TABLE OF CONTENTS




|                                          |  |  |  |  |  |  |  | 
|----------------------------------------- |  |  |  |  |  |  |  | 
|Balance Sheet                            
|Statement of Operations                  
|Statement of Changes in Partners Capital
|Statement of Cash Flows                  
|NOTES TO FINANCIAL STATEMENTS            
|PART I  FINANCIAL INFORMATION           
|PART II É OTHER INFORMATION              
|SIGNATURES                               



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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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days. Yes    No





Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court: Not applicable



State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: Not applicable

Transitional Small Business Disclosure Format (check one) Yes    No





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##### Table of Contents



|           |  |                                                                |  |      |         | 
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|Item No.   |  |                                                                |  | Page |        
|           |  |                                                                |  |      |        
|PART I     |  | FINANCIAL INFORMATION                                         
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|Item 1.    |  | Financial Statements:                                         
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|           |  | Balance Sheet, March 31, 2001 and December 31, 2000            |  |      | 3       | 
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|           |  | Statement of Operations for the three months                  
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|           |  | ended March 31, 2001 and 2000                                  |  |      | 4       | 
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|           |  | Statement of Changes in Partners Capital for the three months
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|           |  | ended March 31, 2001                                           |  |      | 5       | 
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|           |  | Statement of Cash Flows for the three months                  
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|           |  | ended March 31, 2001 and 2000                                  |  |      | 6       | 
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|           |  | Notes to Financial Statements                                  |  |      | 7  8   | 
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|Item 2.    |  | Managements Discussion and Analysis of Financial Condition   
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|           |  | and Results of Operations                                      |  |      | 9  10  | 
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|PART II    |  | OTHER INFORMATION                                             
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|           |  | Other Information                                              |  |      | 11  12 | 
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|SIGNATURES |  |                                                                |  |      | 13      | 

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|                                     |                                       |                                       |                                 |            |            |             |            |            |              |  |  | 
|------------------------------------ | ------------------------------------- | ------------------------------------- | ------------------------------- | ---------- | ---------- | ----------- | ---------- | ---------- | ------------ |  |  | 
|                                     |                                       |                                       |                                 |            |            | March 31,   |            |            | December 31, | 
|                                     |                                       |                                       |                                 |            |            | 2001        |            |            | 2000         | 
|                                     |                                       |                                       |                                 |            |            |             |            |            |              | 
|                                     |                                       |                                       |                                 |            |            | (Unaudited) |            |            |             
|                                     |                                       |                                       |                                 | Assets    
|                                    
|                                    
|                                    
|                                    
|Cash and cash equivalents            |                                       | $                                     | 309,512                         |            |            | $           | 95,992     |           
|                                    
|                                    
|                                    
|                                    
|Restricted cash                      |                                       |                                       | 301,988                         |            |            |             | 269,437    |           
|                                    
|                                    
|                                    
|                                    
|Investment in property under leases:
|                                    
|                                    
|                                    
|                                    
|                                     | Operating leases, net                 |                                       |                                 | 18,736,205 |            |             |            | 18,809,942 |             
|                                    
|                                    
|                                    
|                                    
|                                     | Financing leases, net                 |                                       |                                 | 1,421,267  |            |             |            | 2,049,441  |             
|                                    
|                                    
|                                    
|                                    
|                                     | Impaired financing leases, net        |                                       |                                 | 245,662    |            |             |            | 27,492     |             
|                                    
|                                    
|                                    
|                                    
|Accounts receivable                  |                                       |                                       | 55,909                          |            |            |             | 60,198     |           
|                                    
|                                    
|                                    
|                                    
|Unbilled rent, net                   |                                       |                                       | 1,037,418                       |            |            |             | 1,074,434  |           
|                                    
|                                    
|                                    
|                                    
|Due from related parties             |                                       |                                       | 1,533                           |            |            |             |           |           
|                                    
|                                    
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|                                    
|Deferred financing costs, net        |                                       |                                       | 370,379                         |            |            |             | 382,327    |           
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|                                     |                                       | Total assets                          |                                 | $          | 22,479,873 |             |            | $          | 22,769,263   | 
|                                     |                                       |                                       |                                 |            |            |            
|                                     |                                       |                                       | Liabilities & Partners Capital
|                                    
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|Liabilities:                        
|                                    
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|                                     | Notes payable                         |                                       | $                               | 8,183,808  |            |             | $          | 8,194,000  |             
|                                    
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|                                     | Accounts payable and accrued expenses |                                       |                                 | 107,528    |            |             |            | 83,147     |             
|                                    
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|                                     | Due to related parties                |                                       |                                 | 3,398      |            |             |            | 3,405      |             
|                                    
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|                                    
|                                    
|                                     | Security deposits held on leases      |                                       |                                 | 54,774     |            |             |            | 54,774     |             
|                                     |                                       |                                       |                                 |            |            |            
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|                                     |                                       | Total liabilities                     |                                 |            | 8,349,508  |             |            |            | 8,335,326    | 
|                                     |                                       |                                       |                                 |            |            |            
|Partners capital:                  
|                                    
|                                    
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|                                    
|Limited partners capital accounts   |                                       |                                       | 14,102,050                      |            |            |             | 14,407,068 |           
|                                    
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|General partners capital accounts   |                                       |                                       | 28,315                          |            |            |             | 26,869     |           
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|                                     |                                       | Total partners capital               |                                 |            | 14,130,365 |             |            |            | 14,433,937   | 
|                                     |                                       |                                       |                                 |            |            |            
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|                                     |                                       | Total liabilities & partners capital |                                 | $          | 22,479,873 |             |            | $          | 22,769,263   | 
|                                     |                                       |                                       |                                 |            |            |            

