<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. 0-18735

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

                       COPLEY REALTY INCOME PARTNERS 4;
                             A LIMITED PARTNERSHIP
            (Exact name of registrant as specified in its charter)

        Massachusetts                                            04-3058134
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

    225 Franklin Street
      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 4; A Limited Partnership (the
"Partnership") was organized under the Uniform Limited Partnership Act of the
Commonwealth of Massachusetts on March 16, 1989, 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 Fourth Income Corp. (the "Managing General Partner") and
ICOP 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 March 23, 1989, 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 June 30, 1989.

         The first sale of Units occurred on November 9, 1989, 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 December 31, 1990. As of December 31, 1990, a total of 11,931
Units had been sold, a total of 966 investors had been admitted as limited
partners (the "Limited Partners") and a total of $11,899,370 had been
contributed to the capital of the Partnership.

         As of December 31, 1998, the Partnership is invested in one real
property investment which is described below. The Partnership has no current
plan to renovate, improve or further develop its remaining property. In the
opinion of the Managing General Partner of the Partnership, the remaining
property is adequately covered by insurance. The Partnership has sold two other
investments during 1997. The principal terms of the sales 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 Two                      5/97                   $2,826,133                $234.00                 5/97        
    Investment Three                    10/97                   $2,017,775                $168.00                10/97        
</TABLE> 

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

Industrial Building in Simi Valley, California ("Shasta Way").
-------------------------------------------------------------

         On September 29, 1989, the Partnership acquired a 25.2% interest in a
joint venture formed with Copley Realty Income Partners 3; A Limited
Partnership, an affiliate of the Partnership (the "Affiliate") with a 34.8%
interest, and an affiliate of The Hewson Company (the "Developer"). As of
December 31, 1998, the Partnership had contributed $5,149,893 to the capital of
the joint venture out of a maximum commitment of $5,512,500. Effective January
1, 1996, the joint venture was restructured whereby the Developer withdrew, and
the ownership interests of the Partnership and its Affiliate increased to 42%
and 58%, respectively. The joint venture agreement entitles the Partnership and
the Affiliate to receive a
<PAGE>
 
preferred return on their respective invested capital at the rate of 10% per
annum. The joint venture agreement also entitles the Partnership to receive 42%
of remaining cash flow and 42% 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 remaining property:

<TABLE> 
<CAPTION> 
-----------------------------------------------------------------------------------------------------------------------------------
                                ESTIMATED                                                                                     
                                  1998                                                        ANNUAL               
                                 ANNUAL          NUMBER OF                                   CONTRACT              
                                 REALTY       TENANTS WITH    NAME(S) OF        SQUARE FEET    RENT         LEASE       RENEWAL 
                                                   10%                              OF                                          
             PROPERTY             TAXES        OR MORE OF     TENANT(S)           EACH       PER S. F.    EXPIRATION   OPTIONS  
                                                  GLA                            TENANT  
-----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>             <C>               <C>          <C>          <C>          <C> 
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             
                                                                            
             PROPERTY                              OF PRINCIPAL            
                                                    TENANTS                 
--------------------------------------------------------------------------
<S>                                              <C>  
Industrial Building in Simi                      Apparel       
Valley, CA                                       Manufacturer         

--------------------------------------------------------------------------  
</TABLE> 
<PAGE>
 
         The following table sets forth for each of the last five years the
gross leasable area, occupancy rates, rental revenue and net effective rent for
the Partnership's remaining property:

<TABLE> 
<CAPTION> 
----------------------------------------------------------------------------------------------------------------------------
                                                 GROSS LEASABLE          YEAR-END        RENTAL          NET EFFECTIVE
                                                      AREA              OCCUPANCY        REVENUE        RENT ($/SF/YR)*
                                                                                        RECOGNIZED
----------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                    <C>             <C>             <C> 
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>
 
         Following is a schedule of lease expirations for each of the next ten
years for the Partnership's remaining property 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 FEET         ANNUAL RENTAL         GROSS ANNUAL
                                                                                                             RENTAL*
----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>                 <C>                  <C>     
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 the Partnership's remaining property
the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of
depreciation, (iv) life claimed, and (v) accumulated depreciation, with respect
to the property for purposes of depreciation:

<TABLE> 
<CAPTION> 
----------------------------------------------------------------------------------------------------------------------

Depreciable Assets                                          
                                                               Rate of                       Life       Accumulated
          Entity / Property                 Tax Basis       Depreciation      Method       in years    Depreciation

Shasta Way                                                  
---------------------------------------
<S>                                         <C>             <C>               <C>          <C>         <C>   
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                     $6,643,803                                                 $1,498,622
                                             ==========                                                 ==========

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

SL = Straight-Line
<PAGE>
 
          Following is information regarding the competitive market conditions
for the Partnership's remaining property. 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 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 submarket,
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.

