<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                            -------------------------

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       OR

|X|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________.

                         COMMISSION FILE NUMBER: 0-20016

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 DELAWARE                                13-3602400
         (STATE OF INCORPORATION)           (I.R.S. EMPLOYER IDENTIFICATION NO.)

           50 ROCKEFELLER PLAZA
         NEW YORK, NEW YORK 10020                          10020
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                 (ZIP CODE)

                         REGISTRANT'S TELEPHONE NUMBERS:

                        INVESTOR RELATIONS (212) 492-8920
                                 (212) 492-1100

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
                          COMMON STOCK, $.001 PAR VALUE

      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 is not contained in this report, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|.

      Registrant has no active market for its common stock as of March 20, 2003.
Non-affiliates held 25,931,478 shares as of March 25, 2003.

      As of March 25, 2003, there are 27,881,085 shares of common stock of
Registrant outstanding.

      CIP(R) incorporates by reference its definitive Proxy Statement with
respect to its 2003 Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days following the end of its
fiscal year, into Part III of this Report.

<PAGE>

                                     PART I

Item 1. Business.

Carey Institutional Properties Incorporated ("CIP(R)") is a real estate
investment trust ("REIT") that acquires and owns commercial properties leased to
companies nationwide, primarily on a triple net basis. As of December 31, 2002,
CIP(R)'s portfolio consisted of 107 properties leased to 45 tenants and totaling
more than 10,444,000 square feet.

CIP(R)'s core investment strategy is to own and manage its portfolio of
properties leased to a variety of companies on a single tenant net lease basis,
to maximize shareholder returns. Additional properties may be bought and net
leased if appropriate opportunities arise. These leases generally place the
economic burden of ownership on the tenant by requiring them to pay the costs of
maintenance, insurance, taxes, structural repairs and other operating expenses.
CIP(R) also generally includes in its leases:

            -     clauses providing for mandated rent increases or periodic rent
                  increases tied to increases in the consumer price index or
                  other indices or, when appropriate, increases tied to the
                  volume of sales at the property;

            -     covenants restricting the activity of the tenant to reduce the
                  risk of a change in credit quality;

            -     indemnification of CIP(R)for environmental and other
                  liabilities; and

            -     guarantees from parent companies or other entities.

On December 14, 2001, Corporate Property Associates 10 Incorporated
("CPA(R):10"), another real estate investment trust managed by W. P. Carey & Co.
LLC, entered into a merger agreement with CIP(R). The transaction was approved
by the holders of over two-thirds of the outstanding shares of CPA(R):10 and
CIP(R). CPA(R):10 merged with and into CIP(R) on May 1, 2002.

CIP(R) was formed as a Maryland corporation on February 15, 1991. Between August
1991 and August 1993, CIP(R) sold 14,167,581 shares of common stock for a total
of $141,675,810 in gross offering proceeds. In 1995, CIP(R)'s board of directors
authorized a private placement of common stock. CIP(R) also issued 6,250,262
shares for a total of $74,440,000 in connection with the private placement.
Through December 31, 2002, CIP(R) has also issued 1,346,431 shares through its
dividend reinvestment plan. These proceeds have been combined with limited
recourse mortgage debt to purchase CIP(R)'s property portfolio. As a REIT,
CIP(R) is not subject to federal income taxation as long as it satisfies certain
requirements relating to the nature of its income, the level of its
distributions and other factors.

Carey Asset Management Corp. provides both strategic and day-to-day management
for CIP(R), including acquisition services, research, investment analysis, asset
management, capital funding services, disposition of assets, investor relations
and administrative services. Carey Asset Management Corp. also provides office
space and other facilities for CIP(R). Carey Asset Management Corp. has
dedicated senior executives in each area of its organization so that CIP(R)
functions as a fully integrated operating company. CIP(R) pays asset management
fees to Carey Asset Management Corp. and pays certain transactional fees. CIP(R)
also reimburses Carey Asset Management Corp. for certain expenses. Carey Asset
Management Corp. also serves in this capacity for Corporate Property Associates
12 Incorporated, Corporate Property Associates 14 Incorporated and Corporate
Property Associates 15 Incorporated. Carey Asset Management Corp. is a
wholly-owned subsidiary of W. P. Carey & Co., a publicly-traded company on the
New York Stock Exchange and Pacific Exchange under the symbol "WPC."

CIP(R)'s principal executive offices are located at 50 Rockefeller Plaza, New
York, NY 10020 and its telephone number is (212) 492-1100. As of December 31,
2002, CIP(R) had no employees. An affiliate of Carey Asset Management Corp.
employs 27 individuals who perform services for CIP(R). CIP(R)'s website address
is http://www.CPA10.com.

BUSINESS OBJECTIVES AND STRATEGY

CIP(R)'s objectives are to:

      -     pay quarterly dividends at an increasing rate that for taxable
            shareholders are partially free from current taxation;

      -     provide inflation protected income;

      -     purchase and own a diversified portfolio of net-leased real estate
            that will increase in value; and


                                      -1-
<PAGE>

      -     increase the value of its shares by increasing the equity in its
            real estate by making regular mortgage principal payments.

CIP(R) seeks to achieve these objectives by purchasing and holding industrial
and commercial properties each net leased to a single corporate tenant. CIP(R)
intends its portfolio to be diversified by geography, property type and by
tenant.

DEVELOPMENTS DURING 2002

On May 1, 2002, CIP(R) and CPA(R):10 completed a merger pursuant to a Merger
Agreement dated December 14, 2001. Under the terms of the merger, CIP(R) is the
surviving company. The total purchase price was $87,232,302, including
transaction costs of $947,288. Pursuant to the merger, CPA(R):10 stockholders
had the option of receiving either 0.8445 of a share of newly issued Company
common stock for each CPA(R):10 common share that he or she owned, or, upon
election by the shareholders who owned shares on December 13, 2001, a promissory
note bearing interest at the annual rate of 4% payable on or before December 31,
2004 for $11.23 per share of CPA(R):10 common stock. The exchange ratio for
issuing shares of CIP(R) to CPA(R):10 shareholders was determined based on
independent valuations of each company. Shareholders holding 6,513,217 shares of
CPA(R):10 common stock received 5,500,412 shares of Company common stock
($73,155,478 according to the independent appraisal performed in connection with
the transaction) and shareholders representing 1,045,315 shares of CPA(R):10
common stock elected to receive promissory notes with a total principal amount
of $11,738,888. On December 27, 2002, CIP(R) paid off the promissory notes for
$11,738,888. Shareholders holding 158,004 shares of CPA(R):10 common stock
elected not to participate and their shares were redeemed for $1,774,385.

In June 1993, the Company was granted warrants to purchase 194,356 shares of
common stock of Merit Medical Systems, Inc. at an exercise price of $4.87 (as
adjusted for subsequent stock split) in connection with structuring a net lease
with Merit Medical. In March 2002, CIP(R) sold its warrant position in Merit
Medical for approximately $1,993,000.

In February 2002, the partnership that owns the Best Buy Co., Inc. properties
paid off an existing limited recourse mortgage loan of $25,743,178 and paid a
prepayment premium of $2,086,384 in connection with retiring the loan. The
retired loan provided for monthly payments of interest and principal of $291,290
at an annual interest rate of 9.01%. The general partnership obtained a new
limited recourse mortgage loan of $28,500,000 which provides for monthly
payments of interest and principal of $210,427 at an annual interest rate of
7.49%. The loan matures in May 2012 at which time a balloon payment is
scheduled. Corporate Property Associates 12 Incorporated ("CPA(R):12") owns a
37% interest in the partnership.

In January 2002, CIP(R) paid off an existing limited recourse mortgage loan on
its property net leased to Plexus Corp. and paid a prepayment premium of $60,050
in connection with retiring the loan. CIP(R) obtained a new limited recourse
mortgage loan of $5,500,000 which is collateralized by the property and provides
for monthly payments of principal and interest totaling $40,437 based on an
annual interest rate of 7.34%. The loan matures in February 2009, at which time
a balloon payment is scheduled.

In connection with extending a mortgage loan in June 2002, CIP(R) was required
to enter into a separate interest rate cap agreement, a derivative financial
instrument, with a notional amount of $6,750,000, a strike of 8%, based on the
one-month London Inter-Bank Offered Rate and a maturity of April 1, 2005. CIP(R)
paid $36,000 to enter into the agreement.

On August 28, 2002, CIP(R) and three affiliates, W. P. Carey & Co. LLC,
Corporate Property Associates 12 Incorporated and Corporate Property Associates
14 Incorporated obtained an aggregate of approximately $172,335,000 of limited
recourse mortgage financing on 62 leased properties. The lender pooled the loans
into a trust, Carey Commercial Mortgage Trust, a non-affiliate, whose assets
consist solely of the loans and sold the loans, as collateralized mortgage
obligations in a private placement to institutional investors. CIP(R) and the
three affiliates agreed to acquire a separate class of subordinated interests in
the trust (the "CPA(R) Interests"). The amount of CPA(R) Interests acquired by
CIP(R) was proportional to the mortgage amounts obtained. CIP(R) obtained new
mortgage financing proceeds in this transaction of $83,666,787. The CPA(R)
Interests were purchased for $24,128,739 of which CIP(R)'s share was
$10,616,645, or 44%.


                                      -2-
<PAGE>

The principal amount of loans obtained were as follows:

<TABLE>
<CAPTION>
Lease Obligor                           Loan Amount    Annual Debt Service                Maturity Date
-------------                           -----------    -------------------                -------------
<S>                                     <C>            <C>                       <C>
ShopRite Supermarkets, Inc.             $15,570,000        $1,380,734            July 2010 and September 2011
Garden Ridge Corporation                 13,136,946         1,164,976            October 2009 and May 2010
Childtime Childcare, Inc.                11,567,709         1,025,815            January 2011 and June 2010
Merit Medical Systems, Inc.               9,180,000           814,073            October 2011
Barnes & Noble, Inc.                      8,735,682           774,673            November 2009 and September 2012
Q Clubs, Inc.                             7,895,224           700,142            September 2009 and December 2010
Hibbett Sporting Goods, Inc.              5,139,462           455,762            April 2010
Superior Telecommunications, Inc.         4,547,071           403,229            September 2009
UTI Holdings, Inc.                        3,268,862           289,879            July 2012
Petsmart, Inc.                            3,031,808           268,858            December 2009
US West Communications, Inc.              1,594,023           141,356            June 2012
                                        -----------        ----------
                                        $83,666,787        $7,419,497
                                        ===========        ==========
</TABLE>

All of the loans provide for payments of principal and interest at an annual
interest rate of 7.5% based on a 25-year amortization schedule. Balloon payments
are due on the maturity dates.

The loans paid off were as follows:

<TABLE>
<CAPTION>
Lease Obligor                         Loan Amount         Annual Debt Service            Interest Rate
-------------                         -----------         -------------------            -------------
<S>                                   <C>                 <C>                          <C>
Garden Ridge Corporation              $ 6,775,746           $  817,992                      8.250%
ShopRite Supermarkets, Inc.             6,721,104              755,280                      9.000%
Childtime Childcare, Inc.               5,516,637              707,172                      9.550%
Merit Medical Systems, Inc.             5,328,730              742,356                      9.630%
Barnes & Noble, Inc.                    4,788,074              642,447                 8.125% and 9.625%
Hibbett Sporting Goods, Inc.            2,459,952              293,796                      8.125%
Petsmart, Inc.                          1,896,210              273,417                      9.250%
                                      -----------           ----------
                                      $33,486,453           $4,232,460
                                      ===========           ==========
</TABLE>

In December 2002, CIP(R) sold a vacant property in Farmingdale, New York for
$6,743,251. The property had been leased by Waban, Inc. which vacated at the end
of its lease in the first quarter of 2001.

On October 21, 2000, CIP(R) and a joint venture partner with 65% and 35%
ownership interests, respectively, purchased property in Toulouse, France and
commenced construction of a Holiday Inn hotel and entered into a net lease with
Societe Hoteliere Tourisme Grand Noble. The first phase of construction was
completed in February 2002 and an expansion of the property was completed in
February 2003. The final funding of the second expansion was funded by the joint
venture partner. Total annual rental income from the hotel will be approximately
$1,137,000.

ACQUISITION STRATEGIES

Carey Asset Management Corp. has a well-developed process with established
procedures and systems for acquiring net leased property on behalf of CIP(R). As
a result of its reputation and experience in the industry and the contacts
maintained by its professionals, Carey Asset Management Corp. has a presence in
the net lease market that has provided it with the opportunity to invest in a
significant number of transactions on an ongoing basis. CIP(R) takes advantage
of Carey Asset Management Corp.'s presence in the net lease market to build its
portfolio. In evaluating opportunities for CIP(R), Carey Asset Management Corp.
carefully examines the credit, management and other attributes of the tenant and
the importance of the property under consideration to the tenant's operations.
Careful credit analysis is a crucial aspect of every transaction. CIP(R)
believes that Carey Asset Management Corp. has one of the most extensive
underwriting processes in the industry and has an experienced staff of
professionals involved with underwriting transactions. Carey Asset Management
Corp. seeks to identify those prospective tenants whose creditworthiness is
likely to improve over time. CIP(R) believes that the experience of Carey Asset
Management Corp.'s management in structuring sale-leaseback transactions to meet
the needs of a prospective tenant enables Carey Asset Management Corp. to obtain
a higher return for a given level of risk than would typically be available by
purchasing a property subject to an existing lease.

Carey Asset Management Corp.'s strategy in structuring its net lease investments
for CIP(R) is to:


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            -     combine the stability and security of long-term lease
                  payments, including rent increases, with the appreciation
                  potential inherent in the ownership of real estate;

            -     enhance current returns by utilizing varied lease structures;

            -     reduce credit risk by diversifying investments by tenant, type
                  of facility, geographic location and tenant industry; and

            -     increase potential returns by obtaining equity enhancements
                  from the tenant when possible, such as warrants to purchase
                  tenant common stock. As of December 31, 2002, CIP(R) has
                  disposed of all warrants that it received and held no warrant
                  positions.

AFINANCING STRATEGIES

Consistent with its investment policies, CIP(R) uses leverage when available on
favorable terms. As of December 31, 2002, CIP(R) had approximately $251,580,000
in property level debt outstanding. These mortgages mature between the current
year and 2021 and, as of December 31, 2002, have interest rates between 5.438%
and 10%. Carey Asset Management Corp. continually seeks opportunities and
considers alternative financing techniques to finance properties not currently
subject to debt, refinance debt, reduce interest expense or improve its capital
structure.

TRANSACTION ORIGINATION

Currently, CIP(R)'s primary source of funds for property acquisitions is the
sale of owned properties and proceeds received from investors through the
Dividend Reinvestment and Share Purchase Plan. Carey Asset Management continues
to make acquisitions for CIP(R) using these funds. In analyzing potential
acquisitions, Carey Asset Management Corp. reviews and structures many aspects
of a transaction, including the tenant, the real estate and the lease, to
determine whether a potential acquisition can be structured to satisfy CIP(R)'s
acquisition criteria. The aspects of a transaction which are reviewed and
structured by Carey Asset Management Corp. include the following:

      Tenant Evaluation. Carey Asset Management Corp. subjects each potential
      tenant to an extensive evaluation of its credit, management, position
      within its industry, operating history and profitability. Carey Asset
      Management Corp. seeks tenants it believes will have stable or improving
      credit. By leasing properties to these types of tenants, CIP(R) can
      generally charge rent that is higher than the rent charged to tenants with
      recognized credit and, thereby, enhance its current return from these
      properties as compared with properties leased to companies whose credit
      potential has already been recognized by the market. Furthermore, if a
      tenant's credit does improve, the value of CIP(R)'s properties leased to
      that tenant will likely increase (if all other factors affecting value
      remain unchanged). Carey Asset Management Corp. may also seek to enhance
      the likelihood of a tenant's lease obligations being satisfied, such as
      through a letter of credit or a guaranty of lease obligations from the
      tenant's corporate parent. This credit enhancement provides CIP(R) with
      additional financial security.

      Leases with Increasing Rents. Carey Asset Management Corp. seeks to
      include clauses in CIP(R)'s leases that provide for increases in rent over
      the term of the leases. These increases are generally tied to increases in
      certain indices such as the consumer price index, in the case of retail
      stores, participation in gross sales above a stated level, mandated rental
      increases on specific dates and through other methods. CIP(R) seeks to
      avoid entering into leases that provide for contractual reductions in
      rents during their primary term (other than reductions related to
      reductions in debt service).

      Properties Important to Tenant Operations. Carey Asset Management Corp.,
      on behalf of CIP(R), generally seeks to acquire properties with operations
      that are essential or important to the ongoing operations of the tenant.
      CIP(R) believes that these properties provide better protection in the
      event that tenants file for bankruptcy, because leases on properties
      essential or important to the operations of a bankrupt tenant are less
      likely to be rejected and terminated by a bankrupt tenant. Carey Asset
      Management Corp. also seeks to assess the income, cash flow and
      profitability of the business conducted at the property, so that, if the
      tenant is unable to operate its business, CIP(R) can either continue
      operating the business conducted at the property or re-lease the property
      to another entity in the industry which can operate the property
      profitably.

      Lease Provisions that Enhance and Protect Value. When appropriate, Carey
      Asset Management Corp. attempts to include provisions in CIP(R)'s leases
      that require CIP(R)'s consent to certain tenant activity or require the
      tenant to satisfy certain operating tests. These provisions include, for
      example, operational and financial covenants of the tenant, prohibitions
      on a change in control of the tenant and indemnification from the tenant
      against environmental and other contingent liabilities. Including these
      provisions in its leases enables CIP(R) to protect its investment from
      changes in the operating and financial characteristics of a tenant that
      may impact its ability to satisfy its obligations to CIP(R) or could
      reduce the value of CIP(R)'s properties.


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<PAGE>

      Diversification. Carey Asset Management Corp. tries to diversify CIP(R)'s
      portfolio of properties to avoid dependence on any one particular tenant,
      type of facility, geographic location and tenant industry. By diversifying
      its portfolio, CIP(R) reduces the adverse effect on CIP(R) of a single
      under-performing investment or a downturn in any particular industry or
      geographic location.

Carey Asset Management Corp. employs a variety of other strategies and practices
in connection with CIP(R)'s acquisitions. These strategies include attempting to
obtain equity enhancements in connection with transactions. Typically, these
equity enhancements involve warrants to purchase stock of the tenant to which
the property is leased or the stock of the parent of the tenant. In certain
instances, CIP(R) grants to the tenant a right to purchase the property leased
by the tenant, but generally the option purchase price will be not less than the
fair market value of the property. Carey Asset Management Corp.'s practices
include performing evaluations of the physical condition of properties and
performing environmental surveys in an attempt to determine potential
environmental liabilities associated with a property prior to its acquisition.

As a transaction is structured, it is evaluated by the Chairman of the
Investment Committee with respect to the potential tenant's credit, business
prospects, position within its industry and other characteristics important to
the long-term value of the property and the capability of the tenant to meet its
lease obligations. Before a property is acquired, the transaction is reviewed by
the Investment Committee to ensure that it satisfies CIP(R)'s investment
criteria. Aspects of the transaction that are typically reviewed by the
Investment Committee include the expected financial returns, the
creditworthiness of the tenant, the real estate characteristics and the lease
terms.

The Investment Committee is not directly involved in originating or negotiating
potential acquisitions, but instead functions as a separate and final step in
the acquisition process. Carey Asset Management Corp. places special emphasis on
having experienced individuals serve on its Investment Committee and does not
invest in a transaction unless it is approved by the Investment Committee.

CIP(R) believes that the Investment Committee review process gives it a unique,
competitive advantage over other unaffiliated net lease companies because of the
substantial experience and perspective that the Investment Committee has in
evaluating the blend of corporate credit, real estate and lease terms that
combine to make an acceptable risk.

The following people serve on the Investment Committee:

            -     George E. Stoddard, Chairman, was formerly responsible for the
                  direct corporate investments of The Equitable Life Assurance
                  Society of the United States and has been involved with the
                  CPA(R) Programs for over 20 years.

            -     Frank J. Hoenemeyer, Vice Chairman, was formerly Vice
                  Chairman, Director and Chief Investment Officer of The
                  Prudential Insurance Company of America. As Chief Investment
                  Officer, Mr. Hoenemeyer was responsible for all of
                  Prudential's investments, including stocks, bonds, private
                  placements, real estate and mortgages.

            -     Nathaniel S. Coolidge previously served as Senior Vice
                  President - Head of Bond & Corporate Finance Department of the
                  John Hancock Mutual Life Insurance Company. His
                  responsibilities included overseeing $21 billion of Fixed
                  income investments for Hancock, its affiliates and outside
                  clients.

            -     Lawrence R. Klein is Benjamin Franklin Professor of Economics
                  Emeritus at the University of Pennsylvania and its Wharton
                  School. Dr. Klein has been awarded the Alfred Nobel Memorial
                  Prize in Economic Sciences and currently advises various
                  governments and government agencies.

ASSET MANAGEMENT

CIP(R) believes that effective management of its net lease assets is essential
to maintain and enhance property values. Important aspects of asset management
include restructuring transactions to meet the evolving needs of current
tenants, re-leasing properties, refinancing debt, selling properties and
knowledge of the bankruptcy process.

Carey Asset Management Corp. monitors, on an ongoing basis, compliance by
tenants with their lease obligations and other factors that could affect the
financial performance of any of its properties. Monitoring involves receiving
assurances that each tenant has paid real estate taxes, assessments and other
expenses relating to the properties it occupies and confirming that appropriate
insurance coverage is being maintained by the tenant. Carey Asset Management
Corp. reviews financial statements of its tenants and undertakes regular
physical inspections of the


                                      -5-
<PAGE>

condition and maintenance of its properties. Additionally, Carey Asset
Management Corp. periodically analyzes each tenant's financial condition, the
industry in which each tenant operates and each tenant's relative strength in
its industry.

HOLDING PERIOD

CIP(R) intends to hold each property it acquires for an extended period.

The determination of whether a particular property should be sold or otherwise
disposed of will be made after consideration of relevant factors with a view to
achieving maximum capital appreciation and after-tax return for the CIP(R)
shareholders. If CIP(R)'s common stock is not listed for trading on a national
securities exchange or included for quotation on Nasdaq, CIP(R) will generally
begin selling properties approximately ten years after the proceeds of the
public offering were substantially invested, subject to market conditions. The
board of directors will make the decision whether to list the shares, liquidate
or devise an alternative liquidation strategy which is likely to result in the
greatest value for the shareholders.

COMPETITION

CIP(R) faces competition for the acquisition of office and industrial properties
in general, and such properties net leased to major corporations in particular,
from insurance companies, credit companies, pension funds, private individuals,
investment companies and other REITs. CIP(R) also faces competition from
institutions that provide or arrange for other types of commercial financing
through private or public offerings of equity or debt or traditional bank
financings. CIP(R) believes its management's experience in real estate, credit
underwriting and transaction structuring will allow CIP(R) to compete
effectively for office and industrial properties.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, as well as other parties,
may be required to investigate and clean up hazardous or toxic chemicals,
substances or waste or petroleum product or waste, releases on, under, in or
from a property. These parties may be held liable to governmental entities or to
third parties for specified damages and for investigation and cleanup costs
incurred by these parties in connection with the release or threatened release
of hazardous materials. These laws typically impose responsibility and liability
without regard to whether the owner knew of or was responsible for the presence
of hazardous materials, and the liability under these laws has been interpreted
to be joint and several under some circumstances. CIP(R)'s leases often provide
that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.

CIP(R) typically undertakes an investigation of potential environmental risks
when evaluating an acquisition. Phase I environmental assessments are performed
by independent environmental consulting and engineering firms for all properties
acquired by CIP(R). Where warranted, Phase II environmental assessments are
performed. Phase I assessments do not involve subsurface testing, whereas Phase
II assessments involve some degree of soil and/or groundwater testing. CIP(R)
may acquire a property which is known to have had a release of hazardous
materials in the past, subject to a determination of the level of risk and
potential cost of remediation. CIP(R) normally requires property sellers to
indemnify it fully against any environmental problem existing as of the date of
purchase. Additionally, CIP(R) often structures its leases to require the tenant
to assume most or all responsibility for compliance with the environmental
provisions of the lease or environmental remediation relating to the tenant's
operations and to provide that non-compliance with environmental laws is a lease
default. In some cases, CIP(R) may also require a cash reserve, a letter of
credit or a guarantee from the tenant, the tenant's parent company or a third
party to assure lease compliance and funding of remediation. The value of any of
these protections depends on the amount of the collateral and/or financial
strength of the entity providing the protection. Such a contractual arrangement
does not eliminate CIP(R)'s statutory liability or preclude claims against
CIP(R) by governmental authorities or persons who are not a party to the
arrangement. Contractual arrangements in CIP(R)'s leases may provide a basis for
CIP(R) to recover from the tenant damages or costs for which it has been found
liable.

INDUSTRY SEGMENT

CIP(R) operates in one industry segment, investment in net leased real property.
For the year ended December 31, 2002, no tenant represented 10% or more of the
total operating revenue of CIP(R).


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<PAGE>

FACTORS AFFECTING FUTURE OPERATING RESULTS

The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") became effective in December 1995. The Act provides a "safe harbor" for
companies which make forward-looking statements providing prospective
information. The "safe harbor" under the Act relates to protection for companies
with respect to litigation filed on the basis of such forward-looking
statements.

CIP(R) wishes to take advantage of the "safe harbor" provisions of the Act and
is therefore including this section in its Annual Report on Form 10-K. The
statements contained in this Annual Report, if not historical, are
forward-looking statements and involve risks and uncertainties which are
described below that could cause actual results to differ materially from the
results, financial or otherwise, or other expectations described in such
forward-looking statements. These statements are identified with the words
"anticipated," "expected," "intends," "seeks" or "plans" or words of similar
meaning. Therefore, forward-looking statements should not be relied upon as a
prediction of actual future results or occurrences.

CIP(R)'s future results may be affected by certain risks and uncertainties
including the following:

We are subject to the risks of real estate ownership which could reduce the
value of our properties.

Our properties may include net leased industrial and commercial property. The
performance of CIP(R) is subject to risks incident to the ownership and
operation of these types of properties, including:

      -     changes in the general economic climate;

      -     changes in local conditions such as an oversupply of space or
            reduction in demand for real estate;

      -     changes in interest rates and the availability of financing;

      -     competition from other available space; and

      -     changes in laws and governmental regulations, including those
            governing real estate usage, zoning and taxes.

We may have difficulty selling or re-leasing our properties.

Real estate investments are relatively illiquid compared to most financial
assets and this illiquidity will limit our ability to quickly change our
portfolio in response to changes in economic or other conditions. Many of the
net leases we enter into or acquire are for properties that are specially suited
to the particular needs of our tenant. With these properties, if the current
lease is terminated or not renewed, we may be required to renovate the property
or to make rent concessions in order to lease the property to another tenant. In
addition, in the event we are forced to sell the property, we may have
difficulty selling it to a party other than the tenant due to the special
purpose for which the property may have been designed. In addition, provisions
of the Internal Revenue Code relating to REITs limit our ability to sell
properties held for fewer than four years. These and other limitations may
affect our ability to sell properties without adversely affecting returns to our
shareholders.

The inability of a tenant in a single tenant property to pay rent will reduce
our revenues.

Most of our properties are occupied by a single tenant and, therefore, the
success of our investments are materially dependent on the financial stability
of our tenants. Lease payment defaults by tenants could cause us to reduce the
amount of distributions to shareholders. A default of a tenant on its lease
payments to us would cause us to lose the revenue from the property and cause us
to have to find an alternative source of revenue to meet the mortgage payment
and prevent a foreclosure if the property is subject to a mortgage. In the event
of a default, we may experience delays in enforcing our rights as landlord and
may incur substantial costs in protecting our investment and reletting our
property. If a lease is terminated, there is no assurance that we will be able
to lease the property for the rent previously received or sell the property
without incurring a loss.

The bankruptcy of tenants would cause a reduction in revenue.

A tenant in bankruptcy could cause:

      -     the loss of lease payments;

      -     an increase in the costs incurred to carry the property;

      -     a reduction in the value of shares; and

      -     a decrease in distributions to shareholders.

Under bankruptcy law, a tenant who is the subject of bankruptcy proceedings has
the option of continuing or terminating any unexpired lease. If the tenant
terminates the lease, any claim we have for breach of the lease (excluding
collateral securing the claim) will be treated as a general unsecured claim. The
maximum claim will be


                                      -7-
<PAGE>

capped at the amount owed for unpaid rent prior to the bankruptcy unrelated to
the termination, plus the greater of one year's lease payments or 15% of the
remaining lease payments payable under the lease (but no more than three years'
lease payments). In addition, due to the long-term nature of our leases and
terms providing for the repurchase of a property by the tenant, a bankruptcy
court could recharacterize a net lease transaction as a secured lending
transaction. If that were to occur, we would not be treated as the owner of the
property, but might have additional rights as a secured creditor.

Some of the programs managed by Carey Asset Management Corp. or its affiliates
have had tenants file for bankruptcy protection and are involved in litigation.
Four CPA(R) programs had to reduce the rate of distributions to their partners
as a result of adverse developments involving tenants.

If our tenants are highly leveraged, they may have a higher possibility of
filing for bankruptcy.

Of tenants that experience downturns in their operating results due to adverse
changes to their business or economic conditions, those that are highly
leveraged may have a higher possibility of filing for bankruptcy. In bankruptcy,
a tenant has the option of vacating a property instead of paying rent. Until
such a property is released from bankruptcy, our revenues would be reduced and
could cause us to reduce distributions to shareholders. We have highly leveraged
tenants at this time, and we may have additional highly leveraged tenants in the
future.

Our tenants generally do not have a recognized credit rating, which may create a
higher risk of lease defaults and therefore lower revenues than if our tenants
had a recognized credit rating.

Generally, no credit rating agencies evaluate or rank the debt or the credit
risk of our tenants, as we seek tenants that we believe will have improving
credit profiles. Our long-term leases with certain of these tenants may
therefore pose a higher risk of default than would long term leases with tenants
whose credit potential has already been recognized by the market.

There is not, and may never be a public market for our shares, so it will be
difficult for shareholders to sell shares quickly.

There is no current public market for the shares and, therefore, it will be
difficult for shareholders to sell their shares promptly. In addition, the price
received for any shares sold is likely to be less than the proportionate value
of the real estate we own.

Our success is dependent on the performance of W. P. Carey & Co.

Our ability to achieve our investment objectives and to pay distributions is
dependent upon the performance of W. P. Carey & Co. in the acquisition of
investments, the selection of tenants, the determination of any financing
arrangements, and upon the management of the assets. You will have no
opportunity to evaluate the terms of transactions or other economic or financial
data concerning our investments. You must rely entirely on the management
ability of W. P. Carey & Co. and the oversight of the board of directors.

W. P. Carey & Co. may be subject to conflicts of interest.

W. P. Carey & Co. manages our business and selects our real estate investments.
W. P. Carey & Co. has some conflicts of interest in its management of CIP(R),
which arise primarily from the involvement of W. P. Carey & Co. and its
affiliates in other activities that may conflict with CIP(R) and the payment of
fees by us to W. P. Carey & Co. and its affiliates. The activities in which a
conflict could arise between CIP(R) and W. P. Carey & Co. are:

      -     the receipt of commissions, fees and other compensation by W. P.
            Carey & Co. and its affiliates for property purchases, leases, sales
            and financing for CIP(R), which may cause W. P. Carey & Co. and its
            affiliates to engage in transactions that generate higher fees,
            rather than transactions that are more appropriate or beneficial for
            our business;

      -     agreements between CIP(R) and W. P. Carey & Co. or any of its
            affiliates, including agreements regarding compensation of W. P.
            Carey & Co. and its affiliates, will not be negotiated on an arm's
            length basis as would occur if the agreements were with unaffiliated
            third parties;

      -     purchases and loans from affiliates, subject to CIP(R)'s investment
            procedures, objectives and policies, which will increase fees and
            interest payable to affiliates, thereby decreasing our net income
            and possibly causing us to incur higher leverage levels;

      -     competition with certain affiliates for property acquisitions, which
            may cause W. P. Carey & Co. and its affiliates to direct properties
            suitable for us to other related entities;

      -     disposition, incentive and termination fees, which are based on the
            sale price of properties, may cause a conflict between the advisor's
            desire to sell a property and our plans to hold or sell the
            property.


                                      -8-
<PAGE>

Inherent in these transactions is the conflict of interest that arises due to
the potential impact of the transaction on the amount of fees received by W. P.
Carey & Co. and/or its affiliates and the distributions to shareholders.

Liability for uninsured losses could adversely affect our financial condition.

Losses from disaster-type occurrences (such as wars or earthquakes) may be
either uninsurable or not insurable on economically viable terms. Should an
uninsured loss occur, we could lose our capital investment and/or anticipated
profits and cash flow from one or more properties.

Potential liability for environmental matters could adversely affect our
financial condition..

We own industrial and commercial properties and are subject to the risk of
liabilities under federal, state and local environmental laws. Some of these
laws could impose the following on CIP(R):

      -     Responsibility and liability for the cost of removal or remediation
            of hazardous substances released on our property, generally without
            regard to our knowledge or responsibility of the presence of the
            contaminants.

      -     Liability for the costs of removal or remediation of hazardous
            substances at disposal facilities for persons who arrange for the
            disposal or treatment of these substances.

      -     Potential liability for common law claims by third parties based on
            damages and costs of environmental contaminants.

Our costs of investigation, remediation or removal of hazardous substances may
be substantial. In addition, the presence of hazardous substances on one of our
properties, or the failure to properly remediate a contaminated property, could
adversely affect our ability to sell or lease the property or to borrow using
the property as collateral.

Our use of debt to finance acquisitions could adversely affect our cash flow.

Most of our property acquisitions have been made by borrowing a portion of the
purchase price of our properties and securing the loan with a mortgage on the
property. If we are unable to make our debt payments as required, a lender could
foreclose on the property or properties securing its debt. This could cause us
to lose part or all of our investment which in turn could cause the value of the
shares and distributions to shareholders to be reduced. We generally borrow on a
non-recourse basis to limit our exposure on any property to the amount of equity
invested in the property. We typically borrow between 55% and 65% of the
purchase price of our properties. There is no limitation on the amount borrowed
on a single property and the aggregate borrowings may not exceed 75% of the
value of all properties. Any borrowings in excess of 75% of the value of all
properties must be approved by a majority of the independent directors and
disclosed to shareholders. As of December 31, 2002, we had limited recourse
mortgage notes payable outstanding of $251,580,000.