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

3



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##### Table of Contents






|                                                                 |                                         |                                    |         |         |         |   |         |         |         |  
|---------------------------------------------------------------- | --------------------------------------- | ---------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                 |                                         |                                    |         | 2001    |         |   | 2000    |        
|                                                                 |                                         |                                    |         |         |         |   |         |        
|Operating revenue:                                              
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Rental income                           |                                    | $       | 540,993 |         |   | $       | 574,544 |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Finance income                          |                                    |         | 36,969  |         |   |         | 55,464  |        
|                                                                 |                                         |                                    |         |         |         |  
|                                                                
|                                                                
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|                                                                
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|                                                                
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|                                                                 |                                         | Total operating revenue            |         |         | 577,962 |   |         |         | 630,008 |  
|                                                                
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|                                                                
|                                                                
|Operating costs and expenses:                                   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest expense                        |                                    |         | 183,631 |         |   |         | 186,445 |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Depreciation                            |                                    |         | 73,737  |         |   |         | 73,737  |        
|                                                                
|                                                                
|                                                                
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|                                                                 | General and administrative              |                                    |         | 16,888  |         |   |         | 20,495  |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Provision for unbilled rent             |                                    |         | 92,908  |         |   |         |        |        
|                                                                 | Provision for impaired financing leases |                                    |         | 77,000  |         |   |         |        |        
|                                                                 |                                         |                                    |         |         |         |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                         | Total operating costs and expenses |         |         | 444,164 |   |         |         | 280,677 |  
|                                                                 |                                         |                                    |         |         |         |  
|                                                                
|                                                                
|                                                                
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|                                                                 |                                         | Income from operations             |         |         | 133,798 |   |         |         | 349,331 |  
|                                                                
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|                                                                
|Other income (expense):                                         
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Gain on sale of equipment               |                                    |         | 9,086   |         |   |         |        |        
|                                                                
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|                                                                 | Interest and other income               |                                    |         | 1,733   |         |   |         |        |        
|                                                                
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|                                                                
|                                                                
|                                                                 | Other                                   |                                    |         |        |         |   |         | (362    | )      
|                                                                 |                                         |                                    |         |         |         |  
|                                                                 |                                         | Total other income (expense)       |         |         | 10,819  |   |         |         | (362    | )
|                                                                 |                                         |                                    |         |         |         |  
|                                                                
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|                                                                
|Net income                                                       |                                         |                                    | 144,617 |         |         |   | 348,969 |        
|                                                                
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|Net income allocable to general partner                          |                                         |                                    | 1,446   |         |         |   | 3,490   |        
|                                                                 |                                         |                                    |         |         |         |  
|                                                                
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|Net income allocable to limited partners                         |                                         | $                                  | 143,171 |         |         | $ | 345,479 |        
|                                                                 |                                         |                                    |         |         |         |  
|                                                                
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|Net income per limited partnership unit                          |                                         | $                                  | 7.22    |         |         | $ | 17.37   |        
|                                                                 |                                         |                                    |         |         |         |  
|                                                                
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|                                                                
|                                                                
|                                                                
|                                                                
|Weighted average number of limited partnership
units outstanding |                                         |                                    | 19,842  |         |         |   | 19,884  |        

