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

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

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       OR

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

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________.

                        COMMISSION FILE NUMBER: 033-68728

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

                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               MARYLAND                                  13-3726306
       (STATE OF INCORPORATION)             (I.R.S. EMPLOYER IDENTIFICATION NO.)

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

                        REGISTRANT'S TELEPHONE NUMBERS:

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

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

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

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

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

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No | |

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this report, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. | |

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

Registrant has no active market for its common stock as of March 5, 2004.
Non-affiliates held 28,656,471 shares as of March 5, 2004.

As of March 5, 2004, there are 30,306,943 shares of common stock of Registrant
outstanding.

      CPA(R):12 incorporates by reference its definitive Proxy Statement with
respect to its 2004 Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days following the end of its
fiscal year, into Part III of this Report.
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                     PART I

Item 1. Business.

Corporate Property Associates 12 ("CPA(R):12") Incorporated is a real estate
investment trust ("REIT") that acquires and owns commercial properties leased to
companies nationwide and internationally, primarily on a triple net basis. As of
December 31, 2003, CPA(R):12's portfolio consisted of 120 properties leased to
62 tenants and totaling more than 9.4 million square feet.

CPA(R):12's core investment strategy is to own and manage its portfolio of
properties leased to a variety of companies on a single tenant net lease basis,
to maximize shareholder returns. Additional properties may be bought and net
leased if appropriate opportunities arise. These leases generally place the
economic burden of ownership on the tenant by requiring them to pay the costs of
maintenance, insurance, taxes, structural repairs and other operating expenses.
CPA(R):12 also generally includes in its leases:

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

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

            -     indemnification of CPA(R):12 for environmental and other
                  liabilities; and

            -     guarantees from parent companies or other entities.

CPA(R):12 was formed as a Maryland corporation on July 30, 1993. Between
February 1994 and September 1997, CPA(R):12 sold a total of 28,334,451 shares of
common stock for a total of $283,344,510 in offering proceeds. CPA(R):12 also
raised an additional $10,000,000 through a private placement of its common stock
in January 2001. These proceeds have been combined with limited recourse
mortgage debt to purchase CPA(R):12's property portfolio. As a REIT, CPA(R):12
is not subject to federal income taxation as long as it satisfies certain
requirements relating to the nature of its income, the level of its
distributions and other factors.

W. P. Carey & Co. LLC ("WPC"), CPA(R):12's advisor, provides both strategic and
day-to-day management for CPA(R):12, including acquisition services, research,
investment analysis, asset management, capital funding services, disposition of
assets, investor relations and administrative services. WPC also provides office
space and other facilities for CPA(R):12. WPC has dedicated senior executives in
each area of its organization so that CPA(R):12 functions as a fully integrated
operating company. CPA(R):12 pays asset management fees to WPC and pays certain
transactional fees. CPA(R):12 also reimburses WPC for certain expenses. WPC also
serves in this capacity for Carey Institutional Properties Incorporated
("CIP(R)"), Corporate Property Associates 14 Incorporated ("CPA(R):14"),
Corporate Property Associates 15 Incorporated ("CPA(R):15") and Corporate
Property Associates 16 - Global Incorporated ("CPA(R):16-Global"). WPC is a
publicly-traded company on the New York Stock Exchange and Pacific Exchange
under the symbol "WPC."

CPA(R):12's principal executive offices are located at 50 Rockefeller Plaza, New
York, NY 10020 and its telephone number is (212) 492-1100. As of December 31,
2003, CPA(R):12 had no employees. WPC employs 120 individuals.

BUSINESS OBJECTIVES AND STRATEGY

CPA(R):12's objectives are to:

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

            -     provide inflation protected income;

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

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

CPA(R):12 seeks to achieve these objectives by purchasing and holding industrial
and commercial properties each net leased to a single corporate tenant.
CPA(R):12 intends its portfolio to be diversified by geography, property type
and by tenant.


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                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

SIGNIFICANT DEVELOPMENTS DURING 2003

On January 16, 2003, Rheometric Scientific, Inc. ("Rheometric") completed the
asset sale of one its lines of business, at which time the lease termination
agreement between Rheometric and CPA(R):12 for the facility in Piscataway, New
Jersey became effective and Rheometric changed its name to Proterion Corporation
("Proterion"). In connection with the settlement, CPA(R):12 recognized
$3,042,227 of other income in 2003. The settlement included a grant of 650,000
shares of common stock. In connection with structuring the initial purchase
transaction with Rheometric, CPA(R):12 was granted warrants for 466,140 shares
of Rheometric common stock at an exercise price of $2.00. Under the lease
termination agreement, the exercise price of the warrants was reduced to $0.01.
On January 16, 2003, the warrants were converted on a cashless basis to 456,424
shares of common stock of Proterion.

On February 7, 2003, CPA(R):12 and two affiliates, CPA(R):14 and CPA(R):15,
through a newly-formed limited liability company with ownership interests of
15%, 41% and 44%, respectively, purchased land and 15 health club facilities for
$178,010,471 and entered into a master net lease with Starmark Camhood LLC. The
lease obligations of Starmark are jointly and unconditionally guaranteed by
seven of its affiliates. The Starmark lease provides for an initial lease term
of 20 years with three ten-year renewal terms. Annual rent is initially
$18,272,400 with CPI-based increases scheduled in November 2006, 2010, 2014,
2018 and 2021. In connection with the purchase, the limited liability company
obtained first mortgage limited recourse financing of $88,300,000 and a
mezzanine loan of $20,000,000. The first mortgage provides for monthly payments
of interest and principal of $563,936 at an annual interest rate of 6.6% and
based on a 30-year amortization schedule. The loan matures in March 2013 at
which time a balloon payment is payable. The mezzanine loan provides for monthly
payments of interest and principal of $277,201 at an annual interest rate of
11.15% and will fully amortize over its ten-year term. The limited liability
company was granted warrants for Class C unit interests in Starmark. If
exercised, the Unit interests would represent a 5% interest in Starmark as of
the date of grant. The warrants may be exercised at any time through February 7,
2023 at an exercise price of $430 per unit. The warrant agreement does not
provide for a cashless exercise of units.

On March 12, 2003, CPA(R):12 purchased a 35% interest in a limited liability
company from CPA(R):15 which retained the remaining 65% interest. The limited
liability company owns properties in France that are leased to Medica-France and
Carrefour France, S.A. The purchase price for the 35% interest was $11,916,465
in cash and the assumption of a deferred fee payable to WPC of $1,031,046. The
purchase price was based on the appraised value of the properties (based on the
March 6, 2003 exchange rate for the Euro) adjusted for capital costs incurred
since the acquisition by CPA(R):15 including fees paid to WPC, net of mortgage
debt. The Medica leases have a remaining term through June 2011 and provide for
aggregate annual rent of (euro)3,856,618 ($4,226,467) with annual rent increases
based on a formula indexed to increases in the INSEE, a French cost index. The
Carrefour leases have a remaining term through December 2011 for an aggregate
annual rent of (euro)10,190,269 ($11,167,516) with annual rent increases based
on the formula, indexed to the INSEE. In connection with the purchase of the
properties, the limited liability company obtained limited recourse mortgage
debt of (euro)34,000,000 ($37,260,600) and (euro)84,244,000 ($92,323,000) on the
Medica and Carrefour properties, respectively. The Medica and Carrefour loans
provide for quarterly payments of interest at an annual interest rate of 5.631%
and 5.55%, respectively, and stated principal payments with scheduled increases
over their terms. The Medica and Carrefour loans mature in October 2017 and
December 2014, respectively, at which time balloon payments are payable.

On November 27, 2003, the limited liability company purchased an additional
Carrefour property in Nimes, France for (euro)17,277,481 ($20,634,503 as of the
date of acquisition) and obtained additional limited recourse mortgage financing
of (euro)14,025,000 ($16,750,058) which was added to the existing mortgage
balance on the Carrefour properties. The lease for the Nimes property provides
for annual rent of (euro)1,608,750 ($1,921,330) and has a term through November
2012 with annual rent increases based on the INSEE.

In connection with the purchase of the Nimes property, WPC, the parent company
of the Advisor, purchased a 22.5% interest in the Carrefour properties at which
time the Company's interest in the Carrefour properties was reduced to 27.125%.
WPC's purchase price was based on an independent appraisal of the properties.

In October 2003, CPA(R):12 funded approximately $700,000 improvements to its
existing property leased to Wal-Mart Stores, Inc. in exchange for an increase in
annual rent of $110,000 and Wal-Mart's commitment to a five-year extension term.
In November 2003, Scott Companies, Inc. entered into liquidation proceedings and
subsequently terminated its lease at a property in San Leandro, California. The
Scott lease had provided lease revenues of $2,223,000. The property is being
remarketed.


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                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

ACQUISITION STRATEGIES

WPC has a well-developed process with established procedures and systems for
acquiring net leased property on behalf of CPA(R):12. As a result of its
reputation and experience in the industry and the contacts maintained by its
professionals, WPC has a presence in the net lease market that has provided it
with the opportunity to invest in a significant number of transactions on an
ongoing basis. CPA(R):12 takes advantage of WPC's presence in the net lease
market to build its portfolio. In evaluating opportunities for CPA(R):12, WPC
carefully examines the credit, management and other attributes of the tenant and
the importance of the property under consideration to the tenant's operations.
Careful credit analysis is a crucial aspect of every transaction. CPA(R):12
believes that WPC has one of the most extensive underwriting processes in the
industry and has an experienced staff of professionals involved with
underwriting transactions. WPC seeks to identify those prospective tenants whose
creditworthiness is likely to improve over time. CPA(R):12 believes that the
experience of WPC's management in structuring sale-leaseback transactions to
meet the needs of a prospective tenant enables WPC to obtain a higher return for
a given level of risk than would typically be available by purchasing a property
subject to an existing lease.

WPC's strategy in structuring its net lease investments for CPA(R):12 is to:

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

            -     enhance current returns by utilizing varied lease structures;

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

            -     increase potential returns by obtaining equity enhancements
                  from the tenant when possible, such as warrants to purchase
                  tenant common stock. As of December 31, 2003, CPA(R):12 held
                  warrant positions in four tenants.

FINANCING STRATEGIES

Consistent with its investment policies, CPA(R):12 uses leverage when available
on favorable terms. CPA(R):12 has approximately $184,206,000 in property level
debt outstanding. These mortgages mature between the current year and 2021 and
have interest rates between 6.5% and 8.75%. CPA(R):12's credit facility matured
in October 2003.

CPA(R):12 is a party to a mortgage financing securitization transaction with
three affiliates, WPC, CIP(R) and CPA(R):14 entered into in August 2002.
CPA(R):12 and the three affiliates obtained an aggregate of approximately
$172,335,000 of limited recourse mortgage financing collateralized by 62 leased
properties. The lender pooled the loans into a trust, Carey Commercial Mortgage
Trust, a non-affiliate, whose assets consist solely of the loans, and sold the
interests in the trust as collateralized mortgage obligations in a private
placement to institutional investors. CPA(R):12 and the three affiliates agreed
to acquire a separate class of subordinated interests in the trust (the "CPA(R)
Interests"). The amount of CPA(R) Interests acquired by CPA(R):12 was
proportional to the mortgage amounts obtained. The CPA(R) Interests were
purchased for $24,128,739 of which CPA(R):12's share was $7,238,622, or 30%, and
are comprised of two components, a component that will receive payments of
principal and interest and a component that will receive payments of interest
only. CPA(R):12 is accounting for its interest in the CPA(R) Interests as an
available-for-sale security and will be measured at fair value with all gains
and losses from changes in fair value reported as a component of other
comprehensive income as part of shareholders' equity.

WPC continually seeks opportunities and considers alternative financing
techniques to finance properties not currently subject to debt, refinance debt,
reduce interest expense or improve its capital structure.

TRANSACTION ORIGINATION

In analyzing potential acquisitions, WPC reviews and structures many aspects of
a transaction, including the tenant, the real estate and the lease, to determine
whether a potential acquisition can be structured to satisfy CPA(R):12's
acquisition criteria. The aspects of a transaction which are reviewed and
structured by WPC include the following:

      Tenant Evaluation. WPC subjects each potential tenant to an extensive
      evaluation of its credit, management, position within its industry,
      operating history and profitability. WPC seeks tenants it believes will
      have stable or improving credit. By leasing properties to these types of
      tenants, CPA(R):12 can generally charge rent that is higher than the rent
      charged to tenants with recognized credit and, thereby, enhance its
      current return from these properties as compared with properties leased to
      companies whose credit potential has


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                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

      already been recognized by the market. Furthermore, if a tenant's credit
      does improve, the value of CPA(R):12's properties leased to that tenant
      will likely increase (if all other factors affecting value remain
      unchanged). WPC may also seek to enhance the likelihood of a tenant's
      lease obligations being satisfied, such as through a letter of credit or a
      guaranty of lease obligations from the tenant's corporate parent. This
      credit enhancement provides CPA(R):12 with additional financial security.

      Leases with Increasing Rents. WPC seeks to include clauses in CPA(R):12's
      leases that provide for increases in rent over the term of the leases.
      These increases are generally tied to increases in certain indices such as
      the consumer price index, in the case of retail stores, participation in
      gross sales above a stated level, mandated rental increases on specific
      dates and through other methods. CPA(R):12 seeks to avoid entering into
      leases that provide for contractual reductions in rents during their
      primary term (other than reductions related to reductions in debt
      service).

      Properties Important to Tenant Operations. WPC, on behalf of CPA(R):12,
      generally seeks to acquire properties with operations that are essential
      or important to the ongoing operations of the tenant. CPA(R):12 believes
      that these properties provide better protection in the event that tenants
      file for bankruptcy, because leases on properties essential or important
      to the operations of a bankrupt tenant are less likely to be rejected and
      terminated by a bankrupt tenant. WPC also seeks to assess the income, cash
      flow and profitability of the business conducted at the property, so that,
      if the tenant is unable to operate its business, CPA(R):12 can either
      continue operating the business conducted at the property or re-lease the
      property to another entity in the industry which can operate the property
      profitably.

      Lease Provisions that Enhance and Protect Value. When appropriate, WPC
      attempts to include provisions in CPA(R):12's leases that require
      CPA(R):12's consent to certain tenant activity or require the tenant to
      satisfy certain operating tests. These provisions include, for example,
      operational and financial covenants of the tenant, prohibitions on a
      change in control of the tenant and indemnification from the tenant
      against environmental and other contingent liabilities. Including these
      provisions in its leases enables CPA(R):12 to protect its investment from
      changes in the operating and financial characteristics of a tenant that
      may impact its ability to satisfy its obligations to CPA(R):12 or could
      reduce the value of CPA(R):12's properties.

      Diversification. WPC tries to diversify CPA(R):12's portfolio of
      properties to avoid dependence on any one particular tenant, type of
      facility, geographic location and tenant industry. By diversifying its
      portfolio, CPA(R):12 reduces the adverse effect on CPA(R):12 of a single
      under-performing investment or a downturn in any particular industry or
      geographic location.

WPC employs a variety of other strategies and practices in connection with
CPA(R):12's acquisitions. These strategies include attempting to obtain equity
enhancements in connection with transactions. Typically, these equity
enhancements involve warrants to purchase stock of the tenant to which the
property is leased or the stock of the parent of the tenant. In certain
instances, CPA(R):12 grants to the tenant a right to purchase the property
leased by the tenant, but generally the option purchase price will not be less
than the fair market value of the property. WPC's practices include performing
evaluations of the physical condition of properties and performing environmental
surveys in an attempt to determine potential environmental liabilities
associated with a property prior to its acquisition.

As a transaction is structured, it is evaluated by the Chairman of the
Investment Committee with respect to the potential tenant's credit, business
prospects, position within its industry and other characteristics important to
the long-term value of the property and the capability of the tenant to meet its
lease obligations. Before a property is acquired, the transaction is reviewed by
the Investment Committee to ensure that it satisfies CPA(R):12's investment
criteria. Aspects of the transaction that are typically reviewed by the
Investment Committee include the expected financial returns, the
creditworthiness of the tenant, the real estate characteristics and the lease
terms.

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

CPA(R):12 believes that the Investment Committee review process gives it a
unique, competitive advantage over other unaffiliated net lease companies
because of the substantial experience and perspective that the Investment
Committee has in evaluating the blend of corporate credit, real estate and lease
terms that combine to make an acceptable risk.


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The following people serve on the Investment Committee:

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

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

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

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

            -     Ralph F. Verni, is a private investor and business consultant
                  and formerly Chief Investment Officer of The New England
                  Mutual Life Insurance Company.

            -     Karsten von Koller was formerly Chairman and Member of the
                  Board of Managing Directors of Eurohypo AG, the leading
                  commercial real estate financing company in Europe.

ASSET MANAGEMENT

CPA(R):12 believes that effective management of its net lease assets is
essential to maintain and enhance property values. Important aspects of asset
management include restructuring transactions to meet the evolving needs of
current tenants, re-leasing properties, refinancing debt, selling properties and
knowledge of the bankruptcy process.

WPC monitors, on an ongoing basis, compliance by tenants with their lease
obligations and other factors that could affect the financial performance of any
of its properties. Monitoring involves receiving assurances that each tenant has
paid real estate taxes, assessments and other expenses relating to the
properties it occupies and confirming that appropriate insurance coverage is
being maintained by the tenant. WPC reviews financial statements of its tenants
and undertakes regular physical inspections of the condition and maintenance of
its properties. Additionally, WPC periodically analyzes each tenant's financial
condition, the industry in which each tenant operates and each tenant's relative
strength in its industry.

HOLDING PERIOD

CPA(R):12 intends to hold each property it acquires for an extended period. The
determination of whether a particular property should be sold or otherwise
disposed of will be made after consideration of relevant factors with a view to
achieving maximum capital appreciation and after-tax return for the CPA(R):12
shareholders. If CPA(R):12's common stock is not listed for trading on a
national securities exchange or included for quotation on NASDAQ, CPA(R):12's
policy is to generally begin selling properties within ten years after the
proceeds of the public offering are substantially invested, subject to market
conditions. Pursuant to this policy, CPA(R):12's board of directors will begin
considering liquidity alternatives for CPA(R):12 over the course of the next
year or two. The board of directors will make the decision whether to list the
shares, liquidate or devise an alternative liquidity strategy which is likely to
result in the greatest value for the shareholders.