Failure to qualify as a REIT could adversely affect our operations and ability
to make distributions.

If we fail to qualify as a REIT for any taxable year, we would be subject to
federal income tax on our taxable income at corporate rates. In addition, we
would generally be disqualified from treatment as a REIT for the four taxable
years following the year of losing our REIT status. Losing our REIT status would
reduce our net earnings available for investment or distribution to shareholders
because of the additional tax liability. In addition, distributions to
shareholders would no longer qualify for the distributions paid deduction and we
would no longer be required to make distributions. We might be required to
borrow funds or liquidate some investments in order to pay the applicable tax.

Qualification as a REIT is subject to the satisfaction of tax requirements and
various factual matters and circumstances which are not entirely within our
control. New legislation, regulations, administrative interpretations or court
decisions could change the tax laws with respect to qualification as a REIT or
the federal income tax consequences of being a REIT.

The IRS may treat sale-leaseback transactions as loans, which could jeopardize
our REIT status.

The Internal Revenue Service may take the position that specific sale-leaseback
transactions we will treat as true leases are not true leases for federal income
tax purposes but are, instead, financing arrangements or loans. If a
sale-leaseback transaction were so recharacterized, we might fail to satisfy the
Asset Tests or the Income Tests and consequently lose our REIT status effective
with the year of recharacterization. Alternatively, the amount of our REIT
Taxable Income could be recalculated which could cause us to fail the
Distribution Test.

Balloon payment obligations may adversely affect our financial condition..

Some of our financing may require us to make a lump-sum or "balloon" payment at
maturity. Our ability to make any balloon payment is uncertain and may depend
upon our ability to obtain additional financing or our ability to sell the
property. At the time the balloon payment is due, we may or may not be able to
refinance the balloon payment on


                                      -9-
<PAGE>

terms as favorable as the original loan or sell the property at a price
sufficient to make the balloon payment. A refinancing or sale could affect the
rate of return to shareholders and the projected time of disposition of our
assets.

Scheduled balloon payments for the next five years are as follows:

            -     2003 - $9.2 million;

            -     2004 - $12.9 million;

            -     2005 - $6.6 million;

            -     2006 - $0; and

            -     2007 - $9.5 million.

A limit on the number of shares a person may own may discourage a takeover.

Our articles of incorporation restrict ownership of more than 9.8% of the
outstanding shares by one person. These restrictions may discourage a change of
control of CIP(R) and may deter individuals or entities from making tender
offers for shares, which offers might be financially attractive to shareholders
or which may cause a change in the management of CIP(R).

Maryland law could restrict change in control.

Provisions of Maryland law applicable to us prohibit business combinations with:

      -     any person who beneficially owns 10% or more of the voting power of
            outstanding shares;

      -     an affiliate of us who, at any time within the two-year period prior
            to the date in question, was the beneficial owner of 10% or more of
            the voting power of our outstanding shares ("an interested
            shareholder"); or

      -     an affiliate of an interested shareholder.

These prohibitions last for five years after the most recent date on which the
interested shareholder became an interested shareholder. Thereafter, any
business combination must be recommended by our board of directors and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by
holders of our outstanding shares and two-thirds of the votes entitled to be
cast by holders of our shares other than shares held by the interested
shareholder. These requirements could have the effect of inhibiting a change in
control even if a change in control were in shareholders' interest. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by our board of directors prior to the time that
someone becomes an interested shareholder.

Our participation in joint ventures creates additional risk.

We participate in joint ventures with other entities, some of which may be
unaffiliated with us. There are additional risks involved in these types of
transactions. These risks include the potential of our joint venture partner
becoming bankrupt and the possibility of diverging or inconsistent economic or
business interests of us and our partner. These diverging interests could result
in, among other things, exposing us to liabilities of the joint venture in
excess of our proportionate share of these liabilities. The partition rights of
each owner in a jointly owned property could reduce the value of each portion of
the divided property. In addition, the fiduciary obligation that W. P. Carey &
Co. or our board may owe to our partner in an affiliated transaction may make it
more difficult for us to enforce our rights.

In some of our joint venture relationships with publicly registered investment
programs or other entities sponsored by Carey Asset Management Corp. or one of
its affiliates, we enter into investments as tenants-in-common. This poses risks
in addition to those mentioned above. The partition rights of each co-tenant in
a tenancy-in-common could reduce the value of each portion of the divided
property. In addition, the fiduciary obligation that Carey Asset Management
Corp. or our board may owe to our partner in an affiliated transaction may make
it more difficult for us to enforce our rights.

We may incur costs to finish build-to-suit properties.

We may sometimes acquire undeveloped or partially developed land parcels for the
purpose of owning to-be-built facilities for a prospective tenant. Oftentimes,
completion risk, cost overruns and on-time delivery are the obligations of the
prospective tenant. To the extent that the tenant or the third-party developer
experiences financial difficulty or other complications during the construction
process we may be required to incur project costs to complete all or part of the
project within a specified time frame. The incurrence of these costs or the
non-occupancy by the tenant may reduce the project's and our portfolio returns.


                                      -10-
<PAGE>

Item 2.      Properties.

Set forth below is certain information relating to the Company's properties
owned as of December 31, 2002.

<TABLE>
<CAPTION>
  LEASE OBLIGOR/                         OWNERSHIP                     SQUARE         RENT PER
  Location                               INTEREST(1)                   FOOTAGE       SQUARE FOOT
  --------                               -----------                   -------       -----------
<S>                                     <C>                            <C>           <C>
 MARRIOTT INTERNATIONAL, INC. (3),(4)
   Irvine, Sacramento and San Diego,
   CA; Orlando, FL (2); Des Plaines,    47.35% interest in a
   IL; Indianapolis, IN; Louisville,    real estate
   KY; Linthicum, MD; Newark, NJ;       investment trust
   Albuquerque, NM; Las Vegas, NV;      owning land and               1,115,687          $15.98
   Spokane, WA                          buildings

  OMNICOM GROUP, INC. (3)
   Playa Vista, CA                              100%                    120,000           26.79
   Venice, CA                                   100%                     77,719           13.93
                                                                         ------
       Total:                                                           197,719

  INFORMATION RESOURCES, INC. (3)
                                        66.67% interest in a
                                        limited partnership
   Chicago, IL                          owning land and
                                        buildings                       252,000           19.57

  ADVANCED MICRO DEVICES, INC. (3)
                                        33 1/3% interest in
                                        a limited liability
   Sunnyvale, CA                        company owning land
                                        and buildings                   361,965           27.01

ELECTRONIC DATA SYSTEMS CORPORATION (3)
   Louisville, CO                               100%                    403,871            7.87

  BEST BUY CO., INC. (3)
   Fort Collins, CO; Matteson and
   Schaumburg, IL; Attleboro, MA;
   Nashua, NH; Albuquerque, NM;         63% interest in a
   Arlington, Beaumont, Dallas, Fort    general partnership
   Worth and Houston, TX; Virginia      owning land and                 585,644            7.23
   Beach, VA                            buildings

  TITAN CORPORATION (3)
                                        81.46% interest in a
                                        limited partnership
   San Diego, CA                        owning land and
                                        buildings                       166,403           16.43

  LUCENT TECHNOLOGIES, INC. (3)
   Charlotte, NC                                100%                    568,670            3.58
</TABLE>

<TABLE>
<CAPTION>
  LEASE OBLIGOR/                           SHARE OF CURRENT   INCREASE
  Location                                  ANNUAL RENTS (2)  FACTOR      LEASE TERM   MAXIMUM TERM
  --------                                  ---------------   ------      ----------   ------------
<S>                                         <C>               <C>         <C>          <C>
 MARRIOTT INTERNATIONAL, INC. (3),(4)
   Irvine, Sacramento and San Diego,
   CA; Orlando, FL (2); Des Plaines,
   IL; Indianapolis, IN; Louisville,
   KY; Linthicum, MD; Newark, NJ;                            Stated/
   Albuquerque, NM; Las Vegas, NV;             $8,441,019    % of sales  Feb. 2012      Feb. 2032
   Spokane, WA

  OMNICOM GROUP, INC. (3)
   Playa Vista, CA                              3,214,996    CPI         Sep. 2018      Sep. 2048
   Venice, CA                                   1,082,685    CPI         Sep. 2010      Sep. 2030
                                                ---------
       Total:                                   4,297,681

  INFORMATION RESOURCES, INC. (3)


   Chicago, IL                                  3,287,700    CPI         Oct. 2010      Oct. 2015

  ADVANCED MICRO DEVICES, INC. (3)


   Sunnyvale, CA
                                                3,258,938    CPI         Dec. 2018      Dec. 2038

ELECTRONIC DATA SYSTEMS CORPORATION (3)
   Louisville, CO                               3,179,732    CPI         Dec. 2014      Dec. 2034

  BEST BUY CO., INC. (3)
   Fort Collins, CO; Matteson and
   Schaumburg, IL; Attleboro, MA;
   Nashua, NH; Albuquerque, NM;
   Arlington, Beaumont, Dallas, Fort
   Worth and Houston, TX; Virginia              2,666,860    Stated      Apr. 2018      Apr. 2033
   Beach, VA

  TITAN CORPORATION (3)


   San Diego, CA                                2,226,673    CPI         Jul. 2007      Jul. 2023

  LUCENT TECHNOLOGIES, INC. (3)
   Charlotte, NC                                2,035,304    None        Mar. 2005      Mar. 2022
</TABLE>

                                      -11-
<PAGE>

<TABLE>
<CAPTION>
  LEASE OBLIGOR/                         OWNERSHIP                     SQUARE         RENT PER
  Location                              INTEREST (1)                   FOOTAGE       SQUARE FOOT
  --------                              -----------                    -------       -----------
<S>                                     <C>                            <C>           <C>
  SHOPRITE SUPERMARKETS, INC. (3)
   Greenport, NY                                100%                     59,772           10.65
                                          55% interest in a
                                         limited partnership
                                           owning land and
   Ellenville and Warwick, NY (3),(4)         buildings                 136,438           16.44
                                                                        -------
       Total:                                                           196,210

UTI HOLDINGS, INC. (3)
   Glendale Heights, IL                         100%                     74,410           17.26
   Glendale Heights, IL                         100%                     38,143           10.27
                                                                        -------
                                                                        112,553

  NEW WAI. L.P./WAREHOUSE ASSOCIATES (3)
   Lima, OH                                     100%                    534,108            3.10

  GARDEN RIDGE, INC. (3)
   Oklahoma City, OK                            100%                    141,284            6.38
   Round Rock, TX                               100%                    152,500            4.63
                                                                        -------
       Total:                                                           293,784

  CHILDTIME CHILDCARE, INC. (3)
   Naperville, IL; Centreville,
   Century Oaks, Manassas and Newport
   News, VA                                     100%                     37,306           17.39

   Chandler and Tucson, AZ; Alhambra,
   Chino, Garden Grove and Tustin,      66.07% interest in a
   CA; Westland (2) and Sterling         limited partnership
   Heights, MI; Carrolton,                 owning land and
   Duncanville and Lewisville, TX             buildings                  83,988           15.41
                                                                        -------
                                                                        121,294

  Q CLUBS, INC. (3)
   Bedford, TX                                  100%                     46,658           14.02
   Memphis, TN                                  100%                     43,311           19.13
                                                                         ------
       Total:                                                            89,969

  DEL MONTE CORPORATION (3)
   Mendota, IL; Plover,  WI; Toppenish          50% (5)                 735,766            4.02
   and Yakima, WA

  SICOR, INC. (3)
                                        50% interest in a
                                        general partner-ship
   San Diego, CA                        owning land and
                                        buildings                       144,312           20.41

  MERIT MEDICAL SYSTEMS, INC. (3)
   South Jordan, UT                             100%                    172,925            8.47
</TABLE>

<TABLE>
<CAPTION>
  LEASE OBLIGOR/                           SHARE OF CURRENT   INCREASE
Location                                    ANNUAL RENTS (2)  FACTOR      LEASE TERM   MAXIMUM TERM
--------                                    ----------------  ------      ----------   ------------
<S>                                         <C>               <C>         <C>          <C>
  SHOPRITE SUPERMARKETS, INC. (3)
   Greenport, NY                                  636,515    Stated      Dec. 2017      Dec. 2037


                                                             Stated/%
   Ellenville and Warwick, NY (3),(4)           1,233,742    of sales    Oct. 2024      Oct. 2044
                                                ---------
       Total:                                   1,870,257

UTI HOLDINGS, INC. (3)
   Glendale Heights, IL                         1,284,609    CPI         Nov. 2010      Nov. 2030
   Glendale Heights, IL                           391,838    Stated      Apr. 2016      Apr. 2031
                                                ---------
                                                1,676,447

  NEW WAI. L.P./WAREHOUSE ASSOCIATES (3)
   Lima, OH                                     1,653,683    CPI         Mar. 2016      Mar. 2041

  GARDEN RIDGE, INC. (3)
   Oklahoma City, OK                              901,017    CPI         Apr. 2015      Apr. 2035
   Round Rock, TX                                 706,188    CPI         Dec. 2013      Dec. 2038
                                                ---------
       Total:                                   1,607,205

  CHILDTIME CHILDCARE, INC. (3)
   Naperville, IL; Centreville,
   Century Oaks, Manassas and Newport
   News, VA                                       648,892    CPI         Aug. 2015      Aug. 2025

   Chandler and Tucson, AZ; Alhambra,
   Chino, Garden Grove and Tustin,
   CA; Westland (2) and Sterling
   Heights, MI; Carrolton,
   Duncanville and Lewisville, TX                 854,856    CPI         Jan. 2016      Jan. 2041
                                                ---------
                                                1,503,748

  Q CLUBS, INC. (3)
   Bedford, TX                                    654,325    CPI         Feb. 2016      Feb. 2036
   Memphis, TN                                    828,755    CPI         Jul. 2013      Jul. 2033
                                                ---------
       Total:                                   1,483,080

  DEL MONTE CORPORATION (3)
   Mendota, IL; Plover,  WI; Toppenish          1,477,714    CPI         Jun. 2016      Jun. 2056
   and Yakima, WA

  SICOR, INC. (3)


   San Diego, CA
                                                1,472,736    CPI         Jul. 2009      Jul. 2044

  MERIT MEDICAL SYSTEMS, INC. (3)
   South Jordan, UT                             1,465,404    CPI         Jan. 2020      Jan. 2040
</TABLE>

                                      -12-
<PAGE>

<TABLE>
<CAPTION>
  LEASE OBLIGOR/                         OWNERSHIP                     SQUARE         RENT PER
  Location                              INTEREST (1)                   FOOTAGE       SQUARE FOOT
  --------                              ------------                   -------       -----------
<S>                                     <C>                            <C>           <C>
THE UPPER DECK COMPANY(3)
                                        50% interest in a
                                        limited liability
   Carlsbad, CA                         company owning land
                                        and building                    294,780            9.85

  COMPUCOM SYSTEMS, INC. (3)
                                        33 1/3% interest in
                                        a limited liability
   Dallas, TX                           company owning land
                                        and buildings                   255,351           16.54

  MICHIGAN MUTUAL INSURANCE COMPANY(3)
   Charleston, SC                               100%                    134,985           10.09

  BARNES & NOBLE, INC. (3)
   Farmington, CT                               100%                     21,600           31.62
   Braintree, MA                                100%                     19,661           30.55
                                                                         ------
       Total:                                                            41,261

  PLEXUS CORP. (3)
   Neenah, WI                                   100%                    179,000            7.09

  BELL SPORTS, INC.
   Rantoul, IL                                  100%                    307,397            3.82

  ENVIROWORKS, INC. (3)
   Apopka, FL                                   100%                    374,829            2.92

  GATX LOGISTICS, INC. (3)
   Jacksonville, FL                             100%                    240,000            3.89

  DETROIT DIESEL CORPORATION
   Hollywood and Orlando, FL                    100%                     81,318           11.17

  PSC SCANNING, INC. (3)
   Eugene, OR                                   100%                    110,665            8.00

  CUSTOM FOOD PRODUCTS, INC. (3)
   Owingsville, KY                              100%                     37,094           23.73

  NICHOLSON WAREHOUSE, L.P. (3)
   Maple Heights, OH                            100%                    341,282            2.50

  HUMCO HOLDING GROUP, INC. (3)
   Texarkana, TX; Orem, UT                      100%                    164,565            5.16

  HIBBETT SPORTING GOODS, INC. (3)
   Birmingham, AL                               100%                    219,312            3.58

SOCIETE HOTELIERE TOURISME GRAND NOBLE(3)
   Toulouse, France                             100%                     42,000           15.40
</TABLE>

<TABLE>
<CAPTION>
  LEASE OBLIGOR/                           SHARE OF CURRENT   INCREASE
  Location                                  ANNUAL RENTS (2)   FACTOR      LEASE TERM   MAXIMUM TERM
  --------                                  ---------------    ------      ----------   ------------
<S>                                         <C>               <C>         <C>          <C>
THE UPPER DECK COMPANY(3)


   Carlsbad, CA
                                                1,452,220    CPI         Dec. 2020      Dec. 2040

  COMPUCOM SYSTEMS, INC. (3)


   Dallas, TX
                                                1,408,043    CPI         Apr. 2019      Apr. 2029

  MICHIGAN MUTUAL INSURANCE COMPANY(3)
   Charleston, SC                               1,362,252    Stated      Dec. 2007      Dec. 2027

  BARNES & NOBLE, INC. (3)
   Farmington, CT                                 683,000    Stated      Feb. 2013      Feb. 2028
   Braintree, MA                                  600,734    Stated      Feb. 2014      Feb. 2024
                                                ---------
       Total:                                   1,283,734

  PLEXUS CORP. (3)
   Neenah, WI                                   1,268,693    CPI         Aug. 2014      Aug. 2044

  BELL SPORTS, INC.
   Rantoul, IL                                  1,175,071    CPI         Nov. 2012      Nov. 2032

  ENVIROWORKS, INC. (3)
   Apopka, FL                                   1,095,072    CPI         Mar. 2010      Mar. 2035

  GATX LOGISTICS, INC. (3)
   Jacksonville, FL                               932,640    Stated      Mar. 2004      Sep. 2004

  DETROIT DIESEL CORPORATION
   Hollywood and Orlando, FL                      908,037    PPI         Jun. 2020      Jun. 2040

  PSC SCANNING, INC. (3)
   Eugene, OR                                     885,750    CPI         May 2014       May 2014

  CUSTOM FOOD PRODUCTS, INC. (3)
   Owingsville, KY                                880,404    CPI         Jun. 2020      Jun. 2035

  NICHOLSON WAREHOUSE, L.P. (3)
   Maple Heights, OH                              854,540    CPI         Dec. 2018      Dec. 2043

  HUMCO HOLDING GROUP, INC. (3)
   Texarkana, TX; Orem, UT                        849,853    CPI         Dec. 2016      Dec. 2016

  HIBBETT SPORTING GOODS, INC. (3)
   Birmingham, AL                                 784,224    CPI         Feb. 2011      Feb. 2026

SOCIETE HOTELIERE TOURISME GRAND NOBLE(3)
   Toulouse, France                               646,828(6) INSEE(7)    Nov. 2012      Nov. 2030
</TABLE>

                                      -13-
<PAGE>

<TABLE>
<CAPTION>
  LEASE OBLIGOR/                         OWNERSHIP                     SQUARE         RENT PER
Location                                INTEREST(1)                    FOOTAGE       SQUARE FOOT
--------                                -----------                    -------       -----------
<S>                                     <C>                            <C>           <C>
  SUPERIOR TELECOMMUNICATIONS, INC. (3)
   Brownwood, TX                                100%                    307,850            2.08

  ISA INTERNATIONAL PLC(3)
   Bradford, West Yorkshire, United             100%                     41,432           15.30
   Kingdom

  GLOYSTARNE & CO., LTD. (3)
   Rotherdam, South Yorkshire, United            100%                   120,000            5.07
   Kingdom

  KMART CORPORATION.
   Denton, TX                                   100%                     87,406            2.46
   Drayton Plains, MI                           100%                    103,018            2.04
   Citrus Heights, CA                           100%                     89,760            2.01
                                                                        -------
       Total:                                                           280,184

  PETSMART, INC. (3)
   Ennis, TX                                    100%                    229,950            2.27

  OSHMAN SPORTING GOODS, INC. (3)
   Plano, TX                                    100%                     47,054            9.16

  KROGER CO.
   Conway and
   N. Little Rock, AR                           100%                     78,075            5.30

  AFFILIATED FOODS SOUTHWEST, INC.
   Hope, AR                                     100%                     35,784            2.25
   Little Rock, AR                              100%                     21,932            1.58
   Little Rock, AR                              100%                     64,358            4.09
                                                                        -------
       Total:                                                           122,074

  US WEST COMMUNICATIONS, INC. (3)
   Scottsdale, AZ                               100%                      4,460           60.60

  HOBBY LOBBY STORES, INC.
   Broken Arrow, OK                             100%                     50,340            5.05

XEROX CORPORATION                               100%                     36,850            4.22
PHOTO CENTER                                    100%                        340           14.12
                                                                         ------
   Total for property in
   Hot Springs, AR:                                                      37,190

NORTHSTAR COMPUTER FORMS, INC.                  100%                     23,042            5.33
VACANT                                          100%                    126,720
                                                                        -------
   Total for property in
   Golden, CO:                                                          149,762

VACANT
   Austin, TX                                   100%                     99,680
</TABLE>


<TABLE>
<CAPTION>
  LEASE OBLIGOR/                            SHARE OF CURRENT     INCREASE
Location                                     ANNUAL RENTS(2)     FACTOR         LEASE TERM   MAXIMUM TERM
--------                                     ---------------     ------         ----------   ------------
<S>                                          <C>                 <C>            <C>          <C>
  SUPERIOR TELECOMMUNICATIONS, INC. (3)
   Brownwood, TX                                   640,879       CPI            Dec. 2013      Dec. 2038

  ISA INTERNATIONAL PLC(3)
   Bradford, West Yorkshire, United                 633,738(6)   Open           May 2014       None
   Kingdom                                                       Market

  GLOYSTARNE & CO., LTD. (3)
   Rotherdam, South Yorkshire, United              608,469(6)      Stated          Dec. 2019      Dec. 2019
   Kingdom

  KMART CORPORATION.
   Denton, TX                                      215,280       % of Sales     Nov. 2007      Nov. 2057
   Drayton Plains, MI                              210,000       % of Sales     Mar. 2006      Mar. 2026
   Citrus Heights, CA                              180,000       % of Sales     May 2006       May 2026
                                                   -------
       Total:                                      605,280

  PETSMART, INC. (3)
   Ennis, TX                                       522,240       CPI            Jan. 2013      Jan. 2013

  OSHMAN SPORTING GOODS, INC. (3)
   Plano, TX                                       431,197       Stated         Jan. 2013      Jan. 2033

  KROGER CO.
   Conway and
   N. Little Rock, AR                              413,612       CPI            Feb. 2017      Feb. 2037

  AFFILIATED FOODS SOUTHWEST, INC.
   Hope, AR                                         80,514       CPI            Mar. 2007      Mar. 2037
   Little Rock, AR                                  34,745       CPI            Mar. 2007      Mar. 2037
   Little Rock, AR                                 263,432       CPI            Feb. 2009      Feb. 2024
                                                   -------
       Total:                                      378,691

  US WEST COMMUNICATIONS, INC. (3)
   Scottsdale, AZ                                  270,270       Stated         Feb. 2007      Feb. 2017

  HOBBY LOBBY STORES, INC.
   Broken Arrow, OK                                253,995       % of Sales     Jan. 2008      Jan. 2033

XEROX CORPORATION                                  155,507       Stated         May 2011       May 2011
PHOTO CENTER                                         4,800       None           Monthly
                                                   -------                      renewals
   Total for property in
   Hot Springs, AR:                                160,307

NORTHSTAR COMPUTER FORMS, INC.                     122,814       Stated         Sep. 2005      Sep. 2005
VACANT

   Total for property in
   Golden, CO:

VACANT
   Austin, TX
</TABLE>

1.    Percentage of ownership in land and building, except as noted. If
      ownership is less than 100%, ownership is as tenant-in-common unless
      otherwise indicated.

2.    Share of Current Annual Rents is the product of the Square Footage, the
      Rent per Square Foot, and the Ownership Interest percentage.


                                      -14-
<PAGE>

3.    These properties are encumbered by mortgage notes payable.

4.    Includes percentage of sales rents.

5.    Mendota, Plover and Toppenish properties are owned through an interest in
      a limited liability company and the Yakima property is owned as a
      tenant-in-common.

6.    Based on exchange rates at December 31, 2002.

7.    INSEE construction index, an index published quarterly by the French
      Government.

Item 3. Legal Proceedings.

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

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

No matter was submitted during the fourth quarter of the year ended December 31,
2002 to a vote of security holders, through the solicitation of proxies or
otherwise.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits:

            99.1 Certification of Chief Executive Officer Pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

            99.2 Certification of Chief Financial Officer Pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

      (b)   Reports on Form 8-K:

            During the year ended December 31, 2002, the Company filed Report on
            Form 8-K, dated May 15, 2002, to report Acquisition of Assets and
            which was amended in Report on Form 8-K/A, Amendment No. 1 to Form
            8-K, dated June 26, 2002.


                                      -15-
<PAGE>

                                     PART II

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

Information with respect to Registrant's common equity is hereby incorporated by
reference to page 36 of the Company's Annual Report contained in Appendix A.

Item 6. Selected Financial Data.

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

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

Management's Discussion and Analysis are hereby incorporated by reference to
pages 2 to 11 of the Company's Annual Report contained in Appendix A.

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

Approximately $233,955,000 of CIP(R)'s long-term debt bears interest at fixed
rates, and therefore the fair value of these instruments is affected by changes
in the market interest rates. The following table presents principal cash flows
based upon expected maturity dates of the debt obligations and the related
weighted-average interest rates by expected maturity dates for the fixed rate
debt. The interest rate on the fixed rate debt as of December 31, 2002 ranged
from 6.95% to 10%. The interest rate on the variable rate debt as of December
31, 2002 ranged from 5.438% to 9.625%.

<TABLE>
<CAPTION>
(in thousands)         2003       2004      2005      2006       2007    Thereafter     Total   Fair Value
                     -------    -------    ------    ------    -------    --------    --------   --------
<S>                  <C>        <C>        <C>       <C>       <C>        <C>         <C>        <C>
Fixed rate debt      $13,944    $14,635    $7,515    $4,834    $14,719    $178,308    $233,955   $239,669
Weighted average
    interest rate       9.10%      9.36%     8.28%     7.78%      8.55%       7.51%
Variable rate debt   $ 1,492    $ 4,251    $4,030    $  205    $   256    $  7,390    $ 17,624   $ 17,624
</TABLE>

CIP(R) conducts business in the United Kingdom and France. The foreign
operations were not material to CIP(R)'s consolidated financial position,
results of operations or cash flows during the three-year period ended December
31, 2002. Additionally, foreign currency transaction gains and losses were not
material to our results of operations for the three-year period ended December
31, 2002. Accordingly, we were not subject to material foreign currency exchange
rate risk from the effects that exchange rate movements of foreign currencies
may have on our future costs or on future cash flows we may receive from our
foreign subsidiaries. To date, we have not entered into any foreign currency
forward exchange contracts or other derivative financial instruments to hedge
the effects of adverse fluctuations in foreign currency exchange rates.
Scheduled future minimum rents, exclusive of renewals, under non-cancelable
leases resulting from CIP(R)'s foreign operations are as follows:

<TABLE>
<CAPTION>
(in thousands)                           2003     2004     2005     2006     2007   Thereafter  Total
                                        ------   ------   ------   ------   ------   -------   -------
<S>                                     <C>      <C>      <C>      <C>      <C>      <C>       <C>
Rental income(1)                        $1,281   $1,281   $1,281   $1,281   $1,281   $ 7,259   $13,664
Interest income from direct financing
     leases(1)                          $  608   $  608   $  633   $  705   $  705   $10,751   $14,010
</TABLE>

Scheduled principal payments for the mortgage notes payable during each of the
next five years following December 31, 2002 and thereafter are as follows:

<TABLE>
<CAPTION>
(in thousands)           2003   2004   2005   2006   2007   Thereafter   Total
                         ----   ----   ----   ----   ----   ----------   ------
<S>                      <C>    <C>    <C>    <C>    <C>      <C>        <C>
Fixed rate debt(1)       $ 81   $115   $124   $245   $255     $7,523     $8,343
Variable rate debt (1)   $128   $154   $180   $205   $256     $7,391     $8,314
</TABLE>

(1)   Based on December 31, 2002 exchange rate.


                                      -16-
<PAGE>

Item 8. Consolidated Financial Statements and Supplementary Data.

The following consolidated financial statements and supplementary data are
hereby incorporated by reference to pages 12 to 35 of the Company's Annual
Report contained in Appendix A:

(i)   Report of Independent Accountants.

(ii)  Consolidated Balance Sheets as of December 31, 2002 and 2001.

(iii) Consolidated Statements of Income for the years ended December 31, 2002,
      2001 and 2000.

(iv)  Consolidated Statements of Shareholders' Equity for the years ended
      December 31, 2000, 2001 and 2002.

(v)   Consolidated Statements of Cash Flows for the years ended December 31,
      2002, 2001 and 2000.

(vi)  Notes to Consolidated Financial Statements.

Item 9. Disagreements on Accounting and Financial Disclosure.

NONE


                                      -17-
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

This information will be contained in the Company's definitive Proxy Statement
with respect to the Company's 2003 Annual Meeting of Shareholders, to be filed
with the Securities and Exchange Commission within 120 days following the end of
the Company's fiscal year, and is hereby incorporated by reference.

Item 11. Executive Compensation.

This information will be contained in the Company's definitive Proxy Statement
with respect to the Company's 2003 Annual Meeting of Shareholders, to be filed
with the Securities and Exchange Commission within 120 days following the end of
the Company's fiscal year, and is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

This information will be contained in the Company's definitive Proxy Statement
with respect to the Company's 2003 Annual Meeting of Shareholders, to be filed
with the Securities and Exchange Commission within 120 days following the end of
the Company's fiscal year, and is hereby incorporated by reference.

Item 13. Certain Relationships and Related Transactions.

This information will be contained in the Company's definitive Proxy Statement
with respect to the Company's 2003 Annual Meeting of Shareholders, to be filed
with the Securities and Exchange Commission within 120 days following the end of
the Company's fiscal year, and is hereby incorporated by reference.

Item 14. Controls and Procedures

The Co-Chief Executive Officers and Chief Financial Officer of the Company have
conducted a review of the Company's disclosure controls and procedures as of
December 31, 2002.

The Company's disclosure controls and procedures include the Company's controls
and other procedures designed to ensure that information required to be
disclosed in this and other reports filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act") is accumulated and communicated to the
Company's management, including its chief executive officers and chief financial
officer, to allow timely decisions regarding required disclosure and to ensure
that such information is recorded, processed, summarized and reported, within
the required time periods. Based upon this review, the Company's chief executive
officers and chief financial officer have concluded that the Company's
disclosure controls (as defined in pursuant to Rule 13a-14(c) promulgated under
the Exchange Act) are sufficiently effective to ensure that the information
required to be disclosed by the Company in the reports it files under the
Exchange Act is recorded, processed, summarized and reported with adequate
timeliness. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referred to above.


                                      -18-
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      (a)   1. Consolidated Financial Statements:

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

                  Report of Independent Accountants.

                  Consolidated Balance Sheets, December 31, 2002, 2001 and 2000.

                  Consolidated Statements of Income for the years ended December
                  31, 2002, 2001 and 2000.

                  Consolidated Statement of Shareholders' Equity for the years
                  ended December 31, 2000, 2001 and 2002.

                  Consolidated Statements of Cash Flows for the years ended
                  December 31, 2002, 2001 and 2000.

                  Notes to Consolidated Financial Statements.

            The consolidated financial statements are hereby incorporated by
            reference to pages 12 to 35 of the Company's Annual Report contained
            in Appendix A.

      (a)   2. Financial Statements of Material Equity Investee:

                  Marcourt Investments Incorporated

                  Report of Independent Accountants.

                  Balance Sheets, December 31, 2002 and 2001.

                  Statements of Income for the years ended December 31, 2002,
                  2001 and 2000.

                  Statement of Shareholders' Equity for the years ended December
                  31, 2000, 2001 and 2002.

                  Statements of Cash Flows for the years ended December 31,
                  2002, 2001 and 2000.

                  Notes to Financial Statements.

                  Schedule III - Real Estate and Accumulated Depreciation as of
                  December 31, 2002 of Marcourt Investments Incorporated.

                  The financial statements of material equity investees are
                  contained herewith in Item 15 on pages 20 to 29.

                  The separate financial statements of material equity investees
                  have been audited as of December 31, 2002 and for the year
                  then ended in accordance with Rule 3-09 of Regulation S-X.

      (a)   3. Financial Statement Schedule:

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

                  Report of Independent Accountants.

                  Schedule III - Real Estate and Accumulated Depreciation as of
                  December 31, 2002.

                  Notes to Schedule III.

            Schedule III and notes thereto are contained herein on pages 48 to
            52 of this Form 10-K.

