<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. 0-17807

                         COPLEY PENSION PROPERTIES VI;
                       A REAL ESTATE LIMITED PARTNERSHIP

            (Exact name of registrant as specified in its charter)

        Massachusetts                                            04-2988542
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                              Identification No.)


    225 Franklin Street, 25th FL.
      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 Pension Properties VI; A Real Estate Limited Partnership (the
"Partnership") (formerly New England Pension Properties VI; A Real Estate
Limited Partnership) was organized under the Uniform Limited Partnership Act of
the Commonwealth of Massachusetts on October 16, 1987, 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 Sixth Copley Corp. (the "Managing General Partner") and GCOP
Associates Limited Partnership (the "Associate General Partner") (collectively,
the "General Partners") and $10,000 from Copley Real Estate Advisors, Inc. (the
"Initial Limited Partner"). The Partnership filed a Registration Statement on
Form S-11 (the "Registration Statement") with the Securities and Exchange
Commission on October 26, 1987, with respect to a public offering of 80,000
units of limited partnership interest at a price of $1,000 per unit (the
"Units") with an option to sell up to an additional 80,000 Units (an aggregate
of $160,000,000). The Registration Statement was declared effective on January
20, 1988.

     The first sale of Units occurred on July 28, 1988, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering terminated and the last group of subscription agreements was accepted
by the Partnership on December 31, 1988. At the termination of the offering, a
total of 48,788 Units had been sold, a total of 6,396 investors had been
admitted as limited partners (the "Limited Partners") and a total of $48,511,620
net of discounts had been contributed to the capital of the Partnership. The
remaining 111,212 Units were de-registered on February 10, 1989.

     As of December 31, 1998 the Partnership is invested in the two real
property investments described below. During 1990, a joint venture in which the
Partnership was a partner sold its interest in a third real estate investment
located in Chino Hills, California. The Partnership made a distribution to the
Limited Partners in the amount of $48.17 per Unit. During 1994, a joint venture
in which the Partnership was a partner sold its interest in a fourth investment
located in Phoenix, Arizona. The Partnership made a distribution to the Limited
Partners of $182.85 per Unit. In 1997, the Partnership sold a fifth investment
located in Farmers Branch, Texas. The Partnership made a capital distribution to
the Limited Partners of $88.84 per Unit. During 1998, two joint ventures in
which the Partnership was a partner sold their respective interests in a sixth
and a seventh investment in Petaluma, California and Frederick, Maryland. The
Partnership made capital to the Limited Partners distributions of $87.72 and
$334.29 per unit, respectively. The Partnership has no current plans to
renovate, improve or further develop any of its real property investments. In
the opinion of the Managing General Partner of the Partnership, the properties
are adequately covered by insurance.

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

     A.   Industrial Building in Carson, California ("Wilmington Industrial").
          -------------------------------------------------------------------

     On July 18, 1988 the Partnership acquired a 60% interest in a joint venture
with an affiliate of The Hewson Company. On November 15, 1989, the Partnership
agreed to increase its maximum commitment from $6,685,000 to $7,285,000. On
February 1, 1991, the Partnership agreed to further increase its maximum
commitment to $8,085,000. The Partnership made capital contributions totaling
$7,774,402. As of December 31, 1991,
<PAGE>
 
because of the developer partner's inability to fund its share of capital
contributions, the Partnership assumed 100% ownership of the joint venture's
assets, which consist primarily of approximately 5.77 acres of land in Carson,
California and an approximately 115,732 square foot multi-tenant industrial
building located thereon. As of December 31, 1998, the building was 100% leased.

     B.   Industrial Building in Itasca, Illinois ("Prentiss Copystar").
          -------------------------------------------------------------

     On May 23, 1991, the Partnership acquired a 51.75% interest in a joint
venture formed with Copley Pension Properties VII; A Real Estate Limited
Partnership, an affiliate of the Partnership (the "Affiliate") with a 23.25%
interest, and with an affiliate of Prentiss Properties, Ltd. As of December 31,
1998, the Partnership had contributed $2,296,411 to the capital of the joint
venture, of which $63,563 had been returned to the Partnership. Of the capital
contributed and not returned, $1,542,848 is characterized as Senior Capital and
$690,000 is characterized as Junior Capital. The joint venture agreement
entitles the Partnership to receive a preferred compounded monthly return of 11%
per annum of which the return on Senior Capital will be payable currently and
the return on Junior Capital may accrue and compound monthly if sufficient cash
flow is not available therefor. If the Senior Capital is repaid prior to the
termination of the joint venture, the Partnership will be entitled to receive a
return on the Senior Capital at the lesser of 11% per annum or the interest rate
for treasury bonds having a maturity date coinciding with the termination of the
joint venture, plus 75 basis points. The joint venture agreement also entitles
the Partnership to receive 51.75% of the net proceeds of sales and financings
after return of its capital and 51.75% of cash flow remaining after payment of
the preferred return.

     The joint venture owns approximately 3.75 acres of land in Itasca, Illinois
and during 1991 completed construction thereon of an approximately 70,535 square
foot single-story industrial building. At December 31, 1998, the building was
100% leased to a single tenant for a term which expires in 1999. The tenant has
an option that commenced in September, 1995 to purchase the facility at fair
market value. As of December 31, 1998, the tenant has not expressed any interest
in exercising the option.
<PAGE>
 
Item 2. Properties
        ------------

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

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                      NUMBER                                                     
                                    ESTIMATED           OF                                                         ANNUAL
                                      1998           TENANTS                                                      CONTRACT
                                     ANNUAL          WITH 10%                                      SQUARE           RENT
                                     REALTY            OR              NAMES (S) OF                FEET OF          PER    
PROPERTY                              TAXES         MORE OF GLA          TENANT(S)               EACH TENANT      SQ. FT.  
----------------------------------------------------------------------------------------------------------------------------- 
<S>                                 <C>             <C>              <C>                         <C>              <C>  
Industrial Building in Carson,        $75,000            4           Practical Packaging            57,183         $5.04   
 CA                                                                                                                        
                                                                     Del Monte                      26,545         $5.42   
                                                                                                                           
                                                                     Continental Wire               11,682         $5.64   

                                                                     Haagen-Dazs                    12,000         $6.53   

Industrial Building, Itasca, IL       $72,500            1           Mita Copystar of America,      70,535         $5.30   
                                                                     Inc.                                                  
-----------------------------------------------------------------------------------------------------------------------------  
<CAPTION> 
-----------------------------------------------------------------------------------------------
                                                                              LINE OF    
                                                                              BUSINESS   
                                           LEASE           RENEWAL          OF PRINCIPAL 
PROPERTY                                 EXPIRATION        OPTIONS            TENANTS     
<S>                                      <C>              <C>              <C> 
Industrial Building in Carson,            Dec, 2001          N/A           Packaging
 CA                                                                  
                                          Dec, 1999       Two 5 year       Fruit and Fruit
                                                                           Products

                                          Dec, 1999          N/A           Wire Fabrication

                                          Nov, 2001          N/A           Ice Cream

Industrial Building, Itasca, IL           Sept, 1999         None          Photocopier
                                                                           Distributor
-----------------------------------------------------------------------------------------------
</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 properties:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------- 
                                                                               RENTAL   
              PROPERTY                   GROSS LEASABLE       YEAR-END        REVENUE       NET EFFECTIVE
                                              AREA            OCCUPANCY      RECOGNIZED     ENT ($/SF/YR)*
----------------------------------------------------------------------------------------------------------- 
<S>                                      <C>                  <C>            <C>            C> 
Industrial Building in Carson,  CA                                                          
-------------------------------------                                                       
                1994                         115,732             100%         $641,008         $5.54
                1995                         115,732              89%         $620,300         $6.58
                1996                         115,732             100%         $709,199         $7.08
                1997                         115,732             100%         $752,941         $6.51
                1998                         115,732             100%         $726,314         $6.28
                                                                                        
                                                                                        
Industrial Building, Itasca, IL                                                         
-------------------------------------                                                   
                1994                          70,535             100%         $475,000         $6.73
                1995                          70,535             100%         $479,000         $6.79
                1996                          70,535             100%         $492,000         $6.98
                1997                          70,535             100%         $462,000         $6.55
                1998                          70,535             100%         $468,095         $6.64
-------------------------------------------------------------------------------------------------------
</TABLE> 
 
*  Net effective rent calculation is based on average occupancy during the
   respective years.
<PAGE>
 
      Following is a schedule of lease expirations for each of the next ten
years for the Partnership's properties based on the annual contract rent in
effect at December 31, 1998:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------  
                                                TENANT AGING REPORT
 
               PROPERTY                    # OF LEASE         TOTAL               TOTAL            PERCENTAGE OF
                                          EXPIRATIONS      SQUARE FEET        ANNUAL RENTAL        GROSS ANNUAL
                                                                                                     RENTAL*
------------------------------------------------------------------------------------------------------------------ 
<S>                                       <C>              <C>                <C>                  <C>  
Industrial Building in Carson,  CA
---------------------------------------
                 1999                          2            38,227             $196,416                  32%
                 2000                          3            77,475             $412,729                  68%
                 2001                          0                 0             $      0                   0%
                 2002                          0                 0             $      0                   0%
                 2003                          0                 0             $      0                   0%
                 2004                          0                 0             $      0                   0%
                 2005                          0                 0             $      0                   0%
                 2006                          0                 0             $      0                   0%
                 2007                          0                 0             $      0                   0%
                 2008                          0                 0             $      0                   0%
                                              
                                              
Industrial Building, Itasca, IL               
---------------------------------------       
                 1999                          1            70,535             $281,000                 100%
                 2000                          0                 0             $      0                   0%
                 2001                          0                 0             $      0                   0%
                 2002                          0                 0             $      0                   0%
                 2003                          0                 0             $      0                   0%
                 2004                          0                 0             $      0                   0%
                 2005                          0                 0             $      0                   0%
                 2006                          0                 0             $      0                   0%
                 2007                          0                 0             $      0                   0%
                 2008                          0                 0             $      0                   0%
------------------------------------------------------------------------------------------------------------------
</TABLE>

Does not include expenses paid by tenants.
<PAGE>
 
      The following table sets forth for each of the Partnership's properties
the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of
depreciation, (iv) life claimed for purposes of depreciation, and (v)
accumulated depreciation.