COMPETITION

CPA(R):12 faces competition for the acquisition of office and industrial
properties in general, and such properties net leased to major corporations in
particular, from insurance companies, credit companies, pension funds, private
individuals, investment companies and other REITs. CPA(R):12 also faces
competition from institutions that provide or arrange for other types of
commercial financing through private or public offerings of equity or debt or
traditional


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                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

bank financings. CPA(R):12 believes its management's experience in real estate,
credit underwriting and transaction structuring will allow CPA(R):12 to compete
effectively for office and industrial properties.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, as well as other parties,
may be required to investigate and clean up hazardous or toxic chemicals,
substances or waste or petroleum product or waste, releases on, under, in or
from a property. These parties may be held liable to governmental entities or to
third parties for specified damages and for investigation and cleanup costs
incurred by these parties in connection with the release or threatened release
of hazardous materials. These laws typically impose responsibility and liability
without regard to whether the owner knew of or was responsible for the presence
of hazardous materials, and the liability under these laws has been interpreted
to be joint and several under some circumstances. CPA(R):12's leases often
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.

CPA(R):12 typically undertakes an investigation of potential environmental risks
when evaluating an acquisition. Phase I environmental assessments are performed
by independent environmental consulting and engineering firms for all properties
acquired by CPA(R):12. Where warranted, Phase II environmental assessments are
performed. Phase I assessments do not involve subsurface testing, whereas Phase
II assessments involve some degree of soil and/or groundwater testing. CPA(R):12
may acquire a property which is known to have had a release of hazardous
materials in the past, subject to a determination of the level of risk and
potential cost of remediation. CPA(R):12 normally requires property sellers to
indemnify it fully against any environmental problem existing as of the date of
purchase. Additionally, CPA(R):12 often structures its leases to require the
tenant to assume most or all responsibility for compliance with the
environmental provisions of the lease or environmental remediation relating to
the tenant's operations and to provide that non-compliance with environmental
laws is a lease default. In some cases, CPA(R):12 may also require a cash
reserve, a letter of credit or a guarantee from the tenant, the tenant's parent
company or a third party to assure lease compliance and funding of remediation.
The value of any of these protections depends on the amount of the collateral
and/or financial strength of the entity providing the protection. Such a
contractual arrangement does not eliminate CPA(R):12's statutory liability or
preclude claims against CPA(R):12 by governmental authorities or persons who are
not a party to the arrangement. Contractual arrangements in CPA(R):12's leases
may provide a basis for CPA(R):12 to recover from the tenant damages or costs
for which it has been found liable.

INDUSTRY SEGMENT

CPA(R):12 operates in one industry segment, investment in net leased real
property. For the year ended December 31, 2003, Applied Materials, Inc.
represented 10% of the total operating revenue of CPA(R):12. Applied Materials
is publicly traded and files financial information with the United States
Securities and Exchange Commission in accordance with the 1993 and 1994 Acts.

FACTORS AFFECTING FUTURE OPERATING RESULTS

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

CPA(R):12 wishes to take advantage of the "safe harbor" provisions of the Act
and is therefore including this section in its Annual Report on Form 10-K. The
statements contained in this Annual Report, if not historical, are
forward-looking statements and involve risks and uncertainties which are
described below that could cause actual results to differ materially from the
results, financial or otherwise, or other expectations described in such
forward-looking statements. These statements are identified with the words
"anticipated," "expected," "intends," "seeks" or "plans" or words of similar
meaning. Therefore, forward-looking statements should not be relied upon as a
prediction of actual future results or occurrences.

CPA(R):12's future results may be affected by certain risks and uncertainties
including the following:

We are subject to the risks of real estate ownership which could reduce the
value of our properties. Our properties may include net leased industrial and
commercial property. The performance of CPA(R):12 is subject to risks incident
to the ownership and operation of these types of properties, including:


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            -     changes in the general economic climate;

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

            -     changes in interest rates and the availability of financing;

            -     competition from other available space; and

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

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

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

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

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

The bankruptcy of tenants would cause a reduction in revenue.

A tenant in bankruptcy could cause:

            -     the loss of lease payments;

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

            -     a reduction in the value of shares; and

            -     a decrease in distributions to shareholders.

Under bankruptcy law, a tenant who is the subject of bankruptcy proceedings has
the option of continuing or terminating any unexpired lease. If the tenant
terminates the lease, any claim we have for breach of the lease (excluding
collateral securing the claim) will be treated as a general unsecured claim. The
maximum claim will be capped at the amount owed for unpaid rent prior to the
bankruptcy unrelated to the termination, plus the greater of one year's lease
payments or 15% of the remaining lease payments payable under the lease (but no
more than three years' lease payments). In addition, due to the long-term nature
of our leases and terms providing for the repurchase of a property by the
tenant, a bankruptcy court could recharacterize a net lease transaction as a
secured lending transaction. If that were to occur, we would not be treated as
the owner of the property, but might have additional rights as a secured
creditor.

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

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

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


                                      -7-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

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

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

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

Our success is dependent on the performance of WPC.

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

WPC may be subject to conflicts of interest.

WPC manages our business and selects our real estate investments. WPC has some
conflicts of interest in its management of CPA(R):12, which arise primarily from
the involvement of WPC and its affiliates in other activities that may conflict
with CPA(R):12 and the payment of fees by us to WPC and its affiliates. The
activities in which a conflict could arise between CPA(R):12 and WPC are:

            -     the receipt of commissions, fees and other compensation by WPC
                  and its affiliates for property purchases, leases, sales and
                  financing for CPA(R):12, which may cause WPC and its
                  affiliates to engage in transactions that generate higher
                  fees, rather than transactions that are more appropriate or
                  beneficial for our business;

            -     agreements between CPA(R):12 and WPC or any of its affiliates,
                  including agreements regarding compensation of WPC and its
                  affiliates, will not be negotiated on an arm's length basis as
                  would occur if the agreements were with unaffiliated third
                  parties;

            -     purchases and loans from affiliates, subject to CPA(R):12's
                  investment procedures, objectives and policies, which will
                  increase fees and interest payable to affiliates, thereby
                  decreasing our net income and possibly causing us to incur
                  higher leverage levels;

            -     competition with certain affiliates for property acquisitions,
                  which may cause WPC and its affiliates to direct properties
                  suitable for us to other related entities;

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

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

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

Potential liability for environmental matters could adversely affect our
financial condition.. We own industrial and commercial properties and are
subject to the risk of liabilities under federal, state and local environmental
laws. Some of these laws could impose the following on CPA(R):12:

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

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

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


                                      -8-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

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

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

Most of our property acquisitions have been made by borrowing a portion of the
purchase price of our properties and securing the loan with a mortgage on the
property. If we are unable to make our debt payments as required, a lender could
foreclose on the property or properties securing its debt. This could cause us
to lose part or all of our investment which in turn could cause the value of the
shares and distributions to shareholders to be reduced. We generally borrow on a
non-recourse basis to limit our exposure on any property to the amount of equity
invested in the property. We typically borrow between 55% and 65% of the
purchase price of our properties. There is no limitation on the amount borrowed
on a single property and the aggregate borrowings may not exceed 75% of the
value of all properties. Any borrowings in excess of 75% of the value of all
properties must be approved by a majority of the independent directors and
disclosed to shareholders. As of December 31, 2003, we had limited recourse
mortgage notes payable outstanding of $184,206,000.

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

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

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

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

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

Balloon payment obligations may adversely affect our financial condition.

Some of our financing may require us to make a lump-sum or "balloon" payment at
maturity. Our ability to make any balloon payment is uncertain and may depend
upon our ability to obtain additional financing or our ability to sell the
property. At the time the balloon payment is due, we may or may not be able to
refinance the balloon payment on terms as favorable as the original loan or sell
the property at a price sufficient to make the balloon payment. A refinancing or
sale could affect the rate of return to shareholders and the projected time of
disposition of our assets.

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

      -     2004 - None;

      -     2005 - $4.1 million;

      -     2006 - $5.2 million;

      -     2007 - $18.5 million; and

      -     2008 - $16.9 million


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

Our articles of incorporation restrict ownership of more than 9.8% of the
outstanding shares by one person. These restrictions may discourage a change of
control of CPA(R):12 and may deter individuals or entities from making tender
offers for shares, which offers might be financially attractive to shareholders
or which may cause a change in the management of CPA(R):12.

Maryland law could restrict change in control.


                                      -9-
<PAGE>
Provisions of Maryland law applicable to us prohibit business combinations with:

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

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

            -     an affiliate of an interested shareholder.

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

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

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

International investments involve additional risks.
We own an interest in properties in France and we may purchase additional
property located outside the United States. These investments may be affected by
factors peculiar to the laws of the jurisdiction in which the property is
located. These laws may expose us to risks that are different from and in
addition to those commonly found in the United States. Foreign investments could
be subject to the following risks:

            -     changing governmental rules and policies;

            -     enactment of laws relating to the foreign ownership of
                  property and laws relating to the ability of foreign persons
                  or corporations to remove profits earned from activities
                  within the country to the person's or corporation's country of
                  origin;

            -     variations in the currency exchange rates;

            -     adverse market conditions caused by changes in national or
                  local economic conditions;

            -     changes in relative interest rates;

            -     change in the availability, cost and terms of mortgage funds
                  resulting from varying national economic policies;

            -     changes in real estate and other tax rates and other operating
                  expenses in particular countries;

            -     changes in land use and zoning laws; and

            -     more stringent environmental laws or changes in such laws.

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

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


                                      -10-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

Item 2. Properties.

Set forth below is certain information relating to the Company's properties
owned as of December 31, 2003.

<TABLE>
<CAPTION>
                                                                                   SHARE OF
                                                                        RENT PER    CURRENT
LEASE OBLIGOR/                          OWNERSHIP           SQUARE       SQUARE      ANNUAL        INCREASE     LEASE      MAXIMUM
  LOCATION                              INTEREST(1)         FOOTAGE       FOOT      RENTS(2)        FACTOR       TERM        TERM
------------------------------      -------------------   ----------   ----------  -----------     ---------   ---------   ---------
<S>                                 <C>                   <C>          <C>         <C>             <C>         <C>         <C>
SOCIETE LOGIDIS AND SOCIETE CV LOGISTIQUE (CARREFOUR FRANCE, S.A. AND CARREFOUR HYPERMARCHES FRANCE, S.A.)(3)
  Cholet, Ploufragan,
  Colomiers, Crepy en Vallois,
  Lens, Nimes, and Thuit
  Hebert, France                          27.125%          2,940,004      $5.04    $4,018,847(8)    INSEE(9)   Dec. 2011    None

  ADVANCED MICRO DEVICES, INC.(3)
                                    33 1/3% interest in
                                    a limited liability
  Sunnyvale, CA                     company owning land
                                    and buildings            361,965     $27.01     $3,258,938      CPI        Aug. 2019   Aug. 2039

STARMARK CAMHOOD, L.L.C.(3)
  Tampa and Boca Raton, FL;
  Newton, MA; Bloomington (2),
  Brooklyn Center, Bumsville,         15% interest in a
  Eden Prairie (2), Fridley,          limited liability
  Minnetonka and St. Louis Park,     company owning land   1,652,151     $11.06      2,740,860      CPI        Feb. 2023   Feb. 2053
  MN; Albuquerque, NM (4)               and buildings

GALYAN'S TRADING COMPANY(3)
  Lombard, IL; Fairfax, VA                   100%            197,245      12.65      2,494,204      Stated     Dec. 2020   Dec. 2060

  SPECTRIAN CORPORATION(3)
  Sunnyvale, CA (2)                          100%            141,787      15.07      2,136,344      CPI        Nov. 2011   Nov. 2026

  SPECIAL DEVICES, INC.(3)
  Moorpark, CA; Mesa, AZ                      50%            249,276      16.36      2,038,514      CPI        Jun. 2021   Jun. 2041

PERRY GRAPHIC COMMUNICATIONS AND JUDD'S INCORPORATED(3)
  Baraboo and Waterloo, WI                   100%            899,476       2.31      2,077,762      Stated     Dec. 2017   Dec. 2032

  BEST BUY CO., INC.(3)
  Fort Collins, CO; Matteson and
  Schaumburg, IL; Attleboro, MA;     37% interest in a
  Nashua, NH; Albuquerque, NM;            general
  Arlington, Beaumont, Dallas,          partner-ship
  Fort Worth and Houston, TX;         owning land and        512,278       9.94      1,883,163      Stated     Apr. 2018   Apr. 2038
  Virginia Beach, VA                     buildings

  WESTELL TECHNOLOGIES, INC.(3)
  Aurora, IL                                 100%            210,877       8.80      1,855,257      Stated     Sep. 2017   Sep. 2027

  TRUSERV CORPORATION(3)
  Kingman, Arizona; Springfield,
  Oregon; Fogelsville,
  Pennsylvania; Jonesboro,            15% interest in
  Georgia; Kansas City, Missouri;      three limited
  Woodland, California;             partnerships owning    3,628,160       3.31     $1,801,073      Stated     Dec. 2022   Nov. 2042
  Corsicana, Texas                   land and buildings
</TABLE>


                                      -11-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

<TABLE>
<CAPTION>
                                                                                  SHARE OF
                                                                      RENT PER    CURRENT
LEASE OBLIGOR/                        OWNERSHIP           SQUARE       SQUARE      ANNUAL        INCREASE     LEASE      MAXIMUM
  LOCATION                            INTEREST(1)         FOOTAGE       FOOT      RENTS(2)        FACTOR       TERM        TERM
------------------------------    -------------------   ----------   ----------  -----------     ---------   ---------   ---------
<S>                               <C>                   <C>          <C>         <C>             <C>         <C>         <C>
MEDICA-FRANCE, SA (3)
  Paris, Rueil Malmaison,
  Sarcelles, Poissy, Chatou,
  and Rosny sous Bois, France            35%              336,889       $14.37     1,694,964(8)   INSEE(9)   Jun. 2010   Jun. 2010

  TELOS CORPORATION
  Loudon County, VA                     100%              192,775         8.64     1,665,539       CPI       Mar. 2016   Mar. 2036

APPLIED MATERIALS, INC. (ETEC SYSTEMS, INC.)(3)
                                  Majority interest
                                  in a limited
  Hayward, CA                     liability company
                                  owning land and         342,233        27.41    $6,285,000       CPI       Sep. 2014   Jan. 2030
                                  building(5)

xxCAREER EDUCATION CORPORATION(3)
  Mendota Heights, MN                   100%              136,400        12.70     1,731,728       Stated    May 2011    May 2021

  Q CLUBS, INC.(3)
  Austin, TX(3)                         100%               43,935        17.78       781,169       CPI       Jun. 2013   Jun. 2033
  Houston, TX                           100%               46,733        16.82       786,119       CPI       Jul. 2016   Jul. 2036
                                                           ------                  ---------
       Total:                                              90,668                  1,567,288

  PPD DEVELOPMENT, INC.(3)
  Austin, TX                            100%              173,436         8.67     1,504,190       CPI       Nov. 2010   Nov. 2030

  DEL MONTE CORPORATION(3)
  Mendota, IL; Plover, Toppenish         50%(6)           735,766         4.02     1,477,713       CPI       Jun. 2016   Jun. 2046
  and Yakima, WA

  SICOR, INC.(3)
                                   50% interest in a
                                   general
  San Diego, CA (2)                partner-ship
                                   owning land and        144,312        20.41     1,472,736       CPI       Jul. 2009   Jul. 2049
                                   buildings

  THE UPPER DECK COMPANY(3)
                                   50% interest in a
                                   limited liability
  Carlsbad, CA                     company owning
                                   land and buildings     294,780         9.85     1,452,220       CPI       Dec. 2020   Dec. 2040

SILGAN CONTAINERS CORPORATION(3)
  Fort Dodge, IA; Oconomowoc            100%              330,561         4.30     1,421,352       CPI       Oct. 2014   Oct. 2029
  and Menomonie, WI

  COMPUCOM SYSTEMS, INC.(3)
                                  33 1/3% interest in
                                  a limited liability
  Dallas, TX                      company owning land
                                  and buildings           242,313        17.43     1,407,903      CPI        Apr. 2019   Apr. 2029

  THE BON-TON STORES, INC.(3)
  Allentown and Johnstown, PA           100%              480,059        3.01      1,443,502      CPI        Apr. 2017   Apr. 2047

</TABLE>


                                      -12-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

<TABLE>
<CAPTION>
                                                                                  SHARE OF
                                                                      RENT PER    CURRENT
LEASE OBLIGOR/                        OWNERSHIP           SQUARE       SQUARE      ANNUAL        INCREASE     LEASE      MAXIMUM
  LOCATION                            INTEREST(1)         FOOTAGE       FOOT      RENTS(2)        FACTOR       TERM        TERM
------------------------------    -------------------   ----------   ----------  -----------     ---------   ---------   ---------
<S>                               <C>                   <C>          <C>         <C>             <C>         <C>         <C>
MCLANE COMPANY, INC.(3)
                                  40% interest in two
  Shawnee, KS; Burlington, NJ(3)  limited liability
  Manassas, VA                    companies owning
                                  land and buildings      570,468         5.91     1,347,732       CPI       Nov. 2015   Nov. 2025

  TEXTRON, INC.(3)
                                  50% interest in a
                                  limited liability
  Gilbert, AZ                     company owning land
                                  and building            243,370        10.19     1,239,739       CPI       Jan. 2019   Jan. 2039

JEN-COAT, INC.(3)
  Westfield, MA (2)                     100%              377,500         3.21     1,210,000       CPI       Aug. 2021   Aug. 2041

  CHILDTIME CHILDCARE, INC.(3)
  Chandler, AZ; Fleming Island,
  FL; Ackworth, GA; Hauppauge
  and Patchogue, NY; New
  Territory and Sugarland, TX;          100%               71,372        17.94     1,280,340       CPI       Jun. 2017   Jun. 2027
  Hampton, VA; Silverdale, WA

ORBSEAL EUROPE I LLC AND ORBSEAL - AUSTRALIA LLC(3)
  Richmond, MO                            100%            262,528         3.85     1,011,750       CPI       Sep. 2021   Sep. 2041