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

4



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##### Table of Contents






|                                  |  |           |        |  |           |   |            |           |  |   |           |  |  |   |            |  
|--------------------------------- |  | --------- | ------ |  | --------- | - | ---------- | --------- |  | - | --------- |  |  | - | ---------- | -
|                                  |  | Limited   |        |  | Limited   |   |            | General   |  |   | Total     | 
|                                  |  | Partners' |        |  | Partners' |   |            | Partner's |  |   | Partners' | 
|                                  |  | Units     |        |  | Accounts  |   |            | Accounts  |  |   | Capital   | 
|                                  |  |           |        |  |           |   |            |           |  |   |           | 
|Balance, December 31, 2000        |  |           | 19,842 |  |           | $ | 14,407,068 |           |  | $ | 26,869    |  |  | $ | 14,433,937 |  
|                                 
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|Distributions  ($22.59 per unit) |  |           |       |  |           |   | (448,189   | )         |  |   |          |  |  |   | (448,189   | )
|                                 
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|Net income                        |  |           |       |  |           |   | 143,171    |           |  |   | 1,446     |  |  |   | 144,617    |  
|                                  |  |           |        |  |           |   |            |           |  |   |           | 
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|Balance, March 31, 2001           |  |           | 19,842 |  |           | $ | 14,102,050 |           |  | $ | 28,315    |  |  | $ | 14,130,365 |  
|                                  |  |           |        |  |           |   |            |           |  |   |           | 

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

5



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##### Table of Contents






|                                                     |                                        |                                                              |          |          |         |   |          |          |         |  
|---------------------------------------------------- | -------------------------------------- | ------------------------------------------------------------ | -------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                                     |                                        |                                                              |          | 2001     |         |   | 2000     |         
|                                                     |                                        |                                                              |          |          |         |   |          |         
|Cash flows from operating activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net Income                             |                                                              | $        | 144,617  |         |   | $        | 348,969  |        
|                                                    
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|                                                     | Adjustments to net income:            
|                                                    
|                                                    
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|                                                    
|                                                     |                                        | Depreciation                                                 |          |          | 73,737  |   |          |          | 73,737  |  
|                                                    
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|                                                     |                                        | Amortization of debt issuance costs                          |          |          | 11,948  |   |          |          | 14,337  |  
|                                                    
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|                                                     |                                        | Gain on sale of equipment                                    |          |          | (9,085  | ) |          |          |        |  
|                                                    
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|                                                     |                                        | Provision for credit losses                                  |          |          | 77,000  |   |          |          |        |  
|                                                    
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|                                                     |                                        | Decrease (Increase) in unbilled rent                         |          |          | 37,016  |   |          |          | (57,937 | )
|                                                    
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|                                                     |                                        | Decrease (increase) in accounts receivable                   |          |          | 4,289   |   |          |          | (88,647 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                        | Increase (decrease) in accounts payable and accrued expenses |          |          | 24,381  |   |          |          | (5,335  | )
|                                                    
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|                                                    
|                                                     |                                        | (Increase) decrease in restricted cash                       |          |          | (32,551 | ) |          |          | 1,707   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                        | (Increase) decrease in due from related parties              |          |          | (1,533  | ) |          |          | 4,342   |  
|                                                    
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|                                                     |                                        | Decrease in due to related parties                           |          |          | (7      | ) |          |          | (26,654 | )
|                                                     |                                        |                                                              |          |          |         |  
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|Net cash provided by operating activities            |                                        |                                                              | 329,812  |          |         |   | 264,519  |         
|                                                     |                                        |                                                              |          |          |         |  
|Cash flows from investing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of equipment        |                                                              |          | 267,745  |         |   |          |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Principal payments on financing leases |                                                              |          | 74,344   |         |   |          | 149,637  |        
|                                                     |                                        |                                                              |          |          |         |  
|                                                    
|                                                    
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|Net cash provided by (used in) investing activities  |                                        |                                                              | 342,089  |          |         |   | 149,637  |         
|                                                     |                                        |                                                              |          |          |         |  
|                                                    
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|Cash flows from financing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayments of notes payable            |                                                              |          | (10,192  | )       |   |          |         |        
|                                                    
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|                                                    
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|                                                     | Distributions to limited partners      |                                                              |          | (448,189 | )       |   |          | (510,579 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distributions to general partner       |                                                              |          |         |         |   |          | (5,326   | )      
|                                                     |                                        |                                                              |          |          |         |  
|                                                    
|                                                    
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|Net cash (used in) provided by financing activities  |                                        |                                                              | (458,381 | )        |         |   | (515,905 | )       
|                                                     |                                        |                                                              |          |          |         |  
|Net (decrease) increase in cash and cash equivalents |                                        |                                                              | 213,520  |          |         |   | (101,749 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
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|                                                    
|Cash and cash equivalents, beginning of period       |                                        |                                                              | 95,992   |          |         |   | 327,903  |         
|                                                     |                                        |                                                              |          |          |         |  
|                                                    
|                                                    
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|                                                    
|                                                    
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|                                                    
|                                                    
|Cash and cash equivalents, end of period             |                                        | $                                                            | 309,512  |          |         | $ | 226,154  |         
|                                                     |                                        |                                                              |          |          |         |  

