##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

|           |  |            
|---------- |  | -----------
|(Mark One) |  | FORM 10-KSB

| |  |                                                                               
| |  | ------------------------------------------------------------------------------
| |  | ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000

OR

| |  |                                                                                   
| |  | ----------------------------------------------------------------------------------
| |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from ______________ to ________________

Commission file number 33-77510C

|                                              
|----------------------------------------------
|CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III    
|                                              
|(Name of small business issuer in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 38-3160141                          
|                                                               |  |                                     
|(State or other jurisdiction
of incorporation or organization) |  | (I.R.S. Employer
Identification No.)



|                                                                                              |  |           
|--------------------------------------------------------------------------------------------- |  | ----------
|24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544 |  |           
|(Address of principal executive offices)                                                      |  | (Zip Code)



|                                                               |  |                                                              
|-------------------------------------------------------------- |  | -------------------------------------------------------------
|Issuers telephone number: (734) 994-5505                     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|Securities registered under Section 12(b) of the Exchange Act: |  | None                                                         
|Securities registered under Section 12(g) of the Exchange Act: |  | Units of limited partnershipinterest ($1,000)(Title of Class)
|                                                              
|                                                              
|                                                              
|                                                              

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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  No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will 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-KSB or any amendment to
this Form 10-KSB.

At December 31, 2000 subscriptions for 20,000 units of limited partnership
interest (the Units) had been accepted, representing an aggregate amount of
$20,000,000. At December 31, 2000, 19,842 Units were issued and outstanding. The
aggregate sales price does not reflect market value and reflects only the price
at which the Units were offered to the public. Currently, there is no market for
the Units and no market is expected to develop.



A portion of the Prospectus of the Registrant dated August 12, 1994, as
supplemented and filed pursuant to Rule 424(b) under the Securities Act of 1933,
as amended, S.E.C. File No. 33-77510C, and is incorporated by reference in Part
III of this Annual Report on Form 10-KSB.





---

TABLE OF CONTENTS



|                                  |                                                                                                                                     |  |  |  |  |  |  | 
|--------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                           
|PART II                          
|PART III                         
|Report of Independent Accountants
|                                  | Captec Franchise Capital Partners L.P. III Balance Sheet
December 31, 2000 and 1999                                                
|                                  | Captec Franchise Capital Partners L.P. III
Statement of Operations                                                                 
|                                  | Captec Franchise Capital Partners L.P. III
Statement of Changes in Partners Capital
For the Years Ended December 31, 2000 and 1999
|                                  | Captec Franchise Capital Partners L.P. III
Statement of Cash Flows
For the Years Ended December 31, 2000 and 1999                  
|                                  | Captec Franchise Capital Partners L.P. III
Notes to Financial Statements                                                           



---






|        |  |                        
|------- |  | -----------------------
|Item 1. |  | Description of Business

Captec Franchise Capital Partners L.P. III (the Partnership) is a Delaware
limited partnership formed on February 18, 1994 for the purpose of acquiring
income-producing commercial real properties and equipment which will be leased
primarily to operators of national chain and nationally franchised fast-food,
family style and dinner house restaurants as well as other franchised or chain
businesses pursuant to leases requiring the lessee to pay all taxes,
assessments, utilities, insurance, maintenance, and repair costs associated with
such properties. The general partners upon formation of the Partnership were
Captec Franchise Capital Corporation III (Captec) and Patrick L. Beach, an
individual. In August 1998, the general partnership interest in the Partnership
was acquired by Captec Net Lease Realty, Inc. (Captec Net Lease), an affiliate
of Captec, for $1,483,000. Captec Net Lease, Captec, and Mr. Beach are
collectively referred to as the General Partners.

The Partnership commenced a public offering (the Offering) of up to
20,000 units of limited partnership interest (the Units) registered under the
Securities Act of 1933, as amended, by means of a Registration Statement on Form
SB-2 which was declared effective by the Securities and Exchange Commission on
August 12, 1994. Capitalized terms not defined herein shall have the meaning
ascribed to them in the Partnerships Prospectus dated August 12, 1994.

On January 24, 1995, the Partnership commenced operations. The Offering
reached final funding in August, 1996, with subscriptions for the entire 20,000
Units and funds from 1,392 limited partners totaling $20,000,000. During
December, 1997, the Partnership repurchased a total of 37 Units for $31,450, or
85% of the investors capital account. In December, 1999, the Partnership
repurchased a total of 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 December 31, 2000, the Partnership had 19,842 Units
issued and outstanding.

The principal investment objectives of the Partnership are: (i)
preservation and protection of capital; (ii) distribution of cash flow generated
by the Partnerships leases; (iii) capital appreciation of Partnership
properties; (iv) generation of increased income and protection against inflation
through contractual escalation of base rents or participation in gross revenues
of lessees of Partnership properties; and (v) deferred taxation of Partnership
cash distributions of the Partnership for limited partners of the Partnership
(the Limited Partners).

The Partnership expects to have not less than 75%, but not more than
90% of total investments in Properties and up to 25%, but not less than 10% in
Equipment. The Properties generally will be leased on terms which provide for a
base minimum annual rent with fixed increases on specific dates or indexation of
rent to indices such as the Consumer Price Index. The Equipment will be leased
only pursuant to leases under which the present value of non-cancelable rental
payments payable during the initial term of the lease is at least sufficient to
permit a lessor to recover the purchase price of the equipment (Full Payout
Leases).

The Partnership has no employees. The General Partners and their
affiliates, however, are permitted to perform services for the Partnership
pursuant to the partnership agreement.





---



##### Table of Contents



|        |  |                          
|------- |  | -------------------------
|Item 2. |  | Description of Properties

As of December 31, 2000, the Partnership had a portfolio of 15
properties located in 10 states, with a cost basis of $20.0 million and 10
performing equipment leases with an original investment of $2.9 million. The
Properties are leased to 11 operators of restaurant concepts such as Red Robin
and Dennys and one retail operator, Hollywood Video. As of December 31, 2000,
leases to Red Robin International, Inc., DenAmerica Corp., and Foodmaker, Inc.
represented 16.9%, 14.1%, and 11.4% of the annualized rent from the Properties.
Any performance failure under these leases could materially affect the
Partnerships income and financial position.

In December of 2000, Platinum Properties, LLC abandoned the Boston
Market property in Raleigh, North Carolina. Annualized rent prior to
abandonement was approximately $124,000.

In October of 1998, Boston Chicken Inc. and the majority of its
subsidiaries filed for Chapter 11 bankruptcy protection. As a consequence, one
of the Partnerships Boston Chicken leases was rejected and classified as vacant
property as of December 31, 1998. Boston Chicken, Inc. and its affiliates
operating in Chapter 11 collectively agreed to assume one lease with slightly
modified terms. The vacant Boston Chicken property was sold in April 1999, and
the proceeds were reinvested in properties and equipment.

Annualized rent from the remaining Boston Chicken leases was $95,000 at
December 31, 2000.

The Partnership has one impaired equipment lease and one impaired
equipment loan at December 31, 2000, with a recorded investment of $494,205 net
of a related allowance of $153,837. The net investment in the impaired lease
represents the estimated net proceeds that the Partnership expects to receive.

The following is a summary description of the Property and Equipment
leases as of December 31, 2000.