                                    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 938 holders of Units.

        The Partnership's Amended and Restated Agreement of Limited Partnership
dated November 9, 1989, 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 $468,650. For the year ended December
31, 1997, cash distributions paid in 1997, or distributed after year end with
respect to 1997, to the Limited Partners as a group totaled $5,422,759,
including $4,796,262 ($402 per limited partnership unit), representing proceeds
from the sales of two properties.

        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         For 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(2)      12/31/94            
                                       -----------       -----------      -----------      -------------    -----------       
<S>                                    <C>               <C>              <C>              <C>              <C> 
Revenues                               $   336,516       $   488,539      $   579,858      $     528,841    $  457,607        
                                                                                                                              
                                                                                                                              
                                                                                                                              
Net Income                             $   220,377       $ 2,277,318      $   411,744      $     373,189    $  319,952        
                                                                                                                              
                                                                                                                              
                                                                                                                              
Net Income                                                                                                                    
per Unit of Limited                                                                                                           
Partnership Interest                                                                                                          
Outstanding                            $     18.29       $    188.97      $     34.17      $       30.97    $    26.55        
                                                                                                                              
                                                                                                                              
                                                                                                                              
Total Assets                           $ 4,976,440       $ 5,238,873      $ 8,272,345      $   8,576,307    $9,266,255        
                                                                                                                              
                                                                                                                              
                                                                                                                              
Total Cash Distributions                                                                                                      
per Unit of Limited                                                                                                           
Partnership Unit, including                                                                                                   
amounts distributed after year                                                                                                
end with respect to such                                                                                                      
year                                   $     40.21       $    454.51      $     62.60      $       91.13    $    41.25        
                                       -----------       -----------      -----------      -------------    ----------       
</TABLE> 


     (1)  Net Income in 1997 includes gains from the sales of two properties
          totaling $1,931,975. Cash Distributions include returns of capital
          totaling $402.00 per Limited Partnership Unit. 

     (2) Cash distributions in 1995 include a discretionary reduction of cash
         reserves of $37.00 per Limited Partnership Unit, which was classified
         as a return of capital.
<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 December 1990 and a total of 11,931 units were sold. The Partnership
received proceeds of $10,097,962, net of selling commissions and other offering
costs, which have been used for investment in real estate and to pay related
acquisition costs, or retained as working capital reserves.

          In July 1995, the Partnership reduced its working capital reserves by
making a capital distribution of $441,447 ($37 per limited partnership unit).
After the distribution, the Partnership's adjusted capital contribution was $963
per unit.

          On May 1, 1997, the Hohokam property within the Newhew joint venture
was sold for $2,990,000. The Partnership received net proceeds of $2,826,133,
after closing costs, and recognized a gain of $973,919 ($80.81 per limited
partnership unit) on the sale. A disposition fee of $89,700 was accrued but not
paid to AEW Real Estate Advisors, Inc. ("AEW"). On May 29, 1997, the Partnership
made a capital distribution of $2,791,854 ($234 per limited partnership unit)
from the proceeds of the sale. The distribution reduced the adjusted capital
contribution to $729 per unit.

          On October 24, 1997, the partnership sold the Fairmont property for
$3,600,000, of which $1,139,082 was used to discharge the related note payable.
The Partnership received net proceeds of $2,017,775, after closing costs, and
recognized a gain of $958,056 ($80.30 per limited partnership unit) on the sale.
A disposition fee of $108,000 was accrued but not paid to AEW. On November 24,
1997, the Partnership made a capital distribution of $2,004,408 ($168 per
limited partnership unit) from the proceeds of the sale. The distribution
reduced the adjusted capital contribution to $561 per unit.

          At December 31, 1998, the Partnership had $1,498,022 in cash, cash
equivalents, and short-term investments, of which $118,346 was used for cash
distributions to the 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 all four quarters in 1997 was 6.5% based
chronologically by quarter on an adjusted capital contribution of $963, a
weighted capital contribution of $878, an adjusted capital contribution of $729
and a weighted capital contribution of $662. The annualized distribution rate
relating to all four quarters of 1998 was 7.0% on the adjusted capital
contribution of $561.

          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 estimated
disposition costs for properties held for sale. Carrying value may be greater or
less than current appraised value. At December 31, 1998, the appraised value of
the Shasta Way investment exceeded its carrying value by approximately
$1,600,000. The current appraised value of real estate investments has been
determined 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
<PAGE>
 
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.

 .    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 AEW Capital Management and the property
managers.

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

     Form of Real Estate Investments

          The Newhew investment was structured as a joint venture with a real
estate management/development firm. 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, 
<PAGE>
 
the Shasta Way joint venture 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 42%.