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


                                      -19-
<PAGE>

                        REPORT of INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
   Marcourt Investments Incorporated:

In our opinion, the financial statements listed in the index appearing under
Item 15(a)(2) on page 19 present fairly, in all material respects, the financial
position of Marcourt Investments Incorporated at December 31, 2002 and 2001, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item
15(a)(2) on page 19 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP

New York, New York
February 14, 2003


                                      -20-
<PAGE>

                        MARCOURT INVESTMENTS INCORPORATED

                                 BALANCE SHEETS
                           December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                             2002           2001
                                                             ----           ----
<S>                                                      <C>            <C>
         ASSETS:

Net investment in direct financing lease                 $147,841,914   $148,056,251
Cash and cash equivalents                                      48,793        159,667
Other assets                                                  390,539        475,130
                                                         ------------   ------------
            Total assets                                 $148,281,246   $148,691,048
                                                         ============   ============

         LIABILITIES and SHAREHOLDERS' EQUITY:

Liabilities:
Mortgage notes payable                                   $ 80,033,471   $ 85,178,685
Accrued interest payable                                    1,154,769      1,228,867
Accounts payable and accrued expenses                          30,200         27,500
Accounts payable to affiliates                                    440         15,246
State and local taxes payable                                  16,300         14,364
                                                         ------------   ------------
            Total liabilities                              81,235,180     86,464,662
                                                         ------------   ------------

Commitments and contingencies

Common stock, Class A; $.01 par value; authorized,
    999,750 shares; issued and outstanding,
    369,850 shares; Class B; $.01 par value;
    authorized, 250 shares; issued and outstanding,
    150 shares                                                  3,700          3,700
Additional paid-in capital                                 40,058,056     36,996,300
Retained earnings                                          26,984,310     25,226,386
                                                         ------------   ------------
            Total shareholders' equity                     67,046,066     62,226,386
                                                         ------------   ------------

            Total liabilities and shareholders' equity   $148,281,246   $148,691,048
                                                         ============   ============
</TABLE>

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


                                      -21-
<PAGE>

                        MARCOURT INVESTMENTS INCORPORATED

                              STATEMENTS OF INCOME
              For the years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                    2002          2001          2000
                                                    ----          ----          ----
<S>                                             <C>           <C>           <C>
Revenue:
    Interest income on direct financing lease   $17,612,525   $17,636,625   $17,657,881
    Percentage rents                              1,230,011     1,393,980     1,210,640
    Other income                                    627,629           954        19,624
                                                -----------   -----------   -----------
                                                 19,470,165    19,031,559    18,888,145
                                                -----------   -----------   -----------

Expenses:
    Interest on mortgages                         8,636,177     9,147,331     9,608,615
    General and administrative                       34,370       135,307        69,346
    State and local taxes                            67,908         4,096        60,100
                                                -----------   -----------   -----------
                                                  8,738,455     9,286,734     9,738,061
                                                -----------   -----------   -----------

        Net income                              $10,731,710   $ 9,744,825   $ 9,150,084
                                                ===========   ===========   ===========

        Basic earnings per share of common
            stock, 370,000 common shares
            outstanding (Class A and Class B)   $     29.00   $     26.34   $     24.73
                                                ===========   ===========   ===========
</TABLE>

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


                                      -22-
<PAGE>

                        MARCOURT INVESTMENTS INCORPORATED

                        STATEMENT OF SHAREHOLDERS' EQUITY
              For the years ended December 31, 2000, 2001 and 2002

<TABLE>
<CAPTION>
                                                         Additional Paid-in
                                      Common Stock           Capital             Retained Earnings              Total
                                      ------------       -----------------              -----------              -----------
<S>                                   <C>                <C>                            <C>                      <C>
Balance, December 31, 1999                 $3,700              $36,996,300              $16,454,117              $53,454,117

Dividends                                                                                (5,095,183)              (5,095,183)

Net income                                                                                9,150,084                9,150,084
                                           ------              -----------              -----------              -----------

Balance, December 31, 2000                  3,700               36,996,300               20,509,018               57,509,018

Dividends                                                                                (5,027,457)              (5,027,457)

Net income                                                                                9,744,825                9,744,825
                                           ------              -----------              -----------              -----------

Balance, December 31, 2001                  3,700               36,996,300               25,226,386               62,226,386

Dividends                                                                                (8,973,786)              (8,973,786)

Consent dividends declared                                       3,061,756                                         3,061,756

Net income                                                                               10,731,710               10,731,710
                                           ------              -----------              -----------              -----------

Balance, December 31, 2002                 $3,700              $40,058,056              $26,984,310              $67,046,066
                                           ======              ===========              ===========              ===========
</TABLE>

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


                                      -23-
<PAGE>

                        MARCOURT INVESTMENTS INCORPORATED

                            STATEMENTS OF CASH FLOWS
              For the years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                            2002           2001           2000
                                                                            ----           ----           ----
<S>                                                                     <C>             <C>            <C>
Cash flows from operating activities:
    Net income                                                          $ 10,731,710    $ 9,744,825    $ 9,150,084
    Adjustments to reconcile net income to net cash provided by
        operating activities:
        Cash receipts on direct financing lease greater than revenues
            recognized                                                       214,337        190,237        168,978
        Amortization of deferred interest                                     58,218         61,586         64,626
        Decrease (increase) in other assets                                   26,373        (29,933)       (86,754)
        Increase (decrease) in accounts payable and
            accrued expenses                                                   2,700        (11,800)       (23,000)
        Decrease in accrued interest payable                                 (74,098)       (66,869)       (60,345)
        Increase (decrease) in state and local taxes payable                   1,936         (4,136)         6,500
        Decrease (increase) in accounts payable to affiliates                (14,806)       (76,228)        86,474
                                                                        ------------    -----------    -----------
            Net cash provided by operating activities                     10,946,370      9,807,682      9,306,563
                                                                        ------------    -----------    -----------

Cash flows from investing activities:
    Purchase of securities                                                        --             --         (2,772)
                                                                        ------------    -----------    -----------
        Net cash used in investing activities                                     --             --         (2,772)
                                                                        ------------    -----------    -----------

Cash flows from financing activities:
    Dividends paid                                                        (5,912,030)    (5,027,457)    (5,095,183)
    Payment of mortgage principal                                         (5,145,214)    (4,644,658)    (4,192,937)
                                                                        ------------    -----------    -----------
        Net cash used in financing activities                            (11,057,244)    (9,672,115)    (9,288,120)
                                                                        ------------    -----------    -----------

Net (decrease) increase in cash and cash equivalents                        (110,874)       135,567         15,671

Cash and cash equivalents, beginning of year                                 159,667         24,100          8,429
                                                                        ------------    -----------    -----------

Cash and cash equivalents, end of year                                  $     48,793    $   159,667    $    24,100
                                                                        ============    ===========    ===========
</TABLE>

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


                                      -24-
<PAGE>

                        MARCOURT INVESTMENTS INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

1.    Organization and Business:

      Marcourt Investments Incorporated (the "Company") was formed on January 2,
      1992 under the General Corporation Law of Maryland. Under its by-laws, the
      Company was organized for the purpose of engaging in the business of
      investing in and owning industrial and commercial real estate. It is
      intended that the Company carry on business as a real estate investment
      trust ("REIT") as defined under the Internal Revenue Code of 1986.

      The Company's business consists of the leasing of 13 hotel properties to a
      wholly-owned subsidiary of Marriott International, Inc. ("Marriott")
      pursuant to a master lease. The master lease has an initial term of 20
      years through February 10, 2012, followed by a 10-year renewal term and
      two 5-year renewal terms. Minimum annual rentals are $17,826,850 with the
      lease providing for additional rent of 4% of annual sales in excess of
      $36,000,000 with such additional rent capped at $1,766,717. In connection
      with the restructuring of Marriott Corporation in 1993, Marriott assumed a
      guarantee of the lease obligations. In addition, Host Marriott Corporation
      has also provided a guarantee of the lease obligation for the greater of
      10 years from the Marriott Corporation restructuring or until the
      resolution of all claims and litigation with respect to such
      restructuring. The lessee paid real estate taxes on behalf of the Company
      of $2,435,550 in 2002. In 2002, the Company received $625,570 from
      Marriott as consideration for opening a new Courtyard by Marriott hotel in
      San Diego, California within a specified distance from one of the
      Company's hotels. Such amount is included in other income in the
      accompanying financial statements.

2.    Summary of Significant Accounting Policies:

      Use of Estimates:

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

      Net Investment in Direct Financing Lease:

            The Company's master lease for land and thirteen hotel properties is
            accounted for under the direct financing method whereby the gross
            investment in the lease consists of minimum lease payments to be
            received plus the estimated value of the properties at the end of
            the lease. Unearned income, representing the difference between
            gross investment and actual cost of the leased properties, is
            amortized to income over the lease term so as to produce a constant
            periodic rate of return.

            Additional rentals based on a percentage of Marriott's sales in
            excess of the specified volume and increases in the consumer price
            index are generally included in income when reported to the Company,
            that is, after the level of sales requiring a rental payment to the
            Company is reached.

            Under a direct financing lease, the Company is required to assess
            the estimated unguaranteed residual value of the leased assets at
            least annually. If a decline in the estimated value is other than
            temporary, the net investment is reduced and the remaining interest
            income to be earned over the remaining noncancelable lease term is
            also reduced.

      Cash Equivalents:

            The Company considers all short-term highly liquid investments that
            are both readily convertible to cash and have a maturity of three
            months or less at the time of purchase to be cash equivalents. Items
            classified as cash equivalents may include commercial paper and
            money market funds. At December 31, 2002 and 2001, the Company had
            on deposit at two financial institutions substantially all of its
            cash and cash equivalents.


                                      -25-
<PAGE>

                        MARCOURT INVESTMENTS INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

      Federal Income Taxes:

            The Company is qualified as a REIT as of December 31, 2002 as
            defined under the Internal Revenue Code of 1986. The Company is not
            subject to Federal income taxes on amounts distributed to
            shareholders provided it distributes at least 90% of its REIT
            taxable income to its shareholders and meets other conditions
            necessary to retain its REIT status. In order to meet the
            distribution requirement for the year ended December 31, 2002, the
            Class A shareholders recognized consent dividends of $3,061,756;
            that is, each shareholder recognized and will reflect a taxable
            dividend on its Federal income tax return even though it did not
            receive a cash distribution. The Company projects that consent
            dividends will be declared in future years.

      Other Assets:

            Included in other assets are deferred charges which resulted from
            increased interest obligations on the Company's mortgage notes paid
            in a prior period and are being amortized on an effective interest
            method over the remaining term of the mortgage notes. The Company
            owns shares in a private company which are recorded at a nominal
            cost.

      Earnings Per Share:

            The Company has a simple capital structure, that is, one with only
            common stock outstanding. As a result, the Company has presented
            basic per-share amounts in the statements of income.

3.    Transactions with Related Parties:

      An affiliate of W.P. Carey & Co. LLC ("W.P. Carey") is the advisor to a
      shareholder whose ownership interest in the Company represents
      approximately 47% of the Company's outstanding shares. The Company has
      entered into a service agreement with W. P. Carey which has been engaged
      to perform various administrative services which include, but are not
      limited to, accounting and cash management. The agreement provides that
      W.P. Carey be reimbursed for its costs incurred in connection with
      performing the necessary services under the agreement. For the years ended
      December 31, 2002, 2001 and 2000, the Company incurred expenses of $2,472,
      $3,138 and $378, respectively, under the agreement.

      Coolidge Investment Partners, L.P. ("Coolidge") owns approximately 53% of
      the outstanding shares of the Company. Coolidge acquired the shares from
      Frontier Equity Partners II, Ltd. and PA/FP Limited Partnership in April
      2002. Coolidge and its predessors are advised by Sarofim Realty Advisors
      Co. ("Sarofim"). The Company has also agreed to reimburse Sarofim for
      certain costs incurred in connection with the physical inspection of the
      Company's leased properties. For the year ended December 31, 2000, the
      Company incurred expenses of $16,572 in connection with reimbursement for
      physical inspections. No inspection expenses were incurred in 2002 and
      2001.


                                      -26-
<PAGE>

                        MARCOURT INVESTMENTS INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

4.    Net Investment in Direct Financing Lease:

      The net investment in the direct financing lease is summarized as follows:

<TABLE>
<CAPTION>
                                               2002           2001
                                               ----           ----
<S>                                       <C>            <C>
      Minimum lease payments receivable   $160,441,650   $178,268,500
      Unguaranteed residual value          146,045,268    146,045,268
                                          ------------   ------------
                                           306,486,918    324,313,768
      Less, unearned income                158,645,004    176,257,517
                                          ------------   ------------
                                          $147,841,914   $148,056,251
                                          ============   ============
</TABLE>

      The anticipated minimum future rentals, exclusive of renewals and any
      rents based on percentage of sales, amount to $17,826,850 in each of the
      years 2003 through 2007 and aggregate $160,441,650 through 2011.

5.    Mortgage Notes Payable:

      The Company's mortgage notes payable are collateralized by the Company's
      thirteen hotel properties and by the rights of assignment on the Company's
      master lease on the properties. $51,081,413 of the mortgage notes bear
      interest at a rate of 9.94% per annum and the remaining $28,952,058 bear
      interest at a rate of 11.18% per annum. The mortgage notes will fully
      amortize in November 2011. The note may be prepaid subject to a yield
      maintenance formula. As of December 31, 2002, the prepayment premium would
      be approximately $21,000,000 if the mortgage notes payable were prepaid in
      their entirety.

      Scheduled principal payments during each of the next five years following
      December 31, 2002 and thereafter are as follows:

<TABLE>
<CAPTION>
                  Year Ending December 31,
                  ------------------------
<S>                 <C>                                             <C>
                    2003                                            $ 5,699,903
                    2004                                              6,314,600
                    2005                                              6,995,822
                    2006                                              7,750,793
                    2007                                              8,587,526
                    Thereafter                                       44,684,827
                                                                    -----------
                        Total                                       $80,033,471
                                                                    ===========
</TABLE>

6.    Dividends:

      Dividends to shareholders consist of ordinary income and a return of
      capital for income tax purposes. For each of the three years ended
      December 31, 2002, dividends paid per share were reported as follows for
      income tax purposes:

                                      2002       2001       2000
                                  --------   --------   --------

            Ordinary income (a)   $  24.25   $  13.58   $  13.77
            Return of capital           --         --         --
                                  --------   --------   --------
                                  $  24.25   $  13.58   $  13.77
                                  ========   ========   ========

            (a) Includes a consent dividend to Class A shareholders of $8.28 per
            share in 2002.


                                      -27-
<PAGE>

                        MARCOURT INVESTMENTS INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

 7.        Disclosure About Fair Value of Financial Instruments:

      The fair value of the Company's mortgage notes payable at December 31,
      2002 and 2001 is approximately $100,908,918 and $93,197,000, respectively.
      Based on projections of settlement costs, including prepayment charges,
      the Company would not realize a benefit from refinancing the existing
      mortgage debt.


                                      -28-
<PAGE>

                        MARCOURT INVESTMENTS INCORPORATED

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                             as of December 31, 2002

<TABLE>
<CAPTION>
                                                                Initial Cost to Company
                                                                                          Costs Capitalized
                                                                                            Subsequent to    Increase in Net
         Description        Encumbrances      Land      Personal Property  Buildings       Acquisition (a)    Investments(b)
Direct Financing Method:
Hotels leased to Marriott
<S>                         <C>            <C>            <C>              <C>                  <C>              <C>
  International, Inc.       $80,033,471    $27,559,637    $14,199,292      $104,241,071         $45,268          $1,796,646
                            ===========    ===========    ===========      ============         =======          ==========
</TABLE>

<TABLE>
<CAPTION>
         Description            Total         Date Acquired
Direct Financing Method:
Hotels leased to Marriott
<S>                          <C>              <C>
  International, Inc.        $147,841,914     February 10, 1992
                             ============
</TABLE>

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

(b)   The increase in net investment is due to the amortization of unearned
      income producing a constant periodic rate of return on the net investment
      which is more than the lease payments received.

(c)   At December 31, 2001, the aggregate cost of real estate owned by Marcourt
      Investments Incorporated for Federal income tax purposes is $146,045,268.


                                      -29-
<PAGE>

      (a)   3. Exhibits:

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

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
      2        Agreement and Plan of Merger                        Filed as Exhibit 2 to
                                                                   Registrant's Form 8-K dated
                                                                   April 30, 2002

      3.1      Articles of Amendment and Restatement.              Exhibit 3(A) to Registration
                                                                   Statement (Form S-11) No.
                                                                   33-39409

      3.2      Amended Bylaws of Registrant.                       Exhibit 3(B) to Registration
                                                                   Statement (Form S-11) No.
                                                                   33-39409

      7.1      Financial Statements of Corporate Property          Filed as Exhibit 7(A) to
               Associates 10 Incorporated                          Amendment No. 1 to
                                                                   Registrant's Form 8-K dated
                                                                   June 26, 2002

      7.2      Pro Forma Financial Statements of Corporate         Filed as Exhibit 7(B) to
               Property Associates 10 Incorporated                 Amendment No. 1 to
                                                                   Registrant's Form 8-K dated
                                                                   June 26, 2002

     10.1      Amended Advisory Agreement.                         Exhibit 10(A)(2) to
                                                                   Registration Statement (Form
                                                                   S-11) No. 33-39409

     10.2      Lease between Marcourt Investments                  Filed as Exhibit 10(D)(1) to
               Incorporated ("Marcourt") and CTYD III              Registrant's Post Effective
               Corporation ("CTYD").                               Amendment No. 1 to Form S-11

     10.3      Series A-2 9.94% Secured Note from Marcourt to      Filed as Exhibit 10(D)(2) to
               the registered owner of note (Various Series        Registrant's Post Effective
               A-1 9.94% Notes in an aggregate amount of           Amendment No. 1 to Form S-11
               38,750,000 substantially in the form of the
               Series A-1 9.94% Note attached , were issued
               by Marcourt in connection with the Financing).

     10.4      Series A-2 11.18% Secured Note from Marcourt        Filed as Exhibit 10(D)(3) to
               to the registered owner of note (Various notes      Registrant's Post Effective
               in an aggregate amount of 70,250,000                Amendment No. 1 to Form S-11
               substantially in the form of the Series A-2
               11.18% Note attached , were issued by Marcourt
               in connection with the Financing.

     10.5      Indenture between Marcourt, as borrower, to         Filed as Exhibit 10(D)(4) to
               First Fidelity Bank, National Association, New      Registrant's Post Effective
               Jersey, as trustee ("Trustee").                     Amendment No. 1 to Form S-11

     10.6      Real Estate Deed of Trust from Marcourt to          Filed as Exhibit 10(D)(5) to
               Albuquerque Title Company, as trustee for           Registrant's Post Effective
               benefit of the Trustee filed in New Mexico,         Amendment No. 1 to Form S-11
               securing Series A-1 9.94% Notes and Series A-2
               ll.18% notes allocated to Albuquerque, New
               Mexico Marriott property (Deeds of Trust or
               Mortgages substantially similar to this Deed
               of Trust were filed in all other jurisdictions
               in which Marriott Properties are located.
               Such other deeds of trust or mortgages secure
               the principal amount of Series A-1 9.94% Notes
               and Series A-2 11.18% Notes allocated to the
               Marriott Properties located in such other
               jurisdictions)
</TABLE>


                                      -30-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.7      Second Real Estate Deed of Trust from Marcourt      Filed as Exhibit 10(D)(6) to
               to Albuquerque Title Company as trustee for         Registrant's Post Effective
               the benefit of the Trustee, filed in New            Amendment No. 1 to Form S-11
               Mexico, securing all Series A-1 9.94% Notes
               and Series A-2 11.18% Notes other than those
               notes allocated to the Albuquerque, New Mexico
               Marriott property (Deeds of trust or mortgages
               substantially similar to this Second Real
               Estate Deed of Trust were filed in all other
               jurisdictions in which the remaining Marriott
               Properties are located. Such other deeds  of
               trust  or  mortgages  secure the principal
               amount of Series A-1 9.94% Notes and  Series
               A-2  11.18%  Notes  allocated to all Marriott
               Properties  not  located  in  the jurisdiction
               in which such other deeds of trust were filed
               for recording).

     10.8      Guaranty from the Registrant, Corporate             Filed as Exhibit 10(D)(7) to
               Property Associates 10 Incorporated, Trammell       Registrant's Post Effective
               Crow Equity Partners II, Ltd. ("TCEP II") and       Amendment No. 1 to Form S-11
               PA/First Plaza Limited Partnership ("First
               Plaza") as guarantors, to the Trustee.

     10.9      Shareholders Agreement between the Registrant,      Filed as Exhibit 10(D)(8) to
               Corporate Property Associates10 Incorporated        Registrant's Post Effective
               ("CPA(R):10"), TCEP II and First Plaza.             Amendment No. 1 to Form S-11

     10.10     Assignment and Assumptions of Lease Agreement       Filed as Exhibit 10(E)(1)(a)
               for property located in Glendale, Arizona           to Registrant's Post
                                                                   Effective Amendment No. 1 to
                                                                   Form S-11

     10.11     Assignment and Assumptions of  Lease Agreement      Filed as Exhibit 10(E)(1)(b)
               for property located in Ft. Smith, Arkansas         to Registrant's Post
                                                                   Effective Amendment No. 1 to
                                                                   Form S-11

     10.12     Assignment and Assumptions of Lease Agreement       Filed as Exhibit 10(E)(1)(c)
               for property located in Escondido, California.      to Registrant's Post
                                                                   Effective Amendment No. 1 to
                                                                   Form S-11

     10.13     Assignment and Assumptions of Lease Agreement       Filed as Exhibit 10(E)(1)(d)
               for property located in Broken Arrow, Oklahoma.     to Registrant's Post
                                                                   Effective Amendment No. 1 to
                                                                   Form S-11

     10.14     Assignment and Assumptions of Lease Agreement       Filed as Exhibit 10(E)(1)(e)
               for property located in Weatherford, Oklahoma.      to Registrant's Post
                                                                   Effective Amendment No. 1 to
                                                                   Form S-11

     10.15     Assignment and Assumptions of Lease Agreement       Filed as Exhibit 10(E)(1)(f)
               for property located in Center, Texas.              to Registrant's Post
                                                                   Effective Amendment No. 1 to
                                                                   Form S-11

     10.16     Assignment and Assumptions of Lease Agreement       Filed as Exhibit 10(E)(1)(g)
               for property located in Groves, Texas.              to Registrant's Post
                                                                   Effective Amendment No. 1 to
                                                                   Form S-11

     10.17     Assignment and Assumptions of Lease Agreement       Filed as Exhibit 10(E)( 1)(h)
               for property located in Silsbee, Texas.             to Registrant's Post
                                                                   Effective Amendment No. 1 to
                                                                   Form S-11
</TABLE>


                                      -31-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.18     Assignment and Assumptions of Lease Agreement       Filed as Exhibit 10(E)(1)(i)
               for property located in Vidor, Texas.               to Registrant's Post
                                                                   Effective Amendment No. 1 to
                                                                   Form S-11

     10.19     Lease Amendments for the Ft. Smith, Arkansas        Filed as Exhibit 10(E)(2) to
               and Weatherford, Oklahoma properties.               Registrant's Post Effective
                                                                   Amendment No. 1 to Form S-11

     10.20     Promissory Note from subsidiaries of the            Filed as Exhibit 10(E)(3) to
               Registrant and CPA(R):10 to The New England         Registrant's Post Effective
               Mutual Life Insurance Company ("New England").      to Form S-11Amendment No. 1

     10.21     Mortgage/Deed of Trust from subsidiaries of         Filed as Exhibit 10(E)(4)(a)
               the Registrant and CPA(R):10 to New England         to Registrant's Post
               encumbering the property in Ft. Smith, Arkansas     Effective Amendment No. 1 to
                                                                   Form S-11

     10.22     Mortgage/Deed of Trust from subsidiaries of         Filed as Exhibit 10(E)(4)(b)
               the Registrant and CPA(R):10 to New England         to Registrant's Post
               encumbering the property in Weatherford,            Effective Amendment No. 1 to
               Oklahoma                                            Form S-11

     10.23     Mortgage/Deed of Trust from subsidiaries of         Filed as Exhibit 10(E)(4)(c)
               the Registrant and CPA(R):10 to New England         to Registrant's Post
               encumbering the properties in Center, Groves,       Effective Amendment No. 1 to
               Silsbee, and Vidor, Texas.                          Form S-11

     10.24     Lease Agreement between QRS 10-9 (AR), Inc.         Filed as Exhibit 10(F)(1) to
               ("QRS 10-9") and QRS 11-2(AR), Inc. ("QRS           Registrant's Post Effective
               11-2") as landlord and Acadia Stores 63, Inc.       Amendment No. 3 to Form S-11
               ("Tenant") as tenant.

     10.25     Co-Tenancy Agreement between QRS 10-9 and QRS       Filed as Exhibit 10(F)(2) to
               11-2.                                               Registrant's Post Effective
                                                                   Amendment No. 3 to Form S-11

     10.26     Term Loan Agreement among The First National        Filed as Exhibit 10(F)(3) to
               Bank of Boston ("First Lender"), QRS 10-9 and       Registrant's Post Effective
               QRS 11-2.                                           Amendment No. 3 to Form S-11

     10.27     Note of QRS 10-9 and QRS 11-2 to First Lender.      Filed as Exhibit 10(F)(4) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 3 to Form S-11

     10.28     Fee and Leasehold Mortgages from QRS10-9 and        Filed as Exhibit 10(F)(5) to
               QRS 11-2 to First Lender for the following          Registrant's Post Effective
               jurisdictions:                                      Amendment No. 3 to Form S-11

               a.     Arkansas (one representative fee
                      mortgage and leasehold mortgage
                      included)

               b.     Louisiana

               c.     Mississippi

     10.29     Term Loan Agreement among Acadia Partners ,         Filed as Exhibit 10(F)(6) to
               L.P. ("Second Lender"), QRS 10-9 and QRS 11-2.      Registrant's Post Effective
                                                                   Amendment No. 3 to Form S-11

     10.30     Note of QRS 10-9 and QRS 11-2 to Second Lender.     Filed as Exhibit 10(F)(7) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 3 to Form S-11
</TABLE>


                                      -32-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.31     Fee Mortgages and Leasehold Mortgages from QRS      Filed as Exhibit 10(F)(8) to
               10-9 and QRS 11 -2 to Second Lender for the         Registrant's Post Effective
               following jurisdictions:                            Amendment No. 3 to Form S-11

               a.     Arkansas (one representative fee
                      mortgage and leasehold mortgage
                      included)

               b.     Louisiana

               c.     Mississippi

     10.32     Guaranty from Harvest Foods, Inc., a Delaware       Filed as Exhibit 10(F)(9) to
               corporation, to QRS 10-9 and QRS 11-2.              Registrant's Post Effective
                                                                   Amendment No. 3 to Form S-11

     10.33     Guaranty from Harvest Foods, Inc., an Arkansas      Filed as Exhibit 10(F)(10) to
               corporation, to QRS 10-9 and QRS 11-2.              Registrant's Post Effective
                                                                   Amendment No. 3 to Form S-11

     10.34     Lease between QRS 10-12 (TX), Inc. ("QRS            Filed as Exhibit 10(G)(1) to
               10-12"), QRS 11-5 (TX), Inc. ("QRS 11-5") and       Registrant's Post Effective
               Summagraphics.                                      Amendment No. 3 to Form S-11

     10.35     Co-Tenancy Agreement between QRS 10-12, and         Filed as Exhibit 10(G)(2) to
               QRS 11-5.                                           Registrant's Post Effective
                                                                   Amendment No. 3 to Form S-11

     10.36     $3,700,000 Promissory Note from QRS 10-12           Filed as Exhibit 10(H)(1) to
               (TX), Inc., ("QRS 10-12"), and QRS 11-5 (TX)        Registrant's Post Effective
               Inc. ("QRS 11-5"), to Creditanstalt-Bankverein      Amendment No. 4 to Form S-11
               ("Lender").

     10.37     Deed of Trust and Security Agreement from QRS       Filed as Exhibit 10(H)(2) to
               10- 12 and QRS 11-5 to John O. Langdon,             Registrant's Post Effective
               Trustee, for benefit of Lender.                     Amendment No. 4 to Form S-11

     10.38     Guaranty Agreement between Registrant and           Filed as Exhibit 10(H)(3) to
               Corporate Property Associates 10 Incorporated       Registrant's Post Effective
               as guarantor and Lender.                            Amendment No. 4 to Form S-11

     10.39     Real Estate Purchase and Sale Contract between      Filed as Exhibit 10(I)(1) to
               Belmet (IL) QRS 11-9, Inc. ("QRS 11-9") as          Registrant's Post Effective
               purchaser and Mission Leasing and Bank of           Amendment No. 4
               Rantoul (collectively, to Form S-11"Seller").

     10.40     Assignment and Assumption of Lease between QRS      Filed as Exhibit 10(I)(2) to
               11-9 and Seller.                                    Registrant's Post Effective
                                                                   Amendment No. 4 to Form S-11

     10.41     Assignment of Permits and Warranties from           Filed as Exhibit 10(I)(3) to
               Seller to QRS 11-9.                                 Registrant's Post Effective
                                                                   Amendment No. 4 to Form S-11

     10.42     Industrial Building Lease ("Lease") dated           Filed as Exhibit 10(I)(4) to
               November 16, 1989 between Seller and Bell,          Registrant's Post Effective
               together with First Amendment to Lease, dated       Amendment No. 4 to Form S-11
               September 19, 1991.

     10.43     Second Amendment to Lease.                          Filed as Exhibit 10(I)(5) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 4 to Form S-11
</TABLE>


                                      -33-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.44     Land Purchase Agreement between MMI (SC) QRS        Filed as Exhibit 10(J)(1) to
               11-11 Inc. ("QRS 11-11") and Amerisure, Inc.        Registrant's Post Effective
               regarding three acre parcel.                        Amendment No. 5 to Form S-11

     10.45     Mortgage from Amerisure, Inc. to QRS 11-11          Filed as Exhibit 10(J)(2) to
               regarding three acre parcel.                        Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     10.46     Lease Agreement between QRS 11-11, as               Filed as Exhibit 10(J)(3) to
               Landlord. and MMI, as tenant.                       Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     10.47     Assignment, Reassignment and Assumption of          Filed as Exhibit 10(J)(4) to
               Lease among Amerisure, Inc., QRS11-11 and UIC.      Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     10.48     Loan Agreement between The Penn Mutual Life         Filed as Exhibit 10(J)(5) to
               Insurance Company ("Penn Mutual") and QRS           Registrant's Post Effective
               11-11.                                              Amendment No. 5 to Form S-11

     10.49     $9,500,000 Promissory Note from QRS 11-11 to        Filed as Exhibit 10(J)(6) to
               Penn Mutual.                                        Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     10.50     Mortgage and Security Agreement from QRS 11-11      Filed as Exhibit 10(J)(7) to
               to Penn Mutual.                                     Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     10.51     Lease Agreement between BVS (NY) QRS 11-10,         Filed as Exhibit 10(K)(1) to
               Inc. ("QRS 11-10") as landlord, and BVS, as         Registrant's Post Effective
               tenant.                                             Amendment No. 5 to Form S-11

     10.52     Reciprocal Easement and Operation Agreement         Filed as Exhibit 10(K)(2) to
               between QRS 11-10 and Fairview Plaza                Registrant's Post Effective
               Corporation ("FPC").                                Amendment No. 5 to Form S-11

     10.53     Lease Agreement between QRS 11-12, (FL), Inc.,      Filed as Exhibit 10(L)(2) to
               ("QRS 11-12"), as Landlord, and Unit, as            Registrant's Post Effective
               tenant.                                             Amendment No. 5 to Form S-11

     10. 54    Guaranty and Suretyship Agreement from Unit to      Filed as Exhibit 10(L)(4) to
               QRS 11-12.                                          Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     10.55     Indemnity Agreement between GATX Corporation        Filed as Exhibit 10(L)(5) to
               and QRS 11-12.                                      Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     10.56     Assignment and Assumption of Lease by               Filed as Exhibit 10(M)(1) to
               Charlotte Telephone Associates Limited              Registrant's Post Effective
               Partnership ("CTA") to QRS 11-14 (NC), Inc.         Amendment No. 5 to Form S-11
               ("QRS 11-14").

     10.57     Purchase and Sale Agreement between Neoserv         Filed as Exhibit 10.1 to
               (CO) QRS 10-13, Inc. ("QRS:10") and Neoserv         Registrant's Form 8-K dated
               (CO) QRS 11-8, Inc. ("QRS:11") as purchasers        October 29, 1992
               and Homart Development Co. ("Homart").
</TABLE>


                                      -34-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.58     Promissory Note of QRS:10 and QRS:11 to Homart.     Filed as Exhibit 10.2 to
                                                                   Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.59     Deed of Trust from QRS:10 and QRS:11 for            Filed as Exhibit 10.3 to
               benefit of Homart.                                  Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.60     Option Agreement between QRS:10 and QRS:11 as       Filed as Exhibit 10.4 to
               option grantee and Homart as option grantor.        Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.61     Co-Tenancy Agreement between QRS:10 and QRS:11.     Filed as Exhibit 10.5 to
                                                                   Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.62     Lease from QRS:10 and QRS:11 as lessor and          Filed as Exhibit 10.6 to
               Neodata Services, Inc. ("Neodata") as lessee.       Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.63     Guaranty Agreement from Neodata Corporation as      Filed as Exhibit 10.7 to
               guarantor to QRS:10 and QRS:11.                     Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.64     Promissory Note of QRS:10 and QRS:11 to             Filed as Exhibit 10.8 to
               Neodata.                                            Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.65     Deed of Trust from QRS:10 and QRS:11 for            Filed as Exhibit 10.9 to
               benefit of Neodata.                                 Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.66     Construction Contract between QRS:10 and            Filed as Exhibit 10.10 to
               QRS:11 as owners and Austin Commercial, Inc.        Registrant's Form 8-K dated
               ("Austin") as contractor.                           October 29, 1992

     10.67     Guaranty from Austin to QRS:10 and QRS:11.          Filed as Exhibit 10.11 to
                                                                   Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.68     Construction Agency Agreement between QRS:10        Filed as Exhibit 10.12 to
               and QRS:11 as owners and Neodata as agent.          Registrant's Form 8-K dated
                                                                   October 29, 1992

     10.69     Land Purchase Agreement between MMI (SC) QRS        Filed as Exhibit 10.1 to
               11-11, Inc. ("QRS 11-11") and Amerisure, Inc.       Registrant's Form 8-K dated
               ("Amerisure") regarding three acre parcel.          January 5, 1993

     10.70     Mortgage from Amerisure to QRS 11-11 regarding      Filed as Exhibit 10. 2 to
               three acre parcel.                                  Registrant's Form 8-K dated
                                                                   January 5, 1993

     10.71     Lease Agreement between QRS 11-11, as               Filed as Exhibit 10.3 to
               Landlord, and MMI as tenant.                        Registrant's Form 8-K dated
                                                                   January 5, 1993

     10.72     Assignment, Reassignment and Assumption of          Filed as Exhibit 10.4 to
               Lease among Amerisure, Inc., QRS 11-11 and UIC.     Registrant's Form 8-K dated
                                                                   January 5, 1993

     10.73     Loan Agreement between The Penn Mutual Life         Filed as Exhibit 10.5 to
               Insurance Company ("Penn Mutual") and QRS           Registrant's Form 8-K dated
               11-11.                                              January 5, 1993

     10.74     $9,500,000 Promissory Note  from QRS 11-11 to       Filed as Exhibit 10.6 to
               Penn Mutual.                                        Registrant's Form 8-K dated
                                                                   January 5, 1993

     10.75     Mortgage and Security Agreement from QRS 11-11      Filed as Exhibit 10.7 to
               to Penn Mutual.                                     Registrant's Form 8-K dated
                                                                   January 5, 1993

     10.76     Lease Agreement between BVS (NY) QRS 11-10,         Filed as Exhibit 10.8 to
               Inc. ("QRS 11-10"), as landlord, and BVS, as        Registrant's Form 8-K dated
               tenant.                                             January 5, 1993
</TABLE>


                                      -35-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.77     Reciprocal Easement and Operation Agreement         Filed as Exhibit 10.9 to
               between QRS 11-10 and Fairview Plaza, Inc.          Registrant's Form 8-K dated
                                                                   January 5, 1993

     10.78     Lease Agreement between QRS 11-12 (FL), Inc.        Filed as Exhibit 10.10 to
               ("QRS 11-12"), as landlord, and Unit, as            Registrant's Form 8-K dated
               tenant.                                             January 5, 1993

     10.79     Guaranty and Suretyship Agreement from Unit to      Filed as Exhibit 10.11 to
               QRS 11-12.                                          Registrant's Form 8-K dated
                                                                   January 5, 1993

     10.80     Indemnity Agreement between GATX Corporation        Filed as Exhibit 10.12 to
               and QRS 11-12.                                      Registrant's Form 8-K dated
                                                                   January 5, 1993

     10.81     Assignment and Assumption of Lease and Lease        Filed as Exhibit 10.1 to
               Guaranty from Oakbrook Development Corp.            Registrant's Form 8-K dated
               ("Oakbrook") to Books CT QRS 11-15, Inc. ("QRS      April 5, 1993
               11-15").