PACIFIC LOGISTICS, L.P.(3)
  Dallas, TX                            100%              219,614         4.64     1,019,336       CPI       Jan. 2019   Jan. 2059

  THE GARDEN COMPANIES, INC.(3)
  Chattanooga, TN                       100%              242,317         3.80       920,292       CPI       Jun. 2015   Jun. 2035

  SHOPRITE SUPERMARKETS, INC.(3),(4)
                                   45% interest in a
                                  limited partnership                                              Stated/
  Ellenville and Warwick, NY        ownding land and                                               %of
                                       buildings          136,818        16.40     1,009,426       Sales     Oct. 2024   Oct. 2044

  GARDEN RIDGE CORPORATION(3)
  South Tulsa, OK                       100%              141,284         6.65       939,580       CPI       Apr. 2016   Apr. 2036

  CELADON GROUP, INC.(3)
  Indianapolis, IN                      100%               76,326        12.05       919,750       CPI       Sep. 2021   Sep. 2041

  VARIOUS TENANTS
  Piscataway, NJ                        100%               83,985         9.20       772,682                            (7)

  NUTRAMAX PRODUCTS, INC.
  Houston, TX                           100%              253,215         3.49       883,107       CPI       Apr. 2013   Apr. 2018

  VARIOUS TENANTS
  Newark, DE                            100%               12,400        15.44       191,394                            (7)
  Vacant                                100%              158,019
                                                          -------
                                                          170,419

  RANDALL INTERNATIONAL, INC.(3)
  Carlsbad, CA                          100%               88,329         5.66       500,000       Stated    Jan. 2016   Jan. 2029
</TABLE>


                                      -13-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

<TABLE>
<CAPTION>
                                                                                  SHARE OF
                                                                      RENT PER    CURRENT
LEASE OBLIGOR/                        OWNERSHIP           SQUARE       SQUARE      ANNUAL        INCREASE     LEASE      MAXIMUM
  LOCATION                            INTEREST(1)         FOOTAGE       FOOT      RENTS(2)        FACTOR       TERM        TERM
------------------------------    -------------------   ----------   ----------  -----------     ---------   ---------   ---------
<S>                               <C>                   <C>          <C>         <C>             <C>         <C>         <C>
RAVE REVIEWS CINEMAS, L.L.C.(3)
  Hickory Creek, TX                     100%               57,126        14.21       811,994       CPI       Dec. 2020   Dec. 2040

  VERMONT TEDDY BEAR CO., INC.(3)
  Shelburne, VT                         100%               55,446        12.70       703,889       CPI       Jul. 2017   Jul. 2032

  MILFORD MANUFACTURING SERVICES, L.L.C.(3)
  Milford, MA                           100%              108,125         6.03       652,034       CPI       Jul. 2009   Jul. 2019

BALANCED CARE CORPORATION(3)
  Mechanicsburg, PA                     100%               41,187        12.79       526,730       CPI       Jun. 2014   Jun. 2024

  WAL-MART STORES, INC.(3)
  Greenfield, IN                        100%               82,620         6.14       506,915       Stated    Jan. 2010   Jan. 2020

  COMPASS BANK FOR SAVINGS(3)
  Bourne, Sandwich and Wareham,         100%               19,999        10.25       204,906       CPI       Dec. 2017   Dec. 2037
  MA

  VACANT
  San Leandro, CA                       100%              432,081

                                   40% interest in a
                                   limited liability
  Grand Rapids, MI(10)            company owning land
                                      and building        179,461

  Ashburn, VA                           100%               69,983

  Hauppauge, NY                         100%               68,333
</TABLE>

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

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

3.    These properties are encumbered by mortgage notes payable. 4. Includes
      percentage of sales rents.

5.    Under the limited liability company agreement, the Company has a 100%
      interest in a portion of the leased properties and a 50.01% interest in
      the other portion of the property.

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

7.    Subject to short-term leases.

8.    Based on exchange rates at December 31, 2003.

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

10.   A lease with The Retail Distribution Group, Inc. is effective as of
      January 1, 2004.

Item  3. Legal Proceedings.

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

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

No matter was submitted during the fourth quarter of the year ended December 31,
2003 to a vote of security holders, through the solicitation of proxies or
otherwise.


                                      -14-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                     PART II

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

Information with respect to the Company's common equity is hereby incorporated
by reference to page 31 of Registrant's Annual Report contained in Appendix A.

Item 6. Selected Financial Data.

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

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

Management's Discussion and Analysis are hereby incorporated by reference to
pages 2 to 10 of the Company's Annual Report contained in Appendix A.

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

Market risk is the exposure to loss resulting from changes in interest rates,
credit spreads, foreign currency exchange rates and equity prices. In pursuing
our business plan, the primary market risks to which we are exposed are interest
rate risk and currency exchange rates.

The value of our real estate is subject to fluctuations based on changes in
interest rates, local and regional economic conditions and changes in the
creditworthiness of lessees, and which may affect our ability to refinance our
debt when balloon payments are scheduled.

All of the Company's $184,206,000 long term debt bears interest at fixed rates,
and the fair value of these instruments is affected by changes in market
interest rates. The following table presents principal cash flows based upon
expected maturity dates of the debt obligations and the related weighted-average
interest rates by expected maturity dates for the fixed rate debt. The interest
rate on the fixed rate debt as of December 31, 2003 ranged from 6.50% to 8.75%
per annum.

<TABLE>
<CAPTION>
(in thousands)
                          2004        2005       2006        2007       2008      Thereafter       Total       Fair Value
                          ----        ----       ----        ----       ----      ----------       -----       ----------
<S>                      <C>        <C>         <C>        <C>         <C>         <C>            <C>           <C>
Fixed rate debt          $5,953     $10,447     $11,539    $24,546     $22,553     $109,168       $184,206      $186,724
Weighted average
    interest rate         7.40%      7.72%        7.75%     7.58%        6.95%       7.59%
</TABLE>


The Company's credit facility matured in October 2003.

CPA(R):12 has ownership interests in properties in France. The foreign
operations are not material to CPA(R):12's consolidated financial position,
results of operations or cash flow during the three-year period ended December
31, 2003. CPA(R):12 was not subject to material foreign currency exchange rate
risk; however, it is expected to cause some fluctuation in the results of
operations or cash flow. To date, CPA(R):12 has not entered into any foreign
currency exchange contracts or other derivative financial instruments to hedge
the effects of adverse fluctuations in foreign currency exchange rates.


                                      -15-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

Item 8. Consolidated Financial Statements and Supplementary Data.

The following consolidated financial statements and supplementary data of
Registrant are hereby incorporated by reference to pages 11 to 30 of the
Company's Annual Report contained in Appendix A:

  (i) Report of Independent Auditors.

 (ii) Consolidated Balance Sheets as of December 31, 2003 and 2002.

(iii) Consolidated Statements of Income for the years ended December 31, 2003,
      2002 and 2001.

 (iv) Consolidated Statement of Shareholders' Equity for the years ended
      December 31, 2001, 2002 and 2003.

 (v)  Consolidated Statements of Cash Flows for the years ended December 31,
      2003, 2002 and 2001.

(vi)  Notes to Consolidated Financial Statements.

Item 9. Disagreements on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures

      The Co-Chief Executive Officers and Chief Financial Officer of the Company
      have conducted a review of the Company's disclosure controls and
      procedures as of December 31, 2003.

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


                                      -16-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

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

Item 11. Executive Compensation.

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

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

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

Item 13. Certain Relationships and Related Transactions.

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

Item 14. Principal Accountant Fees and Services.

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


                                      -17-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                     PART IV

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

      (a)   1. Consolidated Financial Statements:

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

                  Report of Independent Auditors.

                  Consolidated Balance Sheets, December 31, 2003 and 2002.

                  Consolidated Statements of Income for the years ended December
                  31, 2003, 2002, and 2001.

                  Consolidated Statement of Shareholders' Equity for the years
                  ended December 31, 2001, 2002, and 2003.

                  Consolidated Statements of Cash Flows for the years ended
                  December 31, 2003, 2002, and 2001.

                  Notes to Consolidated Financial Statements.

               The consolidated financial statements are hereby incorporated
               by reference to pages 11 to 30 of the Company's Annual Report
               contained in Appendix A.

      (a)   2. Financial Statement Schedules:

               The following schedules are filed as a part of this Report:

                  Report of Independent Auditors.

                  Schedule III - Real Estate and Accumulated Depreciation as of
                  December 31, 2003.

                  Schedule III of the Company is contained on pages 29 to 33 of
                  this Form 10-K.

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


                                      -18-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

      (a)   3. Exhibits:

               The following exhibits are filed as part of this Report.
               Documents other than those designated as being filed herewith
               are incorporated herein by reference.
<TABLE>
<CAPTION>
 Exhibit No.                                  Description                                               Method of Filing
 -----------                                  -----------                                               ----------------
<S>            <C>                                                                          <C>
    1.1        Notice to brokers dated January 6, 2003 issued by the Company                Filed as Exhibit 1(A) to Registrant's
                                                                                            Schedule 14D-9 dated January 8, 2003

    1.2        Notice to shareholders dated January 6, 2003 issued by the Company           Filed as Exhibit 1(B) to Registrant's
                                                                                            Schedule 14D-9 dated January 8, 2003

    3.1        Articles of Incorporation of Registrant.                                     Exhibit 3(A) to Registration Statement
                                                                                            (Form S-11) No. 33-68728

    3.2        Bylaws of Registrant.                                                        Exhibit 3(B) to Registration Statement
                                                                                            (Form S-11) No. 33-68728

   10.1        Advisory Agreement between Registrant and Carey Property Advisors.           Exhibit 10(A) to Registration
                                                                                            Statement (Form S-11) No. 33-68728

   10.2        Lease Agreement dated October 8, 1993 between Elwa-BV (NY) QRS 11-24,        Filed as Exhibit 10.2 to Registrant's
               Inc., as Landlord, and Big V Supermarkets, Inc., as Tenant.                  Form 10-K dated March 30, 1995

   10.3        Amendment to Lease Agreement dated July 15, 1994 by and between Elwa-BV      Filed as Exhibit 10.3 to Registrant's
               (NY) QRS 11-24, Inc. and Big V Supermarkets, Inc.                            Form 10-K dated March 30, 1995

   10.4        Amended and Restated Mortgage and Security Agreement dated October 8,        Filed as Exhibit 10.4 to Registrant's
               1993 from Elwa-BV (NY) QRS 11-24, Inc., as Mortgagor, to Key Bank of         Form 10-K dated March 30, 1995
               New York.

   10.5        $7,500,000 Amended, Restated and Consolidated Bonds dated October 8,         Filed as Exhibit 10.5 to Registrant's
               1993.                                                                        Form 10-K dated March 30, 1995

   10.6        Modification and Assumption Agreement dated July 15, 1994 among Elwa-BV      Filed as Exhibit 10.6 to Registrant's
               (NY) QRS 11-24, Inc., Elwa-BV (NY) QRS 12-3, Inc. and Key Bank of New        Form 10-K dated March 30, 1995
               York, as Lender.

   10.7        Lease dated April 15, 1993 between BB Property Company, as Lessor, and       Filed as Exhibit 10.7 to Registrant's
               Best Buy Co., Inc., as Lessee.                                               Form 10-K dated March 30, 1995

   10.11       Owner's Lien Agreement dated April 15, 1993 by Corporate Property            Filed as Exhibit 10.11 to Registrant's
               Associates 10 Incorporated ("CPA(R):10") and Carey Institutional               Form 10-K dated March 30, 1995
               Properties Incorporated ("CIP(TM)"), for the benefit of Teachers Insurance
               and Annuity Association of America.

   10.12       First Amendment to Owner's Lien Agreement dated May 27, 1994 by              Filed as Exhibit 10.12 to Registrant's
               CPA(R):10, CIP(TM) and Registrant for the benefit of Teachers Insurance and       Form 10-K dated March 30, 1995
               Annuity Association of America.

   10.13       $3,353,745 Limited Obligation Promissory Note dated May 13, 1994 from        Filed as Exhibit 10.13 to Registrant's
               BBC (NE) QRS 12-2, Inc., as Borrower, to Registrant, as Lender.              Form 10-K dated March 30, 1995

   10.14       Lease Agreement dated December 21, 1993 by and between GENA Property         Filed as Exhibit 10.14 to Registrant's
               Company, as Landlord, and Gensia, Inc., as Tenant.                           Form 10-K dated March 30, 1995
</TABLE>


                                      -19-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

<TABLE>
<CAPTION>
 Exhibit No.                                  Description                                               Method of Filing
 -----------                                  -----------                                               ----------------
<S>            <C>                                                                          <C>
   10.15       Deed of Trust, Security Agreement and Financing Statement dated              Filed as Exhibit 10.15 to Registrant's
               December 21, 1993 between GENA Property Company, as Trustor, and The         Form 10-K dated March 30, 1995
               Northwestern Mutual Life Insurance Company, as Trustee.

   10.16       $13,000,000 Promissory Note dated December 21, 1993 from GENA Property       Filed as Exhibit 10.16 to Registrant's
               Company, as Obligor, to The Northwestern Mutual Life Insurance Company,      Form 10-K dated March 30, 1995
               as Obligee.

   10.17       Lease Agreement dated February 1, 1995 by and between ESI (CA) QRS           Filed as Exhibit 10.17 to Registrant's
               12-6, Inc., as Landlord, and ETEC Systems, Inc., as Tenant.                  Form 8-K dated June 23, 1995

   10.18       Deed of Trust, Assignment of Rents and Security Agreement dated              Filed as Exhibit 10.18 to Registrant's
               February 1, 1995 by ESI (CA) QRS 12-6, Inc., as Trustor, in favor of         Form 8-K dated June 23, 1995
               First American Title Insurance Company, as Trustee, for the benefit of
               Creditanstalt-Bankverein, as Beneficiary.

   10.19       $6,350,000 Real Estate Note dated February 1, 1995 by ESI (CA) QRS           Filed as Exhibit 10.19 to Registrant's
               12-6, Inc., as Maker, to Creditanstalt- Bankverein, as Holder.               Form 8-K dated June 23, 1995

   10.20       Lease dated July 3, 1994 by and between Greenwalt Development, Inc., as      Filed as Exhibit 10.20 to Registrant's
               Landlord, and Wal-Mart Stores, Inc., as Tenant.                              Form 8-K dated June 23, 1995

   10.21       Assignment and Assumption of Lease dated February 10, 1995 by and            Filed as Exhibit 10.21 to Registrant's
               between Greenwalt Development, Inc., as Assignor, and WALS (IN) QRS          Form 8-K dated June 23, 1995
               12-5, Inc., as Assignee.

   10.22       Estoppel Certificate dated February 9, 1995 from Wal-Mart Stores, Inc.       Filed as Exhibit 10.22 to Registrant's
               to WALS (IN) QRS 12-5, Inc.                                                  Form 8-K dated June 23, 1995

   10.23       Lease Agreement dated June 8, 1995 by and between SFC (TX) QRS 12-7,         Filed as Exhibit 10.23 to Registrant's
               Inc., as Landlord, and Sports & Fitness Clubs of America, Inc., as           Form 8-K dated June 23, 1995
               Tenant.

   10.24       Loan Agreement dated June 8, 1995 by and between SFC (TX) QRS 12-7,          Filed as Exhibit 10.24 to Registrant's
               Inc., as Borrower, and Bank One, Texas, N.A.                                 Form 8-K dated June 23, 1995

   10.25       $2,750,000 Note dated June 8, 1995 from SFC (TX) QRS 12-7, Inc. to Bank      Filed as Exhibit 10.25 to Registrant's
               One, Texas, N.A.                                                             Form 8-K dated June 23, 1995

   10.26       Deed of Trust and Security Agreement dated June 8, 1995 from SFC (TX)        Filed as Exhibit 10.26 to Registrant's
               QRS 12-7, Inc., as Mortgagor, to Mr. Brian J. Tuerff, as Trustee, for        Form 8-K dated June 23, 1995
               Bank One, Texas, N.A., as Mortgagee.

   10.27       Lease Agreement dated June 20, 1995 by and between Bud Limited               Filed as Exhibit 10.27 to Registrant's
               Liability Company, as Landlord, and NK Lawn & Garden Co., as Tenant.         Form 8-K dated June 23, 1995

   10.28       Construction Agency Agreement dated October 31, 1995 between Del Monte       Filed as Exhibit 10.28 to Registrant's
               Corporation and DELMO (PA) QRS 11-36 and DELMO (PA) QRS 12-10.               Form 8-K dated November 27, 1995

   10.29       Lease Agreement dated October 31, 1995 by and between DELMO (PA) QRS         Filed as Exhibit 10.29 to Registrant's
               11-36 and DELMO (PA) QRS 12-10, collectively, as Landlord, and Del           Form 8-K dated November 27, 1995
               Monte Corporation, as Tenant.

</TABLE>


                                      -20-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

<TABLE>
<CAPTION>
 Exhibit No.                                  Description                                               Method of Filing
 -----------                                  -----------                                               ----------------
<S>            <C>                                                                          <C>
   10.30       Lease Agreement dated November 13, 1995 by and between ABI (TX) QRS          Filed as Exhibit 10.30 to Registrant's
               12-11, Inc., as Landlord, and Pharmaco LSR International Inc., as            Form 8-K dated November 27, 1995
               Tenant.