2



---



##### Table of Contents



|                                   |  |                 |  |  |          |          |  |            |  |          |                  |  |   |                  |            | 
|---------------------------------- |  | --------------- |  |  | -------- | -------- |  | ---------- |  | -------- | ---------------- |  | - | ---------------- | ---------- | 
|                                   |  |                 |  |  |          |          |  |            |  |          |                  |  |   | Total Asset Cost |           
|                                   |  | Concept         |  |  | Date of  |          |  | Date of    |  |          | Including        | 
|Lessee Name                        |  | Name            |  |  | Commence |          |  | Expiration |  |          | Acquisition Fees | 
|                                   |  |                 |  |  |          |          |  |            |  |          |                  | 
|PROPERTIES                        
|                                  
|                                  
|                                  
|                                  
|                                  
|Vacant                             |  | Boston Market   |  |  |          |          |  |            |  |          |                  |  | $ | 1,050,000        |           
|                                  
|                                  
|                                  
|                                  
|Americas Favorite Chicken Co.     |  | Church's        |  |  |          | 11/1/95  |  |            |  | 11/1/15  |                  |  |   | 661,500          |           
|                                  
|                                  
|                                  
|                                  
|Gourmet Systems, Inc.              |  | Applebee's      |  |  |          | 8/1/95   |  |            |  | 8/1/15   |                  |  |   | 1,724,583        |           
|                                  
|                                  
|                                  
|                                  
|DenAmerica Corp.                   |  | Denny's         |  |  |          | 10/1/96  |  |            |  | 9/1/15   |                  |  |   | 1,032,927        |           
|                                  
|                                  
|                                  
|                                  
|Red Robin International, Inc.      |  | Red Robin       |  |  |          | 4/1/96   |  |            |  | 4/1/16   |                  |  |   | 2,846,963        |           
|                                  
|                                  
|                                  
|                                  
|Golden Restaurant Operations, Inc. |  | Boston Market   |  |  |          | 7/1/96   |  |            |  | 7/1/11   |                  |  |   | 1,200,150        |           
|                                  
|                                  
|                                  
|                                  
|Foodmaker, Inc.                    |  | Jack in Box     |  |  |          | 10/1/96  |  |            |  | 10/1/14  |                  |  |   | 987,000          |           
|                                  
|                                  
|                                  
|                                  
|Hollywood Entertainment Corp.      |  | Hollywood Video |  |  |          | 9/1/96   |  |            |  | 5/1/11   |                  |  |   | 1,102,500        |           
|                                  
|                                  
|                                  
|                                  
|Corral South Store #3, Inc.        |  | Golden Corral   |  |  |          | 6/1/97   |  |            |  | 6/1/17   |                  |  |   | 1,680,000        |           
|                                  
|                                  
|                                  
|                                  
|DenAmerica Corp.                   |  | Black Eyed Pea  |  |  |          | 10/1/96  |  |            |  | 10/1/16  |                  |  |   | 1,561,106        |           
|                                  
|                                  
|                                  
|                                  
|Foodmaker, Inc.                    |  | Jack in Box     |  |  |          | 1/1/99   |  |            |  | 1/1/17   |                  |  |   | 1,286,250        |           
|                                  
|                                  
|                                  
|                                  
|Tec-Foods, Inc.                    |  | Taco Bell       |  |  |          | 1/1/99   |  |            |  | 1/1/19   |                  |  |   | 840,000          |           
|                                  
|                                  
|                                  
|                                  
|Romacorp, Inc.                     |  | Tony Roma's     |  |  |          | 1/1/99   |  |            |  | 1/1/14   |                  |  |   | 1,942,500        |           
|                                  
|                                  
|                                  
|                                  
|RTM, Inc.                          |  | Arby's          |  |  |          | 8/1/99   |  |            |  | 8/1/19   |                  |  |   | 706,011          |           
|                                  
|                                  
|                                  
|                                  
|Border Foods                       |  | Taco Bell       |  |  |          | 4/1/99   |  |            |  | 4/1/19   |                  |  |   | 1,338,750        |           
|                                   |  |                 |  |  |          |          |  |            |  |          |                  |  |   |                  |           
|                                   |  |                 |  |  |          |          |  |            |  |          |                  |  |   |                  | 19,960,240 | 
|                                  
|                                  
|                                  
|                                  
|EQUIPMENT                         
|                                  
|                                  
|                                  
|                                  
|                                  
|J.M.C. Limited Partnership         |  | Applebee's      |  |  |          | 4/1/99   |  |            |  | 4/1/06   |                  |  |   | 391,112          |           
|                                  
|                                  
|                                  
|                                  
|KG Restaurants, Inc.               |  | Burger King     |  |  |          | 4/1/99   |  |            |  | 4/1/06   |                  |  |   | 315,000          |           
|                                  
|                                  
|                                  
|                                  
|Roma Texarkoma Joint Venture       |  | Johnny Carino's |  |  |          | 4/1/99   |  |            |  | 4/1/06   |                  |  |   | 446,250          |           
|                                  
|                                  
|                                  
|                                  
|Morgans Foods of Ohio, Inc.       |  | KFC             |  |  |          | 6/1/99   |  |            |  | 6/1/06   |                  |  |   | 196,469          |           
|                                  
|                                  
|                                  
|                                  
|Chi-Co, Inc.                       |  | Arby's          |  |  |          | 6/1/99   |  |            |  | 6/1/06   |                  |  |   | 105,000          |           
|                                  
|                                  
|                                  
|                                  
|American Hospitality Corp.         |  | Taco Bell       |  |  |          | 6/1/99   |  |            |  | 6/1/06   |                  |  |   | 195,430          |           
|                                  
|                                  
|                                  
|                                  
|DenAmerica Corp.                   |  | Denny's         |  |  |          | 11/15/95 |  |            |  | 11/15/00 |                  |  |   | 286,593          |           
|                                  
|                                  
|                                  
|                                  
|Checkers Corp.                     |  | Checkers        |  |  |          | 3/15/96  |  |            |  | 3/15/03  |                  |  |   | 236,250          |           
|                                  
|                                  
|                                  
|                                  
|The Green Team Restaurants         |  | Denny's         |  |  |          | 5/1/96   |  |            |  | 5/1/01   |                  |  |   | 359,922          |           
|                                  
|                                  
|                                  
|                                  
|J.M.C. Limited Partnership         |  | Applebee's      |  |  |          | 9/15/96  |  |            |  | 9/15/03  |                  |  |   | 403,411          |           
|                                   |  |                 |  |  |          |          |  |            |  |          |                  |  |   |                  |           
|                                   |  |                 |  |  |          |          |  |            |  |          |                  |  |   |                  | 2,935,437  | 
|                                   |  |                 |  |  |          |          |  |            |  |          |                  |  |   |                  |           
|Total:                             |  |                 |  |  |          |          |  |            |  |          |                  |  |   | $                | 22,895,677 | 
|                                   |  |                 |  |  |          |          |  |            |  |          |                  |  |   |                  |           