     10.82     Co-Tenancy Agreement between DDI (NE) QRS           Filed as Exhibit 10.2 to
               10-15, Inc. ("QRS 10-15") and DDI (NE) QRS          Registrant's Form 8-K dated
               11-13, Inc. ("QRS 11-13").                          April 5, 1993

     10.83     Cross Indemnity Agreement between QRS 10-15         Filed as Exhibit 10.3 to
               and QRS 11-13.                                      Registrant's Form 8-K dated
                                                                   April 5, 1993

     10.84     Lease Agreement between QRS 10-15 and QRS           Filed as Exhibit 10.4 to
               11-13, as landlord, and Data Documents, Inc.        Registrant's Form 8-K dated
               ("DDI"), as tenant.                                 April 5, 1993

     10.85     Loan Agreement between QRS 10-15 and QRS            Filed as Exhibit 10.5 to
               11-13, as borrower, and U S West Financial          Registrant's Form 8-K dated
               Services, Inc. ("US West"), as lender.              April 5, 1993

     10.86     $8,000,000 Promissory Note from QRS 10-15 and       Filed as Exhibit 10.6 to
               QRS 11-13 to US West.                               Registrant's Form 8-K dated
                                                                   April 5, 1993

     10.87     Deed of Trust from QRS 10-15 and QRS 11-13 to       Filed as Exhibit 10.7 to
               US West (for filing in the states of Colorado,      Registrant's Form 8-K dated
               Nebraska and Texas).                                April 5, 1993

     10.88     Mortgage from QRS 10-15 and QRS 11-13 to US         Filed as Exhibit 10.8 to
               West (for filing in the state of Kansas).           Registrant's Form 8-K dated
                                                                   April 5, 1993

     10.89     Assignment of Parent Guaranty from QRS 10-15        Filed as Exhibit 10.9 to
               and QRS 11-13.                                      Registrant's Form 8-K dated
                                                                   April 5, 1993

     10.90     Deed of Trust Note from QRS 11-14 (NC), Inc.        Filed as Exhibit 10.1 to
               ("QRS 11-14") to Kredietbank N.V.                   Registrant's Form 8-K dated
               ("Kredietbank").                                    April 13, 1993

     10.91     Deed of Trust from QRS 11-14 for the benefit        Filed as Exhibit 10.2 to
               of Kredietbank.                                     Registrant's Form 8-K dated
                                                                   April 13, 1993

     10.92     Assignment of Leases and Rents from QRS 11-14       Filed as Exhibit 10.3 to
               to Kredietbank.                                     Registrant's Form 8-K dated
                                                                   April 13, 1993

     10.93     Escrow Agreement between QRS 11-14 and              Filed as Exhibit 10.4 to
               Kredietbank.                                        Registrant's Form 8-K dated
                                                                   April 13, 1993
</TABLE>


                                      -36-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.94     Lease Agreement between BB Property Company,        Filed as Exhibit 10.1 to
               as lessor, and Best Buy, as lessee.                 Registrant's Form 8-K dated
                                                                   May 6, 1993

     10.95     Note Purchase Agreement among BB Property           Filed as Exhibit 10.2 to
               Company, Best Buy, and TIAA.                        Registrant's Form 8-K dated
                                                                   May 6, 1993

     10.96     $32,800,000 Note from BB Property Company to        Filed as Exhibit 10.3 to
               TIAA.                                               Registrant's Form 8-K dated
                                                                   May 6, 1993

     10.97     Deed of Trust and Security Agreement from BB        Filed as Exhibit 10.4 to
               Property Company for the benefit of TIAA.           Registrant's Form 8-K dated
                                                                   May 6, 1993

     10.98     $3,200,000 Promissory Note from BVS (NY) QRS        Filed as Exhibit 10.5 to
               11-10, Inc. ("BVS") to Orix.                        Registrant's Form 8-K dated
                                                                   May 6, 1993

     10.99     Mortgage, Assignment of Leases and Rents,           Filed as Exhibit 10.6 to
               Security Agreement and Fixture Filing from BVS      Registrant's Form 8-K dated
               to Orix.                                            May 6, 1993

     10.100    Purchase Agreement between QRS 11-19, as            Filed as Exhibit 10.2 to
               owner, and Lincoln Technical Institute, as          Registrant's Form 8-K dated
               buyer.                                              August 13, 1993

     10.101    Lease Agreement between Unitech (IL) QRS            Filed as Exhibit 10(P)(1) to
               11-19, Inc. ("QRS 11-19"), as landlord, and         Registrant's Post Effective
               UTI.                                                Amendment No. 6 to Form S-11

     10.102    Guaranty and Suretyship Agreement from Lincoln      Filed as Exhibit 10(P)(2) to
               Technical Institute of Arizona, Inc. to QRS         Registrant's Post Effective
               11-19.                                              Amendment No. 6 to Form S-11

     10.103    Modification of Loan Documents and Assumption       Filed as Exhibit 10(P)(3) to
               Agreement among Chicago Investment Properties       Registrant's Post Effective
               Limited Partnership, the Guarantors QRS 11-19       Amendment No. 6 to Form S-11
               and the Fidelity Mutual Life Insurance Company.

     10.104    Rate Cap Transaction letter Agreement between       Filed as Exhibit 10(Q)(4) to
               BVS and Chemical Bank ("Chemical").                 Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.105    Consent and Agreement between Chemical, Orix        Filed as Exhibit 10(Q)(5) to
               and BVS.                                            Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.106    Assignment of Interest Rate Protection              Filed as Exhibit 10(Q)(6) to
               Agreement from BVS to Orix.                         Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.107    Warrant issued by Merit to the Registrant.          Filed as Exhibit 10(S)(1) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.108    Lease Agreement between QRS 11-20 (UT), Inc.        Filed as Exhibit 10(S)(2) to
               ("QRS 11-20"), as landlord, and Merit, as           Registrant's Post Effective
               tenant.                                             Amendment No. 6 to Form S-11

     10.109    Guaranty Agreement from the Registrant to           Filed as Exhibit 10(S)(3) to
               Merit.                                              Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11
</TABLE>


                                      -37-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.110    Construction Management Agreement between           Filed as Exhibit 10(S)(4) to
               Merit and the Koll Company.                         Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.111    Construction Agreement between Merit and Camco      Filed as Exhibit 10(S)(5) to
               Construction Company, Inc.                          Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.112    Construction Agency Agreement between Merit         Filed as Exhibit 10(S)(6) to
               and QRS 11-20.                                      Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.113    $8,250,000 Promissory Note from QRS 11-20 to        Filed as Exhibit 10(S)(7) to
               First Interstate Bank of Utah, N.A. ("Lender").     Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.114    Deed of Trust, Assignment of Rents, Security        Filed as Exhibit 10(S)(8) to
               Agreement and Financing Statement from QRS          Registrant's Post Effective
               11-20 for the benefit of Lender.                    Amendment No. 6 to Form S-11

     10.115    Assignment of Leases and Rents made by QRS          Filed as Exhibit 10(S)(9) to
               11-20 in favor of Lender.                           Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.116    Loan Agreement between QRS 11-20 and Lender.        Filed as Exhibit 10(S)(10) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     10.117    Assignment and Assumption of Bid dated as of        Filed as Exhibit 10(T)(1) to
               April 14, 1993 among QRS 11-17 (NY), Inc.           Registrant's Post Effective
               ("QRS 11-17"), E.B. Properties, Inc. ("EB")         Amendment No. 7 to Form S-11
               and The Dime Savings Bank of New York, FSB
               ("Dime"), as amended and supplemented by the
               First Supplement dated April 15, 1993 and by
               the Second Supplement dated April 22, 1993 and
               by letters dated May 12, June 9 and June 18,
               1993.

     10.118    Assignment and Assumption Agreement, dated          Filed as Exhibit 10(T)(2) to
               March 4, 1993, as amended , between Dime and        Registrant's Post Effective
               EB, as assigned by Assignment  dated April 14,      Amendment No. 7 to Form S-11
               1993.

     10.119    Lease dated as of August 1, 1986 between D.         Filed as Exhibit 10(T)(3) to
               Grossman and Mormax Corporation (as assumed by      Registrant's Post Effective
               QRS 11-21, Inc. ("QRS 11-21") by virtue of          Amendment No. 7 to Form S-11
               documents listed at (10)(T)(1)).

     10.120    Promissory Note from QRS 11-17 to Dime in the       Filed as Exhibit 10(T)(4) to
               amount of $7,000,000.                               Registrant's Post Effective
                                                                   Amendment No. 7 to Form S-11

     10.121    Mortgage from QRS 11-17 to Dime.                    Filed as Exhibit 10(T)(5) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 7 to Form S-11

     10.122    Collateral Assignment of Leases and Rents by        Filed as Exhibit 10(T)(6) to
               QRS 11-17 in favor of Dime.                         Registrant's Post Effective
                                                                   Amendment No. 7 to Form S-11
</TABLE>


                                      -38-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.123    Agreement of Indemnity by QRS 11-17 in favor        Filed as Exhibit 10(T)(7) to
               of Dime.                                            Registrant's Post Effective
                                                                   Amendment No. 7 to Form S-11

     10.124    Lease Agreement between SCF (TN) QRS 11-21, as      Filed as Exhibit 10(U)(1) to
               landlord, and SCM, as tenant.                       Registrant's Post Effective
                                                                   Amendment No. 7 to Form S-11

     10.125    Warrant issued by Sports & Fitness Clubs Inc.       Filed as Exhibit 10(U)(2) to
               ("SFC") to QRS 11-21.                               Registrant's Post Effective
                                                                   Amendment No. 7 to Form S-11

     10.126    Guaranty and Suretyship Agreement by SFC and        Filed as Exhibit 10(U)(3) to
               Sports and Fitness Clubs of America, Inc.           Registrant's Post Effective
               ("SFCA") to QRS 11-21.                              Amendment No. 7 to Form S-11

     10.127    Purchase Agreement between QRS 11-21, as            Filed as Exhibit 10(U)(4) to
               owner, and SFC, as buyer.                           Registrant's Post Effective
                                                                   Amendment No. 7 to Form S-11

     10.128    Term Loan Agreement between QRS 11-21, as           Filed as Exhibit 10(U)(5) to
               borrower, and Union Planters National Bank, as      Registrant's Post Effective
               lender ("Union Planters").                          Amendment No. 7 to Form S-11

     10.129    Note in the amount of $2,800,000 dated July         Filed as Exhibit 10(U)(6) to
               20, 1993 from QRS 11-21 for the benefit of          Registrant's Post Effective
               Union Planters.                                     Amendment No. 7 to Form S-11

     10.130    Deed of Trust, Assignment of Rents and              Filed as Exhibit 10(U)(7) to
               Security Agreement from QRS 11-21 for the           Registrant's Post Effective
               benefit of Union Planters.                          Amendment No. 7 to Form S-11

     10.131    Acknowledgment of Assignment of Lease,              Filed as Exhibit 10(U)(8) to
               Guaranty and Purchase Agreements between SCM,       Registrant's Post Effective
               SFC, SFCA, QRS 11-21 and Union Planters.            Amendment No. 7 to Form S-11

     10.132    Real Estate Contract of Sale between Abacus         Filed as Exhibit 10(V)(1) to
               Capital Corporation, as seller, and                 Registrant's Post Effective
               Registrant, or its assigns, as Buyer.               Amendment No. 7 to Form S-11

     10.133    Real Estate Contract of Sale between Abacus         Filed as Exhibit 10.1 to
               Capital Corporation ("Abacus"), as seller, and      Registrant's Form 8-K dated
               Registrant, as buyer.                               February 24, 1994

     10.134    Assignment of Real Estate Contract of Sale          Filed as Exhibit 10.2 to
               from Registrant to the PETSMART Subsidiary.         Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.135    Assignment and Assumption of Lease between          Filed as Exhibit 10.3 to
               Abacus and the PETsMART Subsidiary.                 Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.136    Loan Agreement between NationsBank and the          Filed as Exhibit 10.4 to
               PETsMART Subsidiary.                                Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.137    $2,500,000 Promissory Note made by the              Filed as Exhibit 10.5 to
               PETsMART Subsidiary to NationsBank.                 Registrant's Form 8-K dated
                                                                   February 24, 1994
</TABLE>


                                      -39-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.138    Deed of Trust, Assignment, Security Agreement       Filed as Exhibit 10.6 to
               and Financing Statement from the PETsMART           Registrant's Form 8-K dated
               Subsidiary to NationsBank.                          February 24, 1994

     10.139    Lease Agreement between the Braintree               Filed as Exhibit 10.7 to
               Subsidiary, as landlord, and Barnes & Noble,        Registrant's Form 8-K dated
               as tenant.                                          February 24, 1994

     10.140    Real Estate Purchase and Sale Contract between      Filed as Exhibit 10.8 to
               the ELWA Subsidiary, as buyer, and Big V, as        Registrant's Form 8-K dated
               seller.                                             February 24, 1994

     10.141    Lease Agreement between the ELWA Subsidiary,        Filed as Exhibit 10.9 to
               as landlord, and Big V as tenant.                   Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.142    Guaranty and Suretyship Agreement executed by       Filed as Exhibit 10.10 to
               Big V Holding.                                      Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.143    Amended, Restated and Consolidated Bonds to         Filed as Exhibit 10.11 to
               Key Bank, as lender, from the ELWA Subsidiary,      Registrant's Form 8-K dated
               as borrower.                                        February 24, 1994

     10.144    Amended and Restated Mortgage and Security          Filed as Exhibit 10.12 to
               Agreement from the ELWA Subsidiary, to Key          Registrant's Form 8-K dated
               Bank.                                               February 24, 1994

     10.145    Limited Guaranty of Payment from the Company        Filed as Exhibit 10.13 to
               to Key Bank.                                        Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.146    Lease Agreement between the Brownwood               Filed as Exhibit 10.14 to
               Subsidiary, as landlord, and Superior, as           Registrant's Form 8-K dated
               tenant.                                             February 24, 1994

     10.147    Guaranty and Suretyship Agreement from Alpine       Filed as Exhibit 10.15 to
               to Registrant.                                      Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.148    $2,700,000 Real Estate Note from the Brownwood      Filed as Exhibit 10.16 to
               Subsidiary, as maker, to Creditanstalt, as          Registrant's Form 8-K dated
               holder.                                             February 24, 1994

     10.149    Deed of Trust and Security Agreement by the         Filed as Exhibit 10.17 to
               Brownwood Subsidiary, as guarantor to Hazen H.      Registrant's Form 8-K dated
               Dempster, as trustee.                               February 24, 1994

     10.150    Guaranty and Agreement between the Company and      Filed as Exhibit 10.18 to
               Creditanstalt.                                      Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.151    Assignment of Contract from Hyde Park               Filed as Exhibit 10.19 to
               Holdings, Inc. to the Cleveland Subsidiary.         Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.152    Lease Agreement between the Cleveland               Filed as Exhibit 10.20 to
               Subsidiary, as landlord, and Nicholson, as          Registrant's Form 8-K dated
               tenant.                                             February 24, 1994

     10.153    $4,000,000 Cognovit Promissory Note from the        Filed as Exhibit 10.21 to
               Cleveland Subsidiary to Bank One.                   Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.154    Mortgage Deed, Security Agreement and               Filed as Exhibit 10.22 to
               Assignment of Rents and Leases from the             Registrant's Form 8-K dated
               Cleveland Subsidiary to Bank One.                   February 24, 1994

     10.155    Business Loan Agreement between the Cleveland       Filed as Exhibit 10.23 to
               Subsidiary, and Bank One.                           Registrant's Form 8-K dated
                                                                   February 24, 1994
</TABLE>


                                      -40-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.156    Guaranty from Registrant to Bank One.               Filed as Exhibit 10.24 to
                                                                   Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.157    Lease Agreement between the Gensia                  Filed as Exhibit 10.25 to
               Partnership, as landlord, and Gensia, as            Registrant's Form 8-K dated
               tenant.                                             February 24, 1994

     10.158    $13,000,000 Promissory Note from the Gensia         Filed as Exhibit 10.26 to
               Partnership to Northwestern.                        Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.159    Deed of Trust, Security Agreement and               Filed as Exhibit 10.27 to
               Financing Statement from the Gensia                 Registrant's Form 8-K dated
               Partnership to Northwestern.                        February 24, 1994

     10.160    Guarantee of Recourse Obligations from              Filed as Exhibit 10.28 to
               Registrant and CPA(R):12 to Northwestern.           Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.161    Assignment of Earnest Money Contract from           Filed as Exhibit 10.29 to
               Garden Ridge to the Round Rock Subsidiary.          Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.162    Lease Agreement between the Round Rock              Filed as Exhibit 10.30 to
               Subsidiary, as landlord, and Garden Ridge, as       Registrant's Form 8-K dated
               tenant.                                             February 24, 1994

     10.163    $3,465,000 Note from the Round Rock Subsidiary      Filed as Exhibit 10.31 to
               to Garden Ridge.                                    Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.164    Deed of Trust and Security Agreement from the       Filed as Exhibit 10.32 to
               Round Rock Subsidiary to Garden Ridge.              Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.165    $1,700,000 Promissory Note from the Plano           Filed as Exhibit 10.33 to
               Subsidiary to National Western.                     Registrant's Form 8-K dated
                                                                   February 24, 1994

     10.166    Deed of Trust, Security Agreement and               Filed as Exhibit 10.34 to
               Financing Statement from the Plano Subsidiary       Registrant's Form 8-K dated
               to National Western.                                February 24, 1994

     10.167    Lease Agreement dated June 15, 1994 between         Filed as Exhibit 10.167 to
               CTC (VA) QRS 11-32, Inc., as Landlord, and          Registrant's Form 10-K for
               Childtime Childcare, Inc., as Tenant.               the year ended December 31,
                                                                   1994 dated March 31, 1995

     10.168    Construction Agency Agreement dated June 15,        Filed as Exhibit 10.168 to
               1994 between Childtime Childcare, Inc. and CTC      Registrant's Form 10-K for
               (VA) QRS 11-32, Inc.                                the year ended December 31,
                                                                   1994 dated March 31, 1995

     10.169    Lease Agreement dated August 11, 1994 by and        Filed as Exhibit 10.169 to
               between Neenah (WI) QRS 11-31, Inc., as             Registrant's Form 10-K for
               Landlord, and Exide Electronic Assembly             the year ended December 31,
               Corporation, as Tenant.                             1994 dated March 31, 1995

     10.170    $5,000,000 Real Estate Note dated August 11,        Filed as Exhibit 10.170 to
               1994 from Neenah (WI) QRS 11-31, Inc., as           Registrant's Form 10-K for
               Maker, and Creditanstalt Corporate Finance,         the year ended December 31,
               Inc., as Holder.                                    1994 dated March 31, 1995
</TABLE>


                                      -41-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     10.171    Lease Agreement dated December 31, 1994 by and      Filed as Exhibit 10.171 to
               between CFP Associates, as Landlord, and            Registrant's Form 10-K for
               Custom Foods Products, Inc., as Tenant.             the year ended December 31,
                                                                   1994 dated March 31, 1995

     10.172    Loan Agreement dated December 31, 1994 between      Filed as Exhibit 10.172 to
               CFP Associates, as Borrower, and Greyrock           Registrant's Form 10-K for
               Capital Group Inc., as Lender.                      the year ended December 31,
                                                                   1994 dated March 31, 1995

     10.173    $2,000,000 Note dated December 31, 1994 from        Filed as Exhibit 10.173 to
               CFP Associates, as Maker, and Greyrock Capital      Registrant's Form 10-K for
               Group Inc., as Payee.                               the year ended December 31,
                                                                   1994 dated March 31, 1995

     10.174    $200,000 Maximum Amount Promissory Note dated       Filed as Exhibit 10.174 to
               December 31, 1994 from CFP Associates, as           Registrant's Form 10-K for
               Maker, to Custom Foods Products, Inc., as           the year ended December 31,
               Payee.                                              1994 dated March 31, 1995

     10.175    Lease Agreement dated October 14, 1994 by and       Filed as Exhibit 10.175 to
               between ADS (CA) QRS 11-34, Inc., as Landlord,      Registrant's Form 10-K for
               and Chiat/Day Inc. Advertising, as Tenant.          the year ended December 31,
                                                                   1994 dated March 31, 1995

     10.176    $6,000,000 Promissory Note dated October 14,        Filed as Exhibit 10.176 to
               1994 from ADS (CA) QRS 11-34, Inc., as              Registrant's Form 10-K for
               Borrower, to Kearneys Street Real Estate            the year ended December 31,
               Company, L.P., as Lender.                           1994 dated March 31, 1995

     10.177    $3,000,000 Purchase Money Promissory Note           Filed as Exhibit 10.177 to
               secured by Deed of Trust dated October 14,          Registrant's Form 10-K for
               1994 from ADS (CA) QRS 11-34, Inc., as Maker,       the year ended December 31,
               to Venice Operating Corp., as Holder.               1994 dated March 31, 1995

     10.178    Lease Agreement dated October 31, 1995 by and       Filed as Exhibit 10.33 to
               between DELMO (PA) QRS 11-36 and DELMO (PA)         Registrant's Form 8-K dated
               QRS 12-10 together as Landlord and Del Monte        March 21, 1996
               Corporation, as Tenant.

     10.179    Lease Agreement dated December 26, 1995 by and      Filed as Exhibit 2.1 to
               between Cards Limited Liability Company, as         Registrant's Form 8-K dated
               Landlord, and The Upper Deck Company, as            March 21, 1996
               Tenant.

     10.180    $15,000,000 Promissory Note dated January 3,        Filed as Exhibit 2.2 to
               1996 from Cards Limited Liability Company to        Registrant's Form 8-K dated
               Column Financial, Inc.                              March 21, 1996

     21.1      Subsidiaries of Registrant as of March 20, 2003     Filed herewith

     23.1      Consent of PricewaterhouseCoopers LLP               Filed herewith

     23.2      Consent of PricewaterhouseCoopers LLP               Filed as Exhibit 23.2 to
                                                                   Amendment No.2 to
                                                                   Registrant's Form 4 dated
                                                                   February 8, 2002
</TABLE>


                                      -42-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     28.1      General Warranty Deed from Amerisure, Inc. to       Filed as Exhibit 28(C)(1) to
               (SC) QRS 11-11                                      Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     28.2      Amended and Restated Sublease Agreement             Filed as Exhibit 28(C)(2) to
               between MMI, as sublandlord, and Unisun             Registrant's Post Effective
               Insurance Company ("UIC").                          Amendment No. 5 to Form S-11

     28.3      General warranty Deed from FPC to QRS 11-10.        Filed as Exhibit 28(D)(1) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     28.4      Deed from Unit to QRS 11-12.                        Filed as Exhibit 28(E)(1) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     28.5      Lease between Unit, as landlord, and SLS, as        Filed as Exhibit 28(E)(2) to
               tenant, as amended.                                 Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     28.6      Special warranty Deed from CTA, as Grantor to       Filed as Exhibit 28(F)(1) to
               QRS 11-14, as Grantee.                              Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     28.7      Lease Agreement between CTA and AT&T.               Filed as Exhibit 28(F)(2) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 5 to Form S-11

     28.8      Leasehold Deed of Trust from Neodata for            Filed as Exhibit 28.1 to
               benefit of General Electric Capital                 Registrant's Form 8-K dated
               Corporation.                                        October 29, 1992

     28.9      General Warranty Deed from Amerisure QRS 11-11.     Filed as Exhibit 28.1 to
                                                                   Registrant's Form 8-K dated
                                                                   January 5, 1993

     28.10     Amended and Restated Sublease Agreement             Filed as Exhibit 28.2 to
               between MMI, as sublandlord, and Unisun             Registrant's Form 8-K dated
               Insurance Company.                                  January 5, 1993

     28.11     General Warranty Deed from Fairview Plaza           Filed as Exhibit 28.3 to
               Corporation to QRS 11-10.                           Registrant's Form 8-K dated
                                                                   January 5, 1993

     28.12     Deed from Unit to QRS 11-12.                        Filed as Exhibit 28.4 to
                                                                   Registrant's Form 8-K dated
                                                                   January 5, 1993

     28.13     Lease between Unit, as landlord, and SLS, as        Filed as Exhibit 28.5 to
               tenant, as amended.                                 Registrant's Form 8-K dated
                                                                   January 5, 1993

     28.14     Prospectus dated January 21, 1993 of                Filed pursuant to Rule
               Registrant.                                         424(b)(s) on January 26, 1993
                                                                   (Registration No. 33-39409)

     28.15     Supplement No. 1 dated March 17, 1993 to            Filed pursuant to Rule
               Prospectus dated January 21, 1993.                  424(b)(s) on March 17, 1993
                                                                   (Registration No. 33-39409)

     28.16     Quit Claim Deed from Oakbrook to QRS 11-15.         Filed as Exhibit 28.1 to
                                                                   Registrant's Form 8-K dated
                                                                   April 5, 1993
</TABLE>


                                      -43-
<PAGE>

<TABLE>
<CAPTION>
   Exhibit No.                   Description                              Method of Filing
   -----------                   -----------                              ----------------
<S>            <C>                                                 <C>
     28.17     Lease Agreement between Oakbrook and B. Dalton      Filed as Exhibit 28.2 to
               Bookseller, Inc. ("B. Dalton").                     Registrant's Form 8-K dated
                                                                   April 5, 1993

     28.18     First Amendment between Oakbrook and B. Dalton      Filed as Exhibit 28.3 to
               Bookseller, Inc.                                    Registrant's Form 8-K dated
                                                                   April 5, 1993

     28.19     Lease Guaranty to Oakbrook from Barnes &            Filed as Exhibit 28.4 to
               Noble, Inc.                                         Registrant's Form 8-K dated
                                                                   April 5, 1993

     28.20     Guaranty and Suretyship Agreement from Data         Filed as Exhibit 28.5 to
               Documents Holdings, Inc. to QRS 10-15 and QRS       Registrant's Form 8-K dated
               11-13.                                              April 5, 1993

     28.21     Guaranty from Corporate Property Associates 10      Filed as Exhibit 28.6 to
               Incorporated and Registrant to US West.             Registrant's Form 8-K dated
                                                                   April 5, 1993

     28.22     Guaranty from Registrant to Orix.                   Filed as Exhibit 28.1 to
                                                                   Registrant's Form 8-K dated
                                                                   May 6, 1993

     28.23     Special Warranty Deed from Merit to QRS 11-20.      Filed as Exhibit 28(G)(1) to
                                                                   Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     28.24     Table VI: Acquisitions of Properties by Prior       Filed as Exhibit 28(H) to
               Programs.                                           Registrant's Post Effective
                                                                   Amendment No. 6 to Form S-11

     28.25     Limited Warranty Deed from the David F. Bolger      Filed as Exhibit 28.1 to
               Revocable Trust to the Braintree Subsidiary.        Registrant's Form 8-K dated
                                                                   February 24, 1994

     28.26     Special Warranty Deed from Superior to the          Filed as Exhibit 28.2 to
               Brownwood Subsidiary.                               Registrant's Form 8-K dated
                                                                   February 24, 1994

     28.27     Corporation Grant Deed from Gensia to the           Filed as Exhibit 28.3 to
               Gensia Partnership.                                 Registrant's Form 8-K dated
                                                                   February 24, 1994

     28.28     Supplement No. 2 dated June 15, 1993 to             Filed as Exhibit 28.28 to
               Prospectus dated January 21, 1993.                  Registrant's Form 10-K for
                                                                   the year ended December 31,
                                                                   1993

     28.29     Supplement No. 3 dated August 11, 1993 to           Filed as Exhibit 28.29 to
               Prospectus dated January 21, 1993.                  Registrant's Form 10-K for
                                                                   the year ended December 31,
                                                                   1993

     99        Press Release Dated April 30, 2002                  Filed as Exhibit 99 to
                                                                   Registrant's Form 8-K dated
                                                                   April 30, 2002

     99.1      Certification of Chief Executive Officer            Filed herewith

     99.2      Certification of Chief Financial Officer            Filed herewith
</TABLE>

(b)   Reports on Form 8-K

      During the year ended December 31, 2002, the Company filed Report on Form
      8-K, dated May 15, 2002, to report Acquisition of Assets and which was
      amended in Report on Form 8-K/A, Amendment No. 1 to Form 8-K, dated June
      26, 2002.


                                      -44-
<PAGE>

                                   SIGNATURES

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

                               CAREY INSTITUTIONAL PROPERTIES INCORPORATED
                               a Maryland corporation

      3/25/03                  BY: /s/ John J. Park
----------------                   -------------------------------------------
       Date                        John J. Park
                                   Managing Director and Chief Financial Officer
                                   (Principal Financial Officer)

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

                               CAREY INSTITUTIONAL PROPERTIES INCORPORATED


      3/25/03                  BY:    /s/ William Polk Carey
----------------                     -----------------------------------------
       Date                          William Polk Carey
                                     Chairman of the Board and Director
                                     (Principal Executive Officer)


      3/25/03                  BY:    /s/ Gordon F. DuGan
----------------                     -----------------------------------------
       Date                          Gordon F. DuGan
                                     Vice Chairman of the Board, Senior
                                     Managing Director and Chief Acquisitions
                                     Officer


      3/25/03                  BY:    /s/ Edward V. LaPuma
----------------                     -----------------------------------------
       Date                          Edward V. LaPuma
                                     President


      3/25/03                  BY:    /s/ Francis X. Diebold
----------------                     -----------------------------------------
       Date                          Francis X. Diebold
                                     Director


      3/25/03                  BY:    /s/ William Ruder
----------------                     -----------------------------------------
       Date                          William Ruder
                                     Director


      3/25/03                  BY:    /s/ George E. Stoddard
----------------                     -----------------------------------------
       Date                          George E. Stoddard
                                     Director


      3/25/03                  BY:    /s/ Ralph F. Verni
----------------                     -----------------------------------------
       Date                          Ralph F. Verni
                                     Director


      3/25/03                  BY:    /s/ Warren G. Wintrub
----------------                     -----------------------------------------
       Date                          Warren G. Wintrub
                                     Director


      3/25/03                  BY:    /s/ John J. Park
----------------                     -----------------------------------------
       Date                          John J. Park
                                     Managing Director and Chief Financial
                                     Officer
                                     (Principal Financial Officer)

      3/25/03                  BY:    /s/ Claude Fernandez
----------------                     -----------------------------------------
       Date                          Claude Fernandez
                                     Managing Director and Chief Accounting
                                     Officer
                                     (Principal Accounting Officer)


                                      -45-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                                 CERTIFICATIONS

We, William Polk Carey and Gordon F. DuGan, certify that:

1. We have reviewed this annual report on Form 10-K of Carey Institutional
Properties Incorporated (the "Registrant");

2. Based on our knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on our knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

4. The Registrant's other certifying officers and we are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the Registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      b)    evaluated the effectiveness of the Registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      c)    presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5. The Registrant's other certifying officers and we have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
functions):

      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the Registrant's ability to
            record, process, summarize and report financial data and have
            identified for the Registrant's auditors any material weaknesses in
            internal controls; and

      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the Registrant's
            internal controls; and

6. The Registrant's other certifying officers and we have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date                 3/25/03                      Date       3/25/03


           /s/ William Polk Carey                   /s/ Gordon F. DuGan
           ------------------------------           ---------------------

           William Polk Carey                      Gordon F. DuGan
           Chairman                                Vice Chairman
           (Co-Chief Executive Officer)            (Co-Chief Executive Officer)


                                      -46-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                           CERTIFICATIONS (Continued)

I, John J. Park, certify that:

1. I have reviewed this annual report on Form 10-K of Carey Institutional
Properties Incorporated (the "Registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the Registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      b)    evaluated the effectiveness of the Registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      c)    presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent
functions):

      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the Registrant's ability to
            record, process, summarize and report financial data and have
            identified for the Registrant's auditors any material weaknesses in
            internal controls; and

      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the Registrant's
            internal controls; and

6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date                 3/25/03


           /s/ John J. Park
           -----------------------
           John J. Park
           Chief Financial Officer


                                      -47-
<PAGE>

                        REPORT of INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
 CAREY INSTITUTIONAL PROPERTIES INCORPORATED:

Our audits of the consolidated financial statements referred to in our report
dated March 20, 2003 appearing in the 2002 Annual Report to Shareholders of
CAREY INSTITUTIONAL PROPERTIES INCORPORATED (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
15(a)(3) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.