     Operating Factors

          As discussed above, the Partnership sold the two Newhew Phase I
buildings (Hohokam Corporate Center) on May 1, 1997 and recognized a gain of
$973,919. Occupancy at Hohokam was 83% and 99% at December 31, 1995 and 1996,
respectively, and 100% as of the sale date.

          Fairmont Commerce Center (Newhew's Phase II investment) had been 100%
leased to two tenants since May 1992. As mentioned above, the Partnership sold
the Fairmont property on October 24, 1997 and recognized a gain of $958,056.

          Shasta Way is 100% occupied by a single tenant under a lease which was
recently extended through December 31, 2003.

          One tenant contributed 100% of the rental revenue recognized by the
Partnership's investments for 1998. The sole tenant occupying the Partnership's
remaining investment was current with regard to its lease payments at December
31, 1998; management is not aware of any impairment in the tenant's ability to
continue to perform in accordance with the terms of their lease.

     Investment Results
     ------------------

          Interest income on cash equivalents and short-term investments for
1998 decreased approximately $28,000, or 26% as compared to 1997 due to lower
invested balances, as well as lower short-terms yields. Short-term investment
income increased approximately $23,000 in 1997 as compared to 1996, primarily
due to higher invested balances as well as higher short-term yields.

          Joint venture earnings were $257,979, $382,320 and $497,089 for the
years ended December 31, 1998, 1997 and 1996, respectively. Joint venture
earnings from Shasta Way were $257,979, $231,584 and $237,663 in the respective
years. The increase in 1998 is primarily due to an increase in rental revenue.
The decline in 1997 is primarily due to increased repairs and maintenance
expenses. Joint venture earnings from Newhew were $150,736 and $259,426 in 1997
and 1996, respectively. The substantial decline between 1996 and 1997 is the
direct result of the sale of both properties in May and October of 1997, as
discussed above.

          Operating cash flow from Shasta Way was $435,902, $559,608 and
$470,736 in 1998, 1997 and 1996, respectively. Operating cash flow from Newhew
was $110,377 and $316,478 in 1997 and 1996, respectively. These changes differ
from the trend in investment results primarily due to the timing of cash
distributions by both joint ventures. Most notably, the Newhew venture retained
cash in 1996 to fund tenant improvements and a new roof at the Hohokam property.

          Portfolio Expenses

          General and administrative expenses primarily consist of real estate
appraisal, legal, accounting, printing and servicing agent fees. These expenses
decreased by $10,000, or 13%, between 1997 and 1998 as decreases in consulting,
bank service fees and appraisal fees were partially offset by an increase in
legal costs. General and administrative expenses decreased 14% in 1997 as
compared to 1996 
<PAGE>
 
primarily due to decreases in accounting and appraisal fees, partially offset by
an increase in printing costs.

          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. The management fee decrease in 1998
and was consistent with the corresponding changes in distributable cash flow.

     Inflation
     ---------

          By their nature, real estate investments tend to 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 the
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.

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.   Changes in and Disagreements with Accountants 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> 
<PAGE>
 
          (c)  Identification of Certain Significant Employees.
               -----------------------------------------------

               None.

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

               None.

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

          The Managing General Partner was incorporated in Massachusetts on
March 14, 1989. 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 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.).
<PAGE>
 
          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 5 of Notes to the 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                         
                                                                                  and                              
Receiving Entity                            Type of Compensation              Reimbursement                        
----------------                            --------------------              -------------                        
<S>                                         <C>                               <C>                                  
AEW Real Estate Advisors, Inc.              Management Fees and                                                    
                                            Reimbursement of Expenses         $      57,818                        
                                                                                                                   
                                                                                                                   
General Partners                            Share of Distributable Cash               4,846                        
                                                                                                                   
New England Securities Corporation          Servicing Fees                                                         
                                            and Reimbursement                                                      
                                            of Expenses                               1,681                        
                                                                                                                   
Back Bay Advisors, L.P.                     Servicing Fee                             1,712                        
                                                                                                                   
                                                                              -------------                        
                                            TOTAL                             $      66,057                        
                                                                              =============                        
</TABLE> 

         For the year ended December 31, 1998, the Partnership allocated $3,569
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
         -----------------------------------------------

         No person or group is known by the Partnership to be the beneficial
owner of more than 5% of the outstanding Units at December 31, 1998. 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
         Statement Index No. 2 are filed as part of this Annual Report.