<TABLE>
<CAPTION>
                                                               Rate of                   Life      Accumulated
          Entity / Property                   Tax Basis      Depreciation     Method   in years   Depreciation
---------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>              <C>      <C>        <C>   
Industrial Building in Carson, CA                                                                
--------------------------------------                                                           
Building                                        $3,727,028          2.50%     SL            40       $  845,990
                                                ----------                                           ----------
Total Depreciable Assets                        $3,727,028                                           $  845,990
                                                                                                 
Industrial Building in Itasca, IL                                                                
--------------------------------------                                                           
Building                                        $2,121,478          2.50%     SL            40       $  386,117
                                                ----------                                           ----------
Total Depreciable Assets                        $2,121,478                                           $  386,117
                                                                                                 
Total Depreciable Assets                        $5,848,506                                           $1,232,107
                                                ==========                                           ==========
---------------------------------------------------------------------------------------------------------------
</TABLE> 

SL = Straight Line
<PAGE>
 
      Following is information regarding the competitive market conditions for
each of the Partnership's properties.  This information has been gathered from
sources deemed reliable.  However, the Partnership has not independently
verified the information and, as such, cannot guarantee its accuracy or
completeness:

Industrial Building in Carson, California
-----------------------------------------

The property is located in the South Bay sub-market, within the greater Los
Angeles industrial market.  The South Bay sub-market, with 3,905 industrial
buildings totaling approximately 200 million square feet, represents
approximately 23% of the total Los Angeles industrial market.  Leasing activity
in 1998 in the South Bay industrial market totaled 12 million square feet,
approximately 38% higher than in 1997, and the vacancy rate dipped to 5.5% at
year-end, compared to 5.8% in 1997.  The unemployment rate in the submarket was
6.7%, essentially unchanged from year-end 1997.

Industrial Building in Itasca, Illinois
---------------------------------------

This industrial building is located west of Chicago in northeast DuPage County.
Northeast DuPage has the highest concentration of industrial space of any
submarket in DuPage County.  Most tenants in this submarket rely heavily on
close proximity to O'Hare International Airport and convenient access to
Interstates 355, 290, 90 and the Elgin-O'Hare Expressway.  The O'Hare Area
market consists of approximately 109 million square feet of industrial space, of
which approximately 6.1% was vacant at year-end 1998, compared to 7.2% at year-
end 1997.  Approximately 1 million square feet of space was added to the market
and rental rates were largely unchanged during the year.

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

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

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

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K. 
<PAGE>
 
                                    PART II
                                    -------

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

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

         As of December 31, 1998, there were 6,389 holders of Units. 

         The Partnership's Amended and Restated Agreement of Limited
Partnership dated July 28, 1988, as amended to date (the "Partnership
Agreement"), requires that any Distributable Cash (as defined therein) be
distributed quarterly to the partners in specified proportions and priorities.
There are no restrictions on the Partnership's present or future ability to make
distributions of Distributable Cash.  For the year ended December 31, 1998, cash
distributions paid in 1998 or distributed after year end with respect to 1998 to
the Limited Partners as a group totaled $22,855,715, including $20,589,024 of
returned capital from the proceeds of joint venture sales and $491,783 of
returned capital from original working capital reserves. 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 $8,111,492,
including $4,334,326 of returned capital from the proceeds of a property sale
and $968,442 of returned capital from original working capital reserves.

         Cash distributions exceeded net income in 1998 and 1997 and therefore
resulted in a reduction of partners' capital.  Cash distributions in 1998  and
1997 exceeded cash provided by operating activities.  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(1)     12/31/97 (2)      12/31/96        12/31/95 (3)      12/31/94 (4)
                   ------------------------------------------------------------------------------------------
<S>                      <C>             <C>               <C>             <C>               <C>     
Revenues                 $9,098,258       $ 2,688,336     $ 2,250,424      $ 2,662,452       $  5,885,003
                                                                                        
Net Income (Loss)        $8,384,390       $ 1,588,309     $ 1,186,133      $  (206,204)      $  4,677,407
                                                                                        
Net Income (Loss)                                                                       
per Limited                                                                             
Partnership Unit         $   170.13       $     32.23     $     24.07      $     (4.18)       $     94.91
                                                                                        
Total Assets             $8,497,702       $22,706,302     $29,099,680      $30,094,908        $32,766,653


Total Cash 
Distributions
per Limited 
Partnership
Unit, including
amounts 
distributed
after year end 
with respect to 
such year                $  468.47        $    166.26     $     42.28      $     50.00        $   237.73
</TABLE> 


(1) Revenues and net income in 1998 include a gain $7,563,334 on the sales of
    White Phonic and Waterford Apartments..

(2) Revenues and net income in 1997 include a gain of $248,172 on the sale of
    the Stemmons Industrial property.

(3) Net loss in 1995 includes a provision of $1,500,000 to recognize the
    impairment of a real estate investment.

(4) Revenues and net income in 1994 include a gain of $2,869,376 on the sale of
    the Lakewood property.
<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 1988 and a total of 48,788 units were sold.  The
Partnership received proceeds of $43,472,858, net of selling commissions and
other offering costs, which have been used for investment in real estate, for
the payment of related acquisition costs or retained as working capital
reserves.  The Partnership currently holds the two investments described in A.
and B. of Item 1 hereof.  In addition, one investment was sold in each of  1990,
1994 and 1997 and two investments were sold in 1998.  Through December 31, 1998,
capital of $37,654,578 ($771.80 per limited partnership unit) has been returned
to the limited partners; $36,194,353 as a result of sales and $1,460,225 as a
result of a discretionary reduction of original working capital previously held
in reserves.

      On August 7, 1998, the Waterford Apartments, in Frederick, Maryland, which
was owned by the Partnership (75%) and an affiliate (25%), was sold to an
institutional buyer which is unaffiliated with the Partnership. The Partnership
received its share of the net proceeds totaling $16,338,750, after closing
costs, and recognized a gain of $6,227,526 ($126.37 per limited partnership
unit).  A disposition fee of $490,500 was accrued but not paid to AEW Real
Estate Advisors, Inc. (the "Advisor").  On August 26, 1998, the Partnership made
a capital distribution of $16,309,341 ($334.29 per limited partnership unit)
from the proceeds of the sale.

  On July 14, 1998, a joint venture in which the Partnership held a 50%
interest, sold the White Phonic property in Petaluma, Cafifornia, to an
unaffiliated third party for a total gross sale price of $5,380,000. The
Partnership received its share of the net proceeds of $4,279,751 after closing
costs, representing a return of capital and accrued interest plus its
participation in net sales proceeds of $965,671 and recognized a gain of
$1,335,808 ($27.06 per limited partnership unit).  A disposition fee of $161,400
was accrued but not paid to the Advisor. On July 30, 1998, the Partnership made
a capital distribution of $4,279,683 ($87.72 per limited partnership unit) from
the proceeds of the sale.

      At December 31, 1998, the Partnership had $2,605,486 in cash and cash
equivalents, of which $177,914 was used for cash distributions to partners on
January 28, 1998; the remainder is being retained as working capital reserves.
The source of future liquidity and cash distributions to partners will be
primarily cash generated by the Partnership's cash and cash equivalents and real
estate investments. Distributions of cash from operations relating to the first
and second quarters of 1998 were made at an annualized rate of 6.25% on the
adjusted capital contribution. Distributions of cash from operations relating to
the third and fourth quarters of 1998 were made at an annualized rate of 6.25%
on the weighted average adjusted capital contribution due to the mid-quarter
sales of  White Phonic and Waterford Apartments as well as a distribution of
original working capital during the fourth quarter of 1998. Also during the
fourth quarter of 1998, a distribution of $4.76 per limited partnership unit was
made from operational cash previously held in reserves. Distributions of cash
from operations relating to the first three quarters of 1997 were made at the
annualized rate of 5.5% on the adjusted capital contribution.  
<PAGE>
 
The fourth quarter distribution of cash from operations was made at the
annualized rate of 6.25% on the weighted average capital contribution. Also
during the fourth quarter of 1997, a distribution of $14.98 per limited
partnership unit was made from operational cash previously held in reserves.

      The carrying value of real estate investments in the financial statements
at December 31, 1998 is at depreciated cost, or if the investment's carrying
value is determined not to be recoverable through expected undiscounted future
cash flows, the carrying value is reduced to estimated fair market value.  The
fair market value of such investments is further reduced by the estimated cost
of sale for properties held for sale.  Carrying value may be greater or less
than current appraised value.  At December 31, 1998, the  appraised value of
each of the Partnership's real estate investments exceeded their related
carrying value by an aggregate of approximately $2,556,000.  The current
appraised value of real estate investments has been estimated by the Managing
General Partner and is generally based on a combination of traditional appraisal
approaches performed by the Advisor and independent appraisers.  Because of the
subjectivity inherent in the valuation process, the estimated 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 
<PAGE>
 
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 Wilmington Industrial investment is a wholly-owned property.
Effective July 1, 1994, the Stemmons Industrial joint venture investment was
converted to a wholly-owned property; the property was subsequently sold in
September 1997.  The Prentiss Copystar investment is a  joint venture.

      OPERATING FACTORS

      The Partnership's two industrial properties (Prentiss Copystar and
Wilmington ) were 100% leased at December 31, 1998 and December 31, 1997.

      As discussed above, the Partnership sold its Stemmons Industrial
investment on September 29, 1997, and recognized a gain of $248,172.  Stemmons
Industrial was vacant at the time of sale, as it had been since February 1996,
with the expiration of a short term lease for 82% of the space.
 
      As discussed above, the White Phonic industrial property was sold on July
14, 1998, and the Partnership recognized a gain of $1,335,808.  At the time of
the sale, White Phonic was 100% leased to a single tenant, as it had been since
September 30, 1997.

      In addition, the Waterford Apartments was sold on August 7, 1998, and the
Partnership recognized a gain of $6,227,526.  At the time of the sale, the
Waterford Apartments was 96% leased.  At December 31, 1997 it was 93% leased.
<PAGE>
 
      INVESTMENT ACTIVITY

      Interest income on cash equivalents and short-term investments decreased
by approximately $56,000  or 20% compared to 1997 due primarily to lower average
investment balances as a result of the sale of investments previously discussed.
Interest income on cash equivalents and short-term investments increased by
approximately $7,000 compared to 1996 due primarily to higher average investment
balances as a result of the temporary investment of the receipt of the Stemmons
Industrial sales proceeds.

      1998 COMPARED TO 1997

      Exclusive of net losses from operations from Stemmons Industrial of
($172,798) in 1997, total real estate operations for 1998 was $962,716, a
decrease from $1,698,187 for the comparable period of 1997.  The decrease of
approximately $735,000 or 43% is primarily due to lower joint venture earnings
as a result of the sale of White Phonic and Waterford Apartments.

      The decrease in operating cash flow of approximately $330,000 between 1997
and 1998 is primarily due to the decrease in distributions from joint ventures
as a result of sales and increases in working capital.