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                   |  |          |    |  |         |   |         |           |         |  |             |        |  |         |      |   |  |  |       | 
|---------------------------------- |  | -------- | -- |  | ------- | - | ------- | --------- | ------- |  | ----------- | ------ |  | ------- | ---- | - |  |  | ----- | 
|                                   |  | Asset    |    |  |         |   |         |           | Date of |  |             | Annual | 
|                                   |  | State    |    |  | Monthly |   |         | Next Rent |         |  | Rate of     |       
|Lessee Name                        |  | Location |    |  | Rent    |   |         | Increase  |         |  | Increase(4) |        |  | Sq. Ft. |     
|                                   |  |          |    |  |         |   |         |           |         |  |             |        |  |         |     
|PROPERTIES                        
|                                  
|                                  
|                                  
|                                  
|                                  
|Vacant                             |  |          | NC |  |         | $ |        |           |         |  |             |        |  |         |      |   |  |  | 3,007 | 
|                                  
|                                  
|                                  
|                                  
|Americas Favorite Chicken Co.     |  |          | TX |  |         |   | 6,353   |           |         |  | 11/1/05     |        |  |         | 1.92 | % |  |  | 1,850 | 
|                                  
|                                  
|                                  
|                                  
|Gourmet Systems, Inc.              |  |          | IL |  |         |   | 17,428  |           |         |  | 8/1/01      |        |  |         | 3.00 | % |  |  | 5,580 | 
|                                  
|                                  
|                                  
|                                  
|DenAmerica Corp.                   |  |          | VA |  |         |   | 9,740   |           |         |  | 9/1/05      |        |  |         | 1.92 | % |  |  | 3,012 | 
|                                  
|                                  
|                                  
|                                  
|Red Robin International, Inc.      |  |          | TX |  |         |   | 27,435  |           |         |  | 4/1/01      |        |  |         | 2.50 | % |  |  | 7,485 | 
|                                  
|                                  
|                                  
|                                  
|Golden Restaurant Operations, Inc. |  |          | NJ |  |         |   | 7,921   |           |         |  | 6/1/01      |        |  |         | 1.92 | % |  |  | 3,333 | 
|                                  
|                                  
|                                  
|                                  
|Foodmaker, Inc.                    |  |          | TX |  |         |   | 8,225   |           |         |  | 10/1/01     |        |  | (1)     | 1.92 | % |  |  | 2,860 | 
|                                  
|                                  
|                                  
|                                  
|Hollywood Entertainment Corp.      |  |          | OK |  |         |   | 9,844   |           |         |  | 9/1/01      |        |  | (2)     | 0    | % |  |  | 7,500 | 
|                                  
|                                  
|                                  
|                                  
|Corral South Store #3, Inc.        |  |          | FL |  |         |   | 14,534  |           |         |  | 6/1/02      |        |  |         | 2.39 | % |  |  | 8,825 | 
|                                  
|                                  
|                                  
|                                  
|DenAmerica Corp.                   |  |          | TX |  |         |   | 13,164  |           |         |  | 10/1/02     |        |  | (3)     | 0    | % |  |  | 5,445 | 
|                                  
|                                  
|                                  
|                                  
|Foodmaker, Inc.                    |  |          | WA |  |         |   | 10,209  |           |         |  | 1/1/04      |        |  |         | 1.50 | % |  |  | 2,669 | 
|                                  
|                                  
|                                  
|                                  
|Tec-Foods, Inc.                    |  |          | MI |  |         |   | 6,833   |           |         |  | 1/1/02      |        |  |         | 0.66 | % |  |  | 2,356 | 
|                                  
|                                  
|                                  
|                                  
|Romacorp, Inc.                     |  |          | FL |  |         |   | 15,417  |           |         |  | 1/1/02      |        |  |         | 1.96 | % |  |  | 6,297 | 
|                                  
|                                  
|                                  
|                                  
|RTM, Inc.                          |  |          | NC |  |         |   | 5,304   |           |         |  | 9/1/01      |        |  |         | 0.99 | % |  |  | 2,554 | 
|                                  
|                                  
|                                  
|                                  
|Border Foods                       |  |          | MN |  |         |   | 9,563   |           |         |  | 4/1/01      |        |  |         | 1.33 | % |  |  | 2,687 | 
|                                   |  |          |    |  |         |   |        
|                                   |  |          |    |  |         |   | 161,970 |          
|                                  
|                                  
|                                  
|                                  
|EQUIPMENT                         
|                                  
|                                  
|                                  
|                                  
|                                  
|J.M.C. Limited Partnership         |  |          | UT |  |         |   | 6,136   |          
|                                  
|                                  
|                                  
|                                  
|KG Restaurants, Inc.               |  |          | AZ |  |         |   | 5,058   |          
|                                  
|                                  
|                                  
|                                  
|Roma Texarkoma Joint Venture       |  |          | TX |  |         |   | 7,241   |          
|                                  
|                                  
|                                  
|                                  
|Morgans Foods of Ohio, Inc.       |  |          | OH |  |         |   | 3,019   |          
|                                  
|                                  
|                                  
|                                  
|Chi-Co, Inc.                       |  |          | IL |  |         |   | 1,671   |          
|                                  
|                                  
|                                  
|                                  
|American Hospitality Corp.         |  |          | NC |  |         |   | 3,110   |          
|                                  
|                                  
|                                  
|                                  
|DenAmerica Corp.                   |  |          | FL |  |         |   | 5,404   |          
|                                  
|                                  
|                                  
|                                  
|Checkers Corp.                     |  |          | FL |  |         |   | 4,050   |          
|                                  
|                                  
|                                  
|                                  
|The Green Team Restaurants         |  |          | OR |  |         |   | 7,541   |          
|                                  
|                                  
|                                  
|                                  
|J.M.C. Limited Partnership         |  |          | UT |  |         |   | 6,624   |          
|                                   |  |          |    |  |         |   |        
|                                   |  |          |    |  |         |   | 23,619  |          
|                                   |  |          |    |  |         |   |        
|Total:                             |  |          |    |  |         | $ | 185,589 |          
|                                   |  |          |    |  |         |   |        



|(1) |  | Rent Increase equals the greater of CPI or 10.0%.            
|--- |  | -------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Rent Increase equals the lesser of CPI or 12.0%.             
|   
|   
|   
|   
|(3) |  | Rent Increase equals the lesser of CPI or 10.0%.             
|   
|   
|   
|   
|(4) |  | Rate of increase was calculated on a compounded annual basis.

Real Estate

General Real Estate Lease Provisions: All of the properties are subject
to leases which are triple net leases whereby the tenant is responsible for all
expenses related to the cost of operating the Properties including real estate
taxes, insurance, maintenance and repair costs.

The General Partners or their affiliates analyzed demographic,
geographic and market diversification data for the areas in which each of the
properties are located and reviewed the appraisals of the properties and the
analysis regarding comparable properties contained therein. All of the purchase
prices were negotiated by General Partners or their affiliates, considering
factors such as the potential value of the site, the financial condition and
business and operating history of the tenants and demographic data for the areas
in which the properties are located.

The lessees generally pay all expenses incident to the closing of these
transactions including, the Partnerships attorneys fees, title insurance
premiums, recording fees and expenses and transfer.

3



---



##### Table of Contents



Equipment

General Equipment Lease Provisions: All of the equipment leases are on
the Partnerships standard form of lease whereby the lessee is responsible for
all expenses related to the equipment including taxes, insurance, maintenance
and repair costs. Prior to entering into the leases, an affiliate of the General
Partner considered factors such as the financial condition and business and
operating history of the lessees and demographic data for the area in which the
equipment is located. All of the equipment was purchased with cash from offering
proceeds. The General Partner believes that the amount of insurance carried by
each lessee is adequate.

Summary of Investment Objectives and Policies

The Partnership acquires income-producing property and equipment which
is leased primarily to operators of nationally franchised fast-food, family
style and dinner house restaurants as well as other franchised service-type
businesses such as automotive and specialty retail franchises. Properties are
selected for acquisition based on an examination and evaluation by the General
Partners or an affiliate of the potential value of the site, the financial
condition and business history of the proposed lessee, the demographics of the
area in which the property is located, the proposed purchase price and lease
terms, geographic and market diversification, and potential operating results.
Similar analyses are utilized in selecting equipment. The Partnership
anticipates that only fee interests in real property will be acquired, although
other interests (including acquisitions of buildings, with the underlying land
being subject to a long-term ground lease) may be acquired if it is deemed to be
advantageous to the Partnership.

In making investments, the General Partners consider relevant factors,
including the condition and proposed use of the property and/or equipment,
income-producing capacity, the financial condition of the lessee, and with
respect to Properties, the prospects for long-term appreciation. In no event
will property or equipment be acquired unless a satisfactory lease commitment
has been obtained from a suitable lessee as further described below.

In selecting specific properties, the General Partners generally
require the following:

(i) Base annual rent will provide a specified minimum return on the
contract purchase price of the property; the majority of the leases will provide
for fixed increases on specific dates or indexation of rents to indices such as
the Consumer Price Index. Leases may also provide for percentage rents
calculated to provide rents equal to a percentage of the lessees gross sales if
greater than the base rent; and

(ii) The initial lease will have a term of between ten and twenty years.