               (2) Financial Statement Schedule--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 Currents Report on Form 8-K were filed during
the fourth quarter of 1998.
<PAGE>
 
                       Copley Realty Income Partners 4;

                             A Limited Partnership









                             Financial Statements

                                 * * * * * * *









                               December 31, 1998
<PAGE>
 
                       COPLEY REALTY INCOME PARTNERS 4;
                             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 4;
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 4; 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 Fourth 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 Associates and Nehew joint
venture investees 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 and for which equity in joint venture income
aggregated $497,089 for the year ended December 31, 1996. Those financial
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 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 4;
A LIMITED PARTNERSHIP

BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                                              December 31,                      
                                                           -----------------------------------------------------
                                                                1998                                1997        
                                                           ------------------                  -----------------
<S>                                                        <C>                                 <C> 
ASSETS

Real estate joint ventures                                 $        3,478,418                  $       3,661,072

Cash and cash equivalents                                           1,498,022                          1,081,267
Short-term investments                                                      -                            472,710
Accounts receivable                                                         -                             23,824
                                                           ------------------                  -----------------

                                                           $        4,976,440                  $       5,238,873
                                                           ==================                  =================

Liabilities and Partners' Capital


Accounts payable                                           $           40,674                  $          37,784
Accrued management fee                                                 11,705                             12,813
Deferred disposition fees                                             197,700                            197,700
                                                           ------------------                  -----------------
Total liabilities                                                     250,079                            248,297
                                                           ------------------                  -----------------

Partners' capital (deficit):
  Limited partners ($561 per unit;
  100,000 units authorized; 11,931
  units issued and outstanding)                                     4,723,600                          4,985,173
  General partners                                                      2,761                              5,403
                                                           ------------------                  -----------------
Total partners' capital                                             4,726,361                          4,990,576
                                                           ------------------                  -----------------

                                                           $        4,976,440                  $       5,238,873
                                                           ==================                  =================
</TABLE> 


               (See accompanying notes to financial statements)
<PAGE>
 
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS

<TABLE> 
<CAPTION> 
                                                                              Year ended December 31,                   
                                                                          -----------------------------
                                                                 1998                  1997                1996      
                                                            ---------------       --------------     ----------------
<S>                                                         <C>                   <C>                <C> 
INVESTMENT ACTIVITY

 Joint venture earnings                                     $       257,979       $      382,320     $        497,089
 Gain on sale of investment                                               -            1,931,975                    -
                                                            ---------------       --------------     ----------------

   Total real estate activity                                       257,979            2,314,295              497,089

 Interest on cash equivalents
  and short-term investments                                         78,537              106,219               82,769
                                                            ---------------       --------------     ----------------

     Total investment activity                                      336,516            2,420,514              579,858
                                                            ---------------       --------------     ----------------

PORTFOLIO EXPENSES

 General and administrative                                          64,589               74,137               86,055
 Management fee                                                      46,818               62,587               74,613
 Amortization                                                         4,732                6,472                7,446
                                                            ---------------       --------------     ----------------

                                                                    116,139              143,196              168,114
                                                            ---------------       --------------     ----------------


NET INCOME                                                  $       220,377       $    2,277,318     $        411,744
                                                            ===============       ==============     ================

Net income per limited
 partnership unit                                           $         18.29       $       188.97     $          34.17
                                                            ===============       ==============     ================

Cash distributions per limited
 partnership unit                                           $         40.21       $       459.41     $          60.19
                                                            ===============       ==============     ================

Number of limited partnership
 units outstanding during the year                                   11,931               11,931               11,931
                                                            ===============       ==============     ================
</TABLE> 

               (See accompanying notes to financial statements)
<PAGE>
 
COPLEY REALTY INCOME PARTNERS 4;
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           Partners       Partners 
                                    --------       --------            --------         --------           --------       --------
<S>                            <C>              <C>                <C>             <C>                 <C>            <C> 
Balance at beginning of year     $      5,403   $      4,985,173   $     (10,451)  $      8,211,849    $     (7,314)  $  8,522,348  

Cash distributions                     (4,846)          (479,746)         (6,919)        (5,481,221)         (7,254)      (718,126) 

Net income                              2,204            218,173          22,773          2,254,545           4,117        407,627  
                                 ------------   ----------------   -------------   ----------------    ------------   ------------  

Balance at end of year           $      2,761   $      4,723,600   $       5,403   $      4,985,173    $    (10,451)  $  8,211,849  
                                 ============   ================   =============   ================    =============  ============
</TABLE> 

               (See accompanying notes to financial statements)
<PAGE>
 
COPLEY REALTY INCOME PARTNERS 4;
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                                        $       220,377      $       2,277,318     $        411,744
    Adjustments to reconcile net income to net                                            
     cash provided by operating activities:                                               
  Amortization                                               4,732                  6,472                7,446
  Equity in joint venture earnings                        (257,979)              (382,320)            (497,089)
  Cash distributions from joint ventures                   435,902                669,985              787,214
  Gain on sale of property                                       -             (1,931,975)                   -
  (Increase)/decrease in receivables                        35,431                (25,483)              (9,493)
  Increase (decrease) in operating liabilities               1,782                (20,351)               9,674
                                                   ---------------      ------------------    ----------------
      Net cash provided by operating activities            440,245                593,646              709,496
                                                   ---------------      -----------------     ----------------
                                                                                          