   10.31       Lease Agreement dated December 26, 1995 by and between Cards Limited         Filed as Exhibit 2.1 to Registrant's
               Liability Company, as Landlord, and The Upper Deck Company, as Tenant.       Form 8-K dated February 2, 1996

   10.32       $15,000,000 Promissory Note dated January 3, 1996 from Cards Limited         Filed as Exhibit 2.2 to Registrant's
               Liability Company to Column Financial, Inc.                                  Form 8-K dated February 2, 1996

   10.33       Lease Agreement dated February 23, 1996 by and between RSI (NJ) QRS          Filed as Exhibit 2.1 to Registrant's
               12-13, Inc., as Landlord, and Rheometric Scientific, Inc., as Tenant.        Form 8-K dated March 9, 1996

   10.34       $3,300,000 Promissory Note dated February 23, 1996 from RSI (NJ) QRS         Filed as Exhibit 2.2 to Registrant's
               12-13, Inc. to NatWest Bank N.A.                                             Form 8-K dated March 9, 1996

   10.35       Stock Purchase Warrant for 132,617 Shares of Rheometric Scientific,          Filed as Exhibit 2.3 to Registrant's
               Inc. Common Stock.                                                           Form 8-K dated March 9, 1996

   10.36       Stock Purchase Warrant for 331,543 Shares of Rheometric Scientific,          Filed as Exhibit 2.4 to Registrant's
               Inc. Common Stock.                                                           Form 8-K dated March 9, 1996

   10.37       Lease Agreement dated March 11, 1996 by and between TEL (VA) QRS 12-15,      Filed as Exhibit 10.41 to Registrant's
               Inc., as Landlord, and Telos Corporation, a Maryland corporation, Telos      Post-Effective Amendment No. 3 dated
               Corporation, a California corporation, Telos Field Engineering, Inc., a      March 6, 1997
               Delaware corporation, and Telos International Corp., a Delaware
               corporation, as Tenants.

   10.41       Lease Agreement dated July 23, 1996 by and between SFC (TX) QRS 12-18,       Filed as Exhibit 10.45 to Registrant's
               Inc., as Landlord, and Sports & Fitness Clubs of America, Inc., as           Post-Effective Amendment No. 3 dated
               Tenant.                                                                      March 6, 1997

   10.42       Stock Purchase Warrant for 5,089 Shares of Q Clubs, Inc. Common Stock.       Filed as Exhibit 10.46 to Registrant's
                                                                                            Post-Effective Amendment No. 3 dated
                                                                                            March 6, 1997

   10.43       Guaranty and Suretyship Agreement made by Celadon Group, Inc. to QRS         Filed as Exhibit 10.47 to Registrant's
               12-17, Inc.                                                                  Post-Effective Amendment No. 3 dated
                                                                                            March 6, 1997

   10.44       Lease Agreement dated September 19, 1996 by and between CEL (IN) QRS         Filed as Exhibit 10.48 to Registrant's
               12-17, Inc., as Landlord, and Celadon Trucking Services, Inc., as            Post-Effective Amendment No. 3 dated
               Tenant.                                                                      March 6, 1997

   10.45       Lease Agreement dated November 19, 1996 by and between SPEC (CA) QRS         Filed as Exhibit 10.49 to Registrant's
               12-20, Inc., as Landlord, and Spectrian Corporation, as Tenants.             Post-Effective Amendment No. 3 dated
                                                                                            March 6, 1997

   10.46       Lease Agreement dated December 24, 1996 by and between NOG (NY) QRS          Filed as Exhibit 10.50 to Registrant's
               12-23, Inc., as Landlord, and Knogo North America, Inc., as Tenants.         Post-Effective Amendment No. 3 dated
                                                                                            March 6, 1997

   10.47       Amendment to Lease dated December 14, 1996 by and between WEEDS (OK)         Filed as Exhibit 10.51 to Registrant's
               QRS 12-22, Inc., as Landlord, and Garden Ridge, L.P., as Tenant.             Post-Effective Amendment No. 3 dated
                                                                                            March 6, 1997
</TABLE>


                                      -21-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

<TABLE>
<CAPTION>
 Exhibit No.                                  Description                                               Method of Filing
 -----------                                  -----------                                               ----------------
<S>            <C>                                                                          <C>
   10.48       Mortgage Assignment of Rents and Security Agreement dated December 27,       Filed as Exhibit 10.52 to Registrant's
               1996 between WEEDS (OK) QRS 12-22, Inc., Mortgagor, and GMAC Commercial      Post-Effective Amendment No. 3 dated
               Mortgage Corporation.                                                        March 6, 1997

   10.49       Lease Agreement dated January 23, 1997 by and between BUILD (CA) QRS         Filed as Exhibit 10.53 to Registrant's
               12-24, Inc., as Landlord, and Scott Corporation, as Tenants.                 Post-Effective Amendment No. 3 dated
                                                                                            March 6, 1997

   10.50       Lease agreement dated July 8, 1997 by and between GGAP (MA) QRS 12-31,       Filed as Exhibit 10.1 to Registrant's
               Inc., as Landlord, and PAGG Corporation, as Tenants.                         Form 8-K dated June 13, 1997

   10.51       Lease agreement dated July 10, 1997 by and between URSA (VT) QRS 12-30,      Filed as Exhibit 10.2 to Registrant's
               Inc., as Landlord, and The Vermont Teddy Bear Company, as Tenants.           Form 8-K dated June 13, 1997

   10.52       Lease agreement dated April 10, 1997 by and between BT (PA) QRS 12-25,       Filed as Exhibit 10.3 to Registrant's
               Inc., as Landlord, and The Bon-Ton Department Stores, Inc., as Tenants.      Form 8-K dated June 13, 1997

   10.53       Lease agreement dated June 13, 1997 by and between CAN (WI) QRS 12-34,       Filed as Exhibit 10.4 to Registrant's
               Inc., as Landlord, and Silgan Containers Corporation, as Tenants.            Form 8-K dated June 13, 1997

   10.54       Lease agreement dated September 30, 1997 by and between CPA(R):12, Inc.      Filed as Exhibit 10.1 to Registrant's
               as Landlord, and Westell, Inc., as Tenant.                                   Form 8-K dated March 31, 1998

   10.55       Lease agreement dated November 26, 1997 by and between CPA(R):12, Inc. as    Filed as Exhibit 10.2 to Registrant's
               Landlord, and Randall International, as Tenant.                              Form 8-K dated March 31, 1998

   10.56       Lease agreement dated December 31, 1997 by and between CPA(R):12, Inc. as    Filed as Exhibit 10.3 to Registrant's
               Landlord, and Sandwich Cooperative Bank, as Tenant.                          Form 8-K dated March 31, 1998

   10.57       Lease agreement dated November 12, 1997 by and between CPA(R):12, Inc. as    Filed as Exhibit 10.4 to Registrant's
               Landlord, and Brown Institute, Ltd., as Tenant.                              Form 8-K Dated March 31, 1998

   10.58       Lease agreement dated September 25, 1997 by and between CPA(R):12, Inc.      Filed as Exhibit 10.5 to Registrant's
               as Landlord, and GDE Systems, Inc., as Tenant.                               Form 8-K dated March 31, 1998

   10.59       Lease agreement dated July 8, 1997 by and between CPA(R):12, Inc. as         Filed as Exhibit 10.6 to Registrant's
               Landlord, and PAGG Corporation, as Tenant.                                   Form 8-K dated March 31, 1998

   10.60       Lease agreement dated September 23, 1997 by and between CPA(R):12, Inc.      Filed as Exhibit 10.7 to Registrant's
               as Landlord, and Texas Freezer Company, Inc., as Tenant.                     Form 8-K dated March 31, 1998

   10.61       Lease agreement dated February 3, 1998 by and between CPA(R):12, Inc. and    Filed as Exhibit 10.8 to Registrant's
               CPA:14, Inc., as Landlords, and Etec Systems, Inc., as Tenant.               Form 8-K dated March 31, 1998

   10.62       Lease agreement dated December 16, 1997 by and between CPA(R):12, Inc.,      Filed as Exhibit 10.9 to Registrant's
               as Landlord, and Perry Graphic Communications, Inc., as Tenant.              Form 8-K dated March 31, 1998

   21.1        Subsidiaries of Registrant as of March 11, 2004                              Filed herewith

   23.1        Consent of PricewaterhouseCoopers LLP                                        Filed herewith

   28.1        Limited Guaranty of Payment dated October 8, 1993 from CIP(TM), as           Filed as Exhibit 28.1 to Registrant's
               Guarantor, to Key Bank of New York, as Lender.                               Form 10-K dated March 30, 1995
</TABLE>


                                      -22-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

<TABLE>
<CAPTION>
 Exhibit No.                                  Description                                               Method of Filing
 -----------                                  -----------                                               ----------------
<S>            <C>                                                                          <C>
   28.2        Amendment to Limited Guaranty of Payment dated July 15, 1994 among CIP(TM)   Filed as Exhibit 28.2 to Registrant's
               and Registrant, Guarantors, and Key Bank of New York, as Lender.             Form 10-K dated March 30, 1995

   28.3        Guaranty and Suretyship Agreement dated June 8, 1995 by Sports &             Filed as Exhibit 28.3 to Registrant's
               Fitness Clubs, Inc., as Guarantor, to SFC (TX) QRS 12-7, Inc., as            Form 8-K dated June 23, 1995
               Landlord.

   28.4        Environmental Risk Agreement dated June 8, 1995 by SFC (TX) QRS 12-7,        Filed as Exhibit 28.4 to Registrant's
               Inc., as Indemnitor, to Bank One, Texas, N.A., as Lender.                    Form 8-K dated June 23, 1995

   28.5        Guaranty and Suretyship Agreement dated June 20, 1995 by The Garden          Filed as Exhibit 28.5 to Registrant's
               Companies, Inc., as Guarantor, to Bud Limited Liability Company.             Form 8-K dated June 23, 1995

   28.6        Guaranty and Suretyship Agreement dated October 31, 1995 by Del Monte        Filed as Exhibit 28.6 to Registrant's
               Foods Corporation, as Guarantor, to DELMO (PA) QRS 11-36 and DELMO (PA)      Form 8-K dated November 27, 1995
               QRS 12-10, collectively, as Landlord.

   28.7        Guaranty and Suretyship Agreement dated November 13, 1995 by Applied         Filed as Exhibit 28.7 to Registrant's
               Bioscience International, Inc., as Guarantor, to ABI (TX) QRS 12-11,         Form 8-K dated November 27, 1995
               Inc., as Landlord.

   31.1        Certification of Co-Chief Executive Officers                                 Filed herewith

   31.2        Certification of Chief Financial Officer                                     Filed herewith

   32.1        Section 906 Certification of Co-Chief Executive Officers                     Filed herewith

   32.2        Section 906 Certification of Chief Financial Officer                         Filed herewith
</TABLE>

      (b)   Reports on Form 8-K

            During the year ended December 31, 2003 the Registrant was not
            required to file any reports on Form 8-K.


                                      -23-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                   SIGNATURES

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

                               CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
                               a Maryland corporation


    3/10/04                    BY: /s/ John J. Park
--------------                     ---------------------------------------------
     Date                          John J. Park
                                   Managing Director and Chief Financial Officer
                                   (Principal Financial Officer)

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

                               CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED


    3/10/04                    BY:  /s/ William Polk Carey
--------------                     ------------------------------------
     Date                          William Polk Carey
                                   Chairman of the Board, Co-Chief Executive
                                   Officer and Director (Principal
                                   Executive Officer)


    3/10/04                    BY:  /s/ Gordon F. DuGan
--------------                     ------------------------------------
     Date                          Gordon F. DuGan
                                   Vice Chairman of the Board, Co-Chief
                                   Executive Officer, Senior Managing
                                   Director and Chief Acquisitions Officer


    3/10/04                    BY:  /s/ Elizabeth P. Munson
--------------                     ------------------------------------
     Date                          Elizabeth P. Munson
                                   Director


    3/10/04                    BY:  /s/ Charles E. Parente
--------------                     ------------------------------------
     Date                          Charles E. Parente
                                   Director


    3/10/04                    BY:  /s/ William Ruder
--------------                     ------------------------------------
     Date                          William Ruder
                                   Director


    3/10/04                    BY:  /s/ George E. Stoddard
--------------                     ------------------------------------
     Date                          George E. Stoddard
                                   Director


    3/10/04                    BY:  /s/ John J. Park
--------------                     ------------------------------------
     Date                          John J. Park
                                   Managing Director and Chief Financial
                                   Officer (Principal Financial Officer)


    3/10/04                    BY: /s/ Claude Fernandez
--------------                     ------------------------------------
     Date                          Claude Fernandez
                                   Managing Director and Chief Accounting
                                   Officer (Principal Accounting Officer)


                                      -24-
<PAGE>
                        REPORT of INDEPENDENT AUDITORS
                       ON FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and Shareholders of
Corporate Property Associates 12 Incorporated:

Our audits of the consolidated financial statements referred to in our report
dated March 10, 2004 appearing in the 2003 Annual Report to Shareholders of
Corporate Property Associates 12 Incorporated (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.


/s/ PricewaterhouseCoopers LLP

New York, New York
March 10, 2004


                                      -25-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION

                             as of December 31, 2003

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

                                                                                       Costs
                                                                                    Capitalized
                                                                       Personal     Subsequent to     Decrease in Net
       Description           Encumbrances    Land         Buildings    Property     Acquisition (a)   Investments (b)
       -----------           ------------    ----         ---------    --------     ---------------   ---------------
<S>                          <C>           <C>          <C>            <C>          <C>               <C>
Operating Method:
Distribution facility
  leased to Wal-Mart
  Stores, Inc.               $ 1,867,136   $  452,871   $ 3,325,909                  $   715,114
Office/Manufacturing
  facility leased to
  Applied Materials, Inc.     35,861,807    1,272,418    10,588,221                   66,962,157        $(2,633,473)


Health clubs leased to Q
  Clubs, Inc.                  4,252,948    3,152,874     8,524,126
Warehouse/office/research
  facility leased to PPD
  Development, Inc.            5,876,808    1,550,928    11,017,367                       27,856

Office/manufacturing
  facility leased to
  Proterion Corporation,
  Inc. and various tenants     5,329,120    1,510,791     4,789,209                        4,500           (444,949)
Research and development
  facility in Newark,
  Delaware partially
  leased to various
  short-term tenants                        1,390,120     7,281,878                       13,423         (5,281,421)
Distribution/warehouse
  leased to Celadon
  Group, Inc.                  2,063,149    1,480,600     5,320,400                      943,061
Office/research facility
  leased to Spectrian
  Corporation                  8,202,479    5,570,775    12,073,204                        4,119
Retail store leased to
  Garden Ridge Corporation     5,412,511    1,857,607     6,204,923
Vacant office/research
  facility in San
  Leandro, California          8,502,634    5,734,782    12,175,218                        5,356
Child care centers leased
  to Childtime Childcare,
  Inc.                         6,749,080    2,581,896                                  7,459,165
Retail/distribution
  facility leased to The
  Bon-Ton Stores, Inc.         5,886,142    1,780,000    10,261,885
Technology/manufacturing
  facilities leased to
  Silgan Containers
  Corporation                  7,107,508      758,670    11,630,675                      111,090
Facility leased to
  Milford Manufacturing
  Services, LLC                2,686,038    1,080,000     4,469,738
</TABLE>


<TABLE>
<CAPTION>
                             Gross Amount at which Carried
                                at Close of Period (d)
                                ----------------------
                                                                                                                          Life on
                                                                                                                           which
                                                                                                                        Depreciation
                                                                                                                         in Latest
                                                                                            Accumulated                 Statement of
                                                           Personal                        Depreciation        Date        Income
       Description                Land       Buildings     Property        Total (d)           (d)          Acquired    is Computed
       -----------                ----       ---------     --------        ---------           ---          --------    ------------
<S>                             <C>          <C>           <C>             <C>             <C>              <C>         <C>
Operating Method:
Distribution facility
  leased to Wal-Mart
  Stores, Inc.                  $  454,420   $ 4,039,474                   $ 4,493,894      $   744,117     2/10/1995       40 yrs.
Office/Manufacturing
  facility leased to
  Applied Materials, Inc.        1,272,444    74,916,879                    76,189,323       10,083,726     2/16/1995       40 yrs.

                                                                                                            6/8/1995
Health clubs leased to Q                                                                                    and
  Clubs, Inc.                    3,152,874     8,524,126                    11,677,000        1,691,896     7/25/1996       40 yrs.
Warehouse/office/research
  facility leased to PPD
  Development, Inc.              1,550,985    11,045,166                    12,596,151        2,242,979     11/13/1995      40 yrs.