In selecting specific equipment, the General Partners typically require
the following:

(i) Full Payout Leases providing for fixed rents structured to return
100% of the cost of the equipment plus yield a return equivalent to market
interest rates over the lease term; and

(ii) The leases are expected to have terms of five to seven years with
residual values of equipment at the end of such terms expected to be minimal
(approximately 10% of original cost).

The determination of whether particular properties or equipment should
be sold or otherwise disposed of will be made after consideration of relevant
factors, including performance or projected performance of the property or
equipment and market conditions, with a view toward achieving the principal
investment objectives of the Partnership.

4



---



##### Table of Contents



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

The Partnership is not a party to any material legal proceeding nor, to
the best of its knowledge, are any such proceedings either pending or
threatened.

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

No matters were submitted to a vote of security holders during 2000.






|        |  |                                                                                          
|------- |  | -----------------------------------------------------------------------------------------
|Item 5. |  | Market for Registrants Limited Partnership Interests and Related Security Holder Matters

The Units are not readily transferable. There is no public market for
the Units and it is not currently expected that any will develop. There are
restrictions upon the transferability of Units, including the requirement that
the General Partners consent to any transferee becoming a substituted Limited
Partner (which consent may be granted or withheld at the sole discretion of the
General Partners). In addition, restrictions on transfer may be imposed under
state securities laws.

The Revenue Act of 1987 contains provisions which may have an adverse
impact on investors in certain publicly traded partnerships. If the
Partnership were to be classified as a publicly traded partnership, income
attributable to the Units would be characterized as portfolio income and the
gross income attributable to Units acquired by tax-exempt entities would be
unrelated business income, with the result that the Units could be less
marketable. The General Partners will, if necessary, take appropriate steps to
ensure that the Partnership will not be deemed a publicly traded partnership.

|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|Item 6. |  | 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.

5



---



##### Table of Contents



Results of Operations

For the year ended December 31, 2000, operating revenue remained
unchanged at $2.5 million as compared to the year ended December 31, 1999.
Rental income from operating leases for 2000 increased 2% to $2.30 million as
compared to $2.26 million for 1999 primarily from the benefit of a full year of
rental income from properties acquired and leased in preceding periods. Earned
income from financing leases for 2000 decreased 13% to $176,000 as compared to
$203,000 for 1999 as a result of the impairment of one equipment lease and
amortization of principal balances offset by the benefit of a full year of
income on leases purchased during 1999.

General and administrative expenses decreased 6% to $69,000 for 2000 as
compared to $74,000 for 1999. Depreciation expense increased 1% to $295,000 for
2000 as compared to $291,000 for 1999 principally due to the effect of a full
period of depreciation of properties acquired and leased in the preceding year.
Interest expense increased 6% to $738,000 for 2000 as compared to $695,000 for
1999. The increase is the result of a full year of interest expense for the $2.0
million term note that the Partnership entered into in March 1999.

The Partnership incurred a gain of $15,000 on net proceeds of $75,000
for the sale of equipment in May 2000. The Partnership incurred a loss of
approximately $158,000 on net proceeds of approximately $1,011,000 for the
disposition of vacant property and two equipment leases during 1999, including
one impaired lease.

As a result of the foregoing, the Partnerships net income for 2000
increased 11% to $1.4 million from $1.3 million in 1999. The Partnership is not
subject to income taxation as all of its income and expenses flow through to the
Partners. During the year ended December 31, 2000, the Partnership made
distributions to Limited Partners totaling $2,189,622, as compared with
$1,984,885 for the preceding year.

Liquidity and Capital Resources

The Partnership commenced the Offering of up to 20,000 Units registered
under the Securities Act of 1933, as amended, by means of a Registration
Statement filed on Form SB-2 which was declared effective by the Securities and
Exchange Commission on August 12, 1994.

The Partnership accepted subscriptions for the Minimum Number of Units
on January 24, 1995, and immediately commenced operations. The Offering reached
final funding on August 12, 1996, with subscriptions for the entire 20,000 Units
and funds totaling $20,000,000. Net proceeds after offering expenses were
$17,400,000.

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 and
equipment. 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 over the life of the note to interest expense using the straight-line
method.

As of December 31, 2000, the Partnership had invested $20.0 million in
15 net leased real estate properties and $2.9 million in 10 performing equipment
packages. The Partnership also owns equipment from one impaired financing lease.

The Partnership expects that only limited amounts of liquid assets will
be required for existing properties since the form of lease which it uses for
its properties and equipment requires lessees to pay all taxes and assessments,
maintenance and repairs 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 provide adequate liquidity and
capital resources to pay operating expenses and provide distributions to Limited
Partners.

6



---



##### Table of Contents



|        |  |                     
|------- |  | --------------------
|Item 7. |  | Financial Statements

See Index to Financial Statements on Page F-I of this Form 10-KSB for
Financial Statements.

|        |  |                                                                                     
|------- |  | ------------------------------------------------------------------------------------
|Item 8. |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.




|        |  |                                                                                                                                   
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Item 9. |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act of the Registrant.

The Partnership does not have directors or officers.

|         |  |                       
|-------- |  | ----------------------
|Item 10. |  | Executive Compensation

The Partnership does not have directors or officers.

|         |  |                                                               
|-------- |  | --------------------------------------------------------------
|Item 11. |  | Security Ownership of Certain Beneficial Owners and Management

To the best knowledge of the Partnership, as of December 31, 2000, no
person beneficially owned more than 5% of the outstanding Units.

|         |  |                                               
|-------- |  | ----------------------------------------------
|Item 12. |  | Certain Relationships and Related Transactions

During 1999, the General Partners received acquisition fees from the
Partnership of $119,741 for services rendered in connection with the selection,
evaluation and acquisition of the properties and equipment, as provided for in
the Partnership Agreement. During 2000, no acquisition fee was earned by the
General Partner.

The General Partners believe that the Asset Management Agreement
entered into is on terms no less favorable to the Partnership than those
customary for similar services by independent firms in the relevant geographic
area. The Asset Management Agreement provides for termination by a majority vote
of the Limited Partners, without penalty, upon 60 days prior written notice. The
asset management fees incurred by the Partnership in 2000 and 1999 were $26,971
and $26,670, respectively.

In August 1998, the general partnership interest in the Partnership was
acquired by Captec Net Lease Realty, Inc., an affiliate of Captec, for
$1,483,000.

In connection with the Offering and throughout all stages of the
Partnerships operations, the General Partners and their affiliates will receive
compensation as described more fully in the Compensation Table on pages 12
through 16 of the Partnerships Prospectus. All of the General Partners fees
with the exception of acquisition fees will be subordinated to receipt by the
Limited Partners of preferential distributions. Acquisition fees will be payable
whether or not funds are available for distribution to the Limited Partners. The
General Partners may, under certain circumstances, benefit from the continued
holding of Partnership properties and/or equipment, while investors may be
better served by a sale or other disposition of such properties and/or
equipment. Furthermore, the receipt of certain fees and reimbursements is
dependent upon the ability of the General Partners to timely invest net offering
proceeds. Therefore, the interest of the General Partners in receiving such fees
may conflict with the interest of the Limited Partners. The General Partners and
their affiliates believe that their actions and decisions will be made in a
manner consistent with their fiduciary duty to the Partnership.