CASH FLOWS FROM INVESTING ACTIVITIES:                                                     
 Net proceeds from sales of investments                          -              4,646,208                    -
 Deferred disposition fees                                       -                197,700                    -
 Investment in joint venture                                     -                (49,881)                   -
 Decrease (increase) in short-term                                                        
    investments, net                                       461,102                240,689             (405,932)
                                                   ---------------      -----------------     -----------------
      Net cash provided by (used in) investing                                            
         activities                                        461,102              5,034,716             (405,932)
                                                   ---------------      -----------------     -----------------
                                                                                          
CASH FLOWS FROM FINANCING ACTIVITY:                                                       
 Distributions to partners                                (484,592)            (5,488,140)            (725,380)
                                                   ----------------     ------------------    -----------------
      Net cash used in financing                                                          
         activity                                         (484,592)            (5,488,140)            (725,380)
                                                   ----------------     ------------------    -----------------
                                                                                          
 Net increase (decrease) in cash and cash                                                 
         equivalents                                       416,755                140,222             (421,816)
                                                                                          
Cash and cash equivalents:                                                                
 Beginning of year                                       1,081,267                941,045            1,362,861
                                                   ---------------      -----------------     ----------------
                                                                                          
 End of year                                       $     1,498,022      $       1,081,267     $        941,045
                                                   ===============      =================     ================
</TABLE> 

               (See accompanying notes to financial statements)
<PAGE>
 
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

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

General
-------

         Copley Realty Income Partners 4; 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 September 1989, and acquired
the one remaining real estate investment it currently owns prior to the end of
1989. It intended to dispose of this investment within six to nine years of its
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 Fourth Income Corp.,
a wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"), formerly
known as Copley Real Estate Advisors, Inc. ("Copley"). The associate general
partner is ICOP 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 AEW 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, L.P. 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 the 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 ($11,000 in 1998, $11,000 in 1997, and $11,000 in 1996).
Acquisition fees were based on 3% of the gross proceeds of the offering and were
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.

         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 $1,681, $1,580 and $1,507
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 $1,712, $1,565 and $1,507 in 1998, 1997 and 1996, respectively.
<PAGE>
 
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.

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. Certain tenant leases provide
for rent concessions at the beginning of the lease terms and for rental
increases over the lease terms. Rental income is recognized on a straight-line
basis over the respective lease terms.

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 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 respectively, the
appraised value of the Shasta Way investment exceeded the carrying value by
$1,600,000 and $1,100,000, respectively.

         The current appraised value of real estate investments has been
determined 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.
<PAGE>
 
         The Partnership has the positive intent and ability to hold all
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 were 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 the 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 the 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.

NOTE 3 - REAL ESTATE JOINT VENTURES
-----------------------------------

         The Partnership was 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. It 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 loan to one of the
ventures, which has been accounted for as a real estate investment due to the
attendant risks of ownership. 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 firm is responsible
for day-to-day development and operating activities, although overall authority
and responsibility for the business is shared by the venturers. The real estate
management/development firm, or its affiliates, also provides various services
to the respective joint venture for a fee.

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

<TABLE> 
<CAPTION> 
                                       Rate of                 Ownership                     December 31,                  
                                                                                 -----------------------------------   
Investment/Location                 Return/Interest             Interest            1998                     1997       
-------------------                 ---------------           -------------      -------------          ------------
<S>                                 <C>                       <C>                <C>                    <C>  
Shasta Way
 Simi Valley, CA                     10.0%      (C)               42%             $  4,870,589           $   4,870,589
</TABLE> 

(C) Capital contribution
<PAGE>
 
         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, 1998 had
completely funded, capital contributions of up to $5,512,500. It is entitled to
a preferred return of 10% per annum on its invested capital. 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
interest was assigned to the Partnership and its affiliate in proportion to
their respective ownership interests. The Partnership's ownership percentage
increased from 25.2% to 42%; its affiliate's interest was increased to 58%.

         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.

         Newhew
         ------

         On April 1, 1991, the Partnership entered into a joint venture with an
affiliate of The Hewson Company. The Partnership had an 80% ownership interest.
The venture owned land which is improved with three multi-tenant industrial
buildings; two were acquired in 1991 and one in 1992. Effective May 8, 1992, the
joint venture agreement was amended to provide that the Partnership fund
$2,185,000 in the form of capital and $1,365,000 in the form of a loan to the
venture. The Partnership was entitled to a preferential return on its capital at
the rate of 10% per annum. The loan bore interest at 10% per annum, which was
payable monthly, maturing on August 1, 1999 and was prepayable at any time,
without penalty if within six months of maturity.