      1997 COMPARED TO 1996

      Exclusive of net losses from operations from Stemmons Industrial of
($172,798) in 1997 and ($242,558) in 1996, total real estate operations for 1997
was $1,698,187, an increase from $1,567,860 for the comparable period of 1996.
Operating results at Waterford Apartments increased by $142,000 primarily due to
higher rental rates combined with a decrease in depreciation expense related to
personal property that became fully depreciated.  These improvements in
operating results were partially offset by an increase in property operating
expenses primarily due to increases in salary expense and real estate taxes.
Operating results at Prentiss also improved, by approximately $29,000, due to a
reduction in real estate taxes combined with a decrease in amortization expense
related to leasing commissions that became fully amortized.  Conversely,
operating income at Wilmington decreased approximately $55,000, primarily due to
higher legal expenses and an allowance for bad debt associated with long
outstanding tenant receivables.  Depreciation expense also increased due to the
addition of tenant improvements in the second half of 1996.

      Cash flow from operations did not change significantly between the two
periods ended December 31, 1997 and December 31, 1996.
<PAGE>
 
PORTFOLIO EXPENSES

      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.  General and administrative expenses
consist primarily of real estate appraisal, printing, legal, accounting and
investor servicing fees.

      1998 COMPARED TO 1997


     The Partnership management fee decreased  approximately $103,000 between
1998 and 1997 due to less operational cash available for distributions as a
result of the sale of Stemmons Industrial in 1997, and the sales of White Phonic
and Waterford Apartments in 1998.  General and administrative expenses increased
approximately $3,500 or 2% primarily due to an increase in investor servicing
fees in 1998.

      1997 COMPARED TO 1996

      The Partnership management fee increased  approximately $75,000 between
1997 and 1996 due to management fees incurred due to a special distribution of
previously undistributed operating reserves and to the increase in the fourth
quarter 1997 distribution rate.  General and administrative expenses decreased
approximately $22,000 primarily due to a decrease in professional fees for 1997
which was the result of a reduction in accounting, legal and appraisal fees.



INFLATION
---------

      By their nature, real estate investments tend not to 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 property values during the period of Partnership
operations, due to market and economic conditions, have overshadowed the
positive affect inflation may have on the value of the Partnership's
investments.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         ----------------------------------------------------------

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

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

Item 9.  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                                             53
James J. Finnegan            Vice President                                             38
Karin J. Lagerlund           Treasurer and Principal Financial and Accounting Officer   34
</TABLE>

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

              None 

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

              None.

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

              The Managing General Partner was incorporated in Massachusetts
on October 13, 1987. 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 in 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 
<PAGE>
 
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.).

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, 2 and 6 of Notes to Financial Statements.
<PAGE>
 
       The following table sets forth the amounts of the fees and cash
distributions and reimbursements for 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:

<TABLE>
<CAPTION>
                                                                       Amount of 
                                                                     Compensation
                                                                          and
Receiving Entity                      Type of Compensation           Reimbursement
----------------                      --------------------           --------------
<S>                                   <C>                            <C>
General Partners                      Share of Distributable Cash        $ 18,052
 
AEW Real Estate Advisors, Inc.        Management Fees and                 177,313
                                      Expense Reimbursements
 
New England Securities Corporation    Servicing Fees and                   10,287
                                                                           ------    
                                      Expense Reimbursement
 
                                      Advisory Services
 
                                      TOTAL:                             $205,652
                                                                         ========
</TABLE>

         For the year ended December 31, 1998, the Partnership allocated
$85,206 of taxable income to the General Partners.

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.
<PAGE>
 
                                  PART IV

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

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

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

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

           (3)  Exhibits--The Exhibits listed in the accompanying Exhibit
Index are filed as a part of this Annual Report and incorporated in this Annual
Report as set forth in said Index. 
        
       (b)      Reports on Form 8-K. During the last quarter of the year ended
           December 31, 1998, the Partnership filed no Current Report on 
           Form 8-K
<PAGE>
 
                       COPLEY PENSION PROPERTIES VI; 

                     A REAL ESTATE LIMITED PARTNERSHIP



                            Financial Statements


                          * * * * * * * * * * * *



                             December 31, 1998
<PAGE>
 
                         COPLEY PENSION PROPERTIES VI
                         ----------------------------
                       A REAL ESTATE LIMITED PARTNERSHIP
                       ---------------------------------

                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
                  ------------------------------------------

Report of Independent Accountants

Financial Statements:

     Balance Sheets--December 31, 1998 and 1997

     Statements of Operations--Years ended December 31, 1998, 1997 and 1996
 
     Statements of Partners' Capital (Deficit)--Years ended 
       December 31, 1998, 1997 and 1996

     Statements of Cash Flows--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 PENSION PROPERTIES VI;
A REAL ESTATE 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 Pension Properties VI; A Real Estate 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 Sixth Copley 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 Waterford Apartments and White Phonic
joint venture investees (collectively, the "Ventures") for the year ended
December 31, 1996 which results of operations are recorded using the equity
method of accounting in the Partnership's financial statements.  Equity in joint
venture income for the Ventures aggregated $1,002,020 for the year ended
December 31, 1996.  We also did not audit the financial statements of 21136
Wilmington Avenue, a wholly-owned property, for the year ended December 31, 1996
which statements reflect operating income of $346,024 for the year ended
December 31, 1996.  Those statements were audited by other auditors whose
reports thereon have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for the equity in joint venture
income for the Ventures for the year ended December 31, 1996 and for the amounts
for 21136 Wilmington Avenue 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 19, 1999
<PAGE>
 
COPLEY PENSION PROPERTIES VI;
A REAL ESTATE LIMITED PARTNERSHIP

BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                            December 31,
                                                    -----------------------
                                                       1998         1997
                                                    ----------  -----------
<S>                                                 <C>         <C>   
ASSETS
 
Real estate investments:
 Joint ventures                                     $1,649,433  $14,966,370
 Property, net                                       4,242,783    4,201,553
                                                    ----------  -----------
                                                     5,892,216   19,167,923
 
Cash and cash equivalents                            2,605,486    2,105,728
Short-term investments                                       -    1,432,651
                                                    ----------  -----------
                                                    $8,497,702  $22,706,302
                                                    ==========  ===========
 
LIABILITIES AND PARTNERS' CAPITAL
 
Accounts payable                                    $  115,195  $    92,737
Accrued management fee                                  17,595       53,028
Deferred disposition fees                            1,369,577      717,677
                                                    ----------  -----------
Total liabilities                                    1,502,367      863,442
                                                    ----------  -----------
 
Partners' capital (deficit):
 Limited partners ($228.20 and $660.29 per
 Unit, respectively; 160,000 units authorized;
 48,788 units issued and outstanding)                6,981,503   21,891,360
 General partners                                       13,832      (48,500)
                                                    ----------  -----------
Total partners' capital                              6,995,335   21,842,860
                                                    ----------  -----------
 
                                                    $8,497,702  $22,706,302
                                                    ==========  ===========
</TABLE>

                (See accompanying notes to financial statements)
<PAGE>
 
COPLEY PENSION PROPERTIES VI;
A REAL ESTATE LIMITED PARTNERSHIP
 
STATEMENTS OF OPERATIONS

<TABLE> 
<CAPTION> 
                                             Year ended December 31,
                                      ------------------------------------
                                            1998         1997         1996
                                      ----------   ----------   ----------
<S>                                   <C>          <C>          <C>   
INVESTMENT ACTIVITY
 
Property rentals                      $  729,877   $  813,691   $  818,078
Property operating expenses             (216,377)    (374,736)    (369,959)
Depreciation and amortization           (136,912)    (264,913)    (286,940)
                                      ----------   ----------   ----------
                                         376,588      174,042      161,179
 
Joint venture earnings                   586,128    1,351,347    1,164,123
 
 Total real estate operations            962,716    1,525,389    1,325,302
 
Gain on sales of property              7,563,334      248,172            -
                                      ----------   ----------   ----------
 
 
 Total real estate activity            8,526,050    1,773,561    1,325,302
 
Interest on cash equivalents
 and short-term investments              218,919      275,126      268,223
                                      ----------   ----------   ----------
 
 Total investment activity             8,744,969    2,048,687    1,593,525
                                      ----------   ----------   ----------
 
PORTFOLIO EXPENSES
 
Management fee                           177,313      280,592      206,070
General and administrative               183,266      179,786      201,322
                                      ----------   ----------   ----------
                                         360,579      460,378      407,392
                                      ----------   ----------   ----------
 
NET INCOME                            $8,384,390   $1,588,309   $1,186,133
                                      ==========   ==========   ==========
 
Net income per limited
 partnership unit                        $170.13       $32.23       $24.07
                                      ==========   ==========   ==========
 
Cash distributions per limited
 partnership unit                        $475.74      $165.95       $44.21
                                      ==========   ==========   ==========
 
Number of limited partnership
 units outstanding during the year        48,788       48,788       48,788
                                      ==========   ==========   ==========
</TABLE>

                (See accompanying notes to financial statements)
<PAGE>
 
COPLEY PENSION PROPERTIES VI;
A REAL ESTATE 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               $(48,500)  $ 21,891,360   $(36,164)  $28,415,303   $(26,238)   $29,397,948
 
Cash distributions       (21,512)   (23,210,403)   (28,219)   (8,096,369)   (21,787)    (2,156,917)
 
Net income                83,844      8,300,546     15,883     1,572,426     11,861      1,174,272
                        --------   ------------   --------   -----------   --------    -----------
Balance at end
  of year               $ 13,832   $  6,981,503   $(48,500)  $21,891,360   $(36,164)   $28,415,303
                        ========   ============   ========   ===========   ========    ===========
</TABLE>

                (See accompanying notes to financial statements)
<PAGE>
 
COPLEY PENSION PROPERTIES VI;
A REAL ESTATE 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                                        $  8,384,390   $ 1,588,309   $ 1,186,133
 Adjustments to reconcile net income
  to net cash provided by operating activities:
  Depreciation and amortization                         136,912       264,913       286,940
  Equity in joint venture income                       (586,128)   (1,351,347)   (1,164,123)
  Cash distributions from joint ventures              1,511,850     1,849,700     1,871,702
  Gain on sales of joint ventures                    (7,563,334)     (248,172)            -
  Increase in deferred leasing costs and
   other assets                                          (8,577)         (556)      (34,104)
  (Increase) decrease in investment income
    receivable                                           27,032        (1,152)      (16,876)
  Increase in property working capital                 (162,397)      (52,369)      (84,903)
  Increase (decrease) in operating liabilities          (12,975)        7,903        (2,657)
                                                   ------------   -----------   -----------
    Net cash provided by operating activities         1,726,773     2,057,229     2,042,112
                                                   ------------   -----------   -----------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Investment in property                                       -             -      (132,458)
 Net proceeds from sale of investment                19,947,381     4,199,193             -
 Deferred disposition fee                               651,900       135,000             -
 Decrease in short-term
  investments, net                                    1,405,619       762,791       347,219
                                                   ------------   -----------   -----------
  Net cash provided by
    investing activities                             22,004,900     5,096,984       214,761
                                                   ------------   -----------   -----------
 