7



---



##### Table of Contents



The agreements and arrangements, including those relating to
compensation, between the Partnership and the General Partners or any of their
affiliates have not been and will not be the result of arms-length negotiations
although the General Partners believe that such agreements and arrangements will
approximate those which would be arrived at through arms-length negotiations.
While the Partnership will make no loans to the General Partners or their
affiliates, the Partnership may borrow money from the General Partners or their
affiliates but only on such terms as to interest rate, security, fees and other
charges at least as favorable to the Partnership as are charged by unaffiliated
lending institutions in the same locality on comparable loans for the same
purpose. The General Partners and their affiliates are not prohibited from
providing services to, and otherwise dealing or doing business with, persons
(for example, franchisees), who may deal with the Partnership. However, the
Partnership Agreement prohibits receipt of rebates or give-ups or
participation in any reciprocal business arrangements which would have the
effect of circumventing any of the provisions of the Partnership Agreement.

|         |  |                                 
|-------- |  | --------------------------------
|Item 13. |  | Exhibits and Reports on Form 8-k

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

|       |  |                                                                                                                                                                                                                                                                                               
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit                                                                                                                                                                                                                                                                                       
|       |  |                                                                                                                                                                                                                                                                                               
|4      |  | Agreement of Limited Partnership of Registrant.
(Incorporated by reference from Exhibit A of the
final Prospectus dated August 12, 1994, as
supplemented and filed with the Securities and
Exchange Commission, S.E.C. File No. 33-77510C)                                                    
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|4.1    |  | Amended Agreement of Limited Partnership of
Registrant. (Incorporated by reference to the
corresponding exhibit in the Registrants Form 10-KSB
for the fiscal year ended December 31, 1998)                                                                                                  
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|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-KSB for the
fiscal year ended December 31, 1998)                                                              
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|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)                                                                        
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|      
|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. S.E.C. File No. 33-77510C

(b) Reports on Form 8-K:

There were no reports filed on Form 8-K for the fourth quarter ended
December 31, 2000.

8



---



##### Table of Contents



SIGNATURES

In accordance with Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the registrant has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

|                                           |                                                            
|------------------------------------------ | -----------------------------------------------------------
|CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III |                                                            
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|By:                                        | Captec Net Lease Realty, Inc.,
    Managing General Partner
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|By:                                        | /s/ W. Ross Martin                                         
|                                           |                                                            
|                                           | W. Ross Martin                                             
|                                           | Executive Vice President,                                  
|                                           | Chief Financial Officer                                    
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|Date:                                      | March 30, 2001                                             

In accordance with 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.

|      |  |                                                                                                                            
|----- |  | ---------------------------------------------------------------------------------------------------------------------------
|By:   |  | /s/ Patrick L. Beach                                                                                                       
|      |  |                                                                                                                            
|      |  | Patrick L. Beach
Chairman of the Board of Directors, President and Chief Executive Officer
of Captec Net Lease Realty, Inc.
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|Date: |  | March 30, 2001                                                                                                             
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|By:   |  | /s/ W. Ross Martin                                                                                                         
|      |  |                                                                                                                            
|      |  | W. Ross Martin
Executive Vice President,
Chief Financial Officer
of Captec Net Lease Realty, Inc.                          
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|     
|Date: |  | March 30, 2001                                                                                                             

9



---



##### Table of Contents



Captec Franchise Capital Partners L.P. III
Index to Financial Statements

---

|                                           |  |         |       | 
|------------------------------------------ |  | ------- | ----- | 
|                                           |  | Page(s) |      
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|Report of Independent Accountants          |  |         | F - 1 | 
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|Financial Statements                      
|                                          
|                                          
|                                          
|                                          
|Balance Sheets                             |  |         | F - 2 | 
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|Statements of Operations                   |  |         | F - 3 | 
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|Statements of Changes in Partners Capital |  |         | F - 4 | 
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|Statements of Cash Flows                   |  |         | F - 5 | 
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|Notes to Financial Statements              |  |         | F - 6 | 





---



##### Table of Contents






To the Board of Directors of
Captec Net Lease Realty, Inc.
Managing General Partner of
Captec Franchise Capital Partners L.P. III

In our opinion, the accompanying balance sheets and the related statements of
operations, of partners capital and of cash flows present fairly, in all material
respects, the financial position of Captec Franchise Capital Partners L.P. III
at December 31, 2000 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America. These financial statements are the
responsibility of the Companys management; 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
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.



PricewaterhouseCoopers LLP





Detroit, Michigan
March 9, 2001

F - 1



---



##### Table of Contents






Captec Franchise Capital Partners L.P. III
Balance Sheets
December 31, 2000 and 1999

---

|                                      |                                |                                         |            |            |            |   |            |            |            | 
|------------------------------------- | ------------------------------ | --------------------------------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                      |                                |                                         |            | 2000       |            |   | 1999       |           
|                                     
|                                     
|                                     
|                                     
|Assets                               
|                                     
|                                     
|                                     
|                                     
|Cash and cash equivalents             |                                | $                                       | 95,992     |            |            | $ | 327,903    |           
|                                     
|                                     
|                                     
|                                     
|Restricted cash                       |                                |                                         | 269,437    |            |            |   | 266,452    |           
|                                     
|                                     
|                                     
|                                     
|Investment in leases                 
|                                     
|                                     
|                                     
|                                     
|                                      | Operating leases, net          |                                         |            | 18,809,942 |            |   |            | 19,104,889 |           
|                                     
|                                     
|                                     
|                                     
|                                      | Financing leases, net          |                                         |            | 2,049,441  |            |   |            | 2,574,417  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Impaired financing leases, net |                                         |            | 27,492     |            |   |            | 27,492     |           
|                                     
|                                     
|                                     
|                                     
|Accounts receivable                   |                                |                                         | 60,198     |            |            |   | 56,405     |           
|                                     
|                                     
|                                     
|                                     
|Unbilled rent, net                    |                                |                                         | 1,074,434  |            |            |   | 816,948    |           
|                                     
|                                     
|                                     
|                                     
|Due from related parties              |                                |                                         |           |            |            |   | 17,184     |           
|                                     
|                                     
|                                     
|                                     
|Deferred financing costs, net         |                                |                                         | 382,327    |            |            |   | 430,118    |           
|                                      |                                |                                         |            |            |            |  
|                                      |                                | Total assets                            |            | $          | 22,769,263 |   |            | $          | 23,621,808 | 
|                                      |                                |                                         |            |            |            |  
|Liabilities and Partners Capital    
|                                     
|                                     
|                                     
|                                     
|Liabilities                          
|                                     
|                                     
|                                     
|                                     
|Notes payable                         |                                | $                                       | 8,194,000  |            |            | $ | 8,194,000  |           
|                                     
|                                     
|                                     
|                                     
|Accounts payable and accrued expenses |                                |                                         | 83,147     |            |            |   | 73,796     |           
|                                     
|                                     
|                                     
|                                     
|Due to related parties                |                                |                                         | 3,405      |            |            |   | 40,214     |           
|                                     
|                                     
|                                     
|                                     
|Security deposits held on leases      |                                |                                         | 54,774     |            |            |   | 54,774     |           
|                                      |                                |                                         |            |            |            |  
|                                      |                                | Total liabilities                       |            |            | 8,335,326  |   |            |            | 8,362,784  | 
|                                      |                                |                                         |            |            |            |  
|Partners capital                    
|                                     
|                                     
|                                     
|                                     
|Limited partners capital accounts    |                                |                                         | 14,407,068 |            |            |   | 15,240,812 |           
|                                     
|                                     
|                                     
|                                     
|General partners capital accounts    |                                |                                         | 26,869     |            |            |   | 18,212     |           
|                                      |                                |                                         |            |            |            |  
|                                      |                                | Total partners capital                 |            |            | 14,433,937 |   |            |            | 15,259,024 | 
|                                      |                                |                                         |            |            |            |  
|                                      |                                | Total liabilities and partners capital |            | $          | 22,769,263 |   |            | $          | 23,621,808 | 
|                                      |                                |                                         |            |            |            |  