/s/ PricewaterhouseCoopers LLP

New York, New York
March 20, 2003


                                      -48-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                             as of December 31, 2002

<TABLE>
<CAPTION>
                                                      Initial Cost to Company
                                                      -----------------------
                                                                                 Costs Capitalized
                                                                                   Subsequent to       Increase (Decrease)
          Description               Encumbrances        Land         Buildings     Acquisition (a)     in Net Investments (c)
          -----------               ------------        ----         ---------   -----------------    ----------------------
<S>                                 <C>              <C>           <C>           <C>                  <C>
Operating Method:
Retail store leased to Hobby
  Lobby Stores, Inc.                                 $   676,701   $  1,712,531      $    30,370
Manufacturing/distributing
  facility leased to
  Electronic Data Systems
  Corporation                       $ 11,594,068       1,895,796      4,576,940       15,125,189
Warehouse/manufacturing
  facility leased to
  Bell Sports, Inc.                                      283,726      5,066,274        3,322,270
Warehouse leased to GATX
  Logistics, Inc.                      3,280,330       1,350,444      4,574,557           60,676
Warehouse leased to Lucent
  Technologies, Inc.                   6,250,000       1,290,631     15,937,368          232,870
Land leased to
  Barnes & Noble, Inc.                 3,525,658       4,759,017                          47,962
Land leased to
  Best Buy Co., Inc.                  11,789,042      18,579,019                             646
Technical training institute
  leased to UTI Holdings, Inc.           953,254       3,147,367                       2,646,819
Office/warehouse leased to
  Merit Medical Systems, Inc.          9,148,410         380,000                      10,505,349
Land leased to Q Clubs, Inc.           1,585,064       2,073,578                           1,026
Manufacturing/warehouse
  facilities leased to Humco
  Holding Group                        3,973,812       1,240,000      6,604,324
Office/warehouse facility
  leased to PSC Scanning, Inc.         5,196,939       1,125,000      7,615,414           10,621            (109,998)
Industrial/manufacturing
  facility formerly leased to
  Bolder Technologies
  Corporation                          3,382,322       1,076,000      5,759,878           85,060
Warehouse facility leased to
  Petsmart, Inc.                       3,021,375         106,603      4,444,397           42,817
Manufacturing facility leased
  to Plexus Corp.                      5,433,503         125,340      9,124,660            5,744

Childcare centers leased to
  Childtime Childcare, Inc.            6,869,204       4,649,299                       3,422,172
Office buildings leased to
  Omnicom Group, Inc.                 23,846,562       6,316,880     27,397,945        9,389,472
Retail stores leased to Garden
  Ridge Corporation                   13,091,740       2,197,500      4,112,500        5,054,413
</TABLE>

<TABLE>
<CAPTION>
                                            Gross Amount at which Carried
                                               at Close of Period (d)
                                               ----------------------
                                                                                     Accumulated
          Description                    Land         Buildings        Total       Depreciation (d)
          -----------                    ----         ---------        -----       ----------------
<S>                                 <C>             <C>             <C>            <C>
Operating Method:
Retail store leased to Hobby
  Lobby Stores, Inc.                $   680,548     $  1,739,054    $  2,419,602     $   306,403
Manufacturing/distributing
  facility leased to
  Electronic Data Systems
  Corporation                         1,899,802       19,698,123      21,597,925       3,187,083
Warehouse/manufacturing
  facility leased to
  Bell Sports, Inc.                     283,793        8,388,477       8,672,270       2,012,629
Warehouse leased to GATX
  Logistics, Inc.                     1,364,272        4,621,405       5,985,677       1,160,142
Warehouse leased to Lucent
  Technologies, Inc.                  1,295,387       16,165,482      17,460,869       4,047,717
Land leased to
  Barnes & Noble, Inc.                4,806,979                        4,806,979
Land leased to
  Best Buy Co., Inc.                 18,579,665                       18,579,665
Technical training institute
  leased to UTI Holdings, Inc.        3,147,367        2,646,819       5,794,186         113,090
Office/warehouse leased to
  Merit Medical Systems, Inc.           380,000       10,505,349      10,885,349       2,079,183
Land leased to Q Clubs, Inc.          2,074,604                        2,074,604
Manufacturing/warehouse
  facilities leased to Humco
  Holding Group                       1,240,000        6,604,324       7,844,324         639,794
Office/warehouse facility
  leased to PSC Scanning, Inc.        1,125,000        7,516,037       8,641,037         687,358
Industrial/manufacturing
  facility formerly leased to
  Bolder Technologies
  Corporation                         1,076,000        5,844,938       6,920,938         534,307
Warehouse facility leased to
  Petsmart, Inc.                        107,606        4,486,211       4,593,817       1,032,763
Manufacturing facility leased
  to Plexus Corp.                       125,417        9,130,327       9,255,744       1,911,663
Childcare centers leased to
  Childtime Childcare, Inc.           4,649,299        3,422,172       8,071,471         623,833
Office buildings leased to
  Omnicom Group, Inc.                 6,319,147       36,785,150      43,104,297       6,304,599
Retail stores leased to Garden
  Ridge Corporation                   2,197,998        9,166,415      11,364,413       1,536,114
</TABLE>

<TABLE>
<CAPTION>
                                                                Life on which
                                                              Depreciation in
                                                              Latest Statement
                                                                of Income
          Description                    Date Acquired          is Computed
          -----------                    -------------        ---------------
<S>                                      <C>                  <C>
Operating Method:
Retail store leased to Hobby             December 19, 1991
  Lobby Stores, Inc.                     and May 1, 2002          40 yrs.
Manufacturing/distributing
  facility leased to
  Electronic Data Systems                October 1, 1992 and
  Corporation                            May 1, 2002              40 yrs.
Warehouse/manufacturing
  facility leased to
  Bell Sports, Inc.                      November 6, 1992         40 yrs.
Warehouse leased to GATX
  Logistics, Inc.                        December 23, 1992        40 yrs.
Warehouse leased to Lucent
  Technologies, Inc.                     December 30, 1992        40 yrs.
Land leased to                           February 23, 1993
  Barnes & Noble, Inc.                   and October 1, 1993      N/A
Land leased to
  Best Buy Co., Inc.                     April 15, 1993           N/A
Technical training institute             May 3, 1993 and
  leased to UTI Holdings, Inc.           September 29, 2000       N/A
Office/warehouse leased to
  Merit Medical Systems, Inc.            June 3, 1993             40 yrs.
Land leased to Q Clubs, Inc.             July 16, 1993            N/A
Manufacturing/warehouse
  facilities leased to Humco
  Holding Group                          February 5, 1999         40 yrs.
Office/warehouse facility
  leased to PSC Scanning, Inc.           May 12, 1999             40 yrs.
Industrial/manufacturing
  facility formerly leased to
  Bolder Technologies
  Corporation                            April 16, 1999            40 yrs.
Warehouse facility leased to
  Petsmart, Inc.                         October 26, 1993          40 yrs.
Manufacturing facility leased
  to Plexus Corp.                        August 11, 1994           40 yrs.
                                         June 15, 1994 through
Childcare centers leased to              November 18, 1994 and
  Childtime Childcare, Inc.              May 1, 2002               40 yrs.
Office buildings leased to
  Omnicom Group, Inc.                    October 14, 1994          11-40 yrs.
Retail stores leased to Garden
  Ridge Corporation                      May 29,1995               40 yrs.
</TABLE>

See accompanying notes to Schedule.


                                      -49-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                             as of December 31, 2002

<TABLE>
<CAPTION>
                                                      Initial Cost to Company
                                                      -----------------------
                                                                                 Costs Capitalized
                                                                                   Subsequent to       Increase (Decrease)
          Description               Encumbrances        Land         Buildings     Acquisition (a)     in Net Investments (c)
          -----------               ------------        ----         ---------   -----------------    ----------------------
<S>                                 <C>              <C>           <C>           <C>                  <C>
Operating Method:
Health club leased to
  Q Clubs, Inc.                        3,598,825         912,855      4,323,145
Warehouse/office leased to
  Hibbett Sporting Goods, Inc.         5,121,776         660,000      4,040,000        2,323,784
Distribution/warehouse leased
  to Detroit Diesel Corporation.                       2,782,860      6,542,140
Office building leased to Xerox
  Corporation                                            283,763        936,921           10,680
Supermarkets leased to
  Affiliated Southwest, Inc.                             759,921      3,116,753              497            (784,874)
Distribution/warehouse leased
  to ISA International plc             4,171,440         149,350      6,034,442                              506,365
Hotel leased to Societe
  Hoteliere Tourisme Grand Noble       8,313,906         463,290                       5,255,298           1,047,545
Office/repair facility leased
  to US West Communications,
  Inc.                                 1,588,537         509,550      1,687,006
Office buildings leased to
  Information Resources, Inc.         24,777,636       4,992,731     39,098,231
Retail stores leased to Kmart
  Corporation                                          2,944,073      5,943,350
Office building leased to Titan
  Corporation                          8,319,096       3,910,146     20,426,386
Manufacturing/distribution
  facility leased to
  EnviroWorks, Inc.                    4,521,629       1,045,856     13,752,114
                                    ============     ===========   ============      ===========          ==========
                                    $173,354,128     $70,687,296   $202,827,276      $57,573,735          $  659,038
                                    ============     ===========   ============      ===========          ==========
</TABLE>


<TABLE>
<CAPTION>
                                            Gross Amount at which Carried
                                               at Close of Period (d)
                                               ----------------------
                                                                                     Accumulated
          Description                    Land         Buildings        Total       Depreciation (d)
          -----------                    ----         ---------        -----       ----------------
<S>                                 <C>             <C>             <C>            <C>
Operating Method:
Health club leased to
  Q Clubs, Inc.                         912,855        4,323,145       5,236,000         743,040
Warehouse/office leased to
  Hibbett Sporting Goods, Inc.          660,000        6,363,784       7,023,784         856,556
Distribution/warehouse leased
  to Detroit Diesel Corporation.      2,782,860        6,542,140       9,325,000         988,136
Office building leased to Xerox
  Corporation                           283,763          947,601       1,231,364          69,242
Supermarkets leased to
  Affiliated Southwest, Inc.            765,578        2,326,719       3,092,297         216,249
Distribution/warehouse leased
  to ISA International plc              160,440        6,529,717       6,690,157         488,354
Hotel leased to Societe
  Hoteliere Tourisme Grand Noble        548,156        6,217,977       6,766,133         133,633
Office/repair facility leased
  to US West Communications,
  Inc.                                  509,550        1,687,006       2,196,556          26,359
Office buildings leased to
  Information Resources, Inc.         4,992,731       39,098,231      44,090,962         612,091
Retail stores leased to Kmart
  Corporation                         2,944,073        5,943,350       8,887,423          93,656
Office building leased to Titan
  Corporation                         3,910,146       20,426,386      24,336,532         319,963
Manufacturing/distribution
  facility leased to
  EnviroWorks, Inc.                   1,045,856       13,752,114      14,797,970         214,877
                                    ===========     ============    ============     ===========
                                    $70,868,892     $260,878,453    $331,747,345     $30,938,834
                                    ===========     ============    ============     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                Life on which
                                                              Depreciation in
                                                              Latest Statement
                                                                of Income
          Description                    Date Acquired          is Computed
          -----------                    -------------        ---------------
<S>                                      <C>                  <C>
Operating Method:
Health club leased to
  Q Clubs, Inc.                          February 6, 1996          40 yrs.
Warehouse/office leased to
  Hibbett Sporting Goods, Inc.           February 12, 1996         40 yrs.
Distribution/warehouse leased
  to Detroit Diesel Corporation.         December 17, 1996         40 yrs.
Office building leased to Xerox          February 21, 1992
  Corporation                            and May 1, 2002           40 yrs.
Supermarkets leased to                   February 21, 1992
  Affiliated Southwest, Inc.             and May 1, 2002           40 yrs.
Distribution/warehouse leased
  to ISA International plc               March 7, 2000             40 yrs.
Hotel leased to Societe
  Hoteliere Tourisme Grand Noble         October 21, 2000          40 yrs
Office/repair facility leased
  to US West Communications,
  Inc.                                   May 1, 2002               40 yrs
Office buildings leased to
  Information Resources, Inc.            May 1, 2002               40 yrs
Retail stores leased to Kmart
  Corporation                            May 1, 2002               40 yrs
Office building leased to Titan
  Corporation                            May 1, 2002               40 yrs
Manufacturing/distribution
  facility leased to
  EnviroWorks, Inc.                      May 1, 2002               40 yrs
</TABLE>

See accompanying notes to Schedule.


                                      -50-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                             as of December 31, 2002

<TABLE>
<CAPTION>
                                                      Initial Cost to Company
                                                      -----------------------

                                                                                 Costs Capitalized
                                                                                   Subsequent to     Increase (Decrease)
          Description               Encumbrances        Land         Buildings     Acquisition (a)   in Net Investments (c)
          -----------               ------------        ----        ---------    -----------------  ----------------------
<S>                                <C>               <C>           <C>           <C>                <C>
Direct Financing Method:
Retail store leased to Oshman
  Sporting Goods, Inc.             $ 1,270,650       $   700,356   $  2,494,843     $   37,695           $   421,090
Office buildings leased to
  Michigan Mutual Insurance
  Company                            9,500,000         1,965,093     11,884,907          5,919               124,300
Supermarkets leased to
  ShopRite Supermarkets, Inc.       15,516,421         4,882,183     21,653,570      3,657,931            (3,225,133)
Retail stores leased to
  Barnes & Noble, Inc.               5,179,964                        5,525,983         49,806             1,486,716
Retail stores leased to
  Best Buy Co., Inc.                16,394,039                       27,653,981            962            (1,817,751)
Technical training institute
  leased to UTI Holdings, Inc.       2,304,360                        6,083,329          2,059
Health club leased to
  Q Clubs, Inc.                      2,684,166                        3,511,422          1,737
Warehouse/distribution
  facility leased to Nicholson
  Warehouse, Inc.                    3,060,478           598,544      6,316,456          1,370            (3,823,736)
Manufacturing facility leased
  to Superior
  Telecommunica-tions, Inc.          4,531,423           295,032      4,704,968          1,885              (161,794)
Food processing/warehouse
  facility leased to Custom
  Food Products, Inc.                  178,358            27,000                     5,536,384
Office buildings and
  supermarkets leased to
  Kroger Company                                         503,520      2,833,549
Warehouse/distribution
  facility leased to
  Gloystarne & Co., Ltd.             4,171,441         1,132,627      6,069,257         14,103               826,243
Office/warehouse facility
  leased to New Wai L.P./
  Warehouse Associates               8,775,453           307,775     14,983,073
Daycare centers leased to
  Childtime Childcare, Inc.          4,658,698                        6,688,301
                                   -----------       -----------   ------------     ----------           ------------
                                   $78,225,451       $10,412,130   $120,403,639     $9,309,851           $(6,170,065)
                                   ===========       ===========   ============     ==========           ===========
</TABLE>

<TABLE>
<CAPTION>
                                  Gross Amount at which Carried
                                       at Close of Period (d)
          Description                        Total                         Date Acquired
          -----------                   -------------                     ---------------
<S>                               <C>                                     <C>
Direct Financing Method:
Retail store leased to Oshman
  Sporting Goods, Inc.                  $  3,653,984                      December 10, 1992
Office buildings leased to
  Michigan Mutual Insurance
  Company                                 13,980,219                      December 21, 1993
Supermarkets leased to                                                    December 23, 1993
  ShopRite Supermarkets, Inc.             26,968,551                      and October 8, 1993
Retail stores leased to                                                   February 23, 1993
  Barnes & Noble, Inc.                     7,062,505                      and October 1, 1993
Retail stores leased to
  Best Buy Co., Inc.                      25,837,192                      April 15, 1993
Technical training institute
  leased to UTI Holdings, Inc.             6,085,388                      May 3, 1993
Health club leased to
  Q Clubs, Inc.                            3,513,159                      July 16, 1999
Warehouse/distribution
  facility leased to Nicholson
  Warehouse, Inc.                          3,092,634                      December 13, 1993
Manufacturing facility leased
  to Superior
  Telecommunica-tions, Inc.                4,840,091                      December 16, 1993
Food processing/warehouse
  facility leased to Custom
  Food Products, Inc.                      5,563,384                      December 31, 1994
Office buildings and
  supermarkets leased to                                                  February 21, 1992
  Kroger Company                           3,337,069                      and May 1, 2002
Warehouse/distribution
  facility leased to
  Gloystarne & Co., Ltd.                   8,042,230                      December 8, 1999
Office/warehouse facility
  leased to New Wai L.P./
  Warehouse Associates                    15,290,848                      May 1, 2002
Daycare centers leased to
  Childtime Childcare, Inc.                6,688,301                      May 1, 2002
                                        ------------
                                        $133,955,555
                                        ============
</TABLE>


                                      -51-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                       NOTES to SCHEDULE III - REAL ESTATE
                          and ACCUMULATED DEPRECIATION

      (a)   Consists of the costs of improvements subsequent to purchase and
            other acquisition costs including legal fees, appraisal fees, title
            costs and other related professional fees.

      (b)   At December 31, 2002, the aggregate cost of real estate owned by
            Registrant and its subsidiaries for Federal income tax purposes is
            $316,720,739.

      (c)   The increase (decrease) in net investment is due to (i) the
            amortization of unearned income producing a constant periodic rate
            of return on the net investment which is more (less) than lease
            payments received, (ii) the sales of properties and of
            tenancy-in-common interests to an affiliate, (iii) foreign currency
            translation adjustments and (iv) impairment charges.

     (d)

<TABLE>
<CAPTION>
                                                        Reconciliation of Real Estate Accounted for Under the
                                                                        Operating Method
                                                                           December 31,
                                                                           ------------
                                                                       2002             2001
                                                                       ----             ----
<S>                                                                <C>              <C>
            Balance at beginning of year                           $ 222,202,821    $ 247,246,819
            Additions                                                108,312,336        3,409,223
            Impairment loss                                           (1,090,347)      (2,300,000)
            Dispositions                                                (292,348)      (7,762,907)
             Foreign currency translation adjustment                   1,684,889         (175,072)
            Reclassification from real estate under construction       5,035,398               --
            Reclassification to assets held for sale                  (4,105,404)      (7,680,327)
            Reclassification to equity investment                             --      (10,534,915)
                                                                   -------------    -------------
            Balance at close of year                               $ 331,747,345    $ 222,202,821
                                                                   =============    =============
</TABLE>

<TABLE>
<CAPTION>
                                                             Reconciliation of Accumulated Depreciation
                                                                            December 31,
                                                                            ------------
                                                                        2002             2001
                                                                        ----             ----
<S>                                                                <C>              <C>
            Balance at beginning of year                           $  26,240,326    $  24,771,906
            Depreciation expense                                       5,931,695        4,806,925
            Depreciation expense from discontinued operations            317,945          423,129
            Dispositions                                                      --       (1,674,173)
             Foreign currency translation adjustment                      54,273           (3,208)
            Reclassification to asset held for sale                   (1,605,405)        (769,773)
            Reclassification to equity investment                             --       (1,314,480)
                                                                   -------------    -------------
            Balance at close of year                               $  30,938,834    $  26,240,326
                                                                   =============    =============
</TABLE>


                                      -52-
<PAGE>

                                                         APPENDIX A TO FORM 10-K

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                                                              2002 ANNUAL REPORT

<PAGE>

SELECTED FINANCIAL DATA

(In thousands except per share amounts)

<TABLE>
<CAPTION>
                                                    2002       2001       2000       1999       1998
                                                    ----       ----       ----       ----       ----
<S>                                               <C>        <C>        <C>        <C>        <C>
OPERATING DATA:

Revenues                                          $ 49,346   $ 41,107   $ 40,618   $ 39,584   $ 34,583

Income from continuing operations (1)               18,114     15,849     15,877     15,205     11,960

Basic earnings from continuing operations per
   share                                               .70        .72        .72        .70        .63

Diluted earnings from continuing operations per
   share                                               .68        .71        .71        .69        .62

Net income                                          13,479     15,366     15,377     14,836     13,732

Basic earnings per share                               .52        .70        .70        .68        .72

Diluted earnings per share                             .51        .68        .69        .67        .71

Dividends paid                                      20,879     18,550     18,187     17,715     14,958

Dividends paid per share                               .85        .84        .83        .83        .83

Payments of mortgage principal(2)                    5,242      4,642      4,322      4,355      4,159

BALANCE SHEET DATA:

Total consolidated assets                          550,227    369,307    380,209    381,711    372,076

Long-term obligations(3)                           236,129    131,659    149,023    147,715    142,389
</TABLE>

      (1)   Includes (loss) gain from sales of real estate, net.

      (2)   Represents scheduled mortgage principal amortization paid.

      (3)   Represents limited recourse mortgage and note payable obligations
            due after more than one year.


                                      -1-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

Overview

The following discussion and analysis of financial condition and results of
operations of Carey Institutional Properties Incorporated ("CIP(R)") should be
read in conjunction with the consolidated financial statements and notes thereto
for the year ended December 31, 2002. The following discussion includes forward
looking statements. Forward looking statements, which are based on certain
assumptions, describe future plans, strategies and expectations of CIP(R). Such
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievement of CIP(R) to be
materially different from the results of operations or plan expressed or implied
by such forward looking statements. The risk factors are fully described in Item
1 of this Annual Report on Form 10-K. Accordingly, such information should not
be regarded as representations by CIP(R) that the results or conditions
described in such statements or objectives and plans of CIP(R) will be achieved.

CIP(R) was formed in 1991 and used the proceeds from its public offering of
shares of common stock along with limited recourse mortgage financing to
purchase properties and enter into long-term net leases with corporate tenants.
On May 1, 2002, CIP(R) acquired the business of Corporate Property Associates 10
Incorporated ("CPA(R):10") in a stock-for-stock merger. A majority of CIP(R)'s
net leases have been structured to place certain economic burdens of ownership
on these corporate tenants by requiring them to pay the costs of maintenance and
repair, insurance and real estate taxes. The lease obligations are
unconditional. If possible, CIP(R) also negotiates guarantees of the obligations
from the parent company of the lessees. The leases have generally been
structured to include periodic rent increases that are stated or based on
increases in the Consumer Price Index ("CPI") or, for certain retail properties,
provide for additional rents based on sales in excess of a specified base
amount. In addition to investing directly, CIP(R) may also acquire interests in
real estate through joint ventures. These joint ventures are generally with
affiliates.

As a real estate investment trust ("REIT"), CIP(R) is not subject to federal
income taxes on amounts distributed to shareholders provided it meets certain
conditions including distributing at least 90% of its REIT taxable income to its
shareholders. CIP(R)'s primary objectives are to provide rising cash flow and
pay quarterly dividends at an increasing rate and to protect its investors from
the effects of inflation through rent escalation provisions, property
appreciation, tenant credit improvement and regular paydown of limited recourse
mortgage debt. In addition, CIP(R) has successfully negotiated grants of common
stock warrants from selected tenants and, in several instances, realized the
benefits of appreciation from those grants. While CIP(R) cannot guarantee that
its objectives will be ultimately realized, annual independent valuations of
CIP(R)'s assets have reflected significant appreciation in property values.

CIP(R) is advised by Carey Asset Management Corp., a wholly-owned subsidiary of
W. P. Carey & Co. LLC pursuant to an Advisory Agreement. CIP(R)'s Advisory
Agreement is renewable annually by Independent Directors who are elected by
CIP(R)'s shareholders. In connection with each renewal, Carey Asset Management
is required to provide the Independent Directors with a comparison of the fee
structure with several similar companies. The Advisory Agreement also provides
that an independent portfolio valuation be performed annually, and Average
Invested Assets, the basis for determining asset management and performance
fees, is based on the results of the independent valuation.

Critical Accounting Policies

Certain accounting policies are critical to the understanding of CIP(R)'s
financial condition and results of operations. Management believes that an
understanding of financial condition and results of operations requires an
understanding of accounting policies relating to the use of estimates.

The preparation of financial statements requires that Management make estimates
and assumptions that affect the reported amount of assets, liabilities, revenues
and expenses. For instance, CIP(R) must assess its ability to collect rent and
other tenant-based receivables and determine an appropriate charge for
uncollected amounts. Because CIP(R)'s real estate operations have a limited
number of lessees, Management believes that it is necessary to evaluate specific
situations rather than solely use statistical methods. CIP(R) generally
recognizes a provision for uncollected rents which typically ranges between
0.25% and 1% of lease revenues (rental income and interest income from direct
financing leases) and will measure its allowance against actual rent arrearages
and adjust the percentage applied.


                                      -2-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

Based on its actual experience in 2002, CIP(R) recorded a provision equal to
approximately 1.5% of lease revenues. At December 31, 2002, CIP(R) had rent
arrearages of approximately $2,848,000 that are at risk of default.

Operating real estate is stated at cost less accumulated deprecation. Costs
directly related to build-to-suit projects, primarily interest, if applicable,
are capitalized. Interest capitalized in 2002 and 2001 was $327,000 and
$236,000, respectively. No interest was capitalized in 2000. CIP(R) considers a
build-to-suit project as substantially completed upon the completion of
improvements, but no later than a date that is negotiated and stated in the
lease. If portions of a project are substantially completed and occupied and
other portions have not yet reached that stage, the substantially completed
portions are accounted for separately. CIP(R) allocates costs incurred between
the portions under construction and the portions substantially completed and
only capitalizes those costs associated with the portion under construction.

CIP(R) also uses estimates and judgments when evaluating whether long-lived
assets are impaired. When events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, Management performs
projections of undiscounted cash flows, and if such cash flows are insufficient,
the assets are adjusted (i.e., written down) to their estimated fair value. An
analysis of whether a real estate asset has been impaired requires Management to
make its best estimate of market rents, residual values and holding periods. As
CIP(R)'s investment objective is to hold properties on a long-term basis,
holding periods will range from five to ten years. In its evaluations, CIP(R)
obtains market information from outside sources; however, such information
requires Management to determine whether the information received is appropriate
to the circumstances. Depending on the assumptions made and estimates used, the
estimated cash flow projected in the evaluation of long-lived assets can vary
within a range of outcomes. Because CIP(R)'s properties are leased to single
tenants, CIP(R) is more likely to incur significant writedowns when
circumstances affecting a tenant deteriorate because of the possibility that a
property will be vacated in its entirety. This makes the risk different than the
risks faced by companies that own multi-tenant properties. Events or changes in
circumstances can result in further writedowns and impact the gain or loss
ultimately realized upon sale of the asset. For its direct financing leases,
CIP(R) performs a review of its estimated residual value of properties at least
annually to determine whether there has been an other than temporary decline in
CIP(R)'s current estimate of residual value of the underlying real estate assets
of direct financing leases. If the review indicates a decline in residual values
that is other than temporary, a loss is recognized and the accounting for the
direct financing lease will be revised using the changed estimate, that is, a
portion of the future cash flow from the lessee will be recognized as a return
of principal rather than as revenue.

When assets are identified by management as held for sale, CIP(R) discontinues
depreciating the assets and estimates the sales price, net of selling costs, of
such assets. If in Management's opinion, the net sales price of the assets which
have been identified for sale is less than the net book value of the assets, an
impairment charge is recognized, and a valuation allowance is established. If
circumstances arise that previously were considered unlikely and, as a result,
the Company decides not to sell a property previously classified as held for
sale, the property is reclassified as held and used. A property that is
reclassified is measured and recorded individually at the lower of (a) its
carrying amount before the property was classified as held for sale, adjusted
for any depreciation expense that would have been recognized had the property
been continuously classified as held and used, or (b) the fair value at the date
of the subsequent decision not to sell.

In 2002, CIP(R) acquired a subordinated interest in a mortgage trust that
consists of limited recourse loans on 62 properties that are owned by CIP(R) or
three of its affiliates. The fair value of the interests in the trust is
determined using a discounted cash flow model with assumptions of market rates
and the credit quality of the underlying lessees. If there are adverse changes
in either market rates or the credit quality of the lessees, the model and,
therefore, the income recognized from the subordinated interests and the fair
value will be adjusted.

CIP(R) measures derivative instruments, including certain derivative instruments
embedded in other contracts, if any, at fair value and records them as an asset
or liability, depending on CIP(R)'s right or obligations under the applicable
derivative contract. For derivatives designated as fair value hedges, the
changes in the fair value of both the derivative instrument and the hedged item
are recorded in earnings (i.e., the forecasted event occurs). For derivatives
designated as cash flow hedges, the effective portions of the derivatives are
reported in other comprehensive income and are subsequently reclassified into
earnings when the hedged item affects earnings.


                                      -3-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

Changes in the fair value of derivative instruments not designated as hedging
and ineffective portions of hedges are recognized in earnings in the affected
period.

CIP(R) and affiliated REITs are investors in certain real estate ventures.
Certain of the investments are held through incorporated or unincorporated
jointly held entities and certain investments are held directly as tenants in
common. Substantially all of these investments represent jointly purchased
properties which were net leased to a single tenant and were structured to
provide diversification and reduce concentration of a risk from a single lessee
for CIP(R) and the affiliated REIT. The placement of an investment in a jointly
held entity or tenancy in common requires the approval of the Independent
Directors. All of the jointly held investments are structured so that CIP(R) and
the affiliated REIT contribute equity, receive distributions and are allocated
profit or loss in amounts that are proportional to their ownership interests. No
fees are payable to affiliates under any of the partnership or joint venture
agreements. All of the jointly held investments are subject to contractual
agreements. The presentation of these jointly held investments and their related
results in the accompanying consolidated financial statements is based on
factors such as controlling interest, significant influence and whether each
party has the ability to make independent decisions. Equity method investments
are reviewed for impairment in the event of a change in circumstances that is
other than temporary. An investment is only impaired if Management's estimate of
the net realizable value of the investment is less than the carrying value of
the investment. To the extent that an impairment has occurred, the loss shall be
measured as the excess of the carrying amount of the investment over the fair
value of the investment.

Stated rental revenue and interest income from direct financing leases are
recognized on a straight-line basis and a constant rate of interest,
respectively, over the terms of the respective leases. Unbilled rents receivable
represents the amount by which straight-line rental revenue exceeds rents
currently billed in accordance with the lease agreements. The majority of
CIP(R)'s leases provide for periodic rent based on formulas indexed to increases
in the CPI. CPI-based and other contingent-type rents are recognized currently.
CIP(R) recognizes rental income from sales overrides when reported by lessees,
that is, after the level of sales requiring a rental payment to CIP(R) is
reached.

CIP(R) classifies its directly-owned leased assets for financial reporting
purposes as either real estate leased under the operating method or net
investment in direct financing leases at the inception of a lease based on
several criteria, including, but not limited to, estimates of the remaining
economic life of the leased assets and the calculation of the present value of
future minimum rents. In determining the classification of a lease, CIP(R) uses
estimates of remaining economic life provided by independent appraisals of the
leased assets. The calculation of the present value of future minimum rents
includes determining a lease's implicit interest rate which requires an estimate
of the residual value of leased assets as of the end of the non-cancelable lease
term. Different estimates of residual value result in different implicit
interest rates and could possibly affect the financial reporting classification
of leased assets. The general terms of CIP(R)'s leases are not necessarily
different for operating and direct financing leases; however the classification
is based on accounting pronouncements which are intended to indicate whether the
risks and rewards of ownership are retained by the lessor or transferred to the
lessee. Management believes that it retains certain risks of ownership
regardless of accounting classification.

Costs incurred in connection with leases are capitalized and amortized on a
straight-line basis over the terms of the related leases and included in
property expense. Unamortized leasing costs are also charged to property expense
upon early termination of the lease. Costs incurred in connection with obtaining
mortgages and debt financing are capitalized and amortized over the term of the
related debt and included in interest expense. Unamortized financing costs are
included in charges for early extinguishment of debt if a loan is retired and
the costs have not been fully amortized.

Public business enterprises are required to report financial and descriptive
information about their reportable operating segments. Operating segments are
components of an enterprise about which financial information is available that
is evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Management evaluates the
performance of its portfolio of properties as a whole, rather than by
identifying discrete operating segments. This evaluation includes assessing
CIP(R)'s ability to meet distribution objectives, increase the dividend and
increase value by evaluating potential investments in single tenant net lease
real estate and by seeking opportunities such as refinancing mortgage debt at
lower rates of interest, restructuring leases or paying off lenders at a
discount to the face value of the outstanding mortgage balance. As of December
31, 2002 and 2001, CIP(R) owned real estate in the United States, the United
Kingdom and France.


                                      -4-
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

Results of Operations

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Effective May 1, 2002, CIP(R) acquired the business operations of CPA(R):10,
through a merger approved by the shareholders of both companies. CPA(R):10 was
an affiliate with investments in net lease real estate with objectives that are
the same as CIP(R)'s. CPA(R):10's portfolio included investments that were
jointly-owned with CIP(R). As a result of the merger, CIP(R) increased its asset
base and expanded its real estate portfolio by acquiring interests in 45
properties with a fair value of $139,716,000 and assumed 17 leases with 14
tenants. The real estate acquired was encumbered by limited recourse mortgage
debt with a fair value of $52,077,000 as of the date of acquisition. As a result
of the merger with CPA(R):10, CIP(R)'s net income for the year ended December
31, 2002 is not directly comparable to the year ended December 31, 2001.

Net income for the year ended December 31, 2002 decreased by $1,887,000 to
$13,479,000 as compared with $15,366,000 for the year ended December 31, 2001.
Excluding the effect of gains and losses, charges on the early extinguishment of
debt and noncash impairment charges, income as adjusted would have reflected an
increase of $3,111,000. The increase was primarily due to an increase in income
from lease revenues and equity investments and was partially offset by increases
in interest expense, depreciation, general and administrative and property
expenses. A substantial portion of all of these increases was due to the
increase in the asset base as a result of the merger.

Lease revenues increased by $8,015,000 for the year ended December 31, 2002.
Revenues of $9,716,000 were attributable to the property interests acquired from
CPA(R):10. Lease revenues benefited from scheduled rent increases on eight
leases. Lease revenues also increased from the completion of build-to-suit
projects at a property leased to UTI Holdings, Inc. and a Holiday Inn in
Toulouse, France in April 2001 and February 2002, respectively. These increases
were partially offset by the September 2001 sale of six retail stores leased to
Wal-Mart Stores, Inc., a lease termination and the subsequent sale of a property
leased to Waban, Inc. and the termination of a lease with Bolder Technologies
Corporation. The Wal-Mart, Waban and Bolder leases contributed annual lease
revenues of $2,894,000. Additionally, lease revenues for the year ended December
31, 2001 include $965,000 from Del Monte Corporation that is included in income
from equity investments in 2002. Twenty-eight leases have rent increases
scheduled for 2003 and 2004. The majority of these rent increases are based on
formulas indexed to increases in the CPI. The annual increase in the CPI over
the past several years has ranged between 1.5% and 3%. CIP(R)'s leases generally
have increases scheduled in intervals of between one and five years. Lease
revenues also increased as a result of a change in the accounting of CIP(R)'s
interest in properties leased to Childtime Childcare, Inc. and ShopRite
Supermarkets, Inc. (formerly Big V Holding Corp.) as a result of contributing
its majority interests in the properties to limited partnerships, as general
partner. For the period from such contribution (August 1, 2002), CIP(R) reflects
100% of the revenues and expenses of the partnerships with the limited partners'
share of income recorded as minority interest income. This change in ownership
increased lease revenues by $636,000; however, the ownership change has no
overall effect on net income or cash flow.