         On May 1, 1997, the Hohokam property within the Newhew joint venture
was sold to an institutional buyer which was unaffiliated with the Partnership
for $2,990,000. The Partnership received net proceeds of $2,826,133, after
closing costs, and recognized a gain of $973,919 ($80.81 per limited partnership
unit) on the sale. A disposition fee of $89,700 was accrued but not paid to AEW.
On May 29, 1997, the Partnership made a capital distribution of $2,791,854 ($234
per limited partnership unit) from the proceeds of the sale.

         On October 24, 1997, the Partnership sold the Fairmont property to an
institutional buyer which was unaffiliated with the Partnership for $3,600,000,
of which $1,139,082 was used to discharge the related note payable. The
Partnership received net proceeds of $2,017,775, after closing costs, and
recognized a gain of $958,056 ($80.30 per limited partnership unit) on the sale.
A disposition fee of $108,000 was accrued but not paid to AEW. On November 24,
1997, the Partnership made a capital distribution of $2,004,408 ($168 per
limited partnership unit) from the proceeds of the sale.

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                                                                                                                
Other                                                                            70,400                   81,052    
                                                                       ----------------        -----------------           
                                                                                                                           
  Net assets                                                           $      7,229,113        $       7,650,757           
                                                                       ================        =================           
</TABLE> 
<PAGE>
 
                             Results of Operations
                             ---------------------

<TABLE> 
<CAPTION> 
                                                                  Year ended December 31,                                    
                                                  ----------------------------------------------------- 
                                                      1998                1997                 1996      
                                                  ------------      --------------       --------------
<S>                                               <C>               <C>                  <C> 
Revenue                                                                                                                  
  Rental income                                   $   1,258,609     $    1,690,135       $    2,032,518                  
  Other income                                            2,269              5,914               15,442                  
                                                  -------------     --------------       --------------                  
                                                      1,260,878          1,696,049            2,047,960                  
                                                  -------------     --------------       --------------                  
                                                                                                                         
Expenses                                                                                                                 
  Operating expenses                                    460,785            374,044              492,492                  
  Depreciation and amortization                         183,877            545,693              627,024                  
  Interest expense                                            -             82,238              101,173                  
                                                  -------------     --------------       --------------                  
                                                        644,662          1,001,975            1,220,689                  
                                                  -------------     --------------       --------------                  
                                                                                                                         
Net income                                        $     616,216     $      694,074       $      827,271                  
                                                  =============     ==============       ==============                  
</TABLE> 

         Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to one joint venture) its affiliate on behalf of
their various financing arrangements with the joint ventures.

         The above summarized financial information includes the results of
operations of the Newhew investments through their respective dates of sale.


NOTE 4 - 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>            <C> 
Net income per financial
 statements                                          $  220,377     $ 2,277,318    $  411,744                 
                                                                                                                
Timing differences:                                                                                             
  Joint venture earnings                                136,525         100,022       172,069                 
 Gain on sale of investments                                  -         172,723             -           
                                                     ----------     -----------    ----------
Taxable income                                       $  356,902     $ 2,550,063    $  583,813                 
                                                     ==========     ===========    ==========           
</TABLE> 

NOTE 5 - PARTNERS' CAPITAL
--------------------------

         Allocations of net income (loss) 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.

         In the third quarter of 1995, the Managing General Partner determined
that the Partnership's cash reserves should be reduced. Accordingly, a capital
distribution of $441,447 was made to the limited partners ($37 per limited
partnership unit).
<PAGE>
 
         Net sale 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 6 - 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
$118,346 ($9.82 per limited partnership unit).
<PAGE>
 
                        COPLEY REALTY INCOME PARTNERS 4
                             A LIMITED PARTNERSHIP

                                 SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                   12/31/98




<TABLE> 
<CAPTION> 
                                                                 Initial Cost to               Costs Capitalized       
                                                                 the Partnership           Subsequent to Acquisition   
                                                           --------------------------      --------------------------  
                                                                                                                       
                                             Encum -                     Buildings &       Improve -        Carrying   
Description                                  brances        Land         Improvements       ments             Costs    
-----------                                  -------       -------       ------------      ---------        ---------  
<S>                                          <C>           <C>           <C>               <C>              <C>        
42% Interest in Hewson Shasta                                                                                          
Way Joint Venture.  Owner                                                                                              
of an industrial building in                 ________      ________      ____________       See Note A      _________   
Simi Valley, California                                                                                                
                                                                                                                       
                                                                                                                       
80% Interest in Newhew                                                                                                 
Associates Joint Venture.                                                                                              
Owner of three industrial                                                                                              
buildings (135,500 sq.ft) on 8.4             _______       _______       ____________       See Note A      _________   
acres of land in Tempe,                                                                                                
Arizona.                                                                                                               
                                                                                                                       