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

F - 2



---



##### Table of Contents






Captec Franchise Capital Partners L.P. III
Statements of Operations

---

|                                                                 |                                    |   |           |           |  |      |           |           |  
|---------------------------------------------------------------- | ---------------------------------- | - | --------- | --------- |  | ---- | --------- | --------- | -
|                                                                 |                                    |   | 2000      |           |  | 1999 |          
|                                                                
|                                                                
|                                                                
|                                                                
|Operating revenue                                               
|                                                                
|                                                                
|                                                                
|                                                                
|Rental income                                                    |                                    | $ | 2,302,149 |           |  | $    | 2,261,327 |          
|                                                                
|                                                                
|                                                                
|                                                                
|Finance income                                                   |                                    |   | 176,329   |           |  |      | 203,058   |          
|                                                                 |                                    |   |           |           |  |     
|                                                                 | Total operating revenue            |   |           | 2,478,478 |  |      |           | 2,464,385 |  
|                                                                
|                                                                
|                                                                
|                                                                
|Operating costs and expenses                                    
|                                                                
|                                                                
|                                                                
|                                                                
|Interest expense                                                 |                                    |   | 737,683   |           |  |      | 694,790   |          
|                                                                
|                                                                
|                                                                
|                                                                
|Depreciation                                                     |                                    |   | 294,947   |           |  |      | 290,777   |          
|                                                                
|                                                                
|                                                                
|                                                                
|General and administrative                                       |                                    |   | 69,210    |           |  |      | 73,496    |          
|                                                                 |                                    |   |           |           |  |     
|                                                                 | Total operating costs and expenses |   |           | 1,101,840 |  |      |           | 1,059,063 |  
|                                                                 |                                    |   |           |           |  |     
|                                                                 | Income from operations             |   |           | 1,376,638 |  |      |           | 1,405,322 |  
|                                                                
|                                                                
|                                                                
|                                                                
|Other income (expense)                                          
|                                                                
|                                                                
|                                                                
|                                                                
|Gain (loss) on sale of equipment                                 |                                    |   | 15,000    |           |  |      | 1,012     |          
|                                                                
|                                                                
|                                                                
|                                                                
|Loss on sale of real estate                                      |                                    |   |          |           |  |      | (159,422  | )        
|                                                                
|                                                                
|                                                                
|                                                                
|Interest income                                                  |                                    |   |          |           |  |      | 4,923     |          
|                                                                
|                                                                
|                                                                
|                                                                
|Other                                                            |                                    |   | 6,655     |           |  |      | 10,673    |          
|                                                                 |                                    |   |           |           |  |     
|                                                                 | Total other income (expense)       |   |           | 21,655    |  |      |           | (142,814  | )
|                                                                 |                                    |   |           |           |  |     
|Net income                                                       |                                    |   | 1,398,293 |           |  |      | 1,262,508 |          
|                                                                
|                                                                
|                                                                
|                                                                
|Net income allocable to general partner                          |                                    |   | 13,983    |           |  |      | 12,625    |          
|                                                                 |                                    |   |           |           |  |     
|Net income allocable to limited partners                         |                                    | $ | 1,384,310 |           |  | $    | 1,249,883 |          
|                                                                 |                                    |   |           |           |  |     
|Net income per limited partnership unit                          |                                    | $ | 69.63     |           |  | $    | 62.63     |          
|                                                                 |                                    |   |           |           |  |     
|Weighted average number of limited partnership
units outstanding |                                    |   | 19,879    |           |  |      | 19,956    |          
|                                                                 |                                    |   |           |           |  |     

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

F - 3



---



##### Table of Contents






Captec Franchise Capital Partners L.P. III
Statements of Changes in Partners Capital
For the Years Ended December 31, 2000 and 1999

---

|                                        |  |           |        |   |           |   |            |           |  |   |           |   |  |   |            |  
|--------------------------------------- |  | --------- | ------ | - | --------- | - | ---------- | --------- |  | - | --------- | - |  | - | ---------- | -
|                                        |  | Limited   |        |   | Limited   |   |            | General   |  |   | Total     |  
|                                        |  | partners' |        |   | partners' |   |            | partner's |  |   | partners' |  
|                                        |  | units     |        |   | accounts  |   |            | accounts  |  |   | capital   |  
|                                       
|                                       
|                                       
|                                       
|Balance, January 1, 1999                |  |           | 19,963 |   |           | $ | 16,035,439 |           |  | $ | 46,019    |   |  | $ | 16,081,458 |  
|                                       
|                                       
|                                       
|                                       
|Repurchase of limited partnership units |  |           | (79    | ) |           |   | (59,625    | )         |  |   |          |   |  |   | (59,625    | )
|                                       
|                                       
|                                       
|                                       
|Distributions  ($99.82 per unit)       |  |           |       |   |           |   | (1,984,885 | )         |  |   | (40,432   | ) |  |   | (2,025,317 | )
|                                       
|                                       
|                                       
|                                       
|Net income                              |  |           |       |   |           |   | 1,249,883  |           |  |   | 12,625    |   |  |   | 1,262,508  |  
|                                        |  |           |        |   |           |   |            |           |  |   |           |  
|Balance December 31, 1999               |  |           | 19,884 |   |           |   | 15,240,812 |           |  |   | 18,212    |   |  |   | 15,259,024 |  
|                                       
|                                       
|                                       
|                                       
|Repurchase of limited partnership units |  |           | (42    | ) |           |   | (28,432    | )         |  |   |           |   |  |   | (28,432    | )
|                                       
|                                       
|                                       
|                                       
|Distributions ($110.35 per unit)        |  |           |        |   |           |   | (2,189,622 | )         |  |   | (5,326    | ) |  |   | (2,194,948 | )
|                                       
|                                       
|                                       
|                                       
|Net income                              |  |           |        |   |           |   | 1,384,310  |           |  |   | 13,983    |   |  |   | 1,398,293  |  
|                                        |  |           |        |   |           |   |            |           |  |   |           |  
|Balance December 31, 2000               |  |           | 19,842 |   |           | $ | 14,407,068 |           |  | $ | 26,869    |   |  | $ | 14,433,937 |  
|                                        |  |           |        |   |           |   |            |           |  |   |           |  

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

F - 4



---



##### Table of Contents






Captec Franchise Capital Partners L.P. III
Statements of Cash Flows
For the Years Ended December 31, 2000 and 1999