Office/manufacturing
  facility leased to
  Proterion Corporation,
  Inc. and various tenants       1,065,843     4,793,708                     5,859,551          114,849     2/23/1996       40 yrs.
Research and development
  facility in Newark,
  Delaware partially
  leased to various
  short-term tenants             1,391,311     2,012,689                     3,404,000          475,992     3/28/1996       40 yrs.
Distribution/warehouse
  leased to Celadon
  Group, Inc.                    1,480,600     6,263,461                     7,744,061        1,013,551     6/19/1996       40 yrs.
Office/research facility
  leased to Spectrian
  Corporation                    5,570,775    12,077,323                    17,648,098        2,151,157     11/19/1996      40 yrs.
Retail store leased to
  Garden Ridge Corporation       1,857,607     6,204,923                     8,062,530        1,092,325     12/16/1996      40 yrs.
Vacant office/research
  facility in San
  Leandro, California            5,734,782    12,180,574                    17,915,356        2,118,912     12/24/1996      40 yrs.
Child care centers leased
  to Childtime Childcare,
  Inc.                           2,581,896     7,459,165                    10,041,061        1,040,534     1/29/1997       40 yrs.
Retail/distribution
  facility leased to The
  Bon-Ton Stores, Inc.           1,780,000    10,261,885                    12,041,885        1,721,004     4/10/1997       40 yrs.
Technology/manufacturing
  facilities leased to
  Silgan Containers
  Corporation                      758,670    11,741,765                    12,500,435        1,836,410     6/13/1997       40 yrs.
Facility leased to
  Milford Manufacturing
  Services, LLC                  1,080,000     4,469,738                     5,549,738          721,136     7/8/1997        40 yrs.
</TABLE>


                                      -26-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION

                             as of December 31, 2003

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

                                                                                          Costs
                                                                                       Capitalized
                                                                          Personal     Subsequent to    Decrease in Net
       Description           Encumbrances       Land         Buildings    Property     Acquisition (a)  Investments (b)
       -----------           ------------       ----         ---------    --------     ---------------  ---------------
<S>                          <C>            <C>             <C>           <C>          <C>              <C>
Operating Method:
Office/manufacturing
facility leased to
  Vermont Teddy Bear Co.,
  Inc.                          2,766,049     1,465,000        4,398,874                      1,640          (43,950)
Warehouse/special
  facility leased to
  Pacific Logistics, L.P.       4,093,424       257,458                   $1,109,900      7,150,544
Office/manufacturing
  facility leased to
  Westell Technologies,
  Inc.                         11,182,732     2,500,000       14,952,055
Office/manufacturing
  facility leased to
  Randall International,
  Inc.                          5,450,747     2,000,000          471,454                  5,104,034          (12,370)
Administration/classroom
  facility leased to
  Career Education
  Corporation                   7,230,265     1,150,000        8,840,486                  2,788,170
Printing facility leased
  to Perry Graphic
  Communications, Inc.
  and Judd's                   10,021,445       642,000       18,467,948                      8,000
Office/banking facility
  leased to Compass Bank
  for Savings                   1,597,456       300,000        1,520,000
Manufacturing/distribution
  facility leased to
  Nutramax Products, Inc.                     1,160,000        6,127,722                    709,688
Office facility leased to
  Balanced Care
  Corporation                   2,673,104       558,600                                   4,291,443
Retail/services
  facilities leased to
  Galyan's Trading Company     16,097,686     8,070,000       16,134,421                     57,241
Movie theater leased to
  Rave Reviews Cinemas,
  LLC.                          4,320,518     1,760,000        5,176,372
Manufacturing/warehouse
  facilities leased to
  Jen-Coat, Inc.                7,011,989     1,193,200       10,325,125                      2,447
Industrial/manufacturing
  facility leased to
  Orbseal, LLC.                 6,064,172       760,000        9,187,644                        250          (79,274)
                             ------------   -----------     ------------  ----------    -----------      -----------
                             $178,306,947   $51,990,590     $203,264,854  $1,109,900    $96,359,298      $(8,495,437)
                             ============   ===========     ============  ==========    ===========      ===========
</TABLE>

<TABLE>
<CAPTION>
                             Gross Amount at which Carried
                                at Close of Period (d)
                                ----------------------
                                                                                                                        Life on
                                                                                                                         which
                                                                                                                      Depreciation
                                                                                                                       in Latest
                                                                                          Accumulated                 Statement of
                                                             Personal                    Depreciation       Date         Income
       Description                Land        Buildings      Property      Total (d)         (d)          Acquired    is Computed
       -----------                ----        ---------      --------      ---------         ---          --------    ------------
<S>                          <C>            <C>             <C>          <C>             <C>             <C>          <C>
Operating Method:
Office/manufacturing
  facility leased to
  Vermont Teddy Bear Co.,
  Inc.                          1,421,050      4,400,514                    5,821,564         710,481    7/18/1997       40 yrs.
Warehouse/special
  facility leased to
  Pacific Logistics, L.P.         257,458      7,150,544    $1,109,900      8,517,902       1,794,800    9/23/1997    7 to 40 yrs.
Office/manufacturing
  facility leased to
  Westell Technologies,
  Inc.                          2,500,000     14,952,055                   17,452,055       2,351,834    9/29/1997       40 yrs.
Office/manufacturing
  facility leased to
  Randall International,
  Inc.                          2,000,000      5,563,118                    7,563,118         202,822    10/17/1997      40 yrs.
Administration/classroom
  facility leased to
  Career Education
  Corporation                   1,150,000     11,628,656                   12,778,656       1,689,208    11/12/1997      40 yrs.
Printing facility leased
  to Perry Graphic
  Communications, Inc.
  and Judd's                      642,000     18,475,948                   19,117,948       2,790,630    12/16/1997      40 yrs.
Office/banking facility
  leased to Compass Bank
  for Savings                     300,000      1,520,000                    1,820,000         228,000    12/30/1997      40 yrs.
Manufacturing/distribution
  facility leased to
  Nutramax Products, Inc.       1,160,000      6,837,410                    7,997,410         954,199    3/28/1998       40 yrs.
Office facility leased to
  Balanced Care
  Corporation                     558,600      4,291,443                    4,850,043         454,523    6/23/1998       40 yrs.
Retail/services
  facilities leased to
  Galyan's Trading Company      8,070,000     16,191,662                   24,261,662       1,433,637    6/29/2000       40 yrs.
Movie theater leased to
  Rave Reviews Cinemas,
  LLC.                          1,760,000      5,176,372                    6,936,372         382,836    12/7/2000       40 yrs.
Manufacturing/warehouse
  facilities leased to
  Jen-Coat, Inc.                1,193,200     10,327,572                   11,520,772         612,764    8/15/2001       40 yrs.
Industrial/manufacturing
  facility leased to
  Orbseal, LLC.                   760,000      9,108,620                    9,868,620         521,834    9/28/2001       40 yrs.
                             ------------   ------------    ----------   ------------     -----------
                             $ 51,504,515   $291,614,790    $1,109,900   $344,229,205     $41,176,156
                             ============   ============    ==========   ============     ===========
</TABLE>

See accompanying notes to Schedule.


                                      -27-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION

                             as of December 31, 2003

<TABLE>
<CAPTION>
                                                                                               Gross Amount at which
                                                Initial Cost to Company                               Carried
                                                -----------------------                         at Close of Period
                                                                                                ------------------
                                                                                  Costs
                                                                               Capitalized
                                                                              Subsequent to
       Description             Encumbrances     Land        Buildings        Acquisition (a)           Total         Date Acquired
       -----------             ------------     ----        ---------        ---------------           -----         -------------
<S>                            <C>           <C>           <C>               <C>                     <C>             <C>
Direct Financing Method:
Manufacturing facility
  leased to The Garden
  Companies, Inc.              $2,674,253    $1,544,265    $ 5,430,735                               $ 6,975,000        6/20/1995
Office facility leased to
  Telos Corporation                           1,549,022     10,597,978            5,500               12,152,500        3/11/1996
                               ----------    ----------    -----------           ------              -----------
                               $2,674,253    $3,093,287    $16,028,713           $5,500              $19,127,500
                               ==========    ==========    ===========           ======              ===========
</TABLE>

See accompanying notes to Schedule


                                      -28-
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                       NOTES to SCHEDULE III - REAL ESTATE
                          and ACCUMULATED DEPRECIATION

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

(b)   Represents (i) partial refund of purchase price, (ii) impairment charges,
      and (iii) the sale of real estate.

(c)   At December 31, 2003, the aggregate cost of real estate owned by
      Registrant and its subsidiaries for Federal income tax purposes is
      $315,867,815.

(d)

<TABLE>
<CAPTION>
                                                Reconciliation of Real Estate Accounted
                                                    for Under the Operating Method
                                                              December 31,
                                                ---------------------------------------
                                                        2003               2002
                                                        ----               ----
<S>                                                 <C>                <C>
Balance at beginning of year                        $350,424,262       $341,780,814

Additions                                                702,191          1,080,330

Impairment charge                                     (1,000,000)                --

Reclassification to assets held for sale             (11,756,799)                --

Reclassification from net investment in direct
financing leases                                       5,859,551          7,563,118
                                                    ------------       ------------

Balance at close of year                            $344,229,205       $350,424,262
                                                    ============       ============
</TABLE>

<TABLE>
<CAPTION>
                                               Reconciliation of Accumulated Depreciation
                                                              December 31,
                                               ------------------------------------------
                                                        2003               2002
                                                        ----               ----
<S>                                                 <C>                <C>
Balance at beginning of year                        $ 34,815,471       $ 27,327,123

Depreciation expense                                   7,664,081          7,488,348

Reclassification to assets held for sale              (1,303,396)                --
                                                    ------------       ------------

Balance at close of year                            $ 41,176,156       $ 34,815,471
                                                    ============       ============
</TABLE>


                                      -29-
<PAGE>
                                                         APPENDIX A TO FORM 10-K

                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                                              2003 ANNUAL REPORT
<PAGE>
SELECTED FINANCIAL DATA

(In thousands except share amounts)

<TABLE>
<CAPTION>
                                       2003             2002             2001             2000             1999
                                       ----             ----             ----             ----             ----
<S>                                 <C>              <C>              <C>              <C>              <C>
OPERATING DATA:

   Revenues                         $    47,732      $    45,295      $    44,702      $    43,603      $    38,260

   Income from continuing
     operations(1)                       21,480           15,609           26,872           23,920           19,069

   Basic earnings from
     continuing operations per
     share                                  .71              .52              .90              .83              .67

   Net income                            21,501           16,650           27,948           25,010           19,871

   Basic earnings per share(2)              .71              .55              .94              .87              .69

   Weighted average number of
     shares outstanding-basic        30,234,073       30,038,268       29,763,716       28,685,620       28,615,971

   Dividends paid                        24,960           24,692           24,205           23,435           23,268

   Dividends paid per share                 .83              .82              .82              .82              .81

   Payments of mortgage
     principal(3)                         5,529            4,981            4,416            3,998            3,400

BALANCE SHEET DATA:

   Total consolidated assets            462,191          472,129          447,241          441,209          418,088

   Long-term obligations(4)             183,443          189,166          166,446          145,547          133,351
</TABLE>

(1)   Includes gain from sale of real estate.

(2)   The Company has a simple equity capital structure with only common stock
      outstanding. As a result, the Company has presented basic per share
      amounts only.

(3)   Represents scheduled mortgage principal amortization paid.

(4)   Represents mortgage obligations and deferred acquisition fees due after
      more than one year.


                                       1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS

Overview

The following discussion and analysis of financial condition and results of
operations of Corporate Property Associates 12 Incorporated ("CPA(R):12") should
be read in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2003. The following discussion includes
forward looking statements. Forward looking statements, which are based on
certain assumptions, describe future plans, strategies and expectations of
CPA(R):12. Forward-looking statements discuss matters that are not historical
facts. Because they discuss future events or conditions, forward-looking
statements may include words such as "anticipate", "believe", "estimate",
"intend", "could", "should", "would", "may", or similar expressions. Do not
unduly rely on forward looking statements. They give our expectations about the
future and are not guarantees, and speak only as of the date they are made. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievement of CPA(R):12 to be
materially different from the results of operations or plan expressed or implied
by such forward looking statements. The risk factors are fully described in Item
1 of this Annual Report on Form 10-K. Accordingly, such information should not
be regarded as representations by CPA(R):12 that the results or conditions
described in such statements or objectives and plans of CPA(R):12 will be
achieved.

CPA(R):12 was formed in 1993 for the purpose of engaging in the business of
investing in and owning commercial and industrial real estate. Substantially all
of CPA(R):12's net leases have been structured to place certain economic burdens
of ownership on these corporate tenants by requiring them to pay the costs of
maintenance and repair, insurance and real estate taxes. The lease obligations
are unconditional. If possible, CPA(R):12 also negotiates guarantees of the
obligations from the parent company of the lessees. The leases have generally
been structured to include periodic rent increases that are stated or based on
increases in the Consumer Price Index ("CPI") or, for certain retail properties,
may provide for additional rents based on sales in excess of a specified base
amount. In addition to investing directly, CPA(R):12 may also acquire interests
in real estate through joint ventures. These joint ventures are generally with
affiliates.

As a real estate investment trust ("REIT"), CPA(R):12 is not subject to federal
income taxes on amounts distributed to shareholders provided it meets certain
conditions including distributing at least 90% of its REIT taxable income to its
shareholders. CPA(R):12's primary objectives are to provide increasing
distributions and to protect its investors from the effects of inflation through
rent escalation provisions, property appreciation, tenant credit improvement and
regular paydown of limited recourse mortgage debt. In addition, CPA(R):12 has
successfully negotiated grants of common stock warrants from selected tenants
and expects to realize the benefits of appreciation from those grants. CPA(R):12
cannot guarantee that its objectives will be ultimately realized.

CPA(R):12 is advised by W. P. Carey & Co. LLC ("WPC") pursuant to an Advisory
Agreement. CPA(R):12's contract with WPC is renewable annually by Independent
Directors who are elected by CPA(R):12's shareholders. In connection with each
renewal, WPC is required to provide the Independent Directors with a comparison
of the fee structure with several similar companies. The Advisory Agreement also
provides that an independent portfolio valuation be performed annually. The
portfolio valuation is used to determine the asset base for calculating asset
management and performance fees.

Operating segments are components of an enterprise about which financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Management evaluates the performance of its portfolio of properties
as a whole, rather than by identifying discrete operating segments. This
evaluation includes assessing CPA(R):12's ability to meet distribution
objectives, increase the dividend and increase value by evaluating potential
investments in single tenant net lease real estate and by seeking opportunities
such as refinancing mortgage debt at lower rates of interest, restructuring
leases or paying off lenders at a discount to the face value of the outstanding
mortgage balance.

Management evaluates the results of CPA(R):12 with a primary focus on the
ability to generate cash flow necessary to meet its investment objectives of
overall property appreciation and increasing its distribution rate to its
shareholders. As a result, Management's assessment of operating results gives
less emphasis to the effect of unrealized gains and losses which may cause
fluctuations in net income for comparable periods but has no impact on cash flow
and to


                                       2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

other noncash charges such as depreciation and impairment charges. While
impairment charges are intended to reflect an actual or potential decrease in
the value of an asset, accounting principles do not permit increasing an asset
to fair value when such fair value exceeds the asset's carrying value
(historical costs less accumulated depreciation). Based on annual independent
valuations, Management believes that there has been an increase in the value of
the portfolio and that this increase is not reflected in its financial
statements. In evaluating cash flow from operations, Management includes equity
distributions that are included in investing activities to the extent that the
distributions in excess of equity income are the result of noncash charges such
as depreciation. For the year ended December 31, 2003, cash flow generated from
operations and equity investments was substantially greater than dividends paid
but such cash flow was not sufficient to fully fund distributions to minority
partners, that is, to affiliates who have interests in investments that are
included in the Company's consolidated financial statements, and scheduled
mortgage principal payments. Cash flow generated was $31,223,000 and the uses
were $31,932,000, a net operating shortfall of $709,000. CPA(R):12 has cash
balances of $13,305,000 which is in excess of what we believe is necessary to
sustain operations. In determining the distribution rate to shareholders,
Management considers its projections of future operations as well as its
historical results. CPA(R):12 is addressing challenges at several
underperforming properties but it also has used its resources during the past
year to participate in new transactions with its affiliates including a 15%
interest in fifteen health club properties and interests in properties in
France. Management believes that CPA(R):12 remains a strong portfolio and
continues to benefit from a strategy of diversification.

Results of Operations

Year Ended December 31, 2003 compared to Year Ended December 31, 2002

Net income for the year ended December 31, 2003 was $21,501,000 and the results
of the operations reflected increases in net income and income from continuing
operations of $4,850,000 and $5,871,000, respectively, as compared with the year
ended December 31, 2002. Results for the year ended December 31, 2003, included
gains of $2,366,000 (of which $620,000 are unrealized), a noncash impairment
charge of $1,000,000 and other income from lease terminations of $3,042,000.
Results for the year ended December 31, 2002 included a charge on the early
extinguishment of debt of $2,245,000 and unrealized losses of $447,000. The
results for the comparable periods reflected increases in income from equity
investments and interest income which were offset by a decrease in lease
revenues (rental income and interest income from direct financing leases) and
increases in interest and property expenses. There was no significant change in
general and administrative expenses for the comparable periods.

The increase in equity income was due to purchasing minority interests in net
lease transactions, with the remaining interests owned by affiliates, between
December 2002 and March 2003. The new investments own properties leased to
TruServ Corporation, Starmark Camhood LLC, Carrefour France, S.A. and
Medica-France. An existing equity investment in a distribution facility in Grand
Rapids, Michigan had been leased to The Fleming Companies until the lease was
terminated in March 2003 pursuant to Fleming's bankruptcy proceedings. A new
lease for the Grand Rapids property was entered into in December 2003 with The
Retail Distribution Group, Inc., effective January 1, 2004. The lease has an
initial term through August 2009. Income from equity investments in 2002
included a charge on the early extinguishment of debt of $961,000.

In August 2002, CPA(R):12 and three affiliates purchased a subordinated interest
in a mortgage securitization. Interest income from holding the investment for
the full fiscal year was $1,080,000 as compared with $371,000 in 2002. Interest
income from uninvested cash balances decreased by $330,000 due to lower average
cash balances in 2003 as compared with 2002.

The decrease in lease revenues was due in part to the reclassification in 2002
of properties leased to ShopRite Supermarkets, Inc. to equity investments;
however, the reclassification has no effect on income for the comparable years.
The remaining decrease was primarily due to the termination of several
short-term tenants at CPA(R):12's multi-tenant property in Newark, Delaware, the
termination of the lease with The Scott Companies, Inc. and lower rents from the
former Rheometric Scientific, Inc. property in Piscataway, New Jersey. Revenues
from the Newark property decreased by $562,000 and the property is substantially
vacant. Scott entered into liquidation in the fourth quarter; annual rentals
from Scott were $2,223,000. Rents from the former Rheometric property decreased
by approximately $110,000 after a lease termination agreement was completed in
January 2003. CPA(R):12 received substantial consideration in connection for the
termination and the successors to Rheometric leased a portion of the


                                       3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

building until January 2004. There are currently several short-term tenants at
the property and CPA(R):12 has engaged a nationally recognized real estate
brokerage company to remarket the property.

Interest expense increased solely as a result of the $46,335,000 of limited
recourse financing obtained in August 2002 in connection with the mortgage
securitization. Most of the cash that was received in connection with the
financings has been redeployed in new real estate investments.

The increase in property expenses was primarily due to an increase in asset
management fees from the increase in CPA(R):12's asset base because of the
purchase of interests in the TruServ, Starmark, Carrefour and Medica investments
and carrying costs at the Piscataway property which were $761,000.

CPA(R):12 faces several challenges including re-leasing the Newark, Piscataway
and former Scott properties. Management is evaluating the potential of selling
the Scott property as Management believes the property's best use may be
redevelopment for single-family homes. CPA(R):12's lease with International
Management Consulting, Inc. was terminated in October 2003 because the lessee
was unsuccessful in its attempt to restructure. CPA(R):12 has entered into an
agreement to sell the property and has reclassified the results from the
property as a discontinued operation. Other than the short-term leases in
Piscataway and Newark, no leases expire until 2009. CPA(R):12's lease with
Wal-Mart Stores, Inc. for a distribution facility in Greenfield, Indiana which
had an initial term through January 2005 has been extended for five years and
annual rent increased by $110,000 in consideration for funding improvements of
approximately $700,000. Garden Ridge Corporation, the lessee of a retail
property in Tulsa, Oklahoma has filed a petition of bankruptcy and is in the
process of reorganization. Garden Ridge may terminate its lease as part of its
plan of reorganization. Annual rent from Garden Ridge is $940,000.