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

6



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##### Table of Contents








|1. |  | THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Captec Franchise Capital Partners L.P. III (the Partnership), a
Delaware limited partnership, was formed on February 18, 1994 for the
purpose of acquiring income-producing commercial real properties and
equipment leased on a triple net or double net basis, primarily to
operators of national and regional chain and nationally franchised fast
food and family style restaurants, as well as other national and
regional retail chains. The general partners of the Partnership upon
formation of the Partnership were Captec Franchise Capital Corporation
III (the Corporation), a wholly owned subsidiary of Captec Financial
Group, Inc. (Captec), and Patrick L. Beach, an individual,
hereinafter collectively referred to as the Sponsor. Patrick L. Beach
is also the Chairman of the Board of Directors, President and Chief
Executive Officer of the Corporation and Captec. In August, 1998 the
general partnership interest of the Partnership was acquired by Captec
Net Lease Realty, Inc., an affiliate of Captec, for $1,483,000.
|  
|   |  | The Partnership commenced a public offering of 20,000 limited
partnership interest units on August 12, 1994 and reached final funding
in August, 1996. Net proceeds after offering expenses were
approximately $17.4 million. During 1997, the Partnership repurchased a
total of 37 units for $31,450, or 85% of the investors capital
account. During 1999, the Partnership repurchased 79 units for $59,625,
or 75% of the investors capital account. An additional 42 Units were
repurchased in December, 2000 for $28,432, or 69% of the investors
capital account. The repurchase of the units was completed pursuant to
the terms of the Repurchase Plan set forth in the Partnerships
Prospectus. At March 31, 2001, the Partnership had 19,842 units issued
and outstanding.                                                                                                                                                                                                                                                                         
|  
|   |  | Allocation of profits, losses and cash distributions from operations
and cash distributions from sale or refinancing are made pursuant to
the terms of the Partnership Agreement. Profits and losses from
operations are allocated among the limited partners based upon the
number of Units owned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The balance sheet of the Partnership as of March 31, 2001 and the
statements of operations and cash flows for the periods ending March
31, 2001 and 2000 have not been audited. In the opinion of the
Management, these unaudited financial statements contain all
adjustments necessary to present fairly the financial position and
results of operations and cash flows of the Partnership for the periods
then ended. Results of operations for the interim periods are not
necessarily indicative of results for the full year. These unaudited
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Partnerships annual
report on Form 10-KSB for the year ended December 31, 2000 filed with
the United States Securities and Exchange Commission on March 30, 2001.                                                                                                                                                                                                                        
|  
|2. |  | LAND AND BUILDING SUBJECT TO OPERATING LEASES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | The net investment in operating leases as of December 31, 2001 is comprised of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                              |  |   |            |  
|----------------------------- |  | - | ---------- | -
|Land                          |  | $ | 8,163,346  |  
|                             
|                             
|                             
|                             
|Building and improvements     |  |   | 11,796,894 |  
|                              |  |   |           
|                              |  |   | 19,960,240 |  
|                             
|                             
|                             
|                             
|Less accumulated depreciation |  |   | (1,224,035 | )
|                              |  |   |           
|Total                         |  | $ | 18,736,205 |  
|                              |  |   |           