---

|                                                                         |                                                                       |                                                     |            |          |            |   |            |          |            |  
|------------------------------------------------------------------------ | --------------------------------------------------------------------- | --------------------------------------------------- | ---------- | -------- | ---------- | - | ---------- | -------- | ---------- | -
|                                                                         |                                                                       |                                                     |            | 2000     |            |   | 1999       |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cash flows from operating activities                                    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income                                                               |                                                                       | $                                                   | 1,398,293  |          |            | $ | 1,262,508  |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Adjustments to net income
Depreciation                                   |                                                                       |                                                     | 294,947    |          |            |   | 290,777    |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Amortization of debt issuance costs                                   |                                                     |            | 47,791   |            |   |            | 47,791   |           
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | (Gain) on sale of equipment                                           |                                                     |            | (15,000  | )          |   |            | (1,012   | )         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Loss on sale of real estate                                           |                                                     |            |         |            |   |            | 159,422  |           
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Increase in unbilled rent                                             |                                                     |            | (257,486 | )          |   |            | (245,243 | )         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | (Increase) decrease in accounts receivable                            |                                                     |            | (3,793   | )          |   |            | 98,543   |           
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Decrease in security deposits                                         |                                                     |            |         |            |   |            | (4,555   | )         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Increase (decrease) increase in accounts payable and
accrued expenses |                                                     |            | 9,351    |            |   |            | (92,111  | )         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Increase in restricted cash                                           |                                                     |            | (2,985   | )          |   |            | (113,310 | )         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Decrease in due from related parties                                  |                                                     |            | 17,184   |            |   |            | 123,764  |           
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | (Decrease) increase in due to related parties                         |                                                     |            | (36,809  | )          |   |            | 3,552    |           
|                                                                         |                                                                       |                                                     |            |          |            |  
|                                                                         |                                                                       | Net cash provided by operating activities           |            |          | 1,451,493  |   |            |          | 1,530,126  |  
|                                                                         |                                                                       |                                                     |            |          |            |  
|Cash flows from investing activities                                    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Purchase and construction cost of properties subject
to operating leases |                                                                       |                                                     |           |          |            |   | (1,127,118 | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net proceeds from disposition of properties subject to
operating leases  |                                                                       |                                                     |           |          |            |   | 912,128    |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net proceeds from sale of equipment                                      |                                                                       |                                                     | 75,000     |          |            |   | 98,389     |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Purchase of equipment for financing leases                               |                                                                       |                                                     |           |          |            |   | (1,955,999 | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Principal payments on financing leases                                   |                                                                       |                                                     | 464,976    |          |            |   | 556,026    |         
|                                                                         |                                                                       |                                                     |            |          |            |  
|                                                                         |                                                                       | Net
cash provided by (used in) investing activities |            |          | 539,976    |   |            |          | (1,516,574 | )
|                                                                         |                                                                       |                                                     |            |          |            |  
|Cash flows from financing activities                                    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Proceeds from issuance of notes payable                                  |                                                                       |                                                     |           |          |            |   | 1,994,000  |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Debt issuance costs                                                      |                                                                       |                                                     |           |          |            |   | (87,843    | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Repurchase of limited partnership units                                  |                                                                       |                                                     | (28,432    | )        |            |   | (59,625    | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Distributions to limited partners                                        |                                                                       |                                                     | (2,189,622 | )        |            |   | (1,984,885 | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Distributions to general partner                                         |                                                                       |                                                     | (5,326     | )        |            |   | (40,432    | )       
|                                                                         |                                                                       |                                                     |            |          |            |  
|                                                                         |                                                                       | Net cash used in financing activities               |            |          | (2,223,380 | ) |            |          | (178,785   | )
|                                                                         |                                                                       |                                                     |            |          |            |  
|Net decrease in cash and cash equivalents                                |                                                                       |                                                     | (231,911   | )        |            |   | (165,233   | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cash and cash equivalents, beginning of period                           |                                                                       |                                                     | 327,903    |          |            |   | 493,136    |         
|                                                                         |                                                                       |                                                     |            |          |            |  
|Cash and cash equivalents, end of period                                 |                                                                       | $                                                   | 95,992     |          |            | $ | 327,903    |         
|                                                                         |                                                                       |                                                     |            |          |            |  
|Supplemental
disclosure of cash flow information:                       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cash
paid for interest                                                   |                                                                       | $                                                   | 689,892    |          |            | $ | 632,875    |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        

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

F - 5



---



##### Table of Contents






Captec Franchise Capital Partners L.P. III
Notes to Financial Statements

---



|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 basis, primarily to operators of
national and regional franchised businesses.                                                                                                                                                                                                                                                                                                                                                                              
|
| | The General Partners 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, 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.                                                                                                                                                                                                                               
|
| | The Partnership commenced a public offering of 20,000 limited partnership
interests (Units), priced at $1,000 per Unit, on August 12, 1994. The
Partnership commenced operations on January 24, 1995.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | In December 1997, the Partnership repurchased a total of 37 Units for
$31,450, or 85% of the investors capital account. On December 1, 1999 an
additional 79 units were repurchased for $59,625, or 75% of the
investors capital account. In December 2000, an additional 42 units were
repurchased 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 December
31, 2000, 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.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Following is a summary of the Partnerships significant accounting
policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Cash and cash equivalents
The Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Restricted cash
The Partnership is required to maintain a cash balance in an escrow
account until specific post closing requirements have been satisfied
related to a note payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Rental income from operating leases
The Partnerships operating leases have scheduled rent increases which
occur at various dates throughout the lease terms. The Partnership
recognizes the total rent, as stipulated by the lease agreement, as
income on a straight-line basis over the term of each lease. To the
extent rental income on the straight-line basis exceeds rents billable
per the lease agreement, an amount is recorded as unbilled rent. In
addition to scheduled rent increases, certain of the Partnerships leases
also have percentage and overage rent clauses, which the Partnership
recognizes after the tenants reported sales have exceeded the applicable
sales breakpoint.

F - 6



---



##### Table of Contents



Captec Franchise Capital Partners L.P. III
Notes to Financial Statements

---



|1. |  | The Partnership and its Significant Accounting Principles (continued)
|-- |  | ---------------------------------------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Land and building subject to operating leases
Land and buildings subject to operating leases are stated at cost less
accumulated depreciation. Buildings are depreciated on the straight-line
method over their estimated useful lives (40 years). The Partnership
periodically reviews its real estate portfolio for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the property may not be recoverable. If an impairment loss were indicated
using undiscounted cash flows, the loss is measured as the amount by
which the carrying amount of the asset exceeds the estimated fair or
present value of the asset on a discounted cash flow basis.                                                                                                                                                                                                                                                                                        
|
| | Net investment in financing leases
Net investment in financing leases primarily represents equipment used in
restaurant operations and are leased under a triple-net basis. Leases
classified as financing leases are stated as the sum of the minimum lease
payments plus the unguaranteed residual value accruing to the benefit of
the lessor, less unearned income. Unearned income is amortized to income
over the lease term so as to produce a constant periodic rate of return
on the net investment in the lease. Direct origination costs are deferred
and amortized over the life of the lease as an adjustment to yield.
Financing leases delinquent for 90 or more days are determined to be
impaired, and income accrual is suspended at that time. A loss reserve is
calculated based on the estimated amounts recoverable. At December 31,
2000 the Partnership has provided for an allowance of $153,837 for
uncollectible amounts associated with its financing leases.
|
| | Note payable
The fair value of fixed rate debt approximates the book value, and is
estimated based on current rates offered for notes payable of the
equivalent remaining maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Net income per limited partnership interest
Net income per limited partnership interest is calculated using the
weighted average number of limited partnership units outstanding during
the period and the limited partners allocable share of the net income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Income taxes
No provision for income taxes is included in the accompanying financial
statements, as the Partnerships results of operations are passed through
to the partners for inclusion in their respective income tax returns.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Reclassifications
Certain prior-period financial statement amounts have been reclassified
to conform to the 2000 presentations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F - 7



---



##### Table of Contents



Captec Franchise Capital Partners L.P. III
Notes to Financial Statements

---



|2. |  | Distributions
|-- |  | -------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash flows of the Partnership are allocated 99% to the Limited Partners
and 1% to the General Partner, except that the General Partners share is
subordinated to a 10% preferred return to the limited partners. Net sale
or refinancing proceeds of the Partnership will be allocated 90% to the
limited partners and 10% to the General Partner, except that the General
Partners share will be subordinated to an 11% preferred return plus
return of the original contributions to the limited partners.
|
| | Distributions of cash flow from operations are paid quarterly in arrears                                                                                                                                                                                                                                                                                                                                                                                                                                      