CASH FLOWS FROM FINANCING ACTIVITY:
 Distributions to partners                          (23,231,915)   (8,124,588)   (2,178,704)
                                                   ------------   -----------   -----------
  Net cash used in financing activity               (23,231,915)   (8,124,588)   (2,178,704)
                                                   ------------   -----------   -----------
 
Net increase (decrease) in cash and
 cash equivalents                                       499,758      (970,375)       78,169
 
Cash and cash equivalents:
 Beginning of year                                    2,105,728     3,076,103     2,997,934
                                                   ------------   -----------   -----------
 
 End of year                                       $  2,605,486   $ 2,105,728   $ 3,076,103
                                                   ============   ===========   ===========
</TABLE>

                (See accompanying notes to financial statements)
<PAGE>
 
COPLEY PENSION PROPERTIES VI;
A REAL ESTATE LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

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

      General
      -------

      Copley Pension Properties VI; A Real Estate 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.  It primarily serves as an investment for qualified pension and
profit sharing plans and other organizations intended to be exempt from federal
income tax.  The Partnership commenced operations in July 1988, and acquired the
two real estate investments it currently owns prior to the end of 1991.  It
intends to dispose of its investments within eight to twelve years of their
acquisition, and then liquidate.

      The Managing General Partner of the Partnership is Sixth Copley 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 GCOP Associates Limited Partnership, a Massachusetts limited
partnership.  Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by AEW pursuant to an advisory contract.

      On December 10, 1996, Copley's parent, New England Investment Companies,
Limited Partnership ("NEIC") a publicly traded master limited partnership,
acquired certain assets subject to then existing liabilities from Aldrich,
Eastman & Waltch, Inc. and its affiliates and principals (collectively, "the AEW
operations").  Simultaneously, a new entity, AEW Capital Management, L.P., was
formed into which NEIC contributed its interest in Copley and its affiliates.
As a result, the AEW operations were combined with Copley to form the business
operations of AEW Capital Management, L.P.  At year end 1997, NEIC completed a
restructuring plan under which it contributed all of its operations to a newly
formed private partnership, NEIC Operating Partnership, L.P., in exchange for a
general partnership interest in the newly formed entity.  Accordingly, at
December 31, 1997, AEW Capital Management, L.P. was wholly owned by NEIC
Operating Partnership, L.P.  AEW is a subsidiary of AEW Capital Management, L.P.
Effective April 1, 1998, NEIC changed its name to Nvest, L.P. and NEIC Operating
Partnership, 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 of 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 from operations, as defined, before deducting such fees.  The
deferred management fees of $112,441 incurred through 1990 were paid to AEW in
September 1994 with a portion of the proceeds from the sale of Lakewood
Apartments.  AEW is also reimbursed for expenses incurred in connection with
administering the Partnership ($17,000 in 1998, $17,026 in 1997, and $21,352 in
1996).  Acquisition fees were paid in an amount equal to 2% of the gross
proceeds from the offering, 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.  Deferred disposition fees were $1,369,577 and
$717,677 at December 31, 1998 and 1997, respectively.

      New England Securities Corporation ("NESC"), 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 $10,287, $9,669 and
$9,211 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 $0, $5,200 and $6,278, for the same annual periods.
<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, 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 each joint venture, after the
elimination of all inter-entity transactions, except for the two ventures which
include an affiliate of the Partnership, which has substantial economic equity
in the respective projects.

      Property
      --------

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

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

      Maintenance and repair costs are expensed as incurred.  Significant
improvements and renewals are capitalized.  Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements.  Leasing costs are also capitalized and amortized over the related
lease term.

      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 property.

      Certain tenant leases provide for rental increases over the respective
lease terms.  Rental revenue is being recognized on a straight-line basis over
the 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 generated 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
sale, the impairment loss also includes estimated costs of sale.  Property held
for sale is not depreciated during the holding period.

      Carrying value may be greater or less than current appraised value.  At
December 31, 1998, the appraised values of investments exceeded the related
carrying value by an aggregate of approximately $2,556,000.  At December 31,
1997, the appraised values of investments exceeded the related carrying values
by an aggregate of approximately $8,558,000.

      The current appraised value of real estate investments has been estimated
by the Managing General Partner and is generally based on a combination of
traditional appraisal approaches performed by AEW and independent appraisers.
Because of the subjectivity inherent in the valuation process, the estimated
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 short-term
investments to maturity; therefore, short-term investments are carried at cost,
plus accrued interest which approximates market value.  At December 31, 1997,
all investments were in commercial paper with less than seven months remaining
to maturity.

      Deferred Disposition Fees
      -------------------------

      Disposition fees due to AEW related to sales of investments are included
in the determination of gains or losses resulting from such transactions.
According to the terms of the advisory contract, payment of such fees has been
deferred until the limited partners first receive their capital contributions,
plus stipulated returns thereon.

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

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

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

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

      Segment Data
      ------------
 
  Effective January 1, 1998, the Partnership adopted Financial Accounting
Standards Board Statement No. 131, "Disclosure 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.

      Reclassifications
      -----------------

      Certain amounts in prior year financial statements have been reclassified
to conform with the current year presentation.

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

      The Partnership had invested in seven real estate joint ventures,
organized as general partnerships with a real estate management/development firm
and, in three cases, with an affiliate of the Partnership.  One joint venture
sold its property in 1990; another joint venture investment was restructured
into a wholly-owned property in 1991.  During 1994, the Lakewood joint venture
sold its property and the Stemmons Industrial investment was converted to a
wholly-owned property; the latter property was subsequently sold in 1997.  In
1998, the White Phonic and Waterford Apartments joint ventures were sold in July
and August, respectively.  The Partnership committed to make capital
contributions to the ventures, which are generally subject to preferential cash
distributions at a specified rate and to priority distributions with respect to
sale or refinancing proceeds.  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 their 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.
<PAGE>
 
      The following is a summary of cash invested in joint ventures, net of
returns of capital and excluding acquisition fees:

<TABLE>
<CAPTION>
                        Preferential
     Investment/           Rate of     Ownership          December 31,
       Location            Return       Interest        1998       1997
       --------            ------       --------        ----       ----    
<S>                     <C>            <C>          <C>         <C>
Waterford Apartments
 Frederick, MD             10.09%        48.75%     $        0  $14,099,978
                                                   
White Phonic                                       
 Petaluma, CA               10.0%           50%     $        0  $ 3,281,963
                                                   
Prentiss Copystar                                  
 Itasca, IL                 11.0%        51.75%     $2,232,848  $ 2,232,848
</TABLE>


      Waterford Apartments
      --------------------

     On March 20, 1989, the Partnership entered into a joint venture with an
affiliate of Bozzuto and Associates, and with an affiliate of the Partnership,
to develop and operate a garden-style apartment complex.  The Partnership and
its affiliate collectively had a 65% ownership interest in the joint venture.
The Partnership committed to contribute up to $14,100,000 to the capital of the
joint venture.  The preferential return related to $3,525,000 was payable
currently only to the extent of available cash flow.  In the event of a sale or
refinancing prior to the tenth anniversary of the joint venture agreement, 25%
of the Partnership's contribution would first be repaid unconditionally.  The
remaining 75% would be repaid subject to a premium designed to preserve the
stipulated rate of return through the ninth anniversary of the joint venture
agreement.

     On August 7, 1998, the joint venture sold the Waterford Apartments to an
institutional buyer which is unaffiliated with the Partnership.  The total gross
sale price was $21,800,000.  The Partnership received its share of the net
proceeds totaling $16,338,750, after closing costs, and recognized a gain of
$6,227,526 ($126.37 per limited partnership unit).  A disposition fee of
$490,500 was accrued but not paid to AEW.  On August 26, 1998, the Partnership
made a capital distribution of $16,309,341 ($334.29 per limited partnership
unit) from the proceeds of the sale.

     White Phonic
     ------------

     On April 30, 1990, the Partnership entered into a joint venture with an
affiliate of William C. White and George Vila to develop and operate an
office/industrial building.  The Partnership committed to make a maximum capital
contribution of $3,450,000.  During the first ten years, up to 1% of the
preferential return could be deferred to the extent payments could not be made
from operating and extraordinary cash flow.

     On July 14, 1998 the joint venture, in which the Partnership held a 50%
interest, sold the White Phonic property in Petaluma, Cafifornia, to an
unaffiliated third party for a total gross sale price of $5,380,000. The
Partnership received its share of the net proceeds of $4,279,751 after closing
costs, representing a return of capital and accrued interest plus its
participation in net sales proceeds of $965,671 and recognized a gain of
$1,335,808 ($27.11 per limited partnership unit).  A disposition fee of $161,400
was accrued but not paid to AEW. On July 30, 1998, the Partnership made a
capital distribution of $4,279,683 ($87.72 per limited partnership unit) from
the proceeds of the sale.

     Prentiss Copystar
     -----------------

     On May 23, 1991, the Partnership entered into a joint venture with an
affiliate of Prentiss Properties, Ltd., and an affiliate of the Partnership, to
develop and operate an industrial facility.  The Partnership and its affiliate
collectively have a 75% interest in the joint venture.  The Partnership
committed to make a maximum capital contribution of $2,300,000.  The
preferential return related to $690,000 is payable currently only to the extent
of available cash flow.  If $1,610,000, or any portion thereof, is returned to
the Partnership between the second and tenth anniversary of the joint venture
agreement, the return will be increased by an amount sufficient to preserve the
stipulated rate of return through the tenth anniversary.  Future minimum rents
due to the venture under a non-cancelable operating lease are $281,000 in 1999.
<PAGE>
 
      Sale of Lakewood
      ----------------

      On August 12, 1988, the Partnership entered into a joint venture with an
affiliate of Evans Withycombe Company, and an affiliate of the Partnership, to
develop and operate an apartment complex.  The Partnership and its affiliate
collectively had a 65% interest in the joint venture.  The Partnership made
capital contributions totaling $6,731,182.