CIP(R) renewed leases in 2002 on properties leased to Lucent Technologies, Inc.,
GATX Logistics, Inc., US West Communications, Inc. and Hobby Lobby Stores, Inc.
at an aggregate rent of approximately $3,500,000. Other than the GATX and Lucent
leases, which current terms expire in 2004 and 2005, respectively, no
single-tenant property lease will expire until 2007. Kmart Corporation has
notified CIP(R) that it will be closing its Denton, Texas store in connection
with its bankruptcy reorganization but has not indicated whether it will
terminate its lease. Annual lease revenues from the Denton store are $215,000;
however, Kmart has not indicated its plans for its leased properties in Michigan
and California. Annual revenues from these two Kmart properties are $390,000.
Kmart is currently meeting its rental obligations on all three properties.
During 2002, ShopRite assumed the business operations of Big V Holding Corp.
including the lease obligations for CIP(R)'s three Big V Properties in
connection with Big V's bankruptcy. The Big V lease terms were not modified when
the lease obligations were transferred to ShopRite. CIP(R) leases a property in
the United Kingdom to Gloystarne & Co., Ltd. at an annual rent of approximately
$610,000. Subsequent to December 31, 2002, Gloystarne entered into liquidation
and is attempting to sell its business as a going concern. Although Gloystarne
is current in its rent obligation, there is no assurance that its future rent
obligation will be met.

Income from equity investments increased $3,454,000 for the year ended December
31, 2002, primarily because CIP(R)'s ownership interest in Marcourt Investments,
Inc., a lessee of 13 Courtyard by Marriott hotels, increased from


                                      -5-
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

24% to 47% as a result of the merger. Income from equity investments also
increased as a result of the reclassification to equity investments, in October
2001, of CIP(R)'s 50% interest in the Del Monte properties, which were
contributed to a partnership that CIP(R) owns with an affiliate. The Del Monte
reclassification has no effect on net income; however, since CIP(R) now reports
its share of net income from the equity investment in its financial statements
as income from equity investments rather than reporting its share of underlying
revenues and expenses. The reclassification resulted in an increase in income
from equity investments of $645,000 for the year ended December 31, 2002, but
had no net effect on the determination of earnings.

Interest expense for the year ended December 31, 2002 increased by $2,842,000 as
the result of obtaining $83,667,000 of new loans in August 2002 in connection
with a mortgage securitization and assuming $52,077,000 of existing mortgages on
the properties acquired from CPA(R):10. Interest expense for the prior year
included approximately $897,000 of interest expense from the loan on the Del
Monte properties.

General and administrative expense for the year ended December 31, 2002
increased primarily because of the merger. Certain expenses, such as transfer
agent and printing expenses, increased as a portion of such costs are based on
the number of shareholders, and other expenses increased as a result of the
increase in CIP(R)'s asset base, such as state level income and franchise taxes
and the reimbursement of personnel costs. The increase in property expenses was
due to an increase in asset management fees and performance fees, which are
based on the appraised value of CIP(R)'s real estate assets. The appraised value
of CIP(R)'s real estate assets increased by approximately 29% as a result of the
acquisition of CPA(R):10's real estate assets. The increase in the asset-based
fees that resulted solely from the newly-acquired assets was approximately
$1,069,000. Included in property expenses in 2002 are $281,000 of carrying costs
for the former Bolder property. CIP(R) has made a proposal to a potential tenant
which, if accepted, would provide annual income of approximately $380,000.

In August 2002, CIP(R) acquired $10,617,000 of subordinated interests in a
mortgage securitization pool which will generate interest income. Prior to this
transaction, CIP(R)'s interest income represented amounts earned in investing
cash in money market instruments. Management projects that the effective rate of
interest on the mortgages obtained through the securitization, net of the
projected cash flow from the interest in the mortgage trust, will be
approximately 6.25%.

CIP(R) recognized gains of $2,003,000 including $1,992,000 from the sale of its
warrant position in Merit Medical Systems, Inc. The gain on the Merit Medical
warrants is offset by the reversal of an unrealized gain on the warrants of
$2,128,000 that had been recognized in 2001. In December 2002, CIP(R) sold its
property in Farmingdale, New York formerly leased to Waban, Inc. for $6,743,000
and recognized a $167,000 loss on sale. CIP(R)'s lease with Waban for a BJ's
Warehouse retail property ended in January 2002 and the property was sold in
December 2002. Annual cash flow from the Waban property was $505,000.

CIP(R) recorded a $1,490,000 loss from discontinued operations in connection
with a vacant property in Austin, Texas which is held for sale as of December
31, 2002 and the sale in May 2002 of a property in Little Rock, Arkansas
formerly leased to Affiliated Southwest, Inc. Of this loss, $1,090,000 was due
to an impairment charge on the writedown of the Austin property to its fair
value.

In 2002, CIP(R) incurred extraordinary charges on extinguishment of debt of
$3,145,000. Of this amount, $2,857,000 represents prepayment premiums and the
writeoff of unamortized financing costs on mortgage loans paid off and
refinanced in connection with a mortgage securitization, the Best Buy Co.
refinancing and the satisfaction of the Waban, Inc. loan in connection with the
sale of the property. CIP(R) also incurred a $288,000 early extinguishment
charge in paying off the promissory notes held by former CPA(R):10 shareholders.
The extinguishment charge of $3,145,000 is net of minority interest of
$1,011,000.

Because of the long-term nature of CIP(R)'s net leases, inflation and changing
prices have not unfavorably affected CIP(R)'s revenues and net income. CIP(R)'s
net leases have rent increases based on formulas indexed to increases in the
CPI, sales overrides, or other periodic increases that are designed to increase
lease revenues in the future.


                                      -6-
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MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Net income for the year ended December 31, 2001 decreased $11,000 as compared
with the year ended December 31, 2000. Excluding the effects of gains and
impairment charges, income would have increased $993,000. The increase in
income, as adjusted, was primarily due to increases in lease revenues and income
from equity investments and a decrease in interest expense. These increases were
partially offset by an increase in property expense and a decrease in interest
income.

Lease revenues increased by $490,000 to $41,107,000 as a result of rent
increases on several leases, including leases with Electronic Data Systems
Corporation and Plexus Corp. in 2000 and Q Clubs, Inc. and Garden Ridge
Corporation in 2001. Lease revenues in 2001 also benefited from the completion
in April 2001 of a build-to-suit property leased to UTI Holdings and a full year
of rent from a property acquired in March 2000 leased to ISA International plc.
As a result of the rent increases, the lease with ISA International and the
completion of the UTI build-to-suit, annual rents increased $1,107,000.

As a result of the sale of a portfolio of six Wal-Mart Stores properties in
September 2001, annual lease revenues decreased by $1,039,000 (based on rents
received in 2000 including percentage of sales rents of $280,000). A mortgage
extension agreement on the Wal-Mart property loan required monthly payments of
$65,000 and a separate annual payment to the lender of all percentage of sales
rents received, resulting in no cash flow (lease revenues less mortgage debt
service) from the Wal-Mart properties.

Income from equity investments increased by $468,000 to $5,412,000. This
increase was due, in part, to the reclassification of the Del Monte properties
in October 2001. In connection with refinancing the mortgage loan on the Del
Monte properties, the Del Monte properties were contributed to a jointly held
affiliate. As a result of the change in the form of ownership, accounting for
the Del Monte properties changed to the equity method.

Income from equity investments also increased as a result of an increase in
Marcourt's earnings. The increase in Marcourt's net income was due to an
increase in percentage rent from the Marriott hotels and a reduction in interest
expense due to amortizing mortgage debt. The lease with Marriott includes a
provision for additional rents based on a percentage of sales, including room
revenues, in excess of a specified amount at the hotel properties. Income from
equity investments also benefited from a rent increase in April 2001 on the
lease with The Upper Deck Company in which CIP(R) owns a 50% interest in the
property partnership.

Interest expense decreased $774,000 to $13,810,000 as a result of the
amortization of mortgage debt, lower interest rates on several variable rate
loans, the payoff of mortgage loans on the Wal-Mart properties and the property
leased to Superior Telecommunications, Inc. and, to a lesser extent, the
capitalization of interest charges on build-to-suit properties under
construction prior to being placed in service.

The increase in property expense of $680,000 to $7,082,000 was primarily due to
an increase in CIP(R)'s provision for uncollected rents as the provision for
rent arrearages increased and, to a lesser extent, the carrying costs on the
Bolder property. The increase in the rent provision was primarily due to
deterioration in the financial condition of Nicholson Warehouse, L.P. As a
result, CIP(R) recorded an impairment charge of $2,000,000 on the Nicholson
property. CIP(R) also recorded an impairment charge in 2002 of $1,550,000 on the
Nicholson property.

The decrease in interest income was the result of a decrease in average cash
balances between December 2001 and December 2000. The cash balance decreased as
funds were used for the completion of build-to-suit projects and to purchase
properties in 2000 to further diversify CIP(R)'s portfolio.

CIP(R)'s results for 2001 included net gains of $3,176,000 including a realized
gain of $1,081,000 from the sale of the Wal-Mart properties and an unrealized
gain of $2,128,000 from holding warrants for common stock of certain lessees.
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities" was effective in 2001. Under SFAS
No. 133, warrants for common stock that provide for net settlement (i.e., as a
cashless exercise) or are readily convertible to cash are defined as a
derivative instrument and changes in the value of warrants for common stock
which meet the SFAS No. 133 definition of a derivative instrument are recognized
in earnings. The unrealized gain in 2001 represents the value attributed to
194,326 warrants for common stock of Merit Medical that were granted to CIP(R)
in connection with structuring the lease transaction with Merit Medical in 1993
and those warrants meeting the criteria for treatment as a derivative


                                      -7-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

instrument. The value of the Merit Medical warrants was determined using
Black-Scholes and Binomial Tree option pricing methods.

Financial Condition

Since December 31, 2001, CIP(R)'s cash and cash equivalents have increased by
$18,394,000 to $25,782,000, primarily as a result of obtaining new mortgage
financing in connection with the mortgage securitization described below. CIP(R)
intends to invest its available cash in new real estate investments to further
diversify its portfolio, and projects that it will continue to have sufficient
cash flow from operations and equity investments to meet its cash flow
objectives. Cash flows from operations of $25,599,000 included $3,439,000 of
prepayment premiums incurred in connection with paying off eight mortgage loans.
Management considers the prepayment premiums as financing costs and does not
include the payments in its evaluation of CIP(R)'s ongoing ability to generate
cash from operations to increase dividends at current cash levels. Prepayment
costs are incurred only if CIP(R) can refinance debt on more favorable terms or
if it projects it will benefit from liquidating high-interest rate debt. Cash
flows from operations, excluding the prepayment premiums, of $28,663,000 and
equity investments of $659,000 were sufficient to fund dividends to shareholders
of $20,877,000, fund distributions to minority partners of $1,830,000 and pay
mortgage principal installments of $5,242,000.

During 2002, CIP(R)'s investing activities included using $14,777,000 to
purchase interests in the mortgage loan pool. CIP(R) subsequently sold its
investment-grade rated participation in the mortgage pool interests for
$4,172,000. CIP(R) issued approximately 5,500,000 shares of common stock to
acquire the business operations of CPA(R):10 in May 2002 and used $594,000 in
2002 to pay costs related to the merger with CPA(R):10 and the related
acquisition of CPA(R):10's assets and liabilities. The acquired assets included
$765,000 of cash. CIP(R) used $1,774,000 to satisfy the interests of certain
CPA(R):10 shareholders who exercised dissenters' rights. CIP(R) received
proceeds of $7,041,000 from the sales of the Waban property and a Little Rock,
Arkansas property formerly leased to Affiliated Southwest, Inc. and $1,993,000
from its sale of Merit Medical stock warrants. CIP(R) used $2,743,000 to fund
construction of an expansion at its hotel property in Toulouse, France and other
additional capitalized real estate costs at existing properties. In February
2003, the additional expansion of the Toulouse property was completed. The final
addition was funded by CIP(R)'s joint venture partner in the Toulouse property.

CIP(R) participated in a mortgage pool consisting solely of $172,335,000 of
newly-issued mortgage loans collateralized by properties and lease assignments
on properties owned by CIP(R) and three affiliates. Investment-grade interests
representing $148,206,000 of the securitized mortgage assets are owned by
institutional investors and subordinated interests of $24,129,000 were purchased
by CIP(R) and its affiliates, with CIP(R) owning a 44% share of the subordinated
interest. The subordinated interests are payable only after all other classes of
ownership receive their stated interest and, therefore, will be affected by any
defaults or nonpayments of rents by lessees at the mortgaged properties,
regardless of which affiliate owns the underlying property. CIP(R)'s cash flow,
therefore, may be affected by events that occur at affiliates and not only from
its own properties. To the extent that there are no defaults or nonpayments,
CIP(R) may realize up to $1,575,000 in annual cash flow from its subordinated
interest. Because the subordinated interests incur any losses before the other
interests, the risk of a loss in cash flow and market value of the investment is
greatest for this interest, and there is no assurance that there will be no
adverse events that would significantly diminish cash flow from this investment.

In addition to the payment of dividends and scheduled principal mortgage
payments, CIP(R)'s financing activities for the year ended December 31, 2002
included obtaining proceeds of $120,140,000 from limited recourse mortgage
financing, including $83,667,000 received in connection with the mortgage pool
financing. As a result of placing loans in the mortgage pool, CIP(R) was able to
obtain favorable terms (7.5% annual interest on a 25-year amortization schedule)
on its supermarkets and day care centers, properties which traditional mortgage
lenders are currently averse to financing. CIP(R) and its affiliates may seek to
obtain additional limited recourse mortgages through another securitization,
although there are no current plans for an additional securitization
transaction. All of the loans are limited recourse loans and have maturity dates
between September 2009 and September 2012, at which time balloon payments are
scheduled. Annual debt service payments will increase by $3,187,000. CIP(R) also
refinanced existing mortgage loans on properties leased to Best Buy and Plexus
Corp. and obtained advances on a construction loan for the completion of the
Toulouse hotel expansion. CIP(R) used $74,138,000 to pay off existing mortgages,
including $33,486,000 used to satisfy seven existing loans in connection with
the mortgage securitization.

CIP(R)'s financing strategy has been to purchase substantially all of its
properties with a combination of equity and limited recourse mortgage debt. A
lender on a limited recourse mortgage loan has recourse only to the property


                                      -8-
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

collateralizing such debt and not to any of CIP(R)'s other assets. The use of
limited recourse mortgage debt, therefore, allows CIP(R) to limit its exposure
of all of its assets, and this strategy has allowed CIP(R) to diversify its
portfolio of properties and, thereby, limit its risk. In the event that a
balloon payment comes due, CIP(R) may seek to refinance the loan, restructure
the debt with existing lenders, evaluate its ability to pay the balloon payment
from its cash reserves or sell the property and use the proceeds to satisfy the
mortgage debt. CIP(R) may seek to finance its unencumbered properties and use
the proceeds to make additional investments in real estate. To the extent that
CIP(R) obtains such financing, it may increase CIP(R)'s overall leverage.
Balloon payments of approximately $9,221,000 and $12,850,000 are scheduled in
2003 and 2004, respectively. CIP(R) expects to refinance the maturing loans but
may use some of its available cash to satisfy the balloon payments. In January
2003, CIP(R) used $1,265,000 to satisfy one of the scheduled 2003 balloon
payments. CIP(R)'s equity investees use the same financing strategy and have
purchased their properties with a combination of equity and limited recourse
mortgage debt.

CIP(R) expects to meet its capital requirements to fund future property
acquisitions, capital expenditures on existing properties and scheduled debt
maturities through long-term limited recourse mortgages and possibly unsecured
indebtedness. CIP(R) is not currently seeking additional sources of refinancing
such as an unsecured line of credit; however, its financing strategies could
change in the future. Unsecured financing, if obtained, would require CIP(R) to
meet financial covenants such as maintaining specific operating ratios and
leverage ratios.

Four lessees have purchase options which are exercisable over 2003 through 2005.
In the event that the options are exercised, annual revenues and cash flow would
decrease by $3,693,000 and $1,934,000, respectively. If the options are
exercised, CIP(R) would likely seek to reinvest the proceeds from sale in
additional real estate investments. In the event that the options are exercised,
CIP(R) would receive no less than $27,106,000 from the proceeds of sale before
satisfaction of any mortgage debt. All of the purchase options provide for an
exercise price of the higher of fair value or a stated purchase price.

In connection with the merger with CPA(R):10, each shareholder of CPA(R):10 who
elected to receive shares received 0.8445 of newly issued CIP(R) common stock
for every share of CPA(R):10 that he or she owned. Approximately 5,500,000
(totaling approximately $73,155,000) new shares of CIP(R) were issued which
represent approximately 25% of the ownership of CIP(R) as of the effective date
of the merger, May 1, 2002. Approximately 13% of CPA(R):10's shareholders did
not elect to receive shares of CIP(R) and were issued promissory notes with a
face value of $11.23 for each share of CPA(R):10 owned. In December 2002, CIP(R)
used $11,739,000 to pay off the promissory notes.

Due to its rapidly amortizing debt, Marcourt's taxable income exceeds its
distributable cash flow and it is not able to distribute 90% of its REIT taxable
income from its available cash. The shareholder agreement of Marcourt provides
for declaration of consent dividends, which allows Marcourt to meet its dividend
requirements but requires shareholders to recognize dividend income even though
Marcourt is not distributing such amounts currently. Consent dividends allowed
Marcourt to retain REIT status for 2002; however, it affects the amount of
taxable income that CIP(R) reports to its shareholders. In 2002, Marcourt
declared a consent dividend of $3,062,000.

Off-Balance Sheet and Aggregate Contractual Agreements

A summary of CIP(R)'s obligations under contractual arrangements is as follows:

<TABLE>
<CAPTION>
(in thousands)                      Total       2003      2004      2005      2006       2007   Thereafter
                                  --------   -------   -------   -------   -------   --------   ----------
<S>                               <C>        <C>       <C>       <C>       <C>       <C>        <C>
Limited recourse mortgage notes
   payable                        $251,580   $15,436   $18,886   $11,545   $ 5,040   $ 14,975   $185,698
Subordinated disposition fees        1,002                                                         1,002
Ground lease obligations               594       160       126       100       100        100          8
Share of minimum rents payable
   under office cost-sharing
   agreement                           776       207       207       207       155
                                  --------   -------   -------   -------   -------   --------   --------
                                  $253,952   $15,803   $19,219   $11,852   $ 5,295   $ 15,075   $186,708
                                  ========   =======   =======   =======   =======   ========   ========
</TABLE>

In connection with extending a mortgage loan with a variable interest rate,
CIP(R) was required to enter into a separate interest rate cap agreement with a
notional amount of $6,750,000 and a strike of 8%. An interest rate cap agreement
is a derivative financial instrument designed to hedge interest risk on variable
interest debt. Approximately 7% of CIP(R)'s outstanding debt is variable rate
and the use of derivative financial instruments to hedge interest rate risk is


                                      -9-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

not currently significant to CIP(R)'s risk management. CIP(R) has not hedged its
foreign investments and uses mortgage financing in the local currency to reduce
the effect of foreign currency fluctuations on cash flow.

In connection with the purchase of its properties, CIP(R) requires the sellers
to perform environmental reviews. Management believes, based on the results of
such reviews, that CIP(R)'s properties were in substantial compliance with
Federal and state environmental statutes at the time the properties were
acquired. However, portions of certain properties have been subject to some
degree of contamination, principally in connection with either leakage from
underground storage tanks, surface spills from facility activities or historical
on-site activities. In most instances where contamination has been identified,
tenants are actively engaged in the remediation process and addressing
identified conditions. Tenants are generally subject to environmental statutes
and regulations regarding the discharge of hazardous materials and any related
remediation obligations. In addition, CIP(R)'s leases generally require tenants
to indemnify CIP(R) from all liabilities and losses related to the leased
properties with provisions of such indemnification specifically addressing
environmental matters. The leases generally include provisions which allow for
periodic environmental assessments, paid for by the tenant, and allow CIP(R) to
extend leases until such time as a tenant has satisfied its environmental
obligations. Certain of the leases allow CIP(R) to require financial assurances
from tenants such as performance bonds or letters of credit if the costs of
remediating environmental conditions are, in the estimation of CIP(R), in excess
of specified amounts. Accordingly, Management believes that the ultimate
resolution of any environmental matter will not have a material adverse effect
on CIP(R)'s financial condition, liquidity or results of operations.

Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141 "Business Combinations" and No. 142 "Goodwill and Other Intangibles," which
establish accounting and reporting standards for business combinations and
certain assets and liabilities acquired in business combinations.

SFAS No. 141 requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase method, establishes specific criteria
for the recognition of intangible assets separately from goodwill and requires
that unallocated negative goodwill be written off immediately as an
extraordinary gain. Use of the pooling-of-interests method for business
combinations is no longer permitted. The adoption of SFAS 141 did not have a
material effect on CIP(R)'s financial statements.

SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition and the accounting for asset
acquisitions. The provisions of SFAS No. 142 are effective for fiscal years
beginning after December 15, 2001 and must be adopted at the beginning of a
fiscal year. SFAS No. 142 provides that goodwill and indefinite-lived intangible
assets will no longer be amortized but will be tested for impairment at least
annually. Intangible assets acquired and liabilities assumed in business
combinations will only be amortized if such assets or liabilities are capable of
being separated or divided and sold, transferred, licensed, rented or exchanged
or arise from contractual or legal rights (including leases), and will be
amortized over their useful lives. The adoption of SFAS 142 did not have a
material effect on CIP(R)'s financial statements.

In June 2001, FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." SFAS No. 143 was issued to establish standards for the recognition
and measurement of an asset retirement obligation. SFAS No. 143 requires
retirement obligations associated with tangible long-lived assets to be
recognized at fair value as the liability is incurred with a corresponding
increase in the carrying amount of the related long-lived asset. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. CIP(R) does not expect SFAS No. 143 to have a material effect on its
financial statements.

In August 2001, FASB issued SFAS No. 144 "Accounting for the Impairment of
Long-Lived Assets" which addresses the accounting and reporting for the
impairment and disposal of long-lived assets and supercedes SFAS No. 121 while
retaining SFAS No. 121's fundamental provisions for the recognition and
measurement of impairments. SFAS 144 removes goodwill from its scope, provides
for a probability-weighted cash flow estimation approach for analyzing
situations in which alternative courses of action to recover the carrying amount
of long-lived assets are under consideration and broadens that presentation of
discontinued operations to include a component of an entity. The adoption of
SFAS 144 did not have a material effect on CIP(R)'s financial statements;
however, the revenues and expenses relating to an asset held for sale or sold
must be presented as a discontinued operation for all periods presented.


                                      -10-
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

In May 2002, FASB issued SFAS No. 145 "Rescission of SFAS Nos. 4, 44 and 64,
Amendment of SFAS No. 13 and Technical Corrections" which eliminates the
requirement that gains and losses from the extinguishment of debt be classified
as extraordinary items unless it can be considered unusual in nature and
infrequent in occurrence. The provisions of SFAS No. 145 are effective for
fiscal years beginning after May 15, 2002. Early adoption is permitted. Upon
adoption, CIP(R) will no longer classify gains and losses for the extinguishment
of debt as extraordinary items and will adjust comparative periods presented.
CIP(R) has not elected early adoption.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities". SFAS No. 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
("EITF") has set forth in EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. CIP(R) does not expect
SFAS No. 146 to have a material effect on its financial statements.

In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain Financial
Institutions" which amends SFAS No. 72, SFAS No. 144 and FASB Interpretation No.
9. SFAS No. 147 provides guidance on the accounting for the acquisitions of
certain financial institutions and includes long-term customer relationships as
intangible assets within the scope of SFAS No. 144. CIP(R) does not expect SFAS
No. 147 to have a material effect on its financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amends SFAS No. 123, Accounting
for Stock Based Compensation. SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock based compensation (i.e., recognition of a charge for issuance of
stock options in the determination of income.). However, SFAS No. 148 does not
permit the use of the original SFAS No. 123 prospective method of transition for
changes to the fair value based method made in fiscal years beginning after
December 15, 2003. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock based
employee compensation, description of transition method utilized and the effect
of the method used on reported results. The transition and annual disclosure
provisions of SFAS No. 148 are to be applied for fiscal years ending after
December 15, 2002. CIP(R) does not have any employees nor any stock-based
compensation plans.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," ("FIN 45") which changes the accounting for, and
disclosure of certain guarantees. Beginning with transactions entered into after
December 31, 2002, certain guarantees are required to be recorded at fair value,
which is different from prior practice, under which a liability was recorded
only when a loss was probable and reasonably estimable. In general, the change
applies to contracts or indemnification agreements that contingently require
CIP(R) to make payments to a guaranteed third-party based on changes in an
underlying asset, liability, or an equity security of the guaranteed party. The
accounting provisions only apply for certain new transactions entered into and
existing guarantee contracts modified after December 31, 2002. The adoption of
the accounting provisions of FIN 45 is not expected to have a material effect on
CIP(R)'s financial statements.

On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). This new model applies when either (1) the equity
investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entity's activities
without additional financial support. In addition, FIN 46 requires both the
primary beneficiary and all other enterprises with a significant variable
interest in a VIE to make additional disclosures. The transitional disclosures
requirements will take effect almost immediately and are required for all
financial statements initially issued after January 31, 2003. CIP(R)'s maximum
loss exposure is the carrying value of its equity investments. CIP(R) is
assessing the impact of this interpretation on its accounting for its
investments in unconsolidated joint ventures and does not expect FIN 46 to have
a material effect on its financial statements. .


                                      -11-
<PAGE>

                        REPORT of INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
 CAREY INSTITUTIONAL PROPERTIES INCORPORATED:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of CAREY INSTITUTIONAL
PROPERTIES INCORPORATED and its subsidiaries at December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of Carey Asset Management Corp. (the "Advisor"); our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, 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 Advisor, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 13 to the consolidated financial statements, effective
January 1, 2002, the Company adopted SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets", which requires that the results of
operations, including any gain or loss on sale, relating to real estate that has
been disposed of or is classified as held for sale after initial adoption be
reported in discontinued operations for all periods presented.


/s/ PricewaterhouseCoopers LLP

New York, New York
March 20, 2003


                                      -12-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                         2002             2001
                                                                                         ----             ----
<S>                                                                                  <C>              <C>
           ASSETS:
Real estate leased to others:
   Accounted for under the operating method:
       Land                                                                          $  70,868,892    $  52,993,337
       Buildings                                                                       260,878,453      169,209,484
                                                                                     -------------    -------------
                                                                                       331,747,345      222,202,821
       Less, accumulated depreciation                                                   30,938,834       26,240,326
                                                                                     -------------    -------------
                                                                                       300,808,511      195,962,495
   Net investment in direct financing leases                                           133,955,555      101,498,035
Real estate under construction                                                           5,725,416        7,969,435
Assets held for sale                                                                     2,500,000        6,910,554
Equity investments                                                                      58,578,685       43,776,928
cash and cash equivalents                                                               25,782,304        7,388,480
Marketable securities                                                                   11,014,711               --
Other assets, net of accumulated amortization of $1,119,325 and $1,101,382 in 2002
   and 2001, and net of allowance for uncollected rents of $2,825,000 and
   $2,100,000 in 2002 and 2001                                                          11,861,713        5,800,715
                                                                                     -------------    -------------
           Total assets                                                              $ 550,226,895    $ 369,306,642
                                                                                     =============    =============

           LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY:

Liabilities:
Limited recourse mortgage notes payable                                              $ 251,579,579    $ 152,532,007
Accrued interest                                                                         1,550,184          874,728
Accounts payable and accrued expenses                                                    1,832,633        1,454,040
Due to affiliates                                                                        2,552,528        1,898,009
Dividends payable                                                                        5,938,632        4,714,132
Prepaid rental income and security deposits                                              2,418,930        2,349,622
Other liabilities                                                                        3,840,777
                                                                                     -------------    -------------
           Total liabilities                                                           269,713,263      163,822,538
                                                                                     -------------    -------------

Minority interest                                                                       13,703,146        7,031,014
                                                                                     -------------    -------------

Commitments and contingencies

Shareholders' equity:
Common stock, $.001 par value; authorized, 40,000,000 shares; 28,833,385 and
   22,994,375 shares issued and outstanding at December 31, 2002 and 2001                   28,833           22,994
Additional paid-in capital                                                             308,659,610      230,880,420
Dividends in excess of accumulated earnings                                            (31,519,364)     (22,897,031)
Accumulated other comprehensive income (loss)                                              956,456         (411,420)
                                                                                     -------------    -------------
                                                                                       278,125,535      207,594,963
Less, common stock in treasury at cost, 984,755 and 810,237 shares at December 31,
   2002 and 2001                                                                       (11,315,049)      (9,141,873)
                                                                                     -------------    -------------
           Total shareholders' equity                                                  266,810,486      198,453,090
                                                                                     -------------    -------------
           Total liabilities and shareholders' equity                                $ 550,226,895    $ 369,306,642
                                                                                     =============    =============
</TABLE>

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


                                      -13-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                        CONSOLIDATED STATEMENTS of INCOME

<TABLE>
<CAPTION>
                                                                      For the years ended December 31,
                                                                     2002            2001            2000
                                                                     ----            ----            ----
<S>                                                             <C>             <C>             <C>
Revenues:
   Rental income                                                $ 33,941,070    $ 28,199,756    $ 27,618,916
   Interest income from direct financing leases                   14,645,638      12,372,019      12,306,721
   Interest and other income                                         759,309         535,450         691,948
                                                                ------------    ------------    ------------
                                                                  49,346,017      41,107,225      40,617,585
                                                                ------------    ------------    ------------

Expenses:
   Interest                                                       16,893,051      13,809,810      14,565,522
   Depreciation                                                    5,931,695       4,806,925       4,887,595
   Property expenses                                               9,160,245       7,081,597       6,401,704
   General and administrative                                      4,167,215       2,971,751       2,877,270
   Impairment charge on real estate                                1,550,000       4,300,000         143,919
                                                                ------------    ------------    ------------
                                                                  37,702,206      32,970,083      28,876,010
                                                                ------------    ------------    ------------

      Income from continuing operations before minority
         interest, income from equity investments and gains
         (losses)                                                 11,643,811       8,137,142      11,741,575

Minority interest in income                                       (2,069,620)       (875,599)       (833,012)
Income from equity investments                                     8,865,740       5,411,560       4,943,863
                                                                ------------    ------------    ------------

      Income from continuing operations before gains (losses)     18,439,931      12,673,103      15,852,426

Unrealized gain on warrants                                               --       2,128,000              --
Unrealized loss on interest rate cap derivative instrument           (34,611)             --              --
Reversal of unrealized gain on warrants in connection with
   disposition                                                    (2,128,000)             --              --
Gain on sale of warrants and securities, net                       2,003,629              --              --
                                                                ------------    ------------    ------------

      Income from continuing operations before (loss) gain on
         real estate, net                                         18,280,949      14,801,103      15,852,426

Discontinued operations:
Loss from operations of discontinued properties                     (407,983)       (483,310)       (499,967)
Gain on sale of real estate                                            8,874              --              --
Impairment charge on real estate                                  (1,090,347)             --              --
                                                                ------------    ------------    ------------

      Loss from discontinued operations                           (1,489,456)       (483,310)       (499,967)
                                                                ------------    ------------    ------------

(Loss) gain on sale of real estate, net                             (167,403)      1,048,335          24,269
                                                                ------------    ------------    ------------

      Income before extraordinary charge                          16,624,090      15,366,128      15,376,728

Extraordinary charge on early extinguishment of debt, net of
   minority interest of $1,011,353                                (3,145,089)             --              --
                                                                ------------    ------------    ------------

      Net income                                                $ 13,479,001    $ 15,366,128    $ 15,376,728
                                                                ============    ============    ============
</TABLE>

                                  - Continued -


                                      -14-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                  CONSOLIDATED STATEMENTS of INCOME (Continued)

<TABLE>
<S>                                           <C>               <C>               <C>
Basic earnings per common share:
   Income from continuing operations          $          .70    $          .72    $          .72
   Discontinued operations                              (.06)             (.02)             (.02)
   Extraordinary charge                                 (.12)               --                --
                                              --------------    --------------    --------------
   Basic earnings per common share:           $          .52    $          .70    $          .70
                                              ==============    ==============    ==============

Diluted earnings per common share:
   Income from continuing operations          $          .68    $          .70    $          .71
   Discontinued operations                              (.06)             (.02)             (.02)
   Extraordinary charge                                 (.11)               --                --
                                              --------------    --------------    --------------
   Basic earnings per common share:           $          .51    $          .68    $          .69
                                              ==============    ==============    ==============

Weighted average shares outstanding-basic         26,032,753        22,105,243        21,916,934
                                              ==============    ==============    ==============

Weighted average shares outstanding-diluted       26,596,434        22,460,138        22,271,829
                                              ==============    ==============    ==============
</TABLE>

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


                                      -15-
<PAGE>

                 CONSOLIDATED STATEMENT of SHAREHOLDERS' EQUITY

              For the years ended December 31, 2000, 2001 and 2002

<TABLE>
<CAPTION>


                                                                                   Dividends in Excess
                                 Common         Additional        Comprehensive      of Accumulated
                                  Stock      Paid-in Capital         Income             Earnings
<S>                            <C>           <C>                  <C>              <C>
Balance at
   January 1, 1999             $22,216         $220,747,880                           $(16,728,182)

381,275 shares issued,
   $.001 par, net of costs         381            4,974,760
Dividends declared                                                                     (18,225,976)
Repurchase of 283,986
   shares

Comprehensive income:
Net income                                                        $15,376,728           15,376,728
Other comprehensive
   income:
Foreign currency
   translation adjustment                                            (254,598)
                                                                  -----------
                                                                  $15,122,130
                                                                  ===========
Balance at
   December 31, 2000            22,597          225,722,640                            (19,577,430)
                               -------         ------------                            -----------

396,245 shares issued,
   $.001 par, net of costs         397            5,157,780
Dividends declared                                                                     (18,685,729)
Repurchase of 174,943
   shares