Because of the long-term nature of CPA(R):12's net leases, inflation and
changing prices have not unfavorably affected CPA(R):12's revenues and net
income. CPA(R):12's net leases generally have rent increases based on formulas
indexed to increases in the CPI or other indices for the jurisdiction in which
the property is located, sales overrides or other periodic increases which are
designed to increase lease revenues in the future. More than 23 leases have rent
increases scheduled in 2003 and 2004. The majority of these rent increases are
CPI- based. The CPI has increased within a range of 1.5% and 3% over the past
several years. Intervals between rent increases range between one and five
years.

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

Net income for the year ended December 31, 2002 decreased by $11,298,000 to
$16,650,000 as compared with net income of $27,948,000 for the year ended
December 31, 2001. The decrease in net income was attributable to a realized
gain of $8,864,000 in 2001 on the sale of a property, charges on early
extinguishment of debt in 2002 of $2,245,000 and, to a lesser extent, a
$1,570,000 effect for the change in the fair value of common stock warrants,
which unrealized gain or loss during the year is included in the determination
of net income. In 2002, CPA(R):12 recorded an unrealized loss of $447,000 from
warrants as compared with an unrealized gain of $1,124,000 in 2001. Excluding
the effect of these items, income would have reflected an increase of
$1,382,000. The increase in income, as adjusted, was due primarily to increases
in income from equity investments, interest and other income and lease revenues,
and a decrease in general and administrative expenses. These were partially
offset by increases in interest expense and property expense.

Income from equity investments increased primarily as a result of the
acquisition of properties in June 2001 leased to Special Devices, Inc. and the
re-leasing of the property in Grand Rapids to Fleming in August 2001 that had
been vacant. In addition, equity income benefited from rent increases from four
leases held by equity investees. Excluding the effect of a $961,000 charge on
extinguishment of debt, equity income increased $1,895,000 of which, $298,000
was due to CPA(R):12's share of earnings from the Special Devices properties,
$385,000 was contributed by the new lease in Grand Rapids and approximately
$447,000 was due to rent increases. A portion of the increase in income from
equity investments was due to the reclassification of investments to the equity
method in connection with contributing interests into limited partnerships owned
with affiliates. In connection with changes in the form of ownership of
jointly-held investments, interests in properties net leased to the Del Monte
Corporation and ShopRite Supermarkets, Inc. (formerly Big V Holding Corp.) were
reclassified to equity investments in the fourth quarter of 2001 and the third
quarter of 2002, respectively. Prior to the reclassification, CPA(R):12's
results of operations reflect the proportionate share of revenues and expenses.
Subsequent to reclassification, CPA(R):12's share of income from Del Monte and
ShopRite is recorded as equity income. The reclassification has no effect on the
overall contribution to cash flows or net income. For the year ended December
31, 2002, the Del Monte and ShopRite interests contributed $898,000 of equity
income.


                                       4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

Lease revenues increased by $131,000, less than 1%. However, lease revenues
decreased as the result of the reclassification of the Del Monte and ShopRite
investments to the equity method. Lease revenues reflected $631,000 and
$2,040,000 from Del Monte and ShopRite in 2002 and 2001, respectively, for the
periods prior to the reclassification. As adjusted, lease revenues for the year
ended December 31, 2002 increased by $1,540,000, or 4%, primarily as result of
the acquisition of properties leased to Orbseal LLC and Jen-Coat, Inc. in the
third quarter of 2001 and to a lesser extent, scheduled rent increases on
existing leases. These increases were partially offset by a reduction of
$794,000 from the BAE Systems, Inc. property, which was sold in May 2001. Funds
from the BAE property sale were used to acquire the Orbseal and Jen-Coat
properties as well as the equity interest in the Special Devices properties. In
2002, CPA(R):12 negotiated lease modifications with Randall International, Inc.
and International Management Consulting, Inc. Both the Randall and IMCI lease
amendments provided for short-term deferral of rent and establish a schedule to
systematically pay off the deferrals.

Interest expense for the year ended December 31, 2002 increased by $728,000,
primarily from new mortgage loans in 2002 and 2001. Interest expense in 2001
included approximately $160,000 of interest from an advance on CPA(R):12's
credit facility as well as $715,000 of interest from loans on the Del Monte and
ShopRite properties which are now reflected in equity income. Interest expense
on previously unencumbered properties included in a mortgage securitization was
approximately $852,000 from August 2002, when the new financing was obtained. As
a result of obtaining $46,335,000 of new mortgage debt in connection with the
securitization, annual interest expense is projected to increase by $2,706,000
and annual debt service will increase by $3,164,000.

General and administrative expense in 2001 included a charge for writing off
business development costs of $382,000 which had previously been capitalized in
connection with proposed acquisitions. The capitalized costs were written off
when proposed acquisitions were not completed. Excluding this writeoff, general
and administrative expenses reflected a moderate increase. Property expense
increased due to an increase in CPA(R):12's provision for uncollected rents.
Management's evaluation of specific circumstances indicated the need to
strengthen existing allowance balances.

The increase in interest and other income is the result of interest earned in
CPA(R):12's subordinated interest in the mortgage pool and higher average cash
balances. Management estimates that the effective rate of interest on the
mortgage obtained through the securitization, net of the estimated cash flow
from the interest in the mortgage trust, will be approximately 6.25%.

CPA(R):12' incurred extraordinary charges on the early extinguishment of debt of
$2,245,000, including $1,473,000 in connection with paying off certain loans
which were refinanced in connection with the mortgage securitization.

Financial Condition

The liquidity and financial condition of CPA(R):12 is stable and it has
sufficient cash balances and cash flow from its operations (including equity
investments) to maintain a prudent level of cash reserves and meet its
investment objectives. Since December 31, 2002, CPA(R):12's cash balances have
decreased by $26,779,000 to $13,305,000. The decrease was expected as funds were
used to participate in several investments with affiliates. CPA(R):12 believes
that its liquidity is strong and did not seek a renewal of a $20,000,000 credit
facility which expired in 2003.

One of CPA(R):12's primary objectives is to use the cash flow from its net
leases (including its equity investments) to fund an increasing rate of
dividends to shareholders and meet debt service requirements. Cash flow from
operations of $28,979,000, and cash flow from equity investments, which combined
totaled $31,223,000, and cash reserves of $709,000, was used to pay dividends of
$24,960,000, distributions of $1,443,000 to minority interest partners and
mortgage principal installments of $5,529,000. The ability to generate cash flow
to meet these uses will depend, in part, on whether the Newark, Piscataway and
Scott property in San Leandro, California will provide cash flow in the near
future, and if Garden Ridge affirms its lease. If CPA(R):12 is not successful in
generating cash flow and cash balances decrease, sustaining the distribution
rate to shareholders may be at risk.

CPA(R):12's investing activities included using $23,887,000 to purchase a 15%
interest in the Starmark net lease and a 35% interest in the Medica and
Carrefour properties. In connection with the purchase of an additional Carrefour
property in November 2003, CPA(R):12 and CPA(R):15 sold a portion of their
interests to W. P. Carey that reduced CPA(R):12's overall interest in the
Carrefour properties from 35% to 27.125%. CPA(R):12 received $1,972,000 for the
sale of a portion of the interest in the Carrefour properties as a result of an
increase in the appraised value of the properties, and, to a lesser extent,
appreciation of the Euro. The independent directors determined that it was
prudent to CPA(R):12's diversification to not further increase CPA(R):12's
overall exposure to Carrefour. CPA(R):12


                                       5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

also received $3,738,000 from a mortgage refinancing of an equity investee and
used $1,275,000 to pay deferred acquisition fees. With the purchase of the
Carrefour and Medica interests, CPA(R):12 is now exposed to the effects of
foreign currency fluctuations. CPA(R):12 and its affiliates mitigate the risk by
obtaining mortgage financing in the local currency so any changes in revenues
that result from foreign currency fluctuations are substantially offset by debt
service in the same currency.

In addition to the payment of dividends to shareholders, distributions to
minority partners and scheduled principal payments on mortgage debt, CPA(R):12's
financing activities included purchasing treasury stock for $2,282,000, issuing
comon stock for $997,000 and using $5,199,000 to pay off the Telos loan. A
$20,000,000 credit agreement which required CPA(R):12 to meet certain financial
covenants, including restrictions on indebtedness and meeting or exceeding
certain operating and coverage ratios was not renewed as CPA(R):12 had only used
it for limited purposes.

In 2002, CPA(R):12 purchased a participation in a mortgage pool consisting of
$172,335,000 of newly-issued mortgage debt collateralized by properties and
lease assignments on properties owned by CPA(R):12 and three affiliates.
CPA(R):12 and the affiliates also purchased subordinated interests of
$24,129,000 of which CPA(R):12 owns a 30% interest. The subordinated interests
are payable only after all other classes of ownership receive their stated
interest and related principal payments. The subordinated interests, therefore,
will be affected by any defaults or nonpayment by lessees. As of December 31,
2003, there have been no defaults. Three Garden Ridge properties are included in
the mortgage pool and in the event the leases are terminated, cash flow from
this investment might be adversely affected.

CPA(R):12 has used the capital that it has raised from its public offerings
along with limited recourse mortgage financing as its primary source of
liquidity. A lender of limited recourse mortgage debt has recourse only to the
property and lease assignments collateralizing such debt and not to any of
CPA(R):12's other assets, while unsecured financing provides a lender recourse
to all of CPA(R):12's assets. The use of limited recourse mortgage debt,
therefore, allows CPA(R):12 to limit the exposure of all of its assets to any
one debt obligation. CPA(R):12's loans generally have terms of at least ten
years, and no outstanding loans mature until 2005. In most instances, CPA(R):12
will seek to refinance maturing or recently paid-off mortgage debt with new
property-level financing. Substantially all of CPA(R):12's mortgage debt
provides for a fixed rate of interest and there is no assurance that existing
debt will be refinanced at lower rates of interest as such debt matures.
Mortgage lenders have provisions in many of the loans which restrict CPA(R):12's
ability to prepay a loan or provide for payment of premiums if paid prior to its
scheduled maturity.

Off-Balance Sheet and Aggregate Contractual Agreements

A summary of CPA(R):12's obligations under contractual arrangements as of
December 31, 2003 is as follows:

<TABLE>
<CAPTION>
(in thousands)                                 Total         2004         2005         2006         2007         2008    Thereafter
                                               -----         ----         ----         ----         ----         ----    ----------
<S>                                          <C>           <C>          <C>          <C>          <C>          <C>       <C>
Limited recourse mortgage notes payable      $184,206      $ 5,953      $10,447      $11,539      $24,546      $ 22,553   $109,168
Deferred acquisition fees                       6,658        1,467        1,420        1,223          828           576      1,144
Subordinated disposition fees                   1,376                                                                        1,376
Share of minimum rents payable under
   office cost-sharing agreement                  429          156          156          117           --            --         --
                                             --------      -------      -------      -------      -------      --------   --------
                                             $192,669      $ 7,576      $12,023      $12,879      $25,374      $ 23,129   $111,688
                                             ========      =======      =======      =======      =======      ========   ========
</TABLE>

In connection with the purchase of its properties, CPA(R):12 requires the
sellers to perform environmental reviews. Management believes, based on the
results of such reviews, that CPA(R):12's properties were in substantial
compliance with Federal and state environmental statutes at the time the
properties were acquired. However, portions of certain properties have been
subject to some degree of contamination, principally in connection with either
leakage from underground storage tanks, surface spills from facility activities
or historical on-site activities. In most instances where contamination has been
identified, tenants are actively engaged in the remediation process and
addressing identified conditions. Tenants are generally subject to environmental
statutes and regulations regarding the discharge of hazardous materials and any
related remediation obligations. In addition, CPA(R):12's leases generally
require tenants to indemnify CPA(R):12 from all liabilities and losses related
to the leased properties with provisions of such indemnification specifically
addressing environmental matters. The leases generally include provisions which
allow for periodic environmental assessments, paid for by the tenant, and allow
CPA(R):12 to extend


                                       6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

leases until such time as a tenant has satisfied its environmental obligations.
Certain of the leases allow CPA(R):12 to require financial assurances from
tenants such as performance bonds or letters of credit if the costs of
remediating environmental conditions are, in the estimation of CPA(R):12, in
excess of specified amounts. Accordingly, Management believes that the ultimate
resolution of any environmental matter will not have a material adverse effect
on CPA(R):12's financial condition, liquidity or results of operations.

Critical Accounting Estimates

CPA(R):12 makes certain judgments and uses certain estimates and assumptions
when applying accounting principles generally accepted in the United States of
America in the preparation of its consolidated financial statements that affect
the reported amount of assets, liabilities, revenues and expenses. CPA(R):12
believes its most critical accounting estimates relate to its provision for
uncollected amounts from lessees, potential impairment of assets, identification
of discontinued operations, classification of real estate assets, determining
the fair value of assets and liabilities which are "marked to market" but not
actively traded in a public market and determining the interest to be
capitalized in connection with real estate under construction. CPA(R):12's
significant accounting policies are described in the notes to the financial
statements. Certain policies, while significant, may not require the use of
estimates.

CPA(R):12 must assess its ability to collect rent and other tenant-based
receivables and determine an appropriate charge for uncollected amounts. Because
CPA(R):12's real estate operations have a limited number of lessees, Management
believes that it is necessary to evaluate the collectibility of these
receivables based on the facts and circumstances of each situation rather than
solely use statistical methods. CPA(R):12 generally recognizes a provision for
uncollected rents which typically ranges between 0.25% and 1% of lease revenues
(rental income and interest income from direct financing leases) and will
measure its allowance against actual rent arrearages and adjust the percentage
applied. For amounts in arrears, Management makes subjective judgments based on
its knowledge of a lessee's circumstances and may reserve for the entire
receivable amount from a lessee because there has been significant or continuing
deterioration in the lessee's ability to meet its lease obligations. Under net
leases, lessees are obligated to pay real estate taxes on behalf of CPA(R):12;
however, when a lessee is in bankruptcy, CPA(R):12 may pay the tax obligation in
order to preserve its interest in the property. If such a payment relates to a
pre-petition period, CPA(R):12 may record such payment as an expense rather than
as a receivable when it assumes the chance of reimbursement by the lessee is
unlikely. Based on its actual experience in 2003, CPA(R):12 recorded a provision
equal to approximately 1.5% of lease revenues.

Operating real estate is stated at cost less accumulated depreciation. Costs
directly related to build-to-suit projects, primarily interest, if applicable,
are capitalized. No interest was capitalized in 2003, 2002 and 2001. CPA(R):12
considers a build-to-suit project as substantially completed upon the completion
of improvements, but no later than a date that is negotiated and stated in the
lease. If portions of a project are substantially completed and occupied and
other portions have not yet reached that stage, the substantially completed
portions are accounted for separately. CPA(R):12 allocates costs incurred
between the portions under construction and the portions substantially completed
and only capitalizes those costs associated with the portion under construction.
CPA(R):12 does not have a credit facility and determines an interest rate to be
applied for capitalizing interest based on an average rate on its outstanding
limited recourse mortgage debt.

CPA(R):12 classifies its directly-owned leased assets for financial reporting
purposes as either real estate leased under the operating method or net
investment in direct financing leases at the inception of a lease based on
several criteria, including, but not limited to, estimates of the remaining
economic life of the leased assets and the calculation of the present value of
future minimum rents. In determining the classification of a lease, CPA(R):12
uses estimates of remaining economic life provided by independent appraisals of
the leased assets. The calculation of the present value of future minimum rents
includes determining a lease's implicit interest rate, which requires an
estimate of the residual value of leased assets as of the end of the
non-cancelable lease term. Different estimates of residual value result in
different implicit interest rates and could possibly affect the financial
reporting classification of leased assets. The contractual terms of CPA(R):12's
leases are not necessarily different for operating and direct financing leases;
however the classification is based on accounting pronouncements which are
intended to indicate whether the risks and rewards of ownership are retained by
the lessor or transferred to the lessee. Management believes that it retains
certain risks of ownership regardless of accounting classification. Assets
classified as direct financing leases are not depreciated and, therefore, the
classification of assets, may have a significant impact on net income even
though it has no effect on cash flows.


                                       7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

CPA(R):12 also uses estimates and judgments when evaluating whether long-lived
assets are impaired. When events or changes in circumstances indicate that the
carrying amount of a property accounted for under the operating method may not
be recoverable, Management must first determine if the property will be held for
use or held for sale. Management then performs projections of cash flows, and if
such cash flows are insufficient, the assets are adjusted (i.e., written down)
to their estimated fair value. An analysis of whether a real estate asset has
been impaired requires Management to make its best estimate of market rents,
residual values and holding periods. As CPA(R):12's investment objective is to
hold properties on a long-term basis, holding periods will generally range from
five to ten years. In its evaluations, CPA(R):12 obtains market information from
outside sources; however, such information requires Management to determine
whether the information received is appropriate to the circumstances. Depending
on the assumptions made and estimates used, the estimated cash flow projected in
the evaluation of long-lived assets can vary within a range of outcomes. Because
CPA(R):12's properties are leased to single tenants, CPA(R):12 is more likely to
incur significant writedowns when circumstances affecting a tenant deteriorate
because of the possibility that a property will be vacated in its entirety. The
risk of vacancy for single tenant properties is different from the risks faced
by companies that own multi-tenant properties. Events or changes in
circumstances can result in further writedowns and impact the gain or loss
ultimately realized upon sale of the asset.

For direct financing leases, CPA(R):12 performs a review of its estimated
residual value of properties at least annually to determine whether there has
been an other than temporary decline in CPA(R):12's current estimate of residual
value of the underlying real estate assets of direct financing leases. If the
review indicates a decline in residual values that is other than temporary, a
loss is recognized and the accounting for the direct financing lease will be
revised using the changed estimate, that is, a portion of the future cash flow
from the lessee will be recognized as a return of principal rather than as
revenue. While an evaluation of potential impairment of real estate accounted
for under the operating method is determined by a change in circumstances, the
evaluation of a direct financing lease can be affected by changes in long-term
market conditions even though the obligations of the lessee are being met.
Changes in circumstances include, but are not limited to, vacancy of a property
not subject to a lease and termination of a lease. CPA(R):12 may also assess
properties for impairment because it expects a lease not to be renewed and the
lease is within one year of its expiration, a lessee is experiencing financial
difficulty and Management expects that there is a reasonable probability that
the lease will be terminated in a bankruptcy organization or a property remains
vacant for a period that exceeds the period anticipated in a prior impairment
evaluation.

