of approximately
$13,125,000 to the Partnership; subsequently, the Partnership Agreement provides
for pro rata contributions by all partners. CRIP 3 and CRIP 4 contributed
$7,111,757 and $5,149,893, respectively, through December 31, 1998.

CRIP 3 and CRIP 4 are entitled to preferential cash payments to the extent of a
stipulated return on their invested capital (Note 4). Prior to 1992, for
financial reporting purposes, income and losses were allocated to the partners
in accordance with their respective ownership interests, based on the long-term
substance of the business enterprise and the requirement for all partners for
fund capital, as described above. For the years ended December 31, 1992 through
December 31, 1995, net income (loss) was allocated entirely to CRIP 3 and CRIP
4.

On January 1, 1996, the partners executed an Amended and Restated Statement of
Partnership Agreement whereby Hewson transferred all of its rights, title and
interest in and to the Partnership to CRIP 3 and CRIP 4. The percentage
ownership interests are as follows:

          Copley Realty Income Partners 3 (CRIP 3)           58.0%
          Copley Realty Income Partners 4 (CRIP 4)           42.0%

Beginning January 1, 1996, income and losses are allocated to CRIP 3 and CRIP 4
in accordance with the ownership interests.


2.   SIGNIFICANT ACCOUNTING POLICES

RENTAL PROPERTY

Rental property includes land and buildings and improvements, which are stated
at cost less accumulated depreciation. The Partnership considers the property to
be impaired when it determines the carrying value of the investment is not
recoverable through expected undiscounted cash flows from operations and
disposition of the property. An impairment loss, if any, would be based on the
excess of the investment's carrying value over its estimated fair market value.
The Partnership does not consider the property impaired at December 31, 1998 or
1997

INCOME RECOGNITION

The Partnership's rental property is leased to a tenant as an operating lease.
The lease includes a provision whereby the tenant is not responsible for rental
payments for specified occupancy periods. Rental income is recognized over the
lease term on a straight-line basis. Included in tenant receivables are $0 and
$98,760 of deferred rent receivable for December 31, 1998 and 1997,
respectively.
<PAGE>
 
SHASTA WAY ASSOCIATES
(A California General Partnership
NOTES TO THE FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

INCOME TAXES

Federal and state income taxes are not payable by the Partnership, since the
partners report their proportionate share of taxable income or loss on their
separate tax returns.

DEPRECIATION AND AMORTIZATION

Depreciation is provided on the straight-line method over the estimated lives of
the assets, which are 31.5 years for the building and the term of the tenant's
lease for tenant improvements.

Included in other assets are leasing commissions, which are amortized over the
related tenant's lease.

USE OF ESTIMATES

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

2.   RENTAL PROPERTY

At December 31, 1989 the rental property under development consisted of
approximately 12 acres of land with two buildings. During 1990 the buildings
were demolished and construction of a 235,080 square-foot industrial building
commenced. Construction was completed in June 1991.

The Partnership's property is being leased to a tenant under an operating lease
which expires in December 1998. However, in February 1999, the tenant exercised 
an option to renew the lease until December, 2003. The lease provides for the 
tenant to reimburse the Partnership for operating expenses.

The aggregate minimum rents due to the ventures under a non-cancelable lease
are: 1999- $1,297,641; 2000 - $1,297,641; 2001 -$1,310,618; 2002 - $1,323,594;
2003 - $1,323,594.

3.   RELATED PARTY TRANSACTIONS

The Partnership agreement provides that CRIP 3 and CRIP 4 will be paid
guaranteed payments of 10% per annum on invested capital (as defined). The
cumulative unpaid guaranteed payments are included in due to partners in the
accompanying balance sheets.

Included in rental operating expenses are $39,032, $40,339, and $40,783 of
management fees paid to Hewson Properties, Inc. in 1998, 1997, and 1996,
respectively. These fees are paid at a rate of 3% of gross rental income
received.
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
<TABLE> 
<CAPTION> 
EXHIBIT NUMBER                                                                                           PAGE NUMBER
--------------                                                                                           -----------
<S>                        <C>                                                                           <C> 
10A.                       Joint Venture Agreement of South Bay/CRIP 3                                        *
                           Associates  Joint  Venture dated as of March 27, 1989
                           by and between  Copley  Realty  Income  Partners 3; A
                           Limited Partnership and SBC and D Co., Inc.

10B.                       General Partnership Agreement of Brea West                                         *
                           Associates  dated as of April  28,  1989  between  BW
                           Partners and Copley Realty Income Partners 3; A
                           Limited Partnership.

10C.                       First Amendment to Brea West Associates General                                    *
                           Partnership  Agreement  dated as of April 28, 1989 by
                           and  between  Copley  Realty  Income  Partners  3;  A
                           Limited Partnership and BW Partners.