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|3. |  | NET INVESTMENT IN FINANCING LEASES:                                                       
|-- |  | ------------------------------------------------------------------------------------------
|  
|   |  | The net investment in financing leases as of March 31, 2001 is comprised of the following:

|                                      |  |   |           |  
|------------------------------------- |  | - | --------- | -
|Minimum lease payments to be received |  | $ | 1,580,761 |  
|                                     
|                                     
|                                     
|                                     
|Estimated residual value              |  |   | 117,101   |  
|                                      |  |   |          
|Gross investment in financing leases  |  |   | 1,697,862 |  
|                                     
|                                     
|                                     
|                                     
|Less unearned income                  |  |   | (210,666  | )
|                                     
|                                     
|                                     
|                                     
|Less direct origination costs         |  |   | (65,929   | )
|                                      |  |   |          
|Net investment in financing leases    |  | $ | 1,421,267 |  
|                                      |  |   |          



|4. |  | NOTES PAYABLE:                                                                                                                                                                                                                                                                              
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In November, 1998, the Partnership entered into a $6.2 million term
note, the proceeds of which were used to acquire additional properties.
The note has a 10-year term, is collateralized by certain properties
subject to operating leases, and bears an interest rate of 8.37% per
annum.
|  
|   |  | In March, 1999, the Partnership entered into an additional $2.0 million
term note. The note also has a 10-year term, is collateralized by certain
properties subject to operating leases, and bears an interest rate of
8.5% per annum.                                                     
|  
|   |  | Debt issuance costs of approximately $478,000 in aggregate were
incurred in connection with the issuance of the notes, and are being
amortized using the straight-line method over the 10-year term.                                                                                        

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|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------

When used in this discussion, the words, intends, anticipates, expects,
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Such risks and
uncertainties include the following: (i) a tenant may default in making rent
payments, (ii) a fire or other casualty may interrupt the cash flow stream from
a property, (iii) the properties may not be able to be leased at the assumed
rental rates, (iv) unexpected expenses may be incurred in the ownership of the
properties, and (v) properties may not be able to be sold at the presently
anticipated prices and times.

As a result of these and other factors, the Partnership may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition and
operating results. These forward-looking statements speak only as of the date
hereof. The Partnership undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2001. During the three months ended March 31, 2001
total operating revenue decreased 8.3% to approximately $578,000 as compared to
approximately $630,000 for the three months ended March 31, 2000. Rental revenue
from operating leases for the three months ended March 31, 2001 decreased to
approximately $541,000 as compared to approximately $575,000 for the three
months ended March 31, 2000 due to the impairment of the Raleigh, North Carolina
Boston Market property. Earned income from financing leases for the three months
ended March 31, 2001 decreased 33.3% to approximately $37,000 as compared to
approximately $55,000 for the three months ended March 31, 2000 as a result of
the disposition of one equipment lease in April, 2000 as well as amortization of
principal balances.

Operating expenses were approximately $444,000 for the three months ended March
31, 2001 as compared to approximately $281,000 for the three months ended March
31, 2000. Total operating expenses for the three months ended March 31, 2001 is
comprised of approximately $74,000 of depreciation expense, approximately
$17,000 of general and administrative expenses, approximately $184,000 of
interest expense, a reserve for unbilled rent of approximately $93,000, and a
reserve for impaired financing leases of $77,000.

Other income for the three months ended March 31, 2001 was approximately $11,000
as compared to other expense of $362 for the three months ended March 31, 2000.
The other income is primarily due to a gain on the sale of equipment during the
three months ended March 31, 2001.

As a result of the foregoing, the Partnerships net income decreased 58.6% to
approximately $145,000 for the three months ended March 31, 2001 as compared to
approximately $349,000 for the three months ended March 31, 2000.

Distributions. The Partnership announced first quarter distributions of
$518,873, including net sale proceeds of $133,873, of which $451,185 was
distributed to its Limited Partners on April 16, 2001. The balance of $67,688
was distributed to those partners who elected to receive distributions on a
monthly basis on February 15, 2001 and March 15, 2001.

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LIQUIDITY AND CAPITAL COMMITMENTS

The Partnership commenced the offering of up to 20,000 limited partnership units
registered under the Securities Act of 1933, as amended, by means of a
Registration Statement which was declared effective by the Securities and
Exchange Commission on August 12, 1994. The offering reached final funding on
August 12, 1996 with subscriptions for the entire offering of 20,000 units. Net
proceeds after offering expenses were approximately $17.4 million.