When assets are identified by management as held for sale, CPA(R):12
discontinues depreciating the assets and estimates the sales price, net of
selling costs, of such assets. If in Management's opinion, the net sales price
of the assets, which have been identified for sale, is less than the net book
value of the assets, an impairment charge is recognized, and a valuation
allowance is established. To the extent that a purchase and sale agreement has
been entered into, the allowance is based on the negotiated sales price. To the
extent that CPA(R):12 has adopted a plan to sell an asset but has not entered
into a sales agreement, it will make judgments of the net sales price based on
current market information. Accordingly, the initial assessment may be greater
or less than the purchase price subsequently committed to and may result in a
further adjustment to the fair value of the property. If circumstances arise
that previously were considered unlikely and, as a result, the Company decides
not to sell a property previously classified as held for sale, the property is
reclassified as held and used. A property that is reclassified is measured and
recorded individually at the lower of (a) its carrying amount before the
property was classified as held for sale, adjusted for any depreciation expense
that would have been recognized had the property been continuously classified as
held and used, or (b) the fair value at the date of the subsequent decision not
to sell.

In 2002, CPA(R):12 acquired a subordinated interest in a mortgage trust that
consists of limited recourse loans on 62 properties that are owned by CPA(R):12
or three of its affiliates. The fair value of the interests in the trust is
determined using a discounted cash flow model with assumptions of market rates
and the credit quality of the underlying lessees. If there are adverse changes
in either market rates or the credit quality of the lessees, the model and,
therefore, the income recognized from the subordinated interests and the fair
value will be adjusted. CPA(R):12 measures derivative instruments, including
certain derivative instruments embedded in other contracts, if any, at fair
value and records them as an asset or liability, depending on CPA(R):12's right
or obligations under the applicable derivative contract. For derivatives
designated as fair value hedges, the changes in the fair value of both the
derivative instrument and the hedged item are recorded in earnings (i.e., the
forecasted event occurs). For derivatives designated as cash flow hedges, the
effective portions of the derivatives are reported in other comprehensive income
and are subsequently reclassified into earnings when the hedged item affects
earnings.


                                       8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

Changes in the fair value of derivative instruments not designated as hedging
and ineffective portions of hedges are recognized in earnings in the affected
period. To determine the value of warrants for common stock which are classified
as derivatives, various estimates are included in the options pricing model used
to determine the value of a warrant.

In connection with the acquisition of properties, purchase costs will be
allocated to the tangible and intangible assets and liabilities acquired based
on their estimated fair values. The value of the tangible assets, consisting of
land, buildings and tenant improvements, will be determined as if vacant.
Intangible assets including the above-market or below-market value of leases,
the value of in-place leases and the value of tenant relationships will be
recorded at their relative fair values.

The value attributed to tangible assets will be determined in part using a
discount cash flow model which is intended to approximate what a third party
would pay to purchase the property as vacant and rent at "market" rates. In
applying the model CPA(R):12 assumes that the disinterested party would sell the
property at the end of a market lease term. Assumptions used in the model are
property-specific as it is available; however, when certain necessary
information isn't available, CPA(R):12 will use available regional and
property-type information. Assumptions and estimates include a discount rate or
internal rate of return, marketing period necessary to put a lease in place,
carrying costs during the marketing period, leasing commissions and tenant
improvements allowances, market rents and growth factors of such rents, market
lease term and a cap rate to be applied to an estimate of market rent at the end
of the market lease term.

Above-market and below-market lease intangibles will be based on the difference
between the market rent and the contractual rents and will be discounted to a
present value using an interest rate reflecting CPA(R):12`s assessment of the
risk associated with the lease acquired. CPA(R):12 acquires properties subject
to net leases and considers the credit of the lessee in negotiating the initial
rent.

The total amount of other intangible assets will be allocated to in-place lease
values and tenant relationship intangible values based on our evaluation of the
specific characteristics of each tenant's lease and our overall relationship
with each tenant. Characteristics considered in allocating these values include
the nature and extent of the existing relationship with the tenant, prospects
for developing new business with the tenant, the tenant's credit quality and the
expectation of lease renewals among other factors. The aggregate value of other
intangible assets acquired will be measured based on the difference between (i)
the property valued with an in-place lease adjusted to market rental rates and
(ii) the property valued as if vacant. Independent appraisals or our estimates
will be used to determine these values.

Factors considered include the estimated carrying costs of the property during a
hypothetical expected lease-up period, current market conditions and costs to
execute similar leases. Estimated carrying costs will include real estate taxes,
insurance, other property operating costs and estimates of lost rentals at
market rates during the hypothetical expected lease-up periods, based on
assessments of specific market conditions. Estimated costs to execute leases
include commissions and legal costs to the extent that such costs are not
already incurred with a new lease that has been negotiated in connection with
the purchase of the property.

Accounting Pronouncements

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," ("FIN 45") which changes the accounting for, and
disclosure of certain guarantees. Beginning with transactions entered into after
December 31, 2002, certain guarantees are required to be recorded at fair value,
which is different from prior practice, under which a liability was recorded
only when a loss was probable and reasonably estimable. In general, the change
applies to contracts or indemnification agreements that contingently require
CPA(R):12 to make payments to a guaranteed third-party based on changes in an
underlying asset, liability, or an equity security of the guaranteed party. The
adoption of the accounting provisions of FIN 45 on January 1, 2003 did not have
a material effect on CPA(R):12's financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amends SFAS No. 123, Accounting
for Stock Based Compensation. SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock based compensation (i.e., recognition of a charge for issuance of
stock options in the determination of income.). However,


                                       9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

SFAS No. 148 does not permit the use of the original SFAS No. 123 prospective
method of transition for changes to the fair value based method made in fiscal
years beginning after December 15, 2003. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for stock
based employee compensation, description of transition method utilized and the
effect of the method used on reported results. The transition and annual
disclosure provisions for valuing stock-based compensation of SFAS No. 148 are
to be applied for fiscal years ending after December 15, 2002. CPA(R):12 does
not have any employees nor any stock-based compensation plans.

On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). In December 2003, the FASB issued a revised FIN 46
which modifies and clarifies various aspects of the original Interpretation. FIN
46 applies when either (1) the equity investors (if any) lack one or more of the
essential characteristics of controlling financial interest, (2) the equity
investment at risk is insufficient to finance that entity's activities without
additional subordinated financial support or (3) the equity investors have
voting rights that are not proportionate to their economic interest. In addition
FIN 46 requires additional disclosures.

FIN 46 is effective immediately for VIEs created after January 31, 2003, and to
VIEs in which an enterprise obtains an interest after that date. For variable
interests in a VIE created or obtained prior to February 1, 2003, FIN 46 is
effective for periods ending after March 15, 2004.

CPA(R):12 has evaluated the potential impact and believes this interpretation
will not have a material impact on its accounting for its investments in
unconsolidated joint ventures as none of these investments are VIEs. CPA(R):12's
maximum loss exposure is the carrying value of its equity investments.

On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging under SFAS No. 133. The
changes in the statement improve financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. In particular, the
statement (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative instrument discussed in
paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative contains a
financing component, (3) amends the definition of an underlying to conform it to
language used in FIN 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others", and (4)
amends certain other existing pronouncements. SFAS No. 149 is generally
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of SFAS No.
149 did not have a material effect on the financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). In particular, it requires
that mandatorily redeemable financial instruments be classified as liabilities
and reported at fair value and that changes in their fair values be reported as
interest cost.

This statement was effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective for CPA(R):12 as of July 1, 2003.
On November 7, 2003, the FASB indefinitely deferred the classification and
measurement provisions of SFAS No. 150 as they apply to certain mandatorily
redeemable non-controlling interests. This deferral is expected to remain in
effect while these provisions are further evaluated by the FASB. Based on the
FASB's deferral of this provision, the adoption of SFAS No. 150 did not have a
material effect on CPA(R):12's financial statements.


                                       10
<PAGE>
                         REPORT of INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Corporate Property Associates 12 Incorporated:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Corporate Property
Associates 12 Incorporated and its subsidiaries at December 31, 2003 and 2002,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of W. P. Carey & Co. LLC (the "Advisor"); our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by the Advisor, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP

New York, New York
March 10, 2004


                                       11
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                              2003                2002
                                                                              ----                ----
<S>                                                                       <C>                 <C>
         ASSETS:

Real estate leased to others:
   Accounted for under the operating method:
       Land                                                               $  51,504,515       $  52,710,371
       Buildings                                                            292,724,690         297,713,891
                                                                          -------------       -------------
                                                                            344,229,205         350,424,262
       Less, accumulated depreciation                                        41,176,156          34,815,471
                                                                          -------------       -------------
                                                                            303,053,049         315,608,791
Net investment in direct financing leases                                    19,127,500          24,987,051
Assets held for sale                                                         10,453,403                  --
Equity investments                                                           90,206,460          70,551,264
Cash and cash equivalents                                                    13,305,343          40,084,470
Marketable securities                                                         8,810,482           7,510,030
Other assets, net of allowance for uncollected rents of $1,711,511
   and $1,066,396 in 2003 and 2002 and accumulated amortization of
   $1,206,498 and $790,420 in 2003 and 2002                                  17,234,625          13,386,909
                                                                          -------------       -------------
            Total assets                                                  $ 462,190,862       $ 472,128,515
                                                                          =============       =============

          LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY:

Liabilities:
Limited recourse mortgage notes payable                                   $ 180,981,200       $ 191,662,114
Limited recourse mortgage notes payable on assets held for sale               3,224,335           3,271,697
Accrued interest                                                              1,035,859           1,098,917
Accounts payable and accrued expenses                                         2,473,641           2,170,744
Due to affiliates                                                             3,062,758           2,843,060
Deferred acquisition fees payable to affiliate                                6,658,067           6,255,973
Dividends payable                                                             6,271,709           6,223,080
Prepaid rental income and security deposits                                   5,131,254           5,059,112
                                                                          -------------       -------------
            Total liabilities                                               208,838,823         218,584,697
                                                                          -------------       -------------

Minority interest                                                             8,021,816           7,937,305
                                                                          -------------       -------------

Commitments and contingencies

Shareholders' equity:
Common stock, $.001 par value; authorized, 40,000,000 shares; issued
   and outstanding, 31,284,287 and 30,878,338 shares at
   December 31, 2003 and 2002                                                    31,284              30,878
Additional paid-in capital                                                  282,962,414         278,735,372
Dividends in excess of accumulated earnings                                 (29,949,878)        (26,441,642)
Accumulated other comprehensive income                                        1,594,782             307,999
                                                                          -------------       -------------
                                                                            254,638,602         252,632,607
Less, treasury stock at cost, 975,975 and 747,252 shares at
   December 31, 2003 and 2002                                                (9,308,379)         (7,026,094)
                                                                          -------------       -------------
            Total shareholders' equity                                      245,330,223         245,606,513
                                                                          -------------       -------------
            Total liabilities and shareholders' equity                    $ 462,190,862       $ 472,128,515
                                                                          =============       =============
</TABLE>

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


                                       12
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                        CONSOLIDATED STATEMENTS of INCOME

<TABLE>
<CAPTION>
                                                                           For the year ended December 31,
                                                                          -------------------------------
                                                                     2003               2002               2001
                                                                     ----               ----               ----
<S>                                                              <C>                <C>                <C>
Revenues:
   Rental income                                                 $ 40,421,838       $ 39,879,335       $ 38,699,610
   Interest income from direct financing leases                     2,585,832          4,149,082          5,197,590
   Interest and other income                                        4,724,262          1,266,968            804,542
                                                                 ------------       ------------       ------------
                                                                   47,731,932         45,295,385         44,701,742
                                                                 ------------       ------------       ------------

Expenses:
   Interest expense                                                14,873,028         14,042,261         13,314,629
   Depreciation                                                     7,447,713          7,251,220          7,198,707
   General and administrative                                       4,047,682          4,025,716          4,254,153
   Property expense                                                 9,147,193          7,128,517          6,688,170
   Impairment charge on real estate                                 1,000,000                 --                 --
   Charge on early extinguishment of debt                                  --          1,284,509                 --
                                                                 ------------       ------------       ------------
                                                                   36,515,616         33,732,223         31,455,659
                                                                 ------------       ------------       ------------

       Income from continuing operations before minority
          interest, income from equity investments and
          gain (loss)                                              11,216,316         11,563,162         13,246,083

Minority interest in income                                        (1,527,601)        (1,473,948)        (1,393,297)

Income from equity investments, including charge on early
extinguishment of debt of $960,602 in 2002                          9,424,757          5,966,615          5,032,221
                                                                 ------------       ------------       ------------

       Income from continuing operations before gains
          (losses)                                                 19,113,472         16,055,829         16,885,007

Realized gain on foreign currency                                      76,448                 --                 --
Unrealized gain (loss) on foreign currency transactions and
   warrants                                                           619,701           (446,541)         1,123,500
Gain on sale of interest in equity investment                       1,432,858                 --                 --
Gain on settlement of derivatives contract                            237,340                 --                 --
                                                                 ------------       ------------       ------------
       Income from continuing operations before gains on
       sale of real estate                                         21,479,819         15,609,288         18,008,507

 Discontinued operations:
 Income from operations of discontinued properties                     20,766          1,041,130          1,075,515
                                                                 ------------       ------------       ------------

       Income from discontinued operations                             20,766          1,041,130          1,075,515
                                                                 ------------       ------------       ------------
 Gain on sale of real estate                                               --                 --          8,863,709
                                                                 ------------       ------------       ------------
       Net income                                                $ 21,500,585       $ 16,650,418       $ 27,947,731
                                                                 ============       ============       ============

Basic and diluted income per common share:
   Earnings from continuing operations                           $        .71       $        .52       $        .90
   Earnings from discontinuing operations                                  --                .03                .04
                                                                 ------------       ------------       ------------
       Net Income                                                $        .71       $        .55       $        .94
                                                                 ============       ============       ============

Weighted average shares outstanding-basic and diluted              30,234,073         30,038,268         29,763,716
                                                                 ============       ============       ============
</TABLE>

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


                                       13
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                 CONSOLIDATED STATEMENT of SHAREHOLDERS' EQUITY
             For the years ended December 31, 2001, 2002, and 2003

<TABLE>
<CAPTION>
                                                                   Dividends in
                                      Additional                      Excess           Accumulated
                            Common     Paid-in     Comprehensive  of Accumulated     Other Comprehen-    Treasury
                             Stock      Capital        Income         Earnings          sive Income        Stock          Total
<S>                         <C>      <C>           <C>            <C>                <C>                <C>            <C>
Balance at
  January 1, 2001           $29,169  $261,821,096                   $(21,791,937)               --      $(4,965,367)   $235,092,961

1,313,015 shares issued,
 net of costs                 1,313    12,907,341                                                                        12,908,654
Dividends declared                                                   (24,481,101)                                       (24,481,101)

Comprehensive income:
Net income                                          $27,947,731       27,947,731                                         27,947,731
                                                    ===========

Repurchase of 55,503
  shares                                                                                                   (544,573)       (544,573)
                            -------  ------------                   ------------        ----------      -----------    ------------
Balance at
  December 31, 2001          30,482   274,728,437                    (18,325,307)               --       (5,509,940)    250,923,672

396,008 shares issued,
 net of costs                   396     4,006,935                                                                         4,007,331
Dividends declared                                                   (24,766,753)                                       (24,766,753)

Comprehensive income:
Net income                                          $16,650,418       16,650,418                                         16,650,418
  Change in unrealized
   gain on marketable
   securities                                           307,999                            307,999                          307,999
                                                    -----------
                                                    $16,958,417
                                                    ===========
Repurchase of 154,322
  shares                                                                                                 (1,516,154)     (1,516,154)
                            -------  ------------                   ------------        ----------      -----------    ------------
Balance at
  December 31, 2002          30,878   278,735,372                    (26,441,642)          307,999       (7,026,094)    245,606,513

405,949 shares issued,
 net of costs                   406     4,227,042                                                                         4,227,448
Dividends declared                                                   (25,008,821)                                       (25,008,821)

Comprehensive income:
Net income                                          $21,500,585       21,500,585                                         21,500,585
Other comprehensive
 income:
  Change in unrealized
   gain on marketable
   securities                                           824,684                            824,684                          824,684
  Foreign currency
   translation adjustment                               462,099                            462,099                          462,099
                                                    -----------
                                                    $22,787,368
                                                    ===========
Repurchase of 228,723
  shares                                                                                                 (2,282,285)     (2,282,285)
                            -------  ------------                   ------------        ----------      -----------    ------------
Balance at
  December 31, 2003         $31,284  $282,962,414                   $(29,949,878)       $1,594,782      $(9,308,379)   $245,330,223
                            =======  ============                   ============        ==========      ===========    ============
</TABLE>