|3. |  | Related Party Transactions and Agreements
|-- |  | -----------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the Partnership Agreement, acquisition fees of 4%, plus an
additional .00624% for each 1% of indebtedness incurred in acquiring
properties and equipment, of the aggregate purchase prices of properties
and equipment (not to exceed a total 5% acquisition fee) are incurred to
the General Partner. The Partnership incurred $0 and $119,741 in
acquisition fees during 2000 and 1999, respectively. The acquisition fees
were capitalized as part of the Partnerships investment in land and
buildings subject to operating leases and net investment in financing
leases.                                                                                                                                                                                                                                                  
|
| | The Partnership has entered into an asset management agreement with the
General Partner and its affiliates, whereby the General Partner and the
General Partners affiliates provide various property and equipment
management services for the Partnership. A subordinated asset management
fee is charged, in an amount equal to 1% of the gross rental revenues
derived from the properties and equipment. Payment of the asset
management fee is subordinated to receipt by the limited partners of
annual distributions equal to a cumulative non-compounded return of 10%
per annum on their adjusted invested capital. Management fees of $26,971
and $26,670 were incurred during 2000 and 1999, respectively.                                                                                                                       
|
| | The Partnership Agreement provides for the General Partner to receive
real estate liquidation fees limited to the lesser of 3% of the gross
sales price or 50% of the customary real estate commissions in the event
of a real estate liquidation. This fee is payable only after the limited
partners have received distributions equal to a cumulative, noncompounded
return of 11% per annum on their adjusted invested capital plus
distributions of sale or refinancing proceeds equal to 100% of their
original contributions. The Partnerships Prospectus provided for the
reinvestment of net sale proceeds during the four year period beginning
on the date the Partnership terminated the offering, August 12, 1996.
During 1999, the Partnership paid real estate liquidation fees of $29,250
(see Note 4) and none during 2000.
|
| | The Partnership Agreement provides for the General Partner to receive
equipment liquidation fees in the amount of 3% of the contract sales
price. The Partnership paid equipment liquidation
fees of $0 and $8,804 during 2000 and 1999, respectively (see Note 5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F - 8



---



##### Table of Contents



Captec Franchise Capital Partners L.P. III
Notes to Financial Statements

---



|4. |  | Land and Building Subject to Operating Leases
|-- |  | ---------------------------------------------



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | The net investment in operating leases as of December 31, 2000 and 1999
is comprised of the following:

|                                |  |      |            |   |      |   |            |  
|------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                |  | 2000 |            |   | 1999 |  
|                               
|                               
|                               
|                               
|Land                            |  | $    | 8,163,346  |   |      | $ | 8,163,346  |  
|                               
|                               
|                               
|                               
|Building and improvements       |  |      | 11,796,894 |   |      |   | 11,796,894 |  
|                                |  |      |            |   |      |  
|                                |  |      | 19,960,240 |   |      |   | 19,960,240 |  
|                               
|                               
|                               
|                               
|Less  accumulated depreciation |  |      | (1,150,298 | ) |      |   | (855,351   | )
|                                |  |      |            |   |      |  
|Total                           |  | $    | 18,809,942 |   |      | $ | 19,104,889 |  
|                                |  |      |            |   |      |  



| |                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All construction draws are subject to the terms of a standard lease
agreement with the Partnership. Upon completion of construction and when
the tenant lease payments begin, the construction draws are then
capitalized as land and building. There were no outstanding construction
draws on properties as of December 31, 2000 and 1999.
|
| | The following is a schedule of future minimum lease payments to be
received on the operating leases as of December 31, 2000.                                                                                                                                                                                                                

|           |       |   |            |            | 
|---------- | ----- | - | ---------- | ---------- | 
|2001       |       | $ | 1,964,629  |           
|          
|          
|          
|          
|2002       |       |   | 2,017,652  |           
|          
|          
|          
|          
|2003       |       |   | 2,047,621  |           
|          
|          
|          
|          
|2004       |       |   | 2,096,915  |           
|          
|          
|          
|          
|2005       |       |   | 2,134,061  |           
|          
|          
|          
|          
|Thereafter |       |   | 21,836,460 |           
|           |       |   |           
|           | Total |   | $          | 32,097,338 | 
|           |       |   |           

F - 9



---



##### Table of Contents



Captec Franchise Capital Partners L.P. III
Notes to Financial Statements

---



|5. |  | Net Investment in Financing Leases
|-- |  | ----------------------------------



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | The net investment in financing leases as of December 31, 2000 and 1999
is comprised of the following:

|                                      |  |      |           |   |      |   |           |  
|------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                      |  | 2000 |           |   | 1999 |  
|                                      |  |      |           |   |      |  
|Minimum lease payments to be received |  | $    | 2,413,936 |   |      | $ | 3,055,244 |  
|                                     
|                                     
|                                     
|                                     
|Estimated residual value              |  |      | 117,101   |   |      |   | 177,101   |  
|                                      |  |      |           |   |      |  
|Gross investment in financing leases  |  |      | 2,531,037 |   |      |   | 3,232,345 |  
|                                     
|                                     
|                                     
|                                     
|Less  unearned income                |  |      | (405,450  | ) |      |   | (474,246  | )
|                                     
|                                     
|                                     
|                                     
|Less  direct origination costs       |  |      | (76,146   | ) |      |   | (183,682  | )
|                                      |  |      |           |   |      |  
|Net investment in financing leases    |  | $    | 2,049,441 |   |      | $ | 2,574,417 |  
|                                      |  |      |           |   |      |  



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | The following is a schedule of future minimum lease payments to be
received on the financing leases as of December 31, 2000:

|           |       |   |         |           | 
|---------- | ----- | - | ------- | --------- | 
|2001       |       | $ | 571,199 |          
|          
|          
|          
|          
|2002       |       |   | 498,820 |          
|          
|          
|          
|          
|2003       |       |   | 420,153 |          
|          
|          
|          
|          
|2004       |       |   | 369,737 |          
|          
|          
|          
|          
|2005       |       |   | 369,737 |          
|          
|          
|          
|          
|Thereafter |       |   | 184,290 |          
|           |       |   |        
|           | Total |   | $       | 2,413,936 | 
|           |       |   |        



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2000, the Partnership recognized a gain of $15,000 on the sale of
equipment leases. The Partnership received net proceeds of $75,000. The
net investment in the equipment leases was $60,000. During 1999, the
Partnership recognized a gain of $1,012 on the sale of equipment
leases. The Partnership received net proceeds of $98,389, net of
equipment liquidation fees of $8,804 (see Note 3). The net investment
in the equipment leases was $97,377.



|6. |  | Impaired Financing Leases
|-- |  | -------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2000, the Partnerships investment in impaired financing
leases was comprised of one lease. The recorded investment in the lease
is $181,329 net of a related allowance of $153,837. Installment payments
on this lease are delinquent by more than 90 days, and income accrual has
been suspended by the Partnership. The net investment in the impaired
lease represents the estimated net proceeds that the Partnership expects
to receive.

F - 10



---



##### Table of Contents



Captec Franchise Capital Partners L.P. III
Notes to Financial Statements

---



|7. |  | Notes Payable
|-- |  | -------------



| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In November 1998, the Partnership entered into a $6.2 million term note,
the proceeds of which were used to acquire properties. The note has a
ten-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 ten-year term, is collateralized by
certain properties subject to operating leases, and bears an interest
rate of 8.5% per annum.                                          
|
| | At December 31, 2000, annual maturities on the notes in aggregate are as
follows:                                                                                                                                                                                                

|           |       |   |           |           | 
|---------- | ----- | - | --------- | --------- | 
|2001       |       | $ | 151,430   |          
|          
|          
|          
|          
|2002       |       |   | 178,243   |          
|          
|          
|          
|          
|2003       |       |   | 193,806   |          
|          
|          
|          
|          
|2004       |       |   | 210,729   |          
|          
|          
|          
|          
|2005       |       |   | 229,130   |          
|          
|          
|          
|          
|Thereafter |       |   | 7,230,662 |          
|           |       |   |          
|           | Total |   | $         | 8,194,000 | 
|           |       |   |          



| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Debt issuance costs of $477,909 in aggregate were incurred in connection
with the issuance of the notes, and are being amortized to interest
expense using the straight-line method over the ten-year term.



|8. |  | Subsequent Event
|-- |  | ----------------



| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Based upon the results of operations for the three month period ended
December 31, 2000, the Partnership declared distributions of $450,000 to
its limited partners on January 15, 2001.

F - 11