In November, 1998 the Partnership entered into a $6.2 million term note. The
Partnership entered into an additional $2.0 million term note in March, 1999.
Proceeds from the notes were used to acquire additional properties. The notes
have a 10-year term, are collateralized by certain properties subject to operating
leases, and bear interest at rates ranging from 8.37 to 8.5% per annum. Debt
issuance costs of approximately $478,000 in aggregate incurred in connection
with the issuance of the notes are being amortized into interest expense over
the life of the notes using the straight-line method.

At March 31, 2001 the Partnership had a portfolio of 15 properties located in 10
states, with a cost of $20.0 million, and 8 performing equipment leases with an
original investment of $2.3 million. As of March 31, 2001 the Partnerships
investments were allocated approximately 87% to properties and 13% to equipment.

In December of 2000, Platinum Properties, LLC abandoned the Boston
Market property in Raleigh, North Carolina. Annualized rent prior to
abandonment was approximately $124,000. The Partnership is
aggressively marketing the property.

The Partnership has two impaired equipment leases at March 31, 2001, with a
recorded investment of $476,499 net of a related allowance of
$230,837. The net investment in the impaired leases represent the estimated net
proceeds that the Partnership expects to receive.

The Partnership expects to require limited amounts of liquid assets since the
properties and equipment leases require the lessees to pay all taxes and
assessments, maintenance and repair items (except, with respect to double net
properties, costs associated with maintenance and repair of the exterior walls
and roof of the property) and insurance premiums, including casualty insurance.
The general partners expect that the cash flow to be generated by the
Partnerships properties and equipment will be adequate to pay operating
expenses and provide distributions to Limited Partners.

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ITEM 1.    LEGAL PROCEEDINGS. None.

ITEM 2.    CHANGES IN SECURITIES. None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES. None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.

ITEM 5.    OTHER INFORMATION. None.

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|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K.
|------- |  | ---------------------------------

(a) The following exhibits are included herein or incorporated by reference:

|       |  |                                                                                                                                                                                                                                                                                             
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|Number |  | Exhibit                                                                                                                                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                             
|4      |  | Agreement of Limited Partnership of Registrant.
(Incorporated by reference from Exhibit B of the
final Prospectus dated August 12, 1994, as
supplemented and filed with the Securities and
Exchange Commission, SEC File No. 33-77510C)                                                     
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|4.1    |  | Amended Agreement of Limited Partnership of
Registrant. (Incorporated by reference to the
corresponding exhibit in the Registrants Form 10-K
for the year ended December 31, 1998)                                                                                                         
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|10.1   |  | Promissory Note dated November 28, 1998 between
Registrant and National Realty Funding L.C.
(Incorporated by reference to the corresponding
exhibit in the Registrants Form 10-K for the year
ended December 31, 1998)                                                                     
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|10.2   |  | Promissory Note dated March 31, 1999 between
Registrant and National Realty Funding L.C.
(Incorporated by reference to the corresponding
exhibit in the Registrants Form 10-QSB for the
quarter ended March 31, 1999)                                                                      
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|27     |  | Financial Data Schedule                                                                                                                                                                                                                                                                     
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|99.1   |  | Pages 12-16 of the final Prospectus dated August 12,
1994, as supplemented. (Incorporated by reference
from the final Prospectus filed with the Securities
and Exchange Commission pursuant to Rule 424(b)
promulgated under the Securities Act of 1933, as
amended. SEC File No. 33-77510C)

(b) Reports on Form 8-K:

There were no reports filed on Form 8-K for the quarter ended March 31, 2001.

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Pursuant to the requirements 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.

| |  |       |  |                                                                                                     
| |  | ----- |  | ----------------------------------------------------------------------------------------------------
| |  | By:   |  | Captec Net Lease Realty, Inc.
Managing General Partner of
Captec Franchise Capital Partners L.P. III
|
| |  | By:   |  | /s/ W. Ross Martin                                                                                  
| |  |       |  |                                                                                                     
| |  |       |  | W. Ross Martin
Executive Vice President,
Chief Financial Officer                                    
|
| |  | Date: |  | May 15, 2001                                                                                        

13