                                                                                                                       
                                                                                                                       
                   Total                                                                                               
                                                                                                                       
<CAPTION> 
                                               Gross amount at which
                                             Carried at Close of Period
                                       ------------------------------------

                                                  Buildings &                           Accumulated       Date of       Date   
Description                             Land     Improvements      Total       Sales    Depreciation   Construction   Acquired 
-----------                            -------   ------------    ----------    -----    ------------   ------------   -------- 
<S>                                    <C>       <C>             <C>           <C>      <C>            <C>            <C>      
42% Interest in Hewson Shasta                                                                                                  
Way Joint Venture.  Owner                                                                                                      
of an industrial building in           _______   ____________    $3,478,418       $0             N/A        1991        9/29/89
Simi Valley, California                                                                                                        
                                                                                                                               

80% Interest in Newhew                                                                                                         
Associates Joint Venture.                                                                                                      
Owner of three industrial                                                                                                      
buildings (135,500 sq.ft) on 8.4       _______   ____________    $        0       $0             N/A        1981        4/1/91 
acres of land in Tempe,               
Arizona.                              
                                      
                                      
                                                                 ----------    ----- 
                   Total                                         $3,478,418       $0
                                                                 ==========    ===== 
                                     
<CAPTION>                                      
                                        Depreciable
Description                                 Life
-----------                             ------------
<S>                                     <C> 
42% Interest in Hewson Shasta        
Way Joint Venture.  Owner            
of an industrial building in              31.5 Years
Simi Valley, California                 
                                        

80% Interest in Newhew                  
Associates Joint Venture.               
Owner of three industrial               
buildings (135,500 sq.ft) on 8.4          31.5 Years
acres of land in Tempe,              
Arizona.                             
                                     


                   Total                  
</TABLE> 
          
<PAGE>
 
                       COPLEY REALTY INCOME PARTNERS 4;
                             A LIMITED PARTNERSHIP

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




<TABLE> 
<CAPTION> 
                                                                                             1996              1996 CASH
                                                                       1996 CASH           EQUITY IN            RECEIVED     
                             PERCENT OF           BALANCE            INVESTMENTS IN         INCOME/               FROM       
                             OWNERSHIP          AT 12/31/95          JOINT VENTURES          (LOSS)          JOINT VENTURES  
                            -----------         -----------          --------------        ---------         --------------  
<S>                         <C>                 <C>                  <C>                   <C>               <C>             
Shasta Way Associates           42%                $4,231,633                    $0        $237,663               ($470,736) 
                                                                                                                             
Newhew Associates               80%                 2,685,498                     0         259,426                (316,478) 
                                                                                                                             
                                                -------------        --------------        --------          --------------  
                                                   $6,917,131                    $0        $497,089               ($787,214) 
                                                =============        ==============        ========          ==============  
                                                                                                                             
<CAPTION>                                                                                                                    
                                                                                              1997             1997 CASH     
                                                                       1997 CASH           EQUITY IN            RECEIVED     
                             PERCENT OF           BALANCE            INVESTMENTS IN         INCOME/               FROM       
                             OWNERSHIP          AT 12/31/96          JOINT VENTURES          (LOSS)          JOINT VENTURES  
                            -----------         -----------          --------------        ---------         --------------  
<S>                         <C>                 <C>                  <C>                   <C>               <C>             
Shasta Way Associates           42%                $3,993,828                    $0        $231,584               ($559,608) 
                                                                                                                             
Newhew Associates               80%                 2,625,732                49,881         150,736                (110,377) 
                                                                                                                             
                                                -------------        --------------        --------          --------------  
                                                   $6,619,560               $49,881        $382,320               ($669,985) 
                                                =============        ==============        ========          ==============  
                                                                                                                             
<CAPTION>                                                                                                                    
                                                                                              1998             1998 CASH     
                                                                       1998 CASH           EQUITY IN            RECEIVED     
                             PERCENT OF           BALANCE            INVESTMENTS IN         INCOME/               FROM       
                             OWNERSHIP          AT 12/31/97          JOINT VENTURES          (LOSS)          JOINT VENTURES  
                            -----------         -----------          --------------        ---------         --------------  
<S>                         <C>                 <C>                  <C>                   <C>               <C>             
                                                                                                                             
Shasta Way Associates           42%                $3,661,072                    $0        $257,979               ($435,901) 
                                                                                                                             
Newhew Associates               80%                         0                     0               0                       0  
                                                                                                                             
                                                -------------        --------------        --------          --------------  
                                                   $3,661,072                    $0        $257,979               ($435,901) 
                                                =============        ==============        ========          ==============  
<CAPTION> 
                           