Comprehensive income:
Net income                                                        $15,366,128           15,366,128
Other comprehensive
   income:
Foreign currency
   translation adjustment                                            (180,579)
                                                                  -----------
                                                                  $15,185,549
                                                                  ===========
Balance at
   December 31, 2001            22,994          230,880,420                            (22,897,031)
                               -------         ------------                           ------------

5,829,010 shares issued,
   $.001 par, net of costs       5,839           77,779,190
Dividends declared                                                                     (22,101,334)
Repurchase of 174,518
   shares

Comprehensive income:
Net income                                                        $13,479,001           13,479,001
Other comprehensive
   income:
Foreign currency
   translation adjustment                                             916,144
Unrealized gain on
   marketable securities                                              451,732
                                                                  -----------
                                                                    1,367,876
                                                                  -----------
                                                                  $14,846,877
                                                                  ===========
Balance at
   December 31, 2002           $28,833         $308,659,610                           $(31,519,364)
                               =======         ============                           ============
</TABLE>

<TABLE>
<CAPTION>
                            Accumulated Other
                               Comprehen-
                                  sive            Treasury
                               Income (Loss)        Stock               Total
                               -------------        -----               -----
<S>                            <C>              <C>                 <C>
Balance at
   January 1, 1999               $23,757        $(3,500,014)        $200,565,657

381,275 shares issued,
   $.001 par, net of costs                                             4,975,141
Dividends declared                                                   (18,225,976)
Repurchase of 283,986
   shares                                        (3,415,716)          (3,415,716)

Comprehensive income:
Net income                                                            15,376,728
Other comprehensive
   income:
Foreign currency
   translation adjustment       (254,598)                               (254,598)


Balance at
                               ---------        -----------         ------------
   December 31, 2000            (230,841)        (6,915,730)         199,021,236
                               ---------        -----------         ------------

396,245 shares issued,
   $.001 par, net of costs                                             5,158,177
Dividends declared                                                   (18,685,729)
Repurchase of 174,943
   shares                                        (2,226,143)          (2,226,143)

Comprehensive income:
Net income                                                            15,366,128
Other comprehensive
   income:
Foreign currency
   translation adjustment       (180,579)                               (180,579)


Balance at
                               ---------        -----------         ------------
   December 31, 2001            (411,420)        (9,141,873)         198,453,090
                               ---------        -----------         ------------

5,829,010 shares issued,
   $.001 par, net of costs                                            77,785,029
Dividends declared                                                   (22,101,334)
Repurchase of 174,518
   shares                                        (2,173,176)          (2,173,176)

Comprehensive income:
Net income                                                            13,479,001
Other comprehensive
   income:
Foreign currency
   translation adjustment
Unrealized gain on
   marketable securities

                               1,367,876                               1,367,876


Balance at
                               ---------       ------------         ------------
   December 31, 2002           $ 956,456       $(11,315,049)        $266,810,486
                               =========       ============         ============
</TABLE>
               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      -16-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                      CONSOLIDATED STATEMENTS of CASH FLOWS

<TABLE>
<CAPTION>
                                                                                            For the years ended December 31,
                                                                                            --------------------------------
                                                                                            2002           2001            2000
                                                                                            ----           ----            ----
<S>                                                                                   <C>             <C>             <C>
Cash flows from operating activities:
   Net income                                                                         $  13,479,001   $ 15,366,128    $ 15,376,728
   Adjustments to reconcile net income to net cash provided by continuing
    operations:
     Loss from discontinued operations, including gain on sale of real estate and
       impairment loss                                                                    1,489,456        483,310         499,967
     Depreciation and amortization                                                        6,423,811      4,806,925       4,887,595
     Straight-line adjustments                                                             (459,654)      (207,229)       (170,609)
     Minority interest in income                                                          2,069,620        875,599         833,012
     Income from equity investments in excess of distributions received                  (3,182,381)    (1,430,181)       (962,968)
     Extraordinary charge on extinguishment of debt, net of minority interest             3,145,089             --              --
     Gain on sale of real estate and securities, net                                     (1,836,226)    (1,048,335)        (24,269)
     Impairment charge on real estate                                                     1,550,000      4,300,000         143,919
     Issuance of stock in satisfaction of performance fee                                 3,122,939      2,767,451       2,716,377
     Provision for uncollected rents                                                        725,000        593,615          99,852
     Unrealized gain on warrants                                                                 --     (2,128,000)             --
     Reversal of unrealized gain on warrants in connection with disposition               2,128,000             --              --
     Net change in operating assets and liabilities                                         500,189       (609,355)      1,208,330
                                                                                      -------------   ------------    ------------
     Net cash provided by continuing operations                                          29,154,844     23,769,928      24,607,934
                                                                                      -------------   ------------    ------------
     Net cash (used in) provided by discontinued operations                                (116,054)       146,160         122,651
     Prepayment premiums paid on extinguishment of debt                                  (3,439,379)            --              --
                                                                                      -------------   ------------    ------------
       Net cash provided by operating activities                                         25,599,411     23,916,088      24,730,585
                                                                                      -------------   ------------    ------------

Cash flows from investing activities:
   Distributions received from equity investments in excess of
      equity income                                                                         658,737        426,120         479,359
   Capital distributions from equity investments                                                 --      5,839,315              --
   Purchases of real estate and equity investments and costs capitalized
      subsequent to acquisition                                                          (2,743,054)    (7,838,388)    (11,383,189)
   Proceeds from sales of real estate and securities                                     13,208,838      8,055,093          24,269
   Purchase of securities                                                               (14,777,285)            --              --
   Payment of leasing costs                                                                (244,237)            --              --
   Redemption of dissenter interests                                                     (1,774,385)            --              --
   Costs incurred in connection with acquisition of business operations                    (593,900)            --              --
   Cash acquired on acquisition of business operations                                      765,493             --              --
                                                                                      -------------   ------------    ------------
       Net cash (used in) provided by investing activities                               (5,499,793)     6,482,140     (10,879,561)
                                                                                      -------------   ------------    ------------

Cash flows from financing activities:
   Proceeds from mortgages                                                              120,139,853      6,262,563       4,100,720
   Prepayments of mortgages                                                             (74,137,547)   (13,788,316)       (590,301)
   Payments of mortgage principal                                                        (5,241,873)    (4,641,965)     (4,322,311)
   Deferred financing costs                                                              (4,630,624)       (50,000)        (64,290)
   Prepayment of notes payable                                                          (11,738,888)            --              --
   Dividends paid                                                                       (20,876,834)   (18,550,352)    (18,187,256)
   Proceeds from issuance of shares, net of costs                                         1,506,612      2,390,726       2,258,764
   Purchase of treasury stock                                                            (2,173,176)    (2,226,143)     (3,415,716)
   Capital (distributions to) contributions from minority partners                       (2,734,951)       902,220              --
   Distributions paid to minority partners                                               (1,829,770)      (488,294)       (543,169)
                                                                                      -------------   ------------    ------------
       Net cash used in financing activities                                             (1,717,198)   (30,189,561)    (20,763,559)
                                                                                      -------------   ------------    ------------
</TABLE>

                                  - Continued -


                                      -17-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                CONSOLIDATED STATEMENTS of CASH FLOWS (Continued)

<TABLE>
<S>                                                                             <C>              <C>             <C>
Effect of exchange rate changes on cash                                                11,404          (1,386)         (6,846)
                                                                                -------------    ------------    ------------

         Net increase (decrease) in cash and cash equivalents                      18,393,824         207,281      (6,919,381)

Cash and cash equivalents, beginning of year                                        7,388,480       7,181,199      14,100,580
                                                                                -------------    ------------    ------------

         Cash and cash equivalents, end of year                                 $  25,782,304    $  7,388,480    $  7,181,199
                                                                                =============    ============    ============
</TABLE>

Noncash investing and financing activities:

The purchase of Corporate Property Associates 10 Incorporated consisted of the
acquisition of certain assets and liabilities at fair value in exchange for the
issuance of shares, notes payable and a cash payment to dissenters as follows:

<TABLE>
<S>                                                                                           <C>
            Real estate assets                                                                $ 127,721,807
            Equity investment in Marcourt Investments, Inc., a real estate investment trust      11,993,899
            Cash                                                                                    765,493
            Other assets                                                                          5,204,479
            Mortgage notes payable, net of discount of $294,273                                 (52,077,045)
            Other liabilities                                                                    (5,231,182)
            Minority interest                                                                    (2,092,437)
                                                                                              -------------
                   Net assets acquired                                                        $  86,285,014
                                                                                              =============

            Shares issued                                                                     $  73,155,478
            Notes payable issued, net of discount of $383,737                                    11,355,151
            Cash paid for redemption of dissenter interests                                       1,774,385
                                                                                              -------------
                   Consideration paid                                                         $  86,285,014
                                                                                              =============
</TABLE>

In connection with contributing its greater than 50% tenancy-in-common interests
in properties owned with affiliates to two limited partnerships, assets and
liabilities applicable to minority interests were as follows:

<TABLE>
<S>                                                                                           <C>
            Real estate assets                                                                $  11,936,092
            Other assets                                                                            148,697
            Mortgage notes payable                                                               (4,163,792)
                                                                                              -------------
                  Minority interests                                                          $   7,920,997
                                                                                              =============
</TABLE>

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


                                      -18-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS

1.    Summary of Significant Accounting Policies:

      Basis of Consolidation:

            The consolidated financial statements include the accounts of Carey
            Institutional Properties Incorporated, its wholly-owned subsidiaries
            and controlling majority-owned general partnership interests
            (collectively, the "Company"). All material inter-entity
            transactions are eliminated.

      Use of Estimates:

            The preparation of financial statements in conformity with
            accounting principles generally accepted in the United States of
            America 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 dates of the financial
            statements and the reported amounts of revenues and expenses during
            the reporting period. The most significant estimates relate to the
            assessment of the realizability of real estate assets and
            investments. Actual results could differ from those estimates.

      Real Estate Leased to Others:

            Real estate is leased to others on a net lease basis, whereby the
            tenant is generally responsible for all operating expenses relating
            to the property, including property taxes, insurance, maintenance,
            repairs, renewals and improvements. For the year ended December 31,
            2002, lessees were responsible for direct payments of real estate
            taxes of approximately $5,262,000. Expenditures for maintenance and
            repairs including routine betterments are charged to operations as
            incurred. Significant renovations which increase the useful life of
            the properties are capitalized.

            The Company diversifies its real estate investments among various
            corporate tenants engaged in different industries, by property type
            and geographically.

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

                  Direct financing method - Leases accounted for under the
                  direct financing method are recorded at their net investment
                  (Note 7). Unearned income is deferred and amortized to income
                  over the lease terms so as to produce a constant periodic rate
                  of return on the Company's net investment in the lease.

                  Operating method - Real estate is recorded at cost less
                  accumulated depreciation, rental revenue is recognized on a
                  straight-line basis over the term of the leases and expenses
                  (including depreciation) are charged to operations as
                  incurred.

            When events or changes in circumstances indicate that the carrying
            amount of a long-lived asset may not be recoverable, the Company
            assesses the recoverability of its long-lived assets, including
            residual interests of real estate assets and investments, based on
            projections of undiscounted cash flows, without interest charges,
            over the life of such assets. In the event that such cash flows are
            insufficient, the assets are adjusted to their estimated fair value.
            Residual values of direct financing leases are reviewed at least
            annually. If a decline in the estimated residual value is other than
            temporary, the accounting for the direct financing lease will be
            revised using the changed estimate. The resulting reduction in the
            net investment in the direct financing lease is recognized as a loss
            in the period in which the estimate is changed.

            The Company is committed under long-term ground leases for certain
            properties through 2008. Future ground lease rental commitments
            aggregate $593,983.

            For properties under construction, operating expenses including
            interest charges are capitalized rather than expensed and rentals
            received are recorded as a reduction of capitalized project (i.e.,
            construction) costs.


                                      -19-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            Substantially all of the Company's leases provide for either
            scheduled rent increases, periodic rent increases based on formulas
            indexed to increases in the Consumer Price Index ("CPI") or sales
            overrides. Rents from sales overrides (percentage of sales rent) are
            recognized as reported by lessees, that is, after the level of sales
            requiring a rental payment to the Company is reached.

      Assets Held for Sale:

            Assets held for sale are accounted for at the lower of carrying
            value or fair value, less costs to dispose. Assets are classified as
            held for sale when the Company has committed to a plan to actively
            market a property for sale and expects that a sale will be completed
            within one year.

            The Company recognizes gains and losses on the sale of properties
            when, among other criteria, the parties are bound by the terms of
            the contract, all consideration has been exchanged and all
            conditions precedent to closing have been performed. At the time the
            sale is consummated, a gain or loss is recognized as the difference
            between the sale price less any closing costs and the carrying value
            of the property.

      Depreciation:

            Depreciation is computed using the straight-line method over the
            estimated useful lives of the properties - generally 40 years.
            Depreciation of tenant improvements is computed using the
            straight-line method over the remaining term of the leases.

      Equity Investments:

            The Company's ownership interests in entities in which it owns 50%
            or less and has the ability to exercise significant influence, and
            jointly controlled tenancies-in-common are accounted for under the
            equity method; i.e., at cost, increased or decreased by the
            Company's share of earnings or losses, less distributions.

      Foreign Currency Translation:

            The Company consolidates its real estate investments in France and
            the United Kingdom. The functional currency for these investments is
            the Euro and the British pound. The translation from the Euro and
            British pound to U.S. dollars is performed for assets and
            liabilities using current exchange rates in effect at the balance
            sheet date and for revenue and expense accounts using a weighted
            average exchange rate during the period. The gains and losses
            resulting from such translation are reported as a component of other
            comprehensive income (loss) as part of shareholders' equity.

      Cash Equivalents:

            The Company considers all short-term, highly liquid investments that
            are both readily convertible to cash and have a maturity of
            generally three months or less at the time of purchase to be cash
            equivalents. Items classified as cash equivalents include commercial
            paper and money market funds. Substantially all of the Company's
            cash and cash equivalents at December 31, 2002 and 2001 were held in
            the custody of two financial institutions, and which balances at
            times exceed federally insurable limits. The Company mitigates this
            risk by depositing funds with major financial institutions.

      Marketable Securities:

            Marketable securities are classified as available for sale
            securities and reported at fair value with the Company's interest in
            unrealized gains and losses on these securities reported as a
            component of other comprehensive income (loss) until realized. Such
            marketable securities had a cost basis of $10,562,979 and reflected
            a fair value of $11,014,711 at December 31, 2002. The Company held
            no marketable securities at December 31, 2001.

      Other Assets:

            Included in other assets are deferred charges and deferred rental
            income. Deferred charges are costs incurred in connection with
            mortgage note financing and refinancing and are deferred and
            amortized over the terms of


                                      -20-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            the mortgages and included in interest expense in the accompanying
            consolidated financial statements. Deferred rental income is the
            aggregate difference between scheduled rents that vary during the
            lease term and income recognized on a straight-line basis.

      Derivative Instruments:

            Statement of Financial Accounting Standards ("SFAS") No. 133.
            "Accounting for Derivative Instruments and Hedging Activities"
            became effective in 2001 and established accounting and reporting
            standards for derivative instruments. Certain stock warrants which
            were granted to the Company by lessees in connection with
            structuring the initial lease transactions are defined as derivative
            instruments because such stock warrants are readily convertible to
            cash or provide for net settlement upon conversion. Pursuant to SFAS
            No. 133, changes in the fair value of such derivative instruments as
            determined using an option pricing model are recognized currently in
            earnings as gains or losses. For the year ended December 31, 2001,
            the Company recognized an unrealized gain on warrants of $2,128,000.
            All warrants which met the definition of derivative instruments and
            were accounted for under SFAS No. 133 were sold in 2002. The Company
            also holds certain stock warrants which are not defined as
            derivative instruments and have been recorded at nominal values. The
            Company has only recognized unrealized gains or losses on stock
            warrants that are derivative instruments.

            In 2002, the Company was required to enter into an interest rate cap
            agreement with a notional amount of $6,750,000, a strike of 8% based
            on the one-month London Inter-Bank Offered Rate and a maturity of
            April 1, 2005. The Company paid $36,000 to enter into the agreement
            and the cost is being charged to interest expense over the life of
            the contract. To determine the fair value of this derivative
            instrument, the Company uses an options pricing model and
            assumptions that are based on market conditions and risks existing
            at each balance sheet date. The estimated fair value of the interest
            rate cap at December 31, 2002 was $1,389. The interest rate cap is
            marked to market but did not meet the criteria to qualify for hedge
            accounting and, therefore, the change in the fair value of the
            interest rate cap of $34,611 has been charged to earnings for the
            year ended December 31, 2002.

      Treasury Stock:

            Treasury stock is recorded at cost.

      Offering Costs:

            Costs incurred in connection with the raising of capital through the
            sale of common stock are charged to shareholders' equity upon the
            issuance of shares.

      Federal Income Taxes:

            The Company is qualified as a real estate investment trust ("REIT")
            as of December 31, 2002 as defined under the Internal Revenue Code
            of 1986. The Company is not subject to Federal income taxes on
            amounts distributed to shareholders provided it distributes at least
            90% of its REIT taxable income to its shareholders and meets certain
            other conditions.

      Earnings Per Share:

            The Company presents both basic and diluted earnings per share
            ("EPS"). Basic EPS excludes dilution and is computed by dividing net
            income available to shareholders by the weighted average number of
            shares outstanding for the period. Diluted EPS reflects the
            potential dilution that could occur if securities or other contracts
            to issue shares were executed or converted into common stock, where
            such exercise or conversion would result in a lower EPS amount.


                                      -21-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            Basic and diluted earnings per share were calculated as follows:

<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                                                -----------------------
                                                                        2002            2001            2000
                                                                        ----            ----            ----
<S>                                                                 <C>             <C>             <C>
            Income from continuing operations before (loss) gain
                on sale of real estate, net                         $ 18,280,949    $ 14,801,103    $ 15,852,426
            Loss (gain) on sale of real estate, net                     (167,403)      1,048,335          24,269
                                                                    ------------    ------------    ------------
            Income from continuing operations                         18,113,546      15,849,438      15,876,695
            Discontinued operations                                   (1,489,456)       (483,310)       (499,967)
            Extraordinary charge                                      (3,145,089)             --              --
                                                                    ------------    ------------    ------------
            Net income                                              $ 13,479,001    $ 15,366,128    $ 15,376,728
                                                                    ============    ============    ============

            Weighted average shares - basic                           26,032,753      22,105,243      21,916,934
            Effect of dilutive securities:  Stock warrants               563,681         354,895         354,895
                                                                    ------------    ------------    ------------
            Weighted average shares - diluted                         26,596,434      22,460,138      22,271,829
                                                                    ============    ============    ============

            Basic earnings per share from
                continuing operations                               $        .70    $        .72    $        .72
            Discontinued operations                                         (.06)           (.02)           (.02)
            Extraordinary charge                                            (.12)             --              --
                                                                    ------------    ------------    ------------
            Basic earnings per share                                $        .52    $        .70    $        .70
                                                                    ============    ============    ============

            Diluted earnings per share from continuing operations   $        .68    $        .70    $        .71
            Discontinued operations                                         (.06)           (.02)           (.02)
            Extraordinary charge                                            (.11)             --              --
                                                                    ------------    ------------    ------------
            Diluted earnings per share                              $        .51    $        .68    $        .69
                                                                    ============    ============    ============
</TABLE>

      Operating Segments:

            Accounting standards have been established for the way public
            business enterprises report selected information about operating
            segments and guidelines for defining the operating segment of an
            enterprise. Based on the standards' definition, the Company has
            reported its real estate operations both domestically and
            internationally (see Note 15).

      Reclassifications:

            Certain prior year amounts have been reclassified to conform to the
            current year's financial statement presentation.

2.    Organization and Offering:

            The Company was formed on February 15, 1991 under the General
            Corporation Law of Maryland for the purpose of engaging in the
            business of investing in and owning industrial real estate. Subject
            to certain restrictions and limitations, the business of the Company
            is managed by Carey Asset Management Corp. (the "Advisor"). Pursuant
            to a public offering, which concluded in August 1993, the Company
            issued 14,167,581 shares of common stock.

3.    Business Combination with Corporate Property Associates 10 Incorporated:

            On May 1, 2002, the Company and Corporate Property Associates 10
            Incorporated (CPA(R):10"), a real estate investment trust managed by
            W. P. Carey & Co. LLC, completed a merger of CPA(R):10 with and into
            the Company pursuant to a Merger Agreement dated December 14, 2001.
            Under the terms of the merger, the Company is the surviving company.
            The total purchase price was $87,232,302, including transaction
            costs of $947,288. CPA(R):10 shareholders had the option of
            receiving either 0.8445 of a share of newly issued Company common
            stock for each CPA(R):10 common share that he or she owned or a
            promissory note bearing interest at the annual rate of 4% payable on
            or before December 31, 2004 for $11.23 per share of CPA(R):10 common
            stock. The exchange ratio for issuing shares of the Company to
            CPA(R):10 shareholders was determined based on independent
            valuations of each company. Shareholders holding 6,513,217 shares of
            CPA(R):10 common stock received 5,500,412 shares of


                                      -22-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            Company common stock ($73,155,478 according to the independent
            appraisal performed in connection with the transaction) and
            shareholders representing 1,045,315 shares of CPA(R):10 common stock
            elected to receive promissory notes with a total principal amount of
            $11,738,888. On December 27, 2002, the Company paid off the
            promissory notes at par. Shareholders holding 158,004 shares of
            CPA(R):10 common stock elected not to participate and their shares
            were redeemed for $1,774,385.

            The Company has accounted for the merger under the purchase method
            of accounting (see the accompanying Consolidated Statements of Cash
            Flows in the accompanying consolidated financial statements). The
            purchase price has been allocated to the assets and liabilities
            acquired based upon their fair values. The assets acquired consisted
            primarily of commercial real estate properties net leased to single
            corporate tenants and an interest in a real estate investment trust,
            Marcourt Investments, Inc. ("Marcourt"), that owns property net
            leased to a single tenant. The Company owned an approximate 23%
            interest in Marcourt prior to the acquisition of CPA(R):10. The
            liabilities acquired consisted primarily of limited recourse
            mortgage obligations and notes issued to former CPA(R):10
            shareholders who elected not to receive shares of the Company.
            Differences between the fair value of mortgages and notes payable
            and the stated amounts of such obligations are being amortized as an
            adjustment to interest expense over the remaining term of each
            obligation. The fair value of real estate and equity investment was
            based on independent appraisals. The fair value of mortgages and
            notes payable was determined by discounting the future cash flows
            using market rates as of the date of the merger.

            In connection with evaluating the fair value of its real estate
            assets, the Company assigned a portion of the value to leases to the
            extent that the rents on the acquired properties differed from the
            Company's estimate of fair market rentals. The fair value attributed
            to leases rather than land and buildings is being amortized over the
            remaining lease terms as an adjustment of rental income or interest
            income from direct financing leases.

4.    Mortgage Financing Through Loan Securitization:

            On August 28, 2002, The Company and three affiliates, W.P. Carey &
            Co. LLC ("W. P. Carey"), Corporate Property Associates 12
            Incorporated ("CPA(R):12") and Corporate Property Associates 14
            Incorporated obtained an aggregate of approximately $172,335,000 of
            limited recourse mortgage financing on 62 leased properties. The
            lender pooled the loans into a trust, Carey Commercial Mortgage
            Trust, a non-affiliate, whose assets consist solely of the loans and
            sold the loans, as collateralized mortgage obligations in a private
            placement to institutional investors (the "Offered Interests"). The
            Company and the three affiliates agreed to acquire a separate class
            of interests in the trust (the "CPA(R) Interests"). The amount of
            CPA(R) Interests acquired by the Company was proportional to the
            mortgage amounts obtained.

            All of the mortgage loans provide for payments of principal and
            interest at a stated annual rate of 7.5% and are based on a 25-year
            amortization schedule. Each loan is collateralized by mortgages on
            the properties and lease assignments. Under the lease assignments,
            the lessees direct their rent payment to the mortgage servicing
            company which in turn distributes amounts in excess of debt service
            requirements to the applicable lessors. Under certain limited
            conditions, a property may be released from its mortgage by the
            substitution of another property. Such substitution is subject to
            the approval of the trustee of the trust.

            The Offered Interests consist of $148,206,000 of mortgage loan
            balances with different tranches of principal entitled to
            distributions at annual interest rates as follows: $119,772,000 -
            5.97%, $9,478,000 - 6.58%, $9,478,000 - 7.18% and $9,478,000 -
            8.43%. The assumed final distribution dates for the four classes of
            Offered Interests range from December 2011 through March 2012.

            The CPA(R) Interests were purchased for $24,128,739 of which the
            Company's share was $10,616,645, or 44% and are comprised of two
            components, a component that will receive payments of principal and
            interest and a component that will receive payments of interest
            only. The CPA(R) Interests are subordinated to the Offered Interests
            and will be payable only when and if all distributions to the
            Offered Interests are current. The assumed final distribution date
            for the CPA(R) Interests is June 30, 2012. The distributions to the
            CPA(R) Interests do not have a stated rate of interest and will be
            affected by any shortfall in rents received from lessees or defaults
            at the mortgaged properties. As of the purchase date, the Company's
            cost basis attributable to the principal and interest and interest
            only components was $6,357,765 and $4,258,880, respectively. Over
            the term of its ownership interest in the CPA(R) Interests, the
            value of the interest only component will fully amortize to $0 and
            the principal and interest component will amortize to its
            anticipated face value of its share in the underlying mortgages


                                      -23-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            ($10,616,645). For financial reporting purposes, the effect of such
            amortization will be reflected in interest income. Interest income,
            including all related amortization, will be recognized using an
            effective interest method.

            The Company is accounting for its interest in the CPA(R) Interests
            as an available-for-sale security and it is measured at fair value
            with all gains and losses from changes in fair value reported as a
            component of other comprehensive income as part of shareholders'
            equity. As of December 31, 2002, the fair value of the Company's
            CPA(R) Interests was $11,014,711, reflecting an unrealized gain of
            $451,732 and amortization of $53,666. The fair value of the
            interests in the trust is determined using a discounted cash flow
            model with assumptions of market rates and the credit quality of the
            underlying lessees.

            The Company obtained new mortgage financing of $83,666,787 of which
            approximately $33,486,400 was used to payoff existing loans. In
            connection with paying off the loans, the Company incurred
            prepayment charges of $1,352,994. After paying off the loans,
            incurring costs in connection with obtaining the new mortgages,
            distributing $2,734,951 to two equity interests and purchasing its
            CPA(R) Interest in the trust, the Company retained cash of
            approximately $30,690,000. The loans which were paid off bore
            interest at annual rates ranging from 8.125% to 11%.

            The principal amount of loans obtained, which are collateralized by
            real estate with a carrying value of $105,136,990, were as follows:

<TABLE>
<CAPTION>
          Lease Obligor                               Loan Amount      Annual Debt Service         Maturity Date
          -------------                               -----------      -------------------         -------------
<S>                                                   <C>              <C>                         <C>
          ShopRite Supermarkets, Inc.                 $15,570,000           $1,380,734             July 2010 and September 2011
          Garden Ridge Corporation                     13,136,946            1,164,976             October 2009 and May 2010
          Childtime Childcare, Inc.                    11,567,709            1,025,815             January 2011 and June 2010
          Merit Medical Systems, Inc.                   9,180,000              814,073             October 2011
          Barnes & Noble, Inc.                          8,735,682              774,673             November 2009 and September 2012
          Q Clubs, Inc.                                 7,895,224              700,142             September 2009 and December 2010
          Hibbett Sporting Goods, Inc.                  5,139,462              455,762             April 2010
          Superior Telecommunications, Inc.             4,547,071              403,229             September 2009
          UTI Holdings, Inc.                            3,268,862              289,879             July 2012
          Petsmart, Inc.                                3,031,808              268,858             December 2009
          US West Communications, Inc.                  1,594,023              141,356             June 2012
                                                      -----------           ----------
                                                      $83,666,787           $7,419,497
                                                      ===========           ==========
</TABLE>

            The loans paid off were as follows:

<TABLE>
<CAPTION>
         Lease Obligor                                Loan Amount      Annual Debt Service
         -------------                                -----------      -------------------
<S>                                                   <C>              <C>
         Garden Ridge Corporation                     $ 6,775,746           $  817,992
         ShopRite Supermarkets, Inc.                    6,721,104              755,280
         Childtime Childcare, Inc.                      5,516,637              707,172
         Merit Medical Systems, Inc.                    5,328,730              742,356
         Barnes & Noble, Inc.                           4,788,074              642,447
         Hibbett Sporting Goods, Inc.                   2,459,952              293,796
         Petsmart, Inc.                                 1,896,210              273,417
                                                      -----------           ----------
                                                      $33,486,453           $4,232,460
                                                      ===========           ==========
</TABLE>

            The Company jointly-owns properties leased to Childtime Childcare
            Inc. and ShopRite Supermarkets, Inc. (formerly Big V Holding Corp.)
            with W.P. Carey and CPA(R):12, respectively. In connection with
            structuring the transaction, the jointly-owned properties were
            contributed to limited partnerships with the Company owning majority
            interests as general partner. The accounts of the limited
            partnerships are consolidated in the accounts of the Company, with
            the interests of W.P. Carey and CPA(R):12 reflected as minority
            interests.

            The key variable in determining the fair value of the CPA(R)
            Interests is current interest rates. As required by SFAS No. 140,
            "Accounting for Transfer and Servicing of Financial Assets and
            Extinguishments of Liabilities," a sensitivity analysis of the
            current value of the CPA(R) Interests based on adverse changes in
            the market interest rates of 1% and 2% is as follows:


                                      -24-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

<TABLE>
<CAPTION>
                                                                        Actual          1% Adverse Change    2% Adverse Change
                                                                        ------          -----------------    -----------------
<S>                                                                  <C>                <C>                  <C>
         Interest rate                                                   7.5%                  8.5%                9.5%
         Fair value of CPA(R) Interests                              $11,014,711           $10,470,909          $9,965,417
</TABLE>

            The above sensitivity is hypothetical and changes in fair value
            based on a 1% or 2% variation should not be extrapolated because the
            relationship of the change in assumption to the change in fair value
            may not always be linear.

5.    Transactions with Related Parties:

            In connection with performing services on behalf of the Company, the
            Advisory Agreement between the Company and the Advisor provides that
            the Advisor receive asset management and performance fees, each of
            which are 1/2 of 1/% of Average Invested Assets as defined in the
            Advisory Agreement. The performance fee is subordinated to the
            Preferred Return, a cumulative non-compounded dividend return of 7%
            (based on an initial issuance of shares at $10). The Advisor has
            elected at its option to receive the performance fee in restricted
            shares of common stock of the Company rather than cash. The Advisor
            is also reimbursed for the actual cost of personnel needed to
            provide administrative services necessary to the operation of the
            Company. The Company incurred asset management fees of $3,343,870,
            $2,753,759 and $2,761,896 in 2002, 2001, and 2000 respectively, with
            performance fees in like amount. The Company incurred personnel
            reimbursements of $1,509,832, $1,161,996 and $1,107,736 in 2002,
            2001, and 2000, respectively.

            Fees are payable to the Advisor for services provided to the Company
            relating to the identification, evaluation, negotiation, financing
            and purchase of properties and refinancing of mortgages. For
            transactions and refinancings that were completed in 2002, 2001 and
            2000, fees were $654,632, $60,625 and $625,468, respectively.

            The Advisor is obligated to reimburse the Company for the amount by
            which operating expenses of the Company exceeds the 2%/25%
            Guidelines (the greater of 2% of Average Invested Assets or 25% of
            Net Income) as defined in the Advisory Agreement for any
            twelve-month period. If in any year the operating expenses of the
            Company exceed the 2%/25% Guidelines, the Advisor will have an
            obligation to reimburse the Company for such excess, subject to
            certain conditions. Only if the Independent Directors find that such
            excess expenses were justified based on any unusual and nonrecurring
            factors which they deem sufficient, the Advisor may be paid in
            future years for the full amount or any portion of such excess
            expenses, but only to the extent that such reimbursement would not
            cause the Company's operating expenses to exceed this limit in any
            such year. Charges related to asset impairment, bankruptcy of
            lessees, lease payment defaults, extinguishment of debt or uninsured
            losses are generally not considered unusual and nonrecurring. A
            determination that a charge is unusual and nonrecurring, such as the
            costs of significant litigation that are not associated with day-to
            day operations, or uninsured losses that are beyond the size or
            scope of the usual course of business based on the event history and
            experience of the Advisor and Independent Directors, is made at the
            sole discretion of the Independent Directors. The Company will
            record any reimbursement of operating expenses as a liability until
            any contingencies are resolved and will record the reimbursement as
            a reduction of asset management and performance fees at such time
            that a reimbursement is fixed, determinable and irrevocable. The
            operating expenses of the Company have not exceeded the amount that
            would require the Advisor to reimburse the Company.

            The Advisor will be entitled to receive subordinated disposition
            fees based upon the cumulative proceeds arising from the sale of
            Company assets since the inception of the Company, subject to
            certain conditions. Pursuant to the subordination provisions of the
            Advisory Agreement, the disposition fees may be paid only after the
            shareholders receive 100% of their initial investment from the
            proceeds of asset sales and a cumulative annual return of 6% (based
            on an initial share price of $10) since the inception of the
            Company. The Advisor's interest in such disposition fees amounts to
            $1,001,865 as of December 31, 2002. Payment of such amount, however,
            cannot be made until the subordination provisions are met.
            Management has concluded that payment of such disposition fees is
            probable and all fees from completed property sales have been
            accrued. Subordinated disposition fees are included in the
            determination of realized gain or loss on the sale of properties.
            The obligation for disposition fees is included in due to affiliates
            in the accompanying consolidated financial statements.

            The Company owns interests in limited partnerships and limited
            liability companies which range from 33.33% to 63% and a
            jointly-controlled 50% tenancy-in-common interest in a property with
            the remaining interests held by


                                      -25-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            affiliates. Controlling interests in jointly-owned entities are
            consolidated and non-controlled interests in which the Company has a
            significant interest are accounted for under the equity method of
            accounting.

            The Company is a participant in an agreement with certain affiliates
            for the purpose of leasing office space used for the administration
            of real estate entities and for sharing the associated costs.
            Pursuant to the terms of the agreement, the Company's share of
            rental, occupancy and leasehold improvement costs is based on gross
            revenues. Expenses incurred in 2002, 2001, 2000 were $286,796,
            $205,366, and $167,458 respectively. The Company's current share of
            future minimum lease payments is $775,729 through 2006.