      On August 17, 1994, the joint venture sold its property.  After closing
costs, the Partnership received its share of the sale proceeds of $9,131,207 and
recognized a gain of $2,869,376 ($58.23 per limited partnership unit).  At that
time, the Partnership also received a preferential return payment of $237,880.
A disposition fee of $318,677 was accrued but not paid to AEW.  On September 15,
1994, the Partnership made a capital distribution of $8,920,886 ($182.85 per
limited partnership unit) from the proceeds of this sale.  An additional $13,194
was received in 1995 in final settlement of this 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 $832,160 and                                   
    $6,910,873 at December 31, 1998                   
    and 1997, respectively                 $2,421,223         $16,461,895
  Other                                        30,891           1,029,387
                                           ----------         -----------
                                            2,452,114          17,491,282
                                                      
Liabilities                                    88,618             379,809
                                           ----------         -----------
                                                      
Net assets                                 $2,363,496         $17,111,473
                                           ==========         ===========
</TABLE>


                             Results of Operations
                             ---------------------
<TABLE>
<CAPTION>
 
                                       Year ended December 31,
                                  ----------------------------------
                                     1998        1997        1996
                                  ----------  ----------  ----------
<S>                               <C>         <C>         <C>
Revenue:
 Rental income                    $2,353,857  $3,883,758  $3,720,730
 Interest and other income            11,666       6,410       7,842
                                  ----------  ----------  ----------
                                   2,365,523   3,890,168   3,728,572
                                  ----------  ----------  ----------
 
Expenses:
 Operating expenses                1,018,966   1,395,823   1,367,708
 Depreciation and amortization       419,451     766,748     878,016
                                  ----------  ----------  ----------
                                   1,438,417   2,162,571   2,245,724
                                  ----------  ----------  ----------
 
Net income                        $  927,106  $1,727,597  $1,482,848
                                  ==========  ==========  ==========
</TABLE>

      Liabilities and expenses exclude amounts owed and attributable to the
Partnership and its affiliates on behalf of their various financing arrangements
with the joint ventures.

NOTE 4 - PROPERTY
-----------------

      On July 18, 1988, the Partnership entered into a joint venture with an
affiliate of The Hewson Company to acquire and operate an industrial building
known as Wilmington Industrial in Carson, California.  The Partnership made
capital contributions totaling $7,774,402.  During 1991, when the venture
partner did not fund its proportionate share of the cash flow deficit, the
Partnership's ownership interest increased to 100%.
<PAGE>
 
      On December 7, 1988, the Partnership entered into a joint venture with an
affiliate of The Trammell Crow Company to acquire, rehabilitate and operate an
industrial building known as Stemmons Industrial in Farmers Branch, Texas.  The
Partnership made a capital contribution of $5,307,504.  Effective July 1, 1994,
this joint venture was dissolved and the venture partner's interest was assigned
to the Partnership.  Accordingly, as of this date, the investment has been
accounted for as a wholly-owned property.

      On September 29, 1997,  the Partnership sold the Stemmons Industrial
property for a gross sales price of $4,500,000.  The Partnership received net
proceeds of $4,334,193, after closing costs, and recognized a gain of $248,172
($5.04 per limited partnership unit).  A disposition fee of $135,000 was accrued
but not paid to AEW.  On October 30, 1997, the Partnership made a capital
distribution of $4,334,326 ($88.84 per limited partnership unit) from the
proceeds of the sale.

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

<TABLE>
<CAPTION>
                                             December 31,
                                      --------------------------
                                          1998          1997
                                      ------------  ------------
<S>                                   <C>           <C>
Land                                  $ 2,770,056   $ 2,770,056
Buildings, improvements and
  other capitalized costs               4,903,218     4,894,641
Impairment provision                   (1,500,000)   (1,500,000)
Accumulated depreciation and
  amortization                         (2,048,698)   (1,918,953)
Net operating assets (liabilities)        118,207       (44,191)
                                      -----------   -----------
                                      $ 4,242,783   $ 4,201,553
                                      ===========   ===========
</TABLE>


      The Wilmington Industrial building is being depreciated over 30 years and
capitalized improvements are being depreciated over seven years.  The $1,500,000
impairment provision was recorded in 1995.

      Tenant leases provide for minimum rents, subject to adjustment as stated
in each lease.  Tenants are also obligated to reimburse their pro-rata share of
operating expenses.  The minimum rents due under non-cancelable operating leases
at Wilmington Industrial are as follows: $597,140 in 1999; $421,375 in 2000 and
$157,910 in 2001.

NOTE 5 - INCOME TAXES
---------------------

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

<TABLE>
<CAPTION>
 
                                     Year ended December 31,
                              -------------------------------------
                                  1998         1997        1996
                              ------------  ----------  -----------
<S>                           <C>           <C>         <C>
Net income  per financial
  statements                  $ 8,384,391   $1,588,309  $1,186,133
Timing differences:
    Joint venture earnings     (2,393,561)      33,639     288,647
    Property rentals              595,319       12,550     (15,318)
    Depreciation                   15,276       49,547     (28,769)
    Expenses                        7,166       14,332      10,749
    Gain on sale                1,911,966       99,284           -
    Valuation allowance                 -            -           -
                              -----------   ----------  ----------
 
Taxable income                $ 8,520,557   $1,797,661  $1,441,442
                              ===========   ==========  ==========
</TABLE>

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

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

      Net sale proceeds and financing proceeds are 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.  The adjusted capital contribution per
limited partnership unit was reduced from $1,000 to $951.83 during 1990, from
<PAGE>
 
$951.83 to $768.98 during 1994, from $768.98 to $660.29 during 1997 and from
$660.29 to $228.20 during 1998.  Income from a sale is allocated in proportion
to the distribution of related proceeds, provided that the general partners are
allocated at least 1%.  Losses from a sale, and income from a sale if there are
no residual proceeds after the repayment of the related debt, will be allocated
99% to the limited partners and 1% to the general partners.

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

      Distributions of cash from operations relating to the quarter ended
December 31, 1998 were made on January 28, 1999 in the aggregate amount of
$177,904 ($3.61 per limited partnership unit).
<PAGE>
 
COPLEY PENSION PROPERTIES VI;
A REAL ESTATE LIMITED PARTNERSHIP

Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AT DECEMBER 31, 1998

<TABLE> 
<CAPTION> 
                                                       Initial Cost to                             Costs Subsequent        
                                                        the Partnership                              to Acquisition        
                                         ----------------------------------------------   ---------------------------------
                                                            Buildings,                                                         
                                                           improvements,                                      Change in        
                                                             and other          Other       Capitalized          Other     
Description                                  Land          Capital Costs     Net Assets     Improvements      Net Assets   
--------------------------------------  ---------------   ---------------   ------------   --------------   --------------- 
<S>                                     <C>               <C>               <C>            <C>              <C> 
CARSON, CA.       (See Note A)                                                                                                 
- Industrial bldg.                          $2,770,056        $4,380,463           $8,285        $522,746         $109,919    
                                                                                                                      
DALLAS, TX           (See Note A)             $638,147        $3,966,791          $46,661          $8,581         ($46,672)    
-Idustrial bldg.                                                                                                      
                                                                                                                      
                                        ===============   ===============   ==============  ==============   ==============
Total wholly-owned property                 $3,408,203        $8,347,254          $54,946        $531,327          $63,247 
                                        ===============   ===============   ==============  ==============   ==============
                                                                                                                               
                                                                                                                               
                                                                                                                               
                                                                                                                               
ITASCA, IL.                                                                                                                    
- 51.75% interest in Prentiss                                                                                                  
  Copley/Itasca Assoc. J/V                                                                                                     
- Develop and operate                                         See Note B  
                                        ---------------                     ------------   --------------   ---------------  
  an industrial building                                                                                                    
                                                                                                                               
                                                                                                                               
FREDERICK, MD.                                                                                                                 
- 48.75% interest in Frederick                                                                                                 
  Partners Joint Venture                
- Develop and operate                                         See Note B                                                     
                                        ---------------                     ------------   --------------   ---------------   
  an apartment complex                       
                                             
                                                                                                                               
PETALUMA, CA.                                                                                                                  
- 50% interest in White Phonic                                                                                                 
  Associates Joint Venture              
- Develop and operate                                         See Note B                                                          
                                        ---------------                     ------------   --------------   ---------------   
  an industrial building                                                                                                       
                                        ---------------    -------------    ------------   --------------   ---------------    
Total joint venture investments:                                                                                               
                                        ===============    =============    ============   ==============   ===============
<CAPTION> 
                                                                             Gross Amount at which           
                                                                           Carried at Close of Period        
                                              ------------    ---------------------------------------------------
                                                                                  Buildings,                                
                                                                                 improvements,                              
                                                Valuation                          and other           Other        Disposal
Description                                     Allowance         Land           Capital Costs      Net Assets      of Asset
---------------------------------------       -------------   --------------   -----------------  --------------  ------------  
<S>                                           <C>             <C>              <C>                <C>             <C> 
CARSON, CA.       (See Note A)                                                                                                 
- Industrial bldg.                             ($1,500,000)      $2,770,056        $3,403,209         $118,204 
                                                                                                                               
DALLAS, TX           (See Note A)                        -         $638,147        $3,975,372             ($11)    ($4,613,508)
-Idustrial bldg.                                                                                                               
                                                                                                                               
                                              -------------   --------------   -----------------  --------------  -------------
Total wholly-owned property                    ($1,500,000)      $3,408,203        $7,378,581         $118,193     ($4,613,508)
                                              ============    ==============   =================  ==============  =============
                                                                                                                               
                                                                                                                               
                                                                                                                               
                                                                                                                               
ITASCA, IL.                                                                                                                    
- 51.75% interest in Prentiss                                                                                                  
  Copley/Itasca Assoc. J/V                                                                                                     
- Develop and operate                                                                                                1,649,433   
                                              -------------   --------------   -----------------  --------------
  an industrial building                      
                                              
                                              
FREDERICK, MD.                                
- 48.75% interest in Frederick                
  Partners Joint Venture                                                                                                     0   
                                              -------------   --------------   -----------------  --------------
- Develop and operate                         
  an apartment complex                        
                                              
                                              
PETALUMA, CA.                                 
- 50% interest in White Phonic                
  Associates Joint Venture                                                                                                   0   
                                              -------------   --------------   -----------------  --------------
- Develop and operate                         
  an industrial building                      

                                              -------------   --------------   -----------------  --------------  ------------  
Total joint venture investments:                                                                                    $1,649,433  
                                              =============   ==============   =================  ==============  ============
</TABLE> 
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                  Accum. Depr.       Status of           Date        Depreciable
Description                         Total            Amort.        Construction        Acquired         Life
-----------                        ----------    ------------      ------------        --------      ------------
<S>                                <C>           <C>               <C>                 <C>           <C> 
Carson, CA (See Note A)            $6,291,469    ($2,048,686)        Completed          7/18/88        30 Years
--Industrial Bldg.                                                     1990