10D.                       Pledge and Security Agreement for Brea West                                        *
                           Associates dated as of April 28, 1989 by and among BW
                           Partners,  Copley Realty Income Partners 3; A Limited
                           Partnership, and Tar Partners.

10E                        General Partnership Agreement of Hewson Shasta Way                                 *
                           Associates  dated as of  September  29, 1989  between
                           Hewson/Shasta Way L.P., Copley Realty Income Partners
                           3; A Limited  Partnership  and Copley  Realty  Income
                           Partners 4; A Limited Partnership.

10F.                       Purchase Agreement and Escrow Instruction                                          *
                           and Railroad Spur Agreement  dated as of May 17, 1991
                           by  and  between  NI  Industries,  Inc.,  a  Delaware
                           corporation, and Brea West Associates

10G.                       Agreement for Dissolution, Distribution and                                        *
                           Winding-Up of Brea West Associates dated May 31, 1991
                           by and  between BW  Partners,  a  California  general
                           partnership, and the Registrant

10H.                       Incentive Property Management Agreement                                            *
                           effective as of May 31, 1991 by and between
                           TRI-Partners, a California general partnership,
                           and the Registrant

10I.                       Lease between South Bay/CRIP 3, a California                                       *
                           general  partnership  ("Landlord"),  and  Media  Arts
                           Group, Inc., a Delaware Corporation  ("Tenant)" dated
                           February 7, 1994.
</TABLE> 
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

<TABLE> 
<CAPTION> 
EXHIBIT NUMBER                                                                                           PAGE NUMBER
--------------                                                                                           -----------
<S>                        <C>                                                                           <C> 
10J.                       First Amendment to Lease by and between                                            *
                           South Bay/CRIP 3, a California
                           general  partnership  ("Landlord"),  and  Media  Arts
                           Group, Inc., a Delaware Corporation  ("Tenant)" dated
                           April 15, 1994.

10K.                       Second Amendment to Lease by and between                                           *
                           South Bay/CRIP 3, a California
                           general  partnership  ("Landlord"),  and  Media  Arts
                           Group, Inc., a Delaware Corporation  ("Tenant)" dated
                           June 23, 1994.

10L.                       Promissory Note dated May 1, 1994 by and between                                   *
                           South  Bay/CRIP  III  Associates  Joint  Venture,   a
                           California  general  partnership,  as Holder, and CXR
                           Telcom Corporation, a Delaware
                           Corporation, as Maker.

10M.                       Assignment and Assumption and Indemnity Agreement dated                            *
                           January 1, 1996, by and between Hewson/Shasta Way L.P., 
                           a California limited partnership ("Assignor"),
                           Copley Realty Income Partners 3; a Limited Partnership,
                           a Massachusetts limited partnership ("CRIP 3"), and Copley
                           Realty Income Partners 4; a Limited Partnership,
                           a Massachusetts limited partnership ("CRIP 4").

10N.                       First Amendment to General Partnership Agreement dated                             *
                           January 1, 1996, as amended to date (the "Partnership
                           Agreement") of Hewson Shasta Way Associates, a California
                           general partnership, by and among Hewson/Shasta Way L.P.,
                           a California limited partnership, Copley Realty Income
                           Partners 3; a Limited Partnership, a Massachusetts limited
                           partnership ("CRIP 3"), and Copley Realty Income Partners 4;
                           a Limited Partnership, a Massachusetts limited partnership
                           ("CRIP 4").

27.                        Financial Data Schedule
</TABLE> 

--------------------------------------------------------
*  Previously filed and incorporated herein by reference
<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.

                                          COPLEY REALTY INCOME PARTNERS 3;
                                          A LIMITED PARTNERSHIP



Date:    March 25, 1999                   By:   /s/ J. Christopher Meyer, III  
                                                -----------------------------
                                                    J. Christopher Meyer, III
                                                    President of the
                                                    Managing General Partner

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

<TABLE> 
<CAPTION> 
         SIGNATURE                                    TITLE                                       DATE
         ---------                                    -----                                       ----
<S>                                               <C>                                          <C>  
                                                  President, Chief
                                                  Executive Officer and
 /s/     J. Christopher Meyer, III                Director                                     March 25, 1999
--------------------------------------- 
         J. Christopher Meyer, III

                                                  Vice President and
 /s/     Pamela J. Herbst                         Director                                     March 25, 1999
--------------------------------------- 
         Pamela J. Herbst

                                                  Vice President and
 /s/     J. Grant Monahon                         Director                                     March 25, 1999
--------------------------------------- 
         J. Grant Monahon


 /s/     James J. Finnegan                        Vice President                               March 25, 1999
--------------------------------------- 
         James J. Finnegan


                                                  Treasurer and Principal
 /s/     Karin J. Lagerlund                       Financial and Accounting
--------------------------------------- 
         Karin J. Lagerlund                       Officer                                      March 25, 1999
</TABLE>