                                             1996
                                       AMORTIZATION OF                  1996                  BALANCE
                                       ACQUISITION FEES                 SALES               AT 12/31/96
                                       ----------------               ----------           ------------- 
<S>                                    <C>                            <C>                  <C> 
Shasta Way Associates                           ($4,732)                      $0              $3,993,828
                                                                                          
Newhew Associates                                (2,714)                       0               2,625,732
                                       ----------------               ----------           -------------   
                                                ($7,446)                      $0              $6,619,560
                                       ================               ==========           =============  
                           
<CAPTION>                  
                           
                                             1997
                                       AMORTIZATION OF                  1997                  BALANCE
                                       ACQUISITION FEES                 SALES               AT 12/31/97
                                       ----------------               ----------           -------------
<S>                                    <C>                            <C>                  <C> 
Shasta Way Associates                           ($4,732)                      $0              $3,661,072
                                                                                         
Newhew Associates                                (1,740)              (2,714,232)                      0
                                                                                         
                                       ----------------               ----------           -------------   
                                                ($6,472)             ($2,714,232)             $3,661,072
                                       ================               ==========           =============     
                           
<CAPTION>                  
                                             1998
                                       AMORTIZATION OF                  1998                  BALANCE
                                       ACQUISITION FEES                 SALES               AT 12/31/98
                                       ----------------               ----------           -------------
<S>                                    <C>                            <C>                  <C> 
Shasta Way Associates                           ($4,732)                      $0              $3,478,418
                                                                                         
Newhew Associates                                     0                        0                       0
                                                                                         
                                       ----------------               ----------           -------------
                                                ($4,732)                      $0              $3,478,418
                                       ================               ==========           =============  
</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 December31, 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                                  166,176                 159,720               162,773                  
     Interest and other income                               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:

<TABLE> 
               <S>                                                                    <C> 
               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%
</TABLE> 

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                                                                                                         PAGE
NUMBER                                                                                                         NUMBER
------                                                                                                         ------
<S>                                                                                                            <C>         
10A.              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.

10B.              Joint Venture Agreement of Newhew Associates dated as of April                                 *
                  1, 1991 between California Property Investment Company and
                  the Registrant.

10C.              Deed of Trust dated as of August 1, 1991 by and between Hewson                                 *
                  Properties, Inc. ("Trustor"), TransAmerica Title Insurance
                  Company ("Trustee") and the Registrant ("Beneficiary").

10D.              Loan Agreement entered into as of August 1, 1991, by and                                       *
                  between  the Registrant and Newhew Associates.

10E.              Promissory Note Secured by Deed of Trust in the principal                                      * 
                  amount of $2,550,000 by Newhew Associates to the Registrant
                  dated August 1, 1991.

10F.              Parcel One Assignment of Rents and Leases dated August 1,                                      *
                  1991, from Newhew Associates to the Registrant.

10G.              Purchase and Sale Agreement dated March 23, 1992 by and                                        *
                  between Boston Safe Deposit and Trust Company, as Trustee
                  for the Owens- Illinois Master Retirement Trust ("Seller") and
                  Newhew Associates ("Purchaser").

10H.              Indemnity Agreement and Assignment of Leases entered into                                      *
                  May 11, 1992 by and between Boston Safe Deposit and Trust
                  Company, as Trustee for the Owens-Illinois Master Retirement
                  Trust ("Seller") and Newhew Associates ("Purchaser").

10I.              First Amendment to Newhew Associates Joint Venture Agreement                                   *
                  dated as of May 8, 1992 by and between California Property
                  Investment Company and the Registrant.

10J.              Assumption, Novation and Modification Agreement made as of May                                 *
                  12, 1992 by and between New England Mutual Life Insurance
                  Company, as Lender, Boston Safe Deposit and Trust Company, as
                  Trustee for the Owens Illinois Master Retirement Trust and
                  Newhew Associates, as Borrower.

10K.              Secured Promissory Note in the principal amount of $1,150,000                                  *
                  by Newhew Associates to Principal Mutual Life Insurance
                  Company dated June 1992.

10L.              Deed of Trust, Security Agreement and Assignment of Rents                                      *
                  dated June 1, 1992 between Newhew Associates, as Trustor,
                  Fidelity National Title Insurance Company, as Trustee, and
                  Principal Mutual Life Insurance Company, as Beneficiary.
</TABLE> 
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

<TABLE> 
<CAPTION> 
EXHIBIT                                                                                                         PAGE
NUMBER                                                                                                         NUMBER
------                                                                                                         ------
<S>                                                                                                            <C>  
10M.              Assignment of Leases and Rents dated June 1992 by Newhew                                       *
                  Associates, as Assignor, to Principal Mutual Life Insurance
                  Company, as Assignee.

10N.              Assignment of Indemnification dated June 1992 by Newhew                                        *
                  Associates to Principal Mutual Life Insurance Company.

10O.              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").

10P.              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 4;            
                                    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>