Dallas, TX (See Note A)                     0              0          Completed         12/7/88        40 Years
--Industrial Bldg.                                                      1989
                                   ----------    ------------      
Total wholly-owned property        $6,291,469    ($2,048,686)
                                   ----------    ------------      

ITASCA, IL                            N/A                             Completed          5/20/91       35 Years
--51.75% interest in                                                     1991
  Prentiss Copley/Itasca
  Assoc. J/V
--Develop and operate
  an industrial building

Frederick, MD                         N/A                             Completed          03/20/89      27.5 Years     
--48.75% interest in                                                  PhI-1990
  Frederick Partners                                                  PhI-1991
  Joint Venture
--Develop and operate
  an apartment complex

Petaluma, CA                          N/A                             Completed           4/30/90      40 Years
--50% interest in White                                                 1991
  Phonic Associates
  Joint Venture
--Develop and operate
  an industrial building

  Total joint venture investments
</TABLE> 
<PAGE>
 
COPLEY PENSION PROPERTIES VI;
A REAL ESTATE LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION - WHOLLY OWNED PROPERTY
SCHEDULE III NOTE A
AT DECEMBER 31, 1998


<TABLE> 
<CAPTION> 
                                    Balance     Conversion to    Additions to                                       Change in   
                                     as of      Wholly-Owned         Lease       Additions to     Write Down    Property Working
Description                          1/1/96       Property        Commissions      Property       of Property        Capital    
--------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>              <C>             <C>              <C>           <C>             
Stemmons                            4,453,424        0                 0                    0              0           58,493   
                                                                                                                                
Hewson/Wilmington                   5,976,189        0            34,103              132,459              0           26,410   
                                                                                                                                
                                                                                                                                
                                  ---------------------------------------------------------------------------------------------- 
Total Wholly-Owned Property        10,429,613        0            34,103              132,459              0           84,903   
                                  ==============================================================================================
                                                                                                                
<CAPTION> 
                                              Balance     2/31/95           1996          12/31/96         1996
                               Disposal        as of    Accumulated      Depreciation    Accumulated     Dsiposal    Balance per
Description                    of Asset      12/31/96   Depreciation    Amort/Expense    Depreciation    of Asset  G/L @ 12/31/96
--------------------------------------------------------------------------------------------------------------------------------- 
<S>                            <C>          <C>         <C>             <C>              <C>             <C>        <C>  
Stemmons                             0      4,511,917      395,742        (152,416)          548,158            0       3,963,759
                                                                                                                     
Hewson/Wilmington                    0      6,169,161    1,662,496        (120,192)        1,782,688            0       4,386,473
                                                                                                                     
                               -------------------------------------------------------------------------------------------------- 
Total Wholly-Owned Property          0     10,681,078    2,058,238        (272,608)        2,330,846            0       8,350,232
                               ================================================================================================== 

<CAPTION> 
                                                                                                                
                                    Balance     Conversion to    Additions to                                        Change in   
                                    as of       Wholly-Owned        Lease        Additions to     Write down    Property Working 
Description                         1/1/97        Property       Commissions       Property       of Property        Capital     
--------------------------------------------------------------------------------------------------------------------------------- 
<S>                                 <C>         <C>              <C>             <C>              <C>           <C>              
Stemmons                            4,511,917        0                 0                    0              0          101,591    
                                                                                                                                 
Hewson/Wilmington                   6,169,161        0               556                    0                         (49,222)   

                                  -----------------------------------------------------------------------------------------------
Total Wholly-Owned Property        10,681,078        0               556                    0              0           52,369    
                                  =============================================================================================== 

<CAPTION> 
                                              Balance     12/31/96          1997         12/31/97        1997      
                                  Disposal     as of     Accumulated     Depreciation    Accumulated    Dsiposal    Balance per
Description                       of Asset   12/31/97    Depreciation   Amort/Expense    Depreciation   of Asset   G/L @ 12/31/97
--------------------------------------------------------------------------------------------------------------------------------- 
<S>                             <C>          <C>         <C>            <C>              <C>           <C>         <C> 
Stemmons                        (4,613,508)          0       548,158       (114,312)       662,470     (662,470)             0
                                                                                                                   
Hewson/Wilmington                        0   6,120,495     1,782,688       (136,254)     1,918,942            0      4,201,553
                                                                                                                   
                               -------------------------------------------------------------------------------------------------- 
Total Wholly-Owned Property                  6,120,495     2,330,846       (250,566)     2,581,412                   4,201,553
                               ==================================================================================================

<CAPTION> 
                                   Balance      Conversion to    Additions to                                       Change in
                                    as of       Wholly-Owned        Lease        Additions to     Write down     Property Working 
Description                         1/1/98        Property       Commissions       Property       of Property         Capital     
--------------------------------------------------------------------------------------------------------------------------------- 
<S>                               <C>           <C>              <C>             <C>              <C>            <C> 
Hewson/Wilmington                   6,120,495        0             8,577                    0                         162,397     
                                                                                                                                  
                                  ----------------------------------------------------------------------------------------------- 
Total Wholly-Owned Property         6,120,495        0             8,577                    0              0          162,397     
                                  =============================================================================================== 

<CAPTION> 
                                              Balance      12/31/97          1998          12/31/98      1998
                                 Disposal      as of     Accumulated     Depreciation    Accumulated   Dsiposal      Balance per
Description                      of Asset     12/31/98   Depreciation   Amort/Expense    Depreciation  of Asset    G/L @ 12/31/98
--------------------------------------------------------------------------------------------------------------------------------- 
<S>                              <C>         <C>         <C>            <C>              <C>           <C>         <C> 
Hewson/Wilmington                      0     6,291,469     1,918,942       (129,744)      2,048,686          0        4,242,783
                                                                                                                  
                                -------------------------------------------------------------------------------------------------
Total Wholly-Owned Property                  6,291,469     1,918,942       (129,744)      2,048,686                   4,242,783
                                ================================================================================================= 
</TABLE> 
<PAGE>
 
COPLEY PENSION PROPERTIES VI;
A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE III    NOTE B - JOINT VENTURES
AT DECEMBER 31, 1998

<TABLE> 
<CAPTION> 
                                                         BALANCE                                                     BALANCE
                                                          AS OF        EQUITY IN   1996 AMORTIZATION      CASH        AS OF
                                        PERCENT OF     DECEMBER 31,    INCOME/      OF DEFERRED       DISTRIBUTED  DECEMBER 31,
              DESCRIPTION               OWNERSHIP          1995          (LOSS)    ACQUISITION FEES      FROM J/V     1996
--------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>            <C>          <C>                 <C>          <C>  
Prentiss Copystar                             51.75%     1,848,791       162,103              -          (245,613)      1,765,281
                                                        
Waterford Apartments                          48.75%    11,105,697       712,467        (10,272)       (1,248,103)     10,559,789
                                                        
White Phonic                                     50%     3,246,479       289,553         (4,060)         (377,986)      3,153,986

                                                      ---------------------------------------------------------------------------  
Investments in Joint Ventures at                                                                                       
  December 31, 1996:                                   $16,200,967    $1,164,123       ($14,332)      ($1,871,702)    $15,479,056
                                                      ===========================================================================

<CAPTION> 
                                                          BALANCE                                                     BALANCE
                                                           AS OF        EQUITY IN   1997 AMORTIZATION      CASH        AS OF
                                         PERCENT OF      DECEMBER 31,    INCOME/       OF DEFERRED     DISTRIBUTED   DECEMBER 31,
              DESCRIPTION                OWNERSHIP          1996          (LOSS)     ACQUISITION FEES    FROM J/V       1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>           <C>               <C>            <C> 
Prentiss Copystar                             51.75%     1,765,281       191,536              -          (245,613)      1,711,204
                                                                         
Waterford Apartments                          48.75%    10,559,789       865,614        (10,273)       (1,252,101)     10,163,029
                                                                         
White Phonic                                     50%     3,153,986       294,197         (4,060)         (351,986)      3,092,137
                                                                      
                                                      ---------------------------------------------------------------------------  
Investments in Joint Ventures at                                      
  December 31, 1997:                                   $15,479,056    $1,351,347       ($14,333)      ($1,849,700)    $14,966,370
                                                      ===========================================================================

<CAPTION> 
                                                          BALANCE                                                                  
                                                           AS OF        EQUITY IN   1998 AMORTIZATION     CASH         DISPOSALS    
                                         PERCENT OF     DECEMBER 31,     INCOME/       OF DEFERRED     DISTRIBUTED        1998      
              DESCRIPTION                OWNERSHIP         1997          (LOSS)     ACQUISITION FEES     FROM J/V                 
--------------------------------------------------------------------------------------------------------------------------------- 
<S>                                     <C>            <C>             <C>          <C>                <C>           <C> 
Prentiss Copystar                             51.75%     1,711,204       183,843              -          (245,614)                
                                                                                                                                  
Waterford Apartments                          48.75%    10,163,029       517,650         (5,136)       (1,054,818)     (9,620,725)
                                                                                                                                  
White Phonic                                     50%     3,092,137      (115,365)        (2,030)         (211,419)     (2,763,324)
                                                      ---------------------------------------------------------------------------  
Investments in Joint Ventures at                                                                                                  
December 31, 1998:                                     $14,966,370     $ 586,128        ($7,166)      ($1,511,851)   ($12,384,049)
                                                      =========================================================================== 

<CAPTION> 
                                             BALANCE
                                              AS OF
                                            DECEMBER 31,
              DESCRIPTION                      1998
--------------------------------------------------------
<S>                                         <C> 
Prentiss Copystar                             1,649,433 
                                     
Waterford Apartments                                  0
                                     
White Phonic                                          0
                                     
                                        ----------------
Investments in Joint Ventures at     
December 31, 1998:                           $1,649,433
                                        ================
</TABLE> 
<PAGE>
 
                             FINANCIAL STATEMENTS
                                  INDEX NO. 2

                   AUDITOR'S REPORT AND FINANCIAL STATEMENTS

                            OF  FREDERICK PARTNERS
                                        

Report of Independent Auditors from Reznick Fedder & Silverman

Balance Sheets - August 6, 1998 and  December 31,1997

Statements of Operations - For the Period ended January 1, 1998 through August
 6, 1998, and the years ended December 31, 1997 and 1996

Statements of Partners' Capital - For the Period ended January 1, 1998 through
 August 6, 1998, and the years ended December 31, 1997 and 1996

Statements of Cash Flows - For the Period ended January 1, 1998 through August
 6, 1998, and the years ended December 31, 1997 and 1996

Notes to Financial Statements
<PAGE>
 
                           FINANCIAL STATEMENTS AND
                         INDEPENDENT AUDITORS' REPORT

                              FREDERICK PARTNERS

                     AUGUST 6, 1998 AND DECEMBER 31, 1997
<PAGE>
 
                              Frederick Partners


                               TABLE OF CONTENTS

                                                                PAGE

INDEPENDENT AUDITORS' REPORT                                     3

FINANCIAL STATEMENTS

     BALANCE SHEETS                                              4

     STATEMENTS OF OPERATIONS                                    5

     STATEMENTS OF PARTNERS' EQUITY                              6

     STATEMENTS OF CASH FLOWS                                    7

     NOTES TO FINANCIAL STATEMENTS                               8
<PAGE>
 

                  [LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
 
                          INDEPENDENT AUDITORS' REPORT



To the Partners
Frederick Partners

     We have audited the accompanying balance sheets of Frederick Partners as of
August 6, 1998 and December 31, 1997, and the related statements of operations,
partners' equity and cash flows for the period January 1, 1998 through August 6,
1998, and for the  years  ended December 31, 1997 and 1996. 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 audits.