            In 1997, the Company's shareholders approved a proposal to grant
            warrants for the Company's common stock in lieu of cash compensation
            in consideration for raising capital in a private placement to
            institutional investors. Under the plan, W. P. Carey & Co., Inc. was
            granted, subject to the approval of the Company's Board of
            Directors, 3,956,447 warrants at exercise prices ranging from $10 to
            $12.80 per share. The warrants are exercisable over a ten-year
            period.

6.    Real Estate Leased to Others Accounted for Under the Operating Method:

            Scheduled future minimum rents, exclusive of renewals, under
            non-cancelable operating leases amount to approximately $35,824,000
            in 2003; $35,158,000 in 2004; $33,364,000 in 2005; $32,552,000 in
            2006; $30,728,000 in 2007 and aggregate approximately $361,029,000
            through 2020.

            Contingent rents (including percentage rents and CPI-based
            increases) were approximately $1,573,000, $1,731,000 and $1,134,000
            in 2002, 2001 and 2000, respectively.

7.    Net Investment in Direct Financing Leases:

            Net investment in direct financing leases is summarized as follows:

<TABLE>
<CAPTION>
                                                        December 31,
                                                        ------------
                                                     2002           2001
                                                     ----           ----
<S>                                             <C>            <C>
            Minimum lease payments receivable   $230,082,139   $180,076,202
            Unguaranteed residual value          131,359,885     99,322,325
                                                ------------   ------------
                                                 361,442,024    279,398,527
            Less: unearned income                227,486,469    177,900,492
                                                ------------   ------------
                                                $133,955,555   $101,498,035
                                                ============   ============

</TABLE>
            Scheduled future minimum rents, exclusive of renewals, under
            non-cancelable direct financing leases amount to approximately
            $15,418,000 in 2003; $15,629,000 in 2004; $15,721,000 in 2005;
            $15,710,000 in 2006; $25,710,000 in 2007 and aggregate approximately
            $230,082,000 through 2024.

            Contingent rents (including CPI-based increases) were approximately
            $752,000, $473,000 and $425,000 and in 2002, 2001 and 2000,
            respectively.

8.    Mortgage Notes Payable:

            Mortgage notes payable, all of which are limited recourse
            obligations, are collateralized by the assignment of various leases
            and by real property with a carrying value of approximately
            $404,981,000. As of December 31, 2002, mortgage notes payable had
            fixed interest rates ranging from 6.950% to 10.00% per annum and
            variable interest rates ranging from 5.438% to 9.625%.


                                      -26-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            Scheduled principal payments during each of the five years following
            December 31, 2002 and thereafter are as follows:

<TABLE>
<CAPTION>
           Year Ending December 31,    Total Debt          Fixed Rate Debt      Variable Rate Debt
           ------------------------    ----------          ---------------      ------------------
<S>                                    <C>                 <C>                  <C>
                 2003                  $ 15,436,228         $ 13,944,493           $ 1,491,735
                 2004                    18,885,949           14,635,056             4,250,893
                 2005                    11,544,584            7,515,034             4,029,550
                 2006                     5,039,522            4,834,322               205,200
                 2007                    14,975,202           14,718,702               256,500
                 Thereafter             185,698,094          178,307,590             7,390,504
                                       ------------         ------------           -----------
                    Total              $251,579,579         $233,955,197           $17,624,382
                                       ============         ============           ===========
</TABLE>

            Interest paid, excluding capitalized interest, was $15,769,528,
            $13,875,312 and $13,876,301 in 2002, 2001 and 2000, respectively.
            Capitalized interest was $327,477 and $235,515 in 2002 and 2001,
            respectively. No interest was capitalized in 2000.

9.    Dividends:

            Dividends paid to shareholders consist of ordinary income, capital
            gains, return of capital or a combination thereof for income tax
            purposes. For the years ended December 31, 2002, 2001 and 2000,
            dividends paid per share were reported as follows for tax purposes:

<TABLE>
<CAPTION>
                                  2002       2001       2000
                                  ----       ----       ----
<S>                             <C>        <C>        <C>
            Ordinary income     $    .48   $    .59   $    .61
            Capital gains             --        .05         --
            Return of capital        .37        .20        .22
                                --------   --------   --------
                                $    .85   $    .84   $    .83
                                ========   ========   ========
</TABLE>

            A dividend of $.2133 per share for the quarter ended December 31,
            2002 ($5,938,632) was declared in December 2002 and paid in January
            2003.

10.   Lease Revenues:

            The Company's operations consist of the investment in and the
            leasing of industrial and commercial real estate. The financial
            reporting sources of the leasing revenues are as follows:

<TABLE>
<CAPTION>
                                                                    2002            2001            2000
                                                                    ----            ----            ----
<S>                                                            <C>             <C>             <C>
            Per Statements of Income:
                Rental income from operating leases            $ 33,941,070    $ 28,214,756    $ 27,633,916
                Interest income from direct financing leases     14,645,638      12,372,019      12,306,721
            Adjustments:
                Share of leasing revenues applicable to
                   minority interest                             (4,040,861)     (1,760,787)     (1,770,596)
                Share of leasing revenues from equity
                   investments                                   16,185,418      12,076,852      11,611,950
                                                               ------------    ------------    ------------
                                                               $ 60,731,265    $ 50,902,840    $ 49,781,991
                                                               ============    ============    ============
</TABLE>


                                      -27-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            The Company earned its share of net leasing revenues in 2002, 2001
            and 2000 from its direct and indirect ownership of real estate from
            the following lease obligors:

<TABLE>
<CAPTION>
                                                       2002       %           2001      %           2000      %
                                                   -----------   ---    -----------    ---    -----------    ---
<S>                                                <C>           <C>    <C>            <C>    <C>            <C>
            Marriott International, Inc.(1)        $ 7,237,343    12%   $ 4,510,253      9%   $ 4,466,178      9%
            Omnicom Group, Inc.                      4,290,542     7      4,265,378      8      4,265,378      9
            Advanced Micro Devices, Inc.(1)          3,258,938     5      3,048,500      6      3,048,500      6
            Best Buy Co., Inc.(2)                    2,979,273     5      2,998,098      6      3,014,798      6
            Electronic Data Systems Corporation      2,872,979     5      2,466,762      5      2,358,928      5
            Information Resources, Inc.(3)           2,278,701     4             --     --             --     --
            Big V Holding Corp.(2)                   2,086,778     4      2,068,860      4      2,052,967      4
            Lucent Technologies, Inc.                1,989,685     3      1,852,829      3      1,852,829      4
            UTI Holdings, Inc.                       1,767,869     3      1,615,056      3      1,252,252      2
            Garden Ridge Corporation                 1,581,820     3      1,546,281      3      1,496,217      3
            Titan Corporation(3)                     1,484,449     3             --     --             --     --
            Sicor, Inc.(1)                           1,472,736     2      1,472,736      3      1,472,736      3
            Merit Medical Systems, Inc.              1,465,404     2      1,465,404      3      1,451,894      3
            The Upper Deck Company(1)                1,452,220     2      1,419,134      3      1,319,875      3
            Barnes & Noble, Inc.                     1,450,536     2      1,431,117      3      1,413,962      3
            Q Clubs, Inc.                            1,448,279     2      1,407,393      3      1,343,372      3
            Compucom Systems, Inc.(1)                1,382,199     2      1,304,666      2      1,304,666      3
            Del Monte Corporation(1), (4)            1,381,982     2      1,286,250      2      1,286,250      2
            Michigan Mutual Insurance Company        1,363,031     2      1,362,959      3      1,362,893      3
            Plexus Corp.                             1,268,693     2      1,268,693      2      1,212,504      2
            Bell Sports, Inc.                        1,175,071     2      1,146,221      2      1,108,341      2
            Environworks, Inc.                       1,161,274     2             --     --             --     --
            New Wai, L.P. / Warehouse Associates     1,146,709     2             --     --             --     --
            Childtime Childcare, Inc.(3)             1,137,763     2        648,892      1        628,871      1
            Detroit Diesel Corporation                 908,037     2        897,934      2        868,239      2
            Gloystarne & Co., Inc.                     902,164     2        827,633      2        836,652      2
            PSC Scanning, Inc.                         881,186     1        862,833      2        835,221      2
            Custom Food Products, Inc.                 873,929     1        855,484      2        833,046      2
            Humco Holding Group                        849,853     1        845,727      2        825,100      2
            Nicholson Warehouse L.P.                   805,353     1        808,069      2        815,414      2
            GATX Logistics, Inc.                       794,893     1        794,893      2        794,893      1
            Hibbett Sporting Goods, Inc.               784,224     1        777,015      2        740,972      1
            Superior Telecommunications, Inc.          642,568     1        648,745      1        647,092      1
            ISA International plc                      593,989     1        569,317      1        479,941     --
            Petsmart, Inc.                             521,598     1        514,716      1        505,586      1
            Other(5)                                 3,039,197     7      3,914,992      7      3,886,424      8
                                                   -----------   ---    -----------    ---    -----------    ---
                                                   $60,731,265   100%   $50,902,840    100%   $49,781,991    100%
                                                   ===========   ===    ===========    ===    -----------    ===
</TABLE>

      (1)   Represents the Company's proportionate share of revenues from its
            equity investment.

      (2)   Net of amount applicable to CPA(R):12's minority interest.

      (3)   Net of amount applicable to W. P. Carey & Co. LLC's minority
            interest.

      (4)   As of October 1, 2001, interest in these properties were transferred
            to a limited liability company and are accounted for under the
            equity method.

      (5)   Net of ground lease rental expense of approximately $133,000,
            $80,000 and $74,000 in 2002, 2001 and 2000, respectively.

11.   Equity Investments:

            The Company owns a 47.3% interest in Marcourt Investments, Inc.
            ("Marcourt"), a real estate investment trust which net leases 13
            hotel properties to a wholly-owned subsidiary of Marriott
            International, Inc. with the remaining interests owned by a
            non-affiliate. The Company also owns interests with affiliates in
            properties leased to corporations through equity interests in
            various partnerships and limited liability companies and a
            tenancy-in-common interest subject to joint control. The ownership
            interests range from 33.33% to 50%, and the underlying


                                      -28-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            investments are owned with affiliates that have similar investment
            objectives as the Company. The lessees are Sicor Inc., The Upper
            Deck Company, Advanced Micro Devices, Inc., Compucom Systems, Inc.
            and Del Monte Corporation.

            Distributions and allocations of income or loss from equity
            investees are based on ownership percentages and no fees are paid by
            the Company or the partnerships to any of the general partners of
            the limited partnerships.

            Summarized combined financial information of the Company's equity
            investees is as follows:

<TABLE>
<CAPTION>
            (In thousands)                                               December 31,
                                                                         ------------
                                                                       2002       2001
                                                                       ----       ----
<S>                                                                  <C>        <C>
            Assets (primarily real estate)                           $343,846   $347,429
            Liabilities (primarily limited recourse mortgage notes
               payable)                                               212,820    220,750
            Capital                                                   131,026    126,679
</TABLE>

<TABLE>
<CAPTION>
            (In thousands)                                    Year Ended December 31,
                                                            ---------------------------
                                                               2002      2001      2000
                                                            -------   -------   -------
<S>                                                         <C>       <C>       <C>
            Revenues (primarily rental revenues)            $42,026   $38,667   $37,533
            Expenses (primarily interest on mortgages and
               depreciation)                                 21,285    21,031    21,159
                                                            -------   -------   -------
            Net income                                      $20,741   $17,636   $16,374
                                                            =======   =======   =======
</TABLE>

12.   Gains (Losses) on Sale of Real Estate and Securities:

            2002

            In December 2002, the Company sold a vacant property in Farmingdale,
            New York formerly leased to Waban, Inc. ("Waban") for $6,743,251 and
            recognized a loss on sale of $167,403. In 2001, in connection with
            the proposed sale, the property was written down to its estimated
            fair value and an impairment charge of $2,300,000 was recognized. As
            of December 31, 2001, the $6,910,554 carrying value of the Waban
            property was classified as held for sale, and the property was
            subsequently sold in December 2002. The Waban property generated
            operating losses of $831,494 in 2002 and operating income of
            $440,005 in 2001. The reclassification to assets held for sale was
            effective as of December 31, 2001, and, therefore, such
            reclassification had no effect on depreciation expense in 2001. The
            effect of suspending depreciation expense in 2002 as a result of
            reclassification as a held for sale asset was $89,039.

            In May 2002 the Company sold a property in Little Rock, Arkansas
            leased to Affiliated Southwest, Inc for $297,452 and recognized a
            gain of $8,874.

            In June 1993, the Company was granted warrants to purchase 194,356
            shares of common stock of Merit Medical Systems, Inc. ("Merit
            Medical") at an exercise price of $4.87 (as adjusted for subsequent
            stock split) in connection with structuring a net lease with Merit
            Medical. In March 2002, the Company sold its warrant position in
            Merit Medical and realized a gain on sale of $1,992,078. Changes in
            the fair value of the warrants had been recognized for financial
            statement purposes have been included in the determination of
            income. In connection with the sale, the Company reversed the
            unrealized appreciation on the Merit Medical warrants of $2,128,000,
            representing the cumulative fair value that had been recognized in
            the determination of income in prior periods.

            2001

            In September 2001, the Company sold six retail properties leased to
            Wal-Mart Stores, Inc. for $7,445,932, net of costs, and realized a
            gain on sale of $1,086,755.


                                      -29-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            In June 2001, the Company sold its interest in a vacant property in
            Texarkana, Arkansas for $609,161, net of closing costs, and incurred
            a realized loss of $38,420 on the sale. An impairment charge of
            $143,919 was recognized in 2000 in connection with the agreement to
            sell the property.

            2000

            The Company sold a vacant property in Clarksdale, Mississippi in
            March 2000 for a nominal amount. An impairment loss of $412,067 was
            recognized in 1999 in connection with the agreement to sell the
            property was recognized in 1999. A gain of $24,269 was realized in
            connection with the sale.

13.   Discontinued Operations and Impairment Charges:

            In addition to the impairment charges recognized on the Waban and
            Texarkana properties in 2001 and 2000, respectively, described in
            Note 12, the Company also recognized impairment charges as follows:

            The Company owns a property in Austin, Texas which is held for sale
            with a carrying value of $2,500,000 as of December 31, 2002 and
            which it expects to sell within the next twelve months. In
            connection with an evaluation of the fair value of the property the
            Company has recognized an impairment charge of $1,090,347 in 2002,
            included in discontinued operations in the accompanying consolidated
            financial statements. As a result of classifying the properties as
            held for sale, no depreciation has been incurred from the date of
            reclassification. The effect of suspending depreciation expense was
            $92,316 in 2002 and had no effect in 2001 and 2000.

            The Company owns a property in Maple Heights, Ohio leased to
            Nicholson Warehouse, L.P. ("Nicholson"). Because of a prolonged
            weakness in Nicholson's financial condition and the risk that
            Nicholson will not meet its lease obligations, the Company recorded
            an impairment charge of $2,000,000 in 2001. An additional impairment
            charge of $1,550,000 was recorded in 2002.

            In accordance with SFAS No. 144, "Accounting for the Impairment or
            Disposal of Long-Lived Assets", effective for financial statements
            issued for fiscal years beginning after December 15, 2001, the
            results of operations and gain or loss on sales of real estate for
            properties sold or held for sale are to be reflected in the
            consolidated statements of operations as "Discontinued Operations"
            for all periods presented. The provisions of SFAS No. 144 are
            effective for disposal activities initiated by the Company's
            commitment to a plan of disposition after the date it is initially
            applied (January 1, 2002). The Waban property was held for sale as
            of December 31, 2001 and, therefore, is not included in discontinued
            operations.

            As of December 31, 2002, the operations of a vacant property in
            Austin, Texas which is held for sale and a property in Little Rock,
            Arkansas which was sold in June 2002 are included as "Discontinued
            Operations." A summary of Discontinued Operations for the years
            ended December 31, 2002, 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                             -----------------------
                                                                         2002         2001         2000
                                                                         ----         ----         ----
<S>                                                                   <C>            <C>          <C>
            Revenues (primarily rental revenues and  miscellaneous
               income)                                                $    11,565    $  15,000    $  15,000
            Expenses (primarily interest on mortgages, depreciation
               and property expenses)                                    (419,548)    (498,310)    (514,967)
            Impairment charge on real estate                           (1,090,347)          --           --
            Gain on sale of real estate                                     8,874           --           --
                                                                      -----------    ---------    ---------
                 Loss from discontinued operations                    $(1,489,456)   $(483,310)   $(499,967)
                                                                      ===========    =========    =========
</TABLE>

14.   Extraordinary Charge on Early Extinguishment of Debt:

            In February 2002, the Company paid off a mortgage loan of
            $25,743,178 on the properties leased to Best Buy, Inc. ("Best Buy")
            and incurred an extraordinary charge on the early extinguishment of
            debt of $1,314,422 consisting of a prepayment premium of $2,086,384,
            net of a minority interest share of $771,962. The Company
            subsequently obtained new limited recourse mortgage financing on the
            Best Buy properties of $28,500,000. The new loan


                                      -30-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            provides for monthly payments of $210,427 at an annual interest rate
            of 7.49% based on a 25-year amortization schedule and matures in May
            2012. The retired loan provided for monthly debt service payments of
            $291,290.

            The Company paid prepayment premiums of $1,352,995 and wrote off
            deferred financing costs of $429,261 in connection with paying off
            $33,486,452 of mortgage loans in connection with the mortgage
            securitization transaction and the pay off of another mortgage loan
            in December 2002. Net of amounts applicable to minority interests of
            $239,391, the Company recognized a charge of $1,542,865.

            In connection with paying off promissory notes that were issued in
            connection with the merger with CPA(R):10 and had a maturity date of
            December 31, 2004, the Company incurred a charge on extinguishment
            of $287,802, representing a noncash charge for the difference
            between the carrying amount of the notes payable and the par value
            at which the notes were paid off (see Note 3).

15.   Disclosures About Fair Value of Financial Instruments:

            The Company estimates that the fair value of mortgage notes payable
            at December 31, 2002 and 2001 was approximately $257,293,000 and
            $154,249,000 respectively. The fair value of debt instruments was
            evaluated using a discounted cash flow model with rates which take
            into account the credit of the tenants and interest rate risks.

16.   Segment Information:

            The Company has determined that it operates in one business segment,
            real estate operations with domestic and foreign investments. The
            Company acquired its first foreign real estate investment in
            December 1999 and currently has investments in the United Kingdom
            and France.

            For 2002, geographic information for the real estate operations
            segment is as follows:

<TABLE>
<CAPTION>
                                               Domestic       Foreign     Total Company
                                               --------       -------     -------------
<S>                                          <C>            <C>           <C>
            Revenues                         $ 47,329,003   $ 2,017,014   $ 49,346,017
            Expenses                           36,404,751     1,297,455     37,702,206
            Income from equity investments      8,865,740            --      8,865,740
            Net operating income(1)            17,861,532       578,399     18,439,931
            Total assets                      522,418,896    27,807,999    550,226,895
            Total long-lived assets           475,917,418    25,650,749    501,568,167
</TABLE>

            For 2001, geographic information for the real estate operations
            segment is as follows:

<TABLE>
<CAPTION>
                                               Domestic       Foreign     Total Company
                                               --------       -------     -------------
<S>                                          <C>            <C>           <C>
            Revenues                         $ 39,690,964   $ 1,416,261   $ 41,107,225
            Expenses                           31,687,768     1,282,315     32,970,083
            Income from equity investments      5,411,560            --      5,411,560
            Net operating income(1)            12,534,724       138,379     12,673,103
            Total assets                      346,944,404    22,362,238    369,306,642
            Total long-lived assets           329,060,109    20,146,784    349,206,893

            For 2000, geographic information for the real estate operations
            segment is as follows:
</TABLE>

<TABLE>
<CAPTION>
                                               Domestic       Foreign     Total Company
                                               --------       -------     -------------
<S>                                          <C>            <C>           <C>
            Revenues                         $ 39,289,847   $ 1,327,738   $ 40,617,585
            Expenses                           28,219,390       656,620     28,876,010
            Income from equity investments      4,943,863            --      4,943,863
            Net operating income(1)            15,181,308       671,118     15,852,426
            Total assets                      365,571,046    14,637,575    380,208,621
            Total long-lived assets           355,846,651    14,074,076    369,920,727
</TABLE>

            (1) Net operating income (loss) is after minority interest and
            excludes gains and losses and extraordinary items.

17.   Accounting Pronouncements:


                                      -31-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            In July 2001, the Financial Accounting Standards Board ("FASB")
            issued Statements of Financial Accounting Standards ("SFAS") No. 141
            "Business Combinations" and No. 142 "Goodwill and Other
            Intangibles," which establish accounting and reporting standards for
            business combinations and certain assets and liabilities acquired in
            business combinations.

            SFAS No. 141 requires that all business combinations initiated after
            June 30, 2001 be accounted for under the purchase method,
            establishes specific criteria for the recognition of intangible
            assets separately from goodwill and requires that unallocated
            negative goodwill be written off immediately as an extraordinary
            gain. Use of the pooling-of-interests method for business
            combinations is no longer permitted. The adoption of SFAS 141 did
            not have a material effect on the Company's financial statements.

            SFAS No. 142 primarily addresses the accounting for goodwill and
            intangible assets subsequent to their acquisition and the accounting
            for asset acquisitions. The provisions of SFAS No. 142 are effective
            for fiscal years beginning after December 15, 2001 and must be
            adopted at the beginning of a fiscal year. SFAS No. 142 provides
            that goodwill and indefinite-lived intangible assets will no longer
            be amortized but will be tested for impairment at least annually.
            Intangible assets acquired and liabilities assumed in business
            combinations will only be amortized if such assets and liabilities
            are capable of being separated or divided and sold, transferred,
            licensed, rented or exchanged or arise from contractual or legal
            rights (including leases), and will be amortized over their useful
            lives. The adoption of SFAS 142 did not have a material effect on
            the Company's financial statements.

            In June 2001, FASB issued SFAS No. 143 "Accounting for Asset
            Retirement Obligations." SFAS No. 143 was issued to establish
            standards for the recognition and measurement of an asset retirement
            obligation. SFAS No. 143 requires retirement obligations associated
            with tangible long-lived assets to be recognized at fair value as
            the liability is incurred with a corresponding increase in the
            carrying amount of the related long-lived asset. SFAS No. 143 is
            effective for financial statements issued for fiscal years beginning
            after June 15, 2002. The Company does not expect SFAS No. 143 to
            have a material effect on its financial statements.

            In August 2001, FASB issued SFAS No. 144 "Accounting for the
            Impairment of Long-Lived Assets" which addresses the accounting and
            reporting for the impairment and disposal of long-lived assets and
            supercedes SFAS No. 121 while retaining SFAS No. 121's fundamental
            provisions for the recognition and measurement of impairments. SFAS
            144 removes goodwill from its scope, provides for a
            probability-weighted cash flow estimation approach for analyzing
            situations in which alternative courses of action to recover the
            carrying amount of long-lived assets are under consideration and
            broadens that presentation of discontinued operations to include a
            component of an entity. The adoption of SFAS 144 did not have a
            material effect on the Company's financial statements; however, the
            revenues and expenses relating to an asset held for sale or sold
            must be presented as a discontinued operation for all periods
            presented.

            In May 2002, FASB issued SFAS No. 145 "Rescission of SFAS Nos. 4, 44
            and 64, Amendment of SFAS No. 13 and Technical Corrections" which
            eliminates the requirement that gains and losses from the
            extinguishment of debt be classified as extraordinary items unless
            it can be considered unusual in nature and infrequent in occurrence.
            The provisions of SFAS No. 145 are effective for fiscal years
            beginning after May 15, 2002. Early adoption is permitted. Upon
            adoption, the Company will no longer classify gains and losses for
            the extinguishment of debt as extraordinary items and will adjust
            comparative periods presented. The Company has not elected early
            adoption.

            In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
            Disposal Activities". SFAS No. 146 addresses significant issues
            regarding the recognition, measurement, and reporting of costs that
            are associated with exit and disposal activities, including
            restructuring activities that are currently accounted for pursuant
            to the guidance that the Emerging Issues Task Force ("EITF") has set
            forth in EITF Issue No. 94-3, "Liability Recognition for Certain
            Employee Termination Benefits and Other Costs to Exit an Activity
            (including Certain Costs Incurred in a Restructuring)". The
            provisions of this Statement are effective for exit or disposal
            activities that are initiated after December 31, 2002, with early
            application encouraged. The Company does not expect SFAS No. 146 to
            have a material effect on its financial statements.

            In October 2002, the FASB issued SFAS No. 147, "Acquisition of
            Certain Financial Institutions" which amends SFAS No. 72, SFAS No.
            144 and FASB Interpretation No. 9. SFAS No. 147 provides guidance on
            the accounting for the acquisitions of certain financial
            institutions and includes long-term customer relationships as
            intangible


                                      -32-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            assets within the scope of SFAS No. 144. The Company does not expect
            SFAS No. 147 to have a material effect on its financial statements.

            In November 2002, the FASB issued Interpretation No. 45,
            "Guarantor's Accounting and Disclosure Requirements for Guarantees,
            Including Indirect Guarantees of Indebtedness of Others," ("FIN 45")
            which changes the accounting for, and disclosure of certain
            guarantees. Beginning with transactions entered into after December
            31, 2002, certain guarantees are required to be recorded at fair
            value, which is different from prior practice, under which a
            liability was recorded only when a loss was probable and reasonably
            estimable. In general, the change applies to contracts or
            indemnification agreements that contingently require the Company to
            make payments to a guaranteed third-party based on changes in an
            underlying asset, liability, or an equity security of the guaranteed
            party. The accounting provisions only apply for certain new
            transactions entered into and existing guarantee contracts modified
            after December 31, 2002. The adoption of the accounting provisions
            of FIN 45 is not expected to have a material effect on the Company's
            financial statements.

            In December 2002, the FASB issued SFAS No. 148, "Accounting for
            Stock-Based Compensation - Transition and Disclosure," which amends
            SFAS No. 123, Accounting for Stock Based Compensation. SFAS No. 148
            provides alternative methods of transition for a voluntary change to
            the fair value based method of accounting for stock based
            compensation (i.e., recognition of a charge for issuance of stock
            options in the determination of income.). However, SFAS No. 148 does
            not permit the use of the original SFAS No. 123 prospective method
            of transition for changes to the fair value based method made in
            fiscal years beginning after December 15, 2003. In addition, this
            Statement amends the disclosure requirements of SFAS No. 123 to
            require prominent disclosures in both annual and interim financial
            statements about the method of accounting for stock based employee
            compensation, description of transition method utilized and the
            effect of the method used on reported results. The transition and
            annual disclosure provisions of SFAS No. 148 are to be applied for
            fiscal years ending after December 15, 2002. The Company does not
            have any employees nor any stock-based compensation plans.

            On January 17, 2003, the FASB issued Interpretation No. 46,
            "Consolidation of Variable Interest Entities" ("FIN 46"), the
            primary objective of which is to provide guidance on the
            identification of entities for which control is achieved through
            means other than voting rights ("variable interest entities" or
            "VIEs") and to determine when and which business enterprise should
            consolidate the VIE (the "primary beneficiary"). This new model
            applies when either (1) the equity investors (if any) do not have a
            controlling financial interest or (2) the equity investment at risk
            is insufficient to finance that entity's activities without
            additional financial support. In addition, FIN 46 requires both the
            primary beneficiary and all other enterprises with a significant
            variable interest in a VIE make additional disclosures. The
            transitional disclosures requirements will take effect almost
            immediately and are required for all financial statements initially
            issued after January 31, 2003. The Company's maximum loss exposure
            is the carrying value of its equity investments. The Company is
            assessing the impact of this interpretation on its accounting for
            its investments in unconsolidated joint ventures and believes the
            adoption will not have a material effect on the Company's financial
            statements.

            8. Selected Quarterly Financial Data (unaudited):

<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                March 31, 2002       June 30, 2002         September 30, 2002     December 31, 2002
                                                ----------------   ----------------        ----------------     ----------------
<S>                                             <C>                <C>                     <C>                  <C>
Revenues                                        $      9,722,035   $     12,038,261        $     13,564,194     $     14,021,527
Expenses (1)                                           6,580,796          8,201,473              10,053,258           12,866,679
Income from continuing operations (2)                  4,785,792          5,293,493               5,241,152            2,793,109
Income from continuing operations per share -
    Basic                                                    .22                .20                     .19                  .10
    Diluted                                                  .21                .20                     .18                  .10
Income before extraordinary item (3)                   4,660,055          5,157,576               4,095,987            2,710,472
Income before extraordinary item per share
    Basic                                                    .21                .20                     .15                  .10
    Diluted                                                  .20                .19                     .14                  .10
Net income (4)                                         3,345,634          5,157,576               2,564,760            2,411,031
Net income per share -
    Basic                                                    .15                .20                     .09                  .09
    Diluted                                                  .15                .19                     .09                  .08
Dividends declared per share                               .2127              .2129                   .2131                .2133
</TABLE>


                                      -33-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

(1)   Includes an impairment loss on real estate of $1,550,000 for the
      three-month period ended December 31, 2002.

(2)   Includes realized and unrealized losses of $135,322, $28,794, $4,645 and
      $57,624 for the three-month periods ended March 31, 2002, June 30, 2002,
      September 30, 2002 and December 31, 2002, respectively.

(3)   Includes income (loss) from discontinued operations of $2,090, $14,679,
      $(1,423,588) and $(82,637) for the three-month periods ended March 31,
      2002, June 30, 2002, September 30, 2002 and December 31, 2002,
      respectively.

(4)   Includes extraordinary charges on early extinguishment of debt of
      $1,314,421 and $1,531,227 for the three-month periods ended March 31, 2002
      and September 30, 2002, respectively.

<TABLE>
<CAPTION>
                                                                                Three Months Ended

                                                  March 31, 2001   June 30, 2001    September 30, 2001   December 31, 2001
                                                  --------------   -------------    ------------------   -----------------
<S>                                               <C>              <C>              <C>                  <C>
Revenues                                             $10,325,887     $10,454,781        $10,350,718        $ 9,975,839
Expenses(1)                                            7,227,823       9,917,308          7,363,029          8,461,923
Income from continuing operations (2)                  4,419,547       2,325,113          6,455,937          2,648,841
Income from continuing operations per share -
    Basic                                                    .20             .11                .29                .12
    Diluted                                                  .20             .10                .29                .12
Income before extraordinary item                       4,332,388       2,168,283          6,335,411          2,530,046
Income before extraordinary item per share
    Basic                                                    .20             .10                .29                .11
    Diluted                                                  .19             .10                .28                .11
Net income (3)                                         4,332,388       2,168,283          6,335,411          2,530,046
Net income per share -
    Basic                                                    .20             .10                .29                .11
    Diluted                                                  .19             .10                .28                .11
Dividends declared per share                               .2086           .2120              .2122              .2125
</TABLE>

      (1)   Includes impairment losses on real estate of $2,300,000 and
            $2,000,000 for the three-month periods ended June 30, 2001 and
            December 31, 2001, respectively.

      (2)   Includes unrealized gain (loss) of $799,070, $1,378,930 and
            $(50,000) for the three-month periods ended June 30, 2001, September
            30, 2001 and December 31, 2001, respectively, and gain (loss) on
            sale of real estate of $(38,420) and $1,082,400 for the three-month
            periods ended June 30, 2001 and September 30, 2001, respectively.

      (3)   Includes income (loss) from discontinued operations of $3,120,
            $3,120, $(370,755) and $(112,555) for the three-month periods ended
            March 31, 2001, June30, 2001, September 30, 2001 and December 31,
            2001, respectively.

19.   Pro Forma Financial Information (unaudited):

            The following consolidated pro forma financial information has been
            presented as if the merger of CPA(R):10 into the Company had
            occurred on January 1, 2001 for the years ended December 31, 2002
            and 2001. In Management's opinion, all adjustments necessary to
            reflect the merger and the related issuance of common stock of the
            Company have been made. The pro forma financial information is not
            necessarily indicative of what the actual results would have been,
            nor does it purport to represent the results of operations for
            future periods.

<TABLE>
<CAPTION>
(in thousands, except per share amounts)
                                                         Years ended December 31,
                                                            2002            2001
                                                         -------         -------
<S>                                                      <C>             <C>
Pro forma total revenues                                 $54,058         $56,682
Income from continuing operations                         20,894          19,798
Pro forma net income                                      15,784          23,055

Pro forma earnings per share:
    Basic:                                                   .83             .57
    Diluted:                                                 .82             .56
</TABLE>


                                      -34-
<PAGE>

                   CAREY INSTITUTIONAL PROPERTIES INCORPORATED

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

            The pro forma net income and earnings per share figures for the year
            ended December 31, 2002 presented above includes a nonrecurring,
            noncash impairment charge on real estate of $1,550,000, unrealized
            and realized losses of $326,000, a loss from discontinued operations
            of $1,489,000 and an extraordinary charge of $3,145,000. The pro
            forma net income and earnings per share for the year ended December
            31, 2001 presented above includes a nonrecurring, non-cash
            impairment charge on real estate of $4,300,000, unrealized and
            realized gains of $3,176,000 and a loss from discontinued operations
            of $483,000.


                                      -35-
<PAGE>


MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

There is no established public trading market for the Shares of the Company. As
of December 31, 2002, there were 11,936 holders of record of the Shares of the
Company.

The Company is required to distribute annually at least 90% of its Distributable
REIT taxable income to maintain its status as a REIT. Quarterly dividends paid
by the Company since December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                        Cash Dividends Paid Per Share
                      -----------------------------
                     2002          2001          2000
                     ----          ----          ----
<S>              <C>           <C>           <C>
First quarter    $    .21250   $    .20840   $    .20760
Second quarter        .21270        .20860        .20780
Third quarter         .21290        .21200        .20800
Fourth quarter        .21310        .21220        .20820
                 -----------   -----------   -----------
                 $    .85120   $    .84120   $    .83160
                 ===========   ===========   ===========
</TABLE>


REPORT ON FORM 10-K

The Advisor will supply to any shareholder, upon written request and without
charge, a copy of the Annual Report on Form 10-K ("10-K") for the year ended
December 31, 2002 as filed with the Securities and Exchange Commission ("SEC").
The 10-K may also be obtained through the SEC's EDGAR database at www.sec.gov.


                                      -36-