     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Frederick Partners as of
August 6, 1998 and December 31, 1997, and the results of its operations, changes
in partners' equity and its cash flows for the period January 1, 1998 through
August 6, 1998, and for the  years  ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.


                                             /s/ Reznick Fedder & Silverman

Baltimore, Maryland
January 5, 1999

                                      -3-
<PAGE>
 
                              Frederick Partners

                                BALANCE SHEETS

                     August 6, 1998 and December 31, 1997

<TABLE>
<CAPTION>
                                             1998          1997
                                         ------------   ------------ 
                          ASSETS      
<S>                                      <C>            <C>   
INVESTMENT IN REAL ESTATE
  Land                                   $  3,099,120   $  3,099,120
  Building and improvements                12,919,662     12,919,662
  Personal property                         1,601,830      1,601,830
                                         ------------   ------------

                                           17,620,612     17,620,612
  Less accumulated depreciation             6,013,592      5,695,652
                                         ------------   ------------ 

                                           11,607,020     11,924,960
 
  Cash                                              -        341,988
  Tenant receivables                                -          2,120
  Tenants' security deposits                        -         55,241
  Prepaid expenses                            259,422        149,521
                                         ------------   ------------ 

                                         $ 11,866,442   $ 12,473,830
                                         ============   ============

       LIABILITIES AND PARTNERS' EQUITY 
 
LIABILITIES
  Accounts payable                       $     72,705   $      6,047
  Accrued expenses                             35,139              -
  Deferred rental income                      225,630        154,323
  Accrued distributions                     2,787,044      2,709,187
  Accrued guaranteed payments               1,500,717      1,458,793
  Tenants' security deposits payable           56,019         55,241
  Due to affiliates                                 -         18,197
                                         ------------   ------------ 
  
                                            4,677,254      4,401,788
 
PARTNERS' EQUITY                            7,189,188      8,072,042
                                         ------------   ------------ 

                                         $ 11,866,442   $ 12,473,830
                                         ============   ============
</TABLE>

                       See notes to financial statements

                                      -4-
<PAGE>
 
                              Frederick Partners

                           STATEMENTS OF OPERATIONS

        For the period ended January 1, 1998 through August 6, 1998 and
                  the years ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                      1998          1997          1996
                                   -----------  ------------  ------------
<S>                                <C>          <C>           <C> 
Revenue
  Rent                             $ 1,759,025  $  2,794,683  $  2,629,810
  Other lease related income            64,493       118,158        96,688
  Interest                               6,399         5,796         7,153
                                   -----------  ------------  ------------ 

    Total revenue                    1,829,917     2,918,637     2,733,651
                                   -----------  ------------  ------------ 
Expenses
  Operating expenses
    Advertising and promotion           28,787        53,690        63,263
    Salaries                           189,487       303,412       262,844
    Administrative                      54,813        57,442        61,019
    Management fee                      63,789       102,152        95,681
    Maintenance                        145,964       251,807       270,429
    Utilities                           73,378        93,679        91,077
    Real estate taxes                  166,778       275,285       247,279
    Insurance                           13,707        24,686        27,764
    Depreciation                       317,868       613,371       675,378
    Guaranteed payments                486,236       797,252       776,988
                                   -----------  ------------  ------------ 

      Total operating expenses       1,540,807     2,572,776     2,571,722
                                   -----------  ------------  ------------ 

      EXCESS OF REVENUE OVER
         EXPENSES                  $   289,110  $    345,861  $    161,929
                                   ===========  ============  ============
</TABLE>

                       See notes to financial statements

                                      -5-
<PAGE>
 
                              Frederick Partners

                        STATEMENTS OF PARTNERS' EQUITY

        For the period ended January 1, 1998 through August 6, 1998 and
                  the years ended December 31, 1997 and 1996

<TABLE> 
<CAPTION> 
                                      Frederick      Frederick                           Copley                                     
                                       Bozzuto      Bozzuto Two       Copley            Pension                                     
                                       Limited        Limited         Pension          Properties          Total                    
                                     Partnership    Partnership    Properties VI           VII            Equity                    
                                     -----------   ------------    -------------       ----------         ------  
<S>                                  <C>           <C>             <C>                 <C>               <C> 
Partners' equity, (deficit),
   December 31, 1995                 $ (110,796)   $  (63,178)     $   7,996,457       $ 2,665,472       $  10,487,955    
                                                                                                                          
Distributions                                 -             -         (1,082,233)         (360,745)         (1,442,978)   
                                                                                                                          
Excess of revenue over expenses               -             -            121,447            40,482             161,929    
                                     ----------    ----------      -------------       -----------       -------------    
                                                                                                                          
Partners' equity (deficit)                                                                                                
   December 31, 1996                   (110,796)      (63,178)         7,035,671         2,345,209           9,206,906    
                                                                                                                          
Distributions                                 -             -         (1,110,542)         (370,183)         (1,480,725)   
                                                                                                                          
Excess of revenue over expenses               -             -            259,396            86,465             345,861    
                                     ----------    ----------      -------------       -----------       -------------    
                                                                                                                          
Partners' equity (deficit),                                                                                               
   December 31, 1997                   (110,796)      (63,178)         6,184,525         2,061,491           8,072,042    
                                                                                                                          
Distributions                                 -             -           (878,973)         (292,991)         (1,171,964)   
                                                                                                                          
Excess of revenue over expenses               -             -            219,724            69,386             289,110    
                                     ----------    ----------      -------------       -----------       -------------    
                                                                                                                          
Partners' equity (deficit),                                                                                               
    December 31, 1998                $ (110,796)   $  (63,178)     $   5,525,276       $ 1,837,886       $   7,189,188    
                                     ==========     =========      =============       ===========       =============    
</TABLE>

                       See notes to financial statements

                                      -6-
<PAGE>
 
                              Frederick Partners

                           STATEMENTS OF CASH FLOWS

        For the period ended January 1, 1998 through August 6, 1998 and
                  the years ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                                        1998           1997             1996        
                                                                      ----------    ------------    ------------     
<S>                                                                   <C>           <C>             <C> 
Cash flows from operating activities                                                                                 
    Excess of revenue over expenses                                   $  289,110      $  345,861      $  161,929     
   Adjustments to reconcile excess of revenue over                                                                   
    expenses to net cash provided by operating activities                                                            
       Depreciation                                                      317,868         613,371         675,378     
       Changes in assets and liabilities                                                                             
         Decrease in tenant receivables                                    2,120           2,217           1,792     
         (Increase) decrease in prepaid expenses                        (109,901)            930         (25,860)    
         Increase (decrease) in deferred rental income                    71,307          84,943         (45,542)    
         Increase (decrease) in accounts payable                          66,730           5,218         (25,124)    
         Net security deposits received                                   56,019               -           4,239     
         Increase in accrued guaranteed payments                          41,924         211,821         204,391     
         Increase in accrued expenses                                     35,139               -               -     
         Increase (decrease) in due to affiliates                        (18,197)          3,676         (36,734)    
                                                                      ----------      ----------      ----------      
            Net cash provided by operating activities                    752,119       1,268,037         914,469     
                                                                      ----------      ----------      ----------      
Cash flows from investing activities:                                                                                
  Capital additions                                                            -         (13,600)              -     
                                                                      ----------      ----------      ----------      
            Net cash used in investing activities                              -         (13,600)              -     
                                                                      ----------      ----------      ----------      
Cash flows from financing activities                                                                                 
  Capital distributions paid                                          (1,094,107)     (1,087,342)     (1,063,396)    
                                                                      ----------      ----------      ----------     
            Net cash used in financing activities                     (1,094,107)     (1,087,342)     (1,063,396)    
                                                                      ----------      ----------      ----------     

            NET (DECREASE) INCREASE IN CASH                             (341,988)        167,095        (148,927)    
                                                                                                                     
Cash, beginning                                                          341,988         174,893         323,820     
                                                                      ----------      ----------      ----------     
Cash, ending                                                          $        -      $  341,988      $  174,893     
                                                                      ==========      ==========      ==========     
Supplemental disclosure of cash flow information                                                                     
   Cash paid during the year for guaranteed payments                  $  444,312      $  585,431      $  572,597      
                                                                      ==========      ==========      ==========    
</TABLE>

                       See notes to financial statements

                                      -7-
<PAGE>
 
                              Frederick Partners

                         NOTES TO FINANCIAL STATEMENTS

                     August 6, 1998 and December 31, 1997


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Frederick Partners (the Partnership) was formed as a general partnership
     under the laws of the State of Maryland on March 20, 1989, for the purpose
     of constructing, owning and operating a rental housing project. The project
     consists of 314 units located in Frederick County, Maryland, and is
     operating as Crystal Park. During 1990, the construction of the first phase
     (Phase I) was completed and rental operations commenced. During 1991,
     construction of a second phase of the project (Phase II) was completed and
     rental operations commenced. On August 6, 1998, Copley Pension Properties
     VI and VII (CPPVI and VII), sold their entire interest in the partnership
     and Frederick Bozzuto Limited Partnership (FBLP) and Frederick Bozzuto Two
     Limited Partnership (FBLP Two) sold 34% of their 35% interest in the
     Partnership and distributed the remaining 1% to an affiliate. Prior to such
     sale, all leases between the Partnership and tenants of the property were
     operating leases.

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

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

     Investment in Real Estate
     -------------------------

     Investment in real estate is carried at cost.  Depreciation is provided for
     in amounts sufficient to relate the cost of depreciable assets to
     operations over their estimated service lives using accelerated methods.

     Rental Income
     -------------

     Rental income is recognized as rentals become due.  Rental payments
     received in advance are deferred until earned.

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

     No provision or benefit for income taxes has been included in these
     financial statements since taxable income or loss passes through to, and is
     reportable by, the partners individually.

                                      -8-
<PAGE>
 
                              Frederick Partners

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                     August 6, 1998 and December 31, 1997


NOTE B - SALE OF PARTNERSHIP INTEREST

     At the close of business on August 6, 1998, CPP VI and VII, sold their
     entire interest in the Partnership and FBLP and FBLP Two sold 34% of their
     35% interest in the Partnership and distributed the remaining 1% to an
     affiliate. The contract sales price for this transactions was $21,800,000.
     Property and equipment transferred had a net book value of $11,607,020. In
     addition, assets totaling $259,422 and liabilities totaling $389,493, which
     includes tenant security deposits of $56,019, were transferred in the sale
     to the new partners. The additional liabilities of $4,287,761 were assumed
     by the selling partners.


NOTE C - RELATED PARTY TRANSACTIONS

     Expenses Incurred and Reimbursed to Affiliates
     ----------------------------------------------

     The Partnership reimbursed payroll and other costs incurred by Bozzuto &
     Associates, Inc., an affiliate of Frederick Bozzuto Limited Partnership and
     Frederick Bozzuto Two Limited Partner ship, general partners, for various
     administrative and operating services relating to the project and performed
     by their employees. During 1998, 1997 and 1996, $189,922, $345,675, and
     $299,261 were incurred, respectively. At December 31, 1997, $9,489 remained
     unpaid.

     Management Fees
     ---------------

     The Partnership is required to pay an annual property management fee to
     Bozzuto Management Company, an affiliate of Frederick Bozzuto Limited
     Partnership and Frederick Bozzuto Two Limited Partnership, general
     partners, in an amount equal to 3.5% of gross receipts collected.
     Management fees of $63,789, $102,152 and $95,681 were expensed in 1998,
     1997 and 1996, respectively. At December 31, 1997, $8,708 remained unpaid.


NOTE D - PARTNERS' EQUITY

     The acquisition and development of Phase I was funded by capital
     contributions from Copley Pension Properties VI and VII, (CPP VI and VII),
     general partners, in the amounts of $9,000,000 and $3,000,000,
     respectively. The amended and restated Partnership agreement (the
     Agreement) provides for capital contributions to be characterized as senior
     and junior capital. CPP VI capital consists of $6,750,000 of senior capital
     and $2,250,000 of junior capital. CPP VII capital consists of $2,250,000 of
     senior capital and $750,000 of junior capital. Capital contributed by both
     CPP VI and CPP VII has been contributed pro rata, whereby 75% has been
     characterized as Phase I senior capital and 25% as Phase I junior capital.

                                      -9-
<PAGE>
 
                              Frederick Partners

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                     August 6, 1998 and December 31, 1997


NOTE D - PARTNERS' EQUITY (Continued)

     The Agreement provided for both a "Senior and Junior Priority Return," on a
     monthly basis, which was calculated at the rate of 10.09% per annum on the
     outstanding capital. The Phase I Priority Returns were payable monthly from
     Operating Cash Flow as defined in the Agreement; however, (a) to the extent
     Senior Priority Returns are required to be paid currently, they will be
     funded, if necessary, out of the proceeds of Deficit Contributions and
     Default Capital Contributions as defined in the Agreement, and (b) to the
     extent the full amount of the Junior Priority Return cannot be made from
     such sources on a monthly basis, the amount of the Junior Priority Return
     will accrue with interest compounded monthly.

     At August 6, 1998 and December 31, 1997, the Phase I Junior Priority Return
     (including accrued interest of $1,179,935 and $1,015,108, respectively) and
     Senior Priority Returns (including accrued interest at $2,928 and $5,775,
     respectively) payable totaled $2,798,099 (of which $2,111,528 was due to
     CPP VI and $686,571 was due to CPP VII), and $2,827,913 (of which
     $2,132,315 was due to CPP VI and $695,598 was due to CPP VII),
     respectively.

     The acquisition and development of Phase II was funded by capital
     contributions from CPP VI and CPP VII in the amounts of $5,100,000 and
     $1,700,000, respectively. The Agreement provides for capital contributions
     to be characterized as senior and junior capital. CPP VI capital consists
     of $3,825,000 of senior capital and $1,275,000 of junior capital. CPP VII
     capital consists of $1,275,000 of senior capital and $425,000 of junior
     capital. Capital contributed by both CPP VI and CPP VII has been
     contributed pro rata, whereby 75% has been characterized as Phase II senior
     capital and 25% as Phase II junior capital.

     The Agreement provided for both a "Senior and Junior Priority Return," on a
     monthly basis, which was calculated at the rate of 10.09% per annum on
     their outstanding capital. The Phase II Priority Returns were payable
     monthly from Operating Cash Flow as defined in the Agreement, but, (a) to
     the extent Senior Priority Returns were required to be paid currently, they
     will be funded, if necessary, out of the proceeds of Deficit Contributions
     and Default Capital Contributions as defined in the Agreement, and (b) to
     the extent the full amount of the Junior Priority Return was not made from
     such sources on a monthly basis, the amount of the Junior Priority Return
     accrued with interest compounded monthly.

                                     -10-
<PAGE>
 
                              Frederick Partners

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                     August 6, 1998 and December 31, 1997

NOTE D - PARTNERS' EQUITY (Continued)

     At August 6, 1998 and December 31, 1997, the Phase II Junior Priority
     Return (including accrued interest of $448,808 and $368,415, respectively)
     and Senior Priority Returns payable totaled $1,489,662 (of which $1,114,564
     was due to CPP VI and $375,098 was due to CPP VII), and $1,340,067 (of
     which $1,000,804 was due to CPP VI and $339,263 was due to CPP VII).
     Effective August 7, 1998, the Partnership is no longer subject to this
     agreement.

     Subsequent to the financial statement date and in connection with the
     August 6, 1998 sale of its partnership interests, CPP VI and VII received
     $21,669,858 out of the sale proceeds and applied it to the repayment of the
     following accounts:

<TABLE>
          <S>                                       <C>             
          Accrued distributions                     $   2,787,044  
          Accrued guaranteed payments                   1,500,717  
          Return of initial capital contribution       17,382,097  
                                                    -------------  
                                                    $  21,669,858  
                                                    =============   
</TABLE>

     Additionally, the Partnership distributed the remaining operating proceeds
     in the amount of $268,955 to CPP VI and VII.


NOTE E - RECONCILIATION OF FINANCIAL STATEMENTS TO TAX RETURN

     The following is a reconciliation of the excess of revenue over expenses
     and partners' equity per the financial statements to the tax basis excess
     of revenue over expenses and partners' equity for the period ended August
     6, 1998, and the year ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>
                                                   1998      1997       1996 
                                               ----------  ---------  --------
       <S>                                     <C>         <C>        <C> 
       Excess of revenue over expenses                                        
            (financial statement basis)        $  289,110  $ 345,861  $161,929
       Deferred rental income                    (154,322)    84,943   (45,542)
       Real estate taxes deductible under IRS                                  
           Code Section 461                       138,097       (908)  (27,098)
                                               ----------  ---------- --------
              Tax basis excess of revenue                                      
                      over expenses            $  272,885  $ 429,896  $ 89,289 
                                               ==========  =========  ======== 
</TABLE>

                                     -11-
<PAGE>
 
                              Frederick Partners

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                     August 6, 1998 and December 31, 1997


NOTE E - RECONCILIATION OF FINANCIAL STATEMENTS TO TAX RETURN (Continued)

<TABLE>
<CAPTION>
                                                          1998            1997           1996     
                                                     -------------    -----------    -----------   
     <S>                                             <C>              <C>            <C> 
     Partners' equity (financial statement basis)      $ 7,189,188    $ 8,072,042    $ 9,206,906   
     Deferred rental income                                      -        154,323         69,380   
     Real estate taxes deductible under IRS                                                        
            Code Section 461                                     -       (138,097)      (137,189)  
     Net adjustment for technical termination           (7,189,188)             -              -   
                                                       ------------   -----------    -----------   
            Tax basis                                  $         -    $ 8,088,268    $ 9,139,097    
                                                       ============   ============   ===========
</TABLE>

                                     -12-
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

<TABLE> 
<CAPTION> 
           EXHIBIT                                                                          PAGE
           NUMBER                                      EXHIBIT                              NUMBER
           ------                                      -------                              ------ 
           <S>                   <C>                                                        <C> 
           10A.                  Lakewood Associates General Partnership                       *
                                 Agreement dated August, 1988 between EW
                                 Lakewood Limited Partnership, New England
                                 Pension properties V; A Real Estate
                                 Limited Partnership and the Registrant.

           10B.                  Hewson Wilmington Associates General                          *
                                 Partnership Agreement dated July 18, 1988
                                 between Hewson/Wilmington, L.P. and the
                                 Registrant.

           10C.                  Farmers Branch Associates General Partnership                 *
                                 Agreement dated December 7, 1988 between North
                                 Dallas Division #81, Ltd. and the Registrant.

           10D.                  Payne Ranch Centre Associates General                         *
                                 Partnership Agreement dated January 4, 1989
                                 between Payne Ranch Investors 88 and the
                                 Registrant.

           10E.                  Development Agreement dated December 28,                      *
                                 1988 by and between Payne Ranch Centre Associates
                                 and Albertson's, Inc.

           10F.                  Contract of Sale dated December 28, 1988  by                  *
                                 and between Payne Ranch Centre Associates and
                                 Albertson's, Inc.

           10G.                  Frederick Partners General Partnership                        *
                                 Agreement dated as of March 20, 1989 between
                                 Frederick Bozzuto Limited Partnership, Copley
                                 Pension Properties VII; A Real Estate Limited
                                 Partnership and the Registrant.

           10H.                  First Amendment to Hewson Wilmington Associates               *
                                 General Partnership Agreement dated as of
                                 December 31, 1989 by and between
                                 Hewson/Wilmington, L.P., a California limited
                                 partnership and the
                                 Registrant.

           10I.                  White Phonic Associates General Partnership                   *
                                 Agreement dated as of April 30, 1990 between
                                 White/Vila Associates II, a California general
                                 partnership and the Registrant.

           10J.                  Purchase and Sale Agreement and Escrow                        *
                                 Instructions dated as of June 12, 1990 by
                                 and between Payne Ranch Centre Associates,
                                 a Colorado general partnership and Super
                                 Enterprises, Inc., a California corporation.
</TABLE>