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


                                       14
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                      CONSOLIDATED STATEMENTS of CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       For the year ended December 31,
                                                                                  2003               2002               2001
                                                                                  ----               ----               ----
<S>                                                                           <C>                <C>                <C>
Cash flows from operating activities:
    Net income                                                                $ 21,500,585       $ 16,650,418       $ 27,947,731
    Adjustments to reconcile net income to net cash provided
       by operating activities:
       Income from discontinued operations                                         (20,766)        (1,041,130)        (1,075,515)
       Depreciation and amortization                                             7,976,954          7,504,485          7,407,706
       Straight-line rent adjustments                                           (1,055,294)        (1,402,501)        (1,131,902)
       Minority interest in income                                               1,527,601          1,473,948          1,393,297
       Impairment charge on real estate                                          1,000,000                 --                 --
       Lease termination proceeds assigned to lender                            (2,540,000)                --                 --
       Reversal of unrealized gain on warrants on conversion to shares             237,340
       Gain on settlement of derivatives contract                                 (237,340)                --                 --
       Gain on sale of interest in equity investment                            (1,432,858)                --                 --
       Income from equity investments before charge on extinguishment
          of debt in excess of distributions received                           (1,022,725)          (628,807)          (814,795)
       Charge on extinguishment of debt                                                 --          2,245,111                 --
       Gain on foreign currency transactions                                       (76,448)                --                 --
       Fees paid by issuance of stock                                            3,230,358          2,849,209          2,755,791
       Gain on sales of real estate and securities                                      --                 --         (8,863,709)
       Noncash settlement income                                                  (368,000)          (371,294)                --
       Unrealized (gain) loss on foreign currency transactions and
          warrants                                                                (619,701)           446,541         (1,123,500)
       Prepayment premium on extinguishment of debt                                     --         (1,225,092)                --
       Change in operating assets and liabilities, net                             544,633            794,995         (1,233,694)
                                                                              ------------       ------------       ------------
          Net cash provided by continuing operations                            28,644,339         27,295,883         25,261,410
          Net cash provided by discontinued operations                             334,453          1,279,146          1,309,284
                                                                              ------------       ------------       ------------
          Net cash provided by operating activities                             28,978,792         28,575,029         26,570,694
                                                                              ------------       ------------       ------------

Cash flows from investing activities:
   Distributions received in excess of equity income                             2,244,029          1,424,304          2,522,721
   Distribution of mortgage financing proceeds received from equity
       investments                                                               3,738,075          1,766,449         13,145,242
   Proceeds from sales of real estate and securities                             1,971,594          2,836,800                 --
   Payment of deferred acquisition fees                                         (1,274,925)        (1,375,711)        (1,214,073)
   Purchases of real estate and equity investments and other capitalized
       costs                                                                   (23,887,461)       (13,830,912)        (5,420,821)
   Purchase of securities                                                               --        (10,075,422)                --
                                                                              ------------       ------------       ------------
          Net cash (used in) provided by investing activities                  (17,208,688)       (19,254,492)         9,033,069
                                                                              ------------       ------------       ------------

Cash flows from financing activities:
   Dividends paid                                                              (24,960,192)       (24,692,005)       (24,204,541)
   Payments of mortgage principal                                               (5,528,874)        (4,981,330)        (4,415,958)
   Prepayment of mortgages payable                                              (5,199,402)        (8,908,195)        (8,786,509)
   Payment of note payable                                                              --                 --         (4,300,000)
   Advances on line of credit                                                           --         10,000,000                 --
   Repayments of advanced on credit facility                                            --        (10,000,000)                --
   Proceeds from issuance of mortgages (a)                                              --         44,776,210         23,510,836
   Payment of financing costs and mortgage deposits                               (132,478)          (775,966)          (983,436)
   Costs of raising capital                                                             --                 --           (276,030)
   Proceeds from issuance of shares, net of costs                                  997,090          1,158,122         10,428,893
   Capital distributions to minority partner                                            --                 --        (15,003,000)
   Distributions to minority partners                                           (1,443,090)        (1,444,080)        (1,555,435)
   Purchase of treasury stock                                                   (2,282,285)        (1,516,154)          (544,573)
                                                                              ------------       ------------       ------------
          Net cash (used in) provided by financing activities                  (38,549,231)         3,616,602        (26,129,753)
                                                                              ------------       ------------       ------------
          Net (decrease) increase in cash and cash equivalents                 (26,779,127)        12,937,139          9,474,010

Cash and cash equivalents, beginning of year                                    40,084,470         27,147,331         17,673,321
                                                                              ------------       ------------       ------------
   Cash and cash equivalents, end of year                                     $ 13,305,343       $ 40,084,470       $ 27,147,331
                                                                              ============       ============       ============
</TABLE>

                                  - continued -


                                       15
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Noncash investing and financing activities:

   During 2001, proceeds from the sale of a property of $30,492,012 were
      placed in an escrow account and were subsequently released in connection
      with the purchase of additional real estate.

a.    Net of $1,559,055 held back from proceeds of mortgages by a mortgage
      lender to fund certain escrow accounts in 2002.

   Included in the cost basis of real estate investments acquired in 2003, 2002,
       and 2001 are deferred acquisition fees payable of $1,677,019, $413,096
       and $942,283, respectively.

In connection with contributing tenancy-in-common interests to jointly-owned
entities in 2002 and 2001, assets and liabilities were reclassified as an equity
investment as follows:

<TABLE>
<CAPTION>
                                                 2002             2001
                                                 ----             ----
<S>                                          <C>               <C>
      Real estate assets                     $ 8,814,224       $9,232,911
      Mortgage note payable                   (3,029,875)              --
      Other assets and liabilities, net          340,014               --
                                             -----------       ----------
           Equity investment                 $ 6,124,363       $9,232,911
                                             ===========       ==========
</TABLE>

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


                                       16
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies:

      Basis of Consolidation:

            The consolidated financial statements include the accounts of
            Corporate Property Associates 12 Incorporated, its wholly-owned
            subsidiaries and a controlling interest in a majority-owned limited
            liability company (collectively, the "Company"). The Company is not
            a primary beneficiary of any variable interest entity ("VIE"). All
            material inter-entity transactions have been eliminated.

      Use of Estimates:

            The preparation of financial statements in conformity with
            accounting principles generally accepted in the United States of
            America requires management to make estimates and assumptions that
            affect the reported amounts of assets and liabilities and disclosure
            of contingent assets and liabilities at the date of the financial
            statements and the reported amounts of revenues and expenses during
            the reporting period. The most significant estimates relate to the
            assessment of the recoverability of real estate assets and
            investments, classification of real estate leased to others,
            identification of any intangible assets in connection with asset
            acquisitions and allowance for uncollected amounts. Actual results
            could differ from those estimates.

      Real Estate Leased to Others:

            Real estate is leased to others on a net lease basis, whereby the
            tenant is generally responsible for all operating expenses relating
            to the property, including property taxes, insurance, maintenance,
            repairs, renewals and improvements. For the year ended December 31
            2003, lessees were responsible for the direct payment of real estate
            taxes of approximately $5,016,000. Expenditures for maintenance and
            repairs including routine betterments are charged to operations as
            incurred. Significant renovations which increase the useful life of
            the properties are capitalized.

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

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

                  Direct financing method - Leases accounted for under the
                  direct financing method are recorded at their net investment
                  (Note 4). Unearned income is deferred and amortized to income
                  over the lease terms so as to produce a constant periodic rate
                  of return on the Company's net investment in the lease.

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

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

            In connection with the Company's acquisition of properties, purchase
            costs are allocated to the tangible and intangible assets and
            liabilities acquired based on their estimated fair values. The value
            of the tangible assets, consisting of land, buildings and tenant
            improvements, are determined as if vacant. Intangible assets
            including the above-market or below-market value of leases, the
            value of in-place leases and the value of tenant relationships are
            recorded at their relative fair values.


                                       17
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            Above-market and below-market in-place lease values for owned
            properties are recorded based on the present value (using an
            interest rate reflecting the risks associated with the leases
            acquired) of the difference between (i) the contractual amounts to
            be paid pursuant to the leases negotiated and in-place at the time
            of acquisition of the properties and (ii) management's estimate of
            fair market lease rates for the property or equivalent property,
            measured over a period equal to the remaining non-cancelable term of
            the lease. The capitalized above-market lease value is amortized as
            a reduction of rental income over the remaining non-cancelable term
            of each lease. The capitalized below-market lease value is amortized
            as an increase to rental income over the initial term and any fixed
            rate renewal periods in the respective leases.

            The total amount of other intangible assets are allocated to
            in-place lease values and tenant relationship intangible values
            based on management's evaluation of the specific characteristics of
            each tenant's lease and the Company's overall relationship with each
            tenant. Characteristics considered in allocating these values
            include the nature and extent of the existing relationship with the
            tenant, prospects for developing new business with the tenant, the
            tenant's credit quality and the expectation of lease renewals among
            other factors. The aggregate value of other intangible assets
            acquired will be measured based on the difference between (i) the
            property valued with an in-place lease adjusted to market rental
            rates and (ii) the property valued as if vacant. Independent
            appraisals or management's estimates are used to determine these
            values.

            Factors considered in the analysis include the estimated carrying
            costs of the property during a hypothetical expected lease-up
            period, current market conditions and costs to execute similar
            leases. The Company also considers information obtained about a
            property in connection with its pre-acquisition due diligence.
            Estimated carrying costs include real estate taxes, insurance, other
            property operating costs and estimates of lost rentals at market
            rates during the hypothetical expected lease-up periods, based on
            management's assessment of specific market conditions. Estimated
            costs to execute leases including commissions and legal costs to the
            extent that such costs are not already incurred with a new lease
            that has been negotiated in connection with the purchase of the
            property are also considered.

            The value of in-place leases will be amortized to expense over the
            remaining initial term of each lease. The value of tenant
            relationship intangibles will be amortized to expense over the
            initial and renewal terms of the leases but no amortization period
            for intangible assets will exceed the remaining depreciable life of
            the building.

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

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

      Depreciation:

            Depreciation is computed using the straight-line method over the
            estimated useful lives of properties - generally 40 years.

      Equity Investments:

            The Company's interests in entities in which the entity is not
            considered to be a VIE or the Company is not deemed to be the
            primary beneficiary, and the Company's ownership is 50% or less and
            has the ability to exercise significant influence and
            jointly-controlled tenancy-in-common interests are accounted for
            under the equity method, i.e. at cost, increased or decreased by the
            Company's share of earnings or losses, less distributions.

      Assets Held For Sale:

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


                                       18
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            sale of properties classified as held for sale by the Company after
            December 31, 2001, are included in discontinued operations.

            If circumstances arise that previously were considered unlikely and,
            as a result, the Company decides not to sell a property previously
            classified as held for sale, the property is reclassified as held
            and used. A property that is reclassified is measured and recorded
            individually at the lower of (a) its carrying amount before the
            property was classified as held for sale, adjusted for any
            depreciation expense that would have been recognized had the
            property been continuously classified as held and used, (b) the fair
            value at the date of the subsequent decision not to sell, or (c) the
            current carrying value.

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

      Foreign Currency Translation:

            The Company owns equity investments which invest in real estate in
            France. The functional currency for the investment is the Euro. The
            translation from the Euro to U.S. dollars is performed by the equity
            investee for assets and liabilities using current exchange rates in
            effect at the balance sheet date and for revenue and expense
            accounts using a weighted average exchange rate during the period.
            The gains and losses resulting from such translation are reported as
            a component of other comprehensive income as part of shareholders'
            equity. The cumulative translation adjustment as of December 31,
            2003 has a gain of $462,099. The Company had no foreign investments
            prior to 2003.

            Foreign currency transactions may produce receivables or payables
            that are fixed in terms of the amount of foreign currency that will
            be received or paid. A change in the exchange rates between the
            functional currency and the currency in which a transaction is
            denominated increases or decreases the expected amount of functional
            currency cash flows upon settlement of that transaction. That
            increase or decrease in the expected functional currency cash flows
            is a foreign currency transaction gain or loss that generally will
            be included in determining net income for the period in which the
            exchange rate changes. Likewise, a transaction gain or loss
            (measured from the transaction date or the most recent intervening
            balance sheet date) whichever is later, realized upon settlement of
            a foreign currency transaction generally will be included in net
            income for the period in which the transaction is settled. Foreign
            currency transactions that are (i) designated as, and are effective
            as, economic hedges of a net investment and (ii) intercompany
            foreign currency transactions that are of a long-term nature (that
            is, settlement is not planned or anticipated in the foreseeable
            future), when the entities to the transactions are consolidated or
            accounted for by the equity method in the Company's financial
            statements will not be included in determining net income but will
            be accounted for in the same manner as foreign currency translation
            adjustments and reported as a component of other comprehensive
            income as part of shareholder's equity. The contributions to the
            equity investments were funded in part through subordinated debt.

            Foreign currency intercompany transactions that are scheduled for
            settlement, consisting primarily of accrued interest and the
            translation to the reporting currency of intercompany subordinated
            debt with scheduled principal repayments, are included in the
            determination of net income, and, for the year ended December 31,
            2003, the Company recognized unrealized gains of $822,108 from such
            transactions. In 2003, the Company recognized realized gains of
            $76,448 on foreign currency transactions, in connection with the
            transfer of cash from foreign operations of subsidiaries to the
            parent company.

      Cash and Cash Equivalents:

            The Company considers all short-term, highly liquid investments that
            are both readily convertible to cash and have a maturity of
            generally three months or less at the time of purchase to be cash
            equivalents. Items classified as cash equivalents include commercial
            paper and money market funds. At December 31, 2003 and 2002, the
            Company's cash and cash equivalents were held in the custody of two
            financial institutions, and which balances at times exceed federally
            insurable limits. The Company mitigates this risk by depositing
            funds with major financial institutions.


                                       19
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      Marketable Securities:

            Marketable securities which consist of an interest in collateralized
            mortgage obligations (see Note 4) and common stock in
            publicly-traded companies, are classified as available for sale
            securities and reported at fair value with the Company's interest in
            unrealized gains and losses on these securities reported as a
            component of other comprehensive income (loss) until realized. Such
            marketable securities had a cost basis of $7,677,799 and $7,202,031
            and reflected a fair value of $8,810,482 and $7,510,030 at December
            31, 2003 and 2002, respectively.

      Other Assets:

            Included in other assets are deferred charges and deferred rental
            income. Deferred charges are costs incurred in connection with
            mortgage financings and refinancings and are amortized over the
            terms of the mortgages and included in interest expense in the
            accompanying consolidated financial statements. Deferred rental
            income is the aggregate difference for operating leases between
            scheduled rents which vary during the lease term and rent recognized
            on a straight-line basis.

      Derivative Instruments:

            Statement of Financial Accounting Standards ("SFAS") No. 133
            "Accounting for Derivative Instruments and Hedging Activities"
            became effective in 2001 and established accounting and reporting
            standards for derivative instruments. Certain stock warrants which
            were granted to the Company by lessees in connection with
            structuring the initial lease transactions are defined as derivative
            instruments because such stock warrants are readily convertible to
            cash or provide for net settlement upon conversion. Pursuant to SFAS
            No. 133, changes in the fair value of such derivative instruments as
            determined using an option pricing model are recognized currently in
            earnings as gains or losses. Changes in fair value for the years
            ended as of December 31, 2003, 2002 and 2001, were unrealized losses
            of $202,407 and $446,541, respectively and in 2001, an unrealized
            gain of $1,123,500. As of December 31, 2003, warrants issued to the
            Company by Vermont Teddy Bear Co., Inc., Sentry Technology
            Corporation ("Sentry") and Randall International, Inc. are
            classified as derivative instruments. In January 2003, the Company
            exercised all of its warrants in Rheometric Scientific, Inc.
            ("Rheometric") which subsequently became Proterion Corporation
            ("Proterion"). The Company also holds certain stock warrants which
            are not defined as derivative instruments and have been recorded at
            nominal values. The Company has only recognized unrealized gains or
            losses on stock warrants that are derivative instruments.

      Costs of Raising Capital:

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

      Treasury Stock:

            Treasury stock is recorded at cost.

      Deferred Acquisition Fees:

            Fees are payable for services provided by W.P. Carey & Co. LLC (the
            "Advisor") to the Company relating to the identification,
            evaluation, negotiation, financing and purchase of properties. A
            portion of such fees are deferred and are payable in annual
            installments with each installment equal to .25% of the purchase
            price of the properties over no less than eight years following the
            first anniversary of the date a property was purchased.

      Earnings Per Share:

            The Company has a simple equity capital structure with only common
            stock outstanding. As a result, the Company has presented basic
            per-share amounts only for all periods presented in the accompanying
            consolidated financial statements.


                                       20
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      Federal Income Taxes:

            The Company is qualified as a real estate investment trust ("REIT")
            as of December 31, 2003 as defined under the Internal Revenue Code
            of 1986. The Company is not subject to Federal income taxes on
            amounts distributed to shareholders provided it distributes at least
            90% of its REIT taxable income to its shareholders and meets certain
            other conditions. The Company and subsidiaries are subject to state
            and local and foreign taxes, which aggregate $102,033 in 2003 and
            $162,855 in 2002, and are included in general and administrative
            expenses.

      Operating Segments:

            Accounting standards have been established for the way public
            business enterprises report selected information about operating
            segments and guidelines for defining the operating segments of an
            enterprise. Based on the standards' definition, the Company has
            reported its real estate operations both domestically and
            internationally (See Note 10).

      Reclassification:

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

      Accounting Pronouncements:

            In November 2002, the FASB issued Interpretation No. 45,
            "Guarantor's Accounting and Disclosure Requirements for Guarantees,
            Including Indirect Guarantees of Indebtedness of Others," ("FIN 45")
            which changes the accounting for, and disclosure of certain
            guarantees. Beginning with transactions entered into after December
            31, 2002, certain guarantees are required to be recorded at fair
            value, which is different from prior practice, under which a
            liability was recorded only when a loss was probable and reasonably
            estimable. In general, the change applies to contracts or
            indemnification agreements that contingently require the Company to
            make payments to a guaranteed third-party based on changes in an
            underlying asset, liability, or an equity security of the guaranteed
            party. The adoption of the accounting provisions of FIN 45 on
            January 1, 2003 did not have a material effect on the Company's
            financial statements.

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

            On January 17, 2003, the FASB issued Interpretation No. 46,
            "Consolidation of Variable Interest Entities" ("FIN 46"), the
            primary objective of which is to provide guidance on the
            identification of entities for which control is achieved through
            means other than voting rights ("variable interest entities" or
            "VIEs") and to determine when and which business enterprise should
            consolidate the VIE (the "primary beneficiary"). In December 2003,
            the FASB issued a revised FIN 46 which modifies and clarifies
            various aspects of the original Interpretation. FIN 46 applies when
            either (1) the equity investors (if any) lack one or more of the
            essential characteristics of controlling financial interest, (2) the
            equity investment at risk is insufficient to finance that entity's
            activities without additional subordinated financial support or (3)
            the equity investors have voting rights that are not proportionate
            to their economic interest. In addition FIN 46 requires additional
            disclosures.

            FIN 46 is effective immediately for VIEs created after January 31,
            2003, and to VIEs in which an enterprise obtains an interest after
            that date. For variable interests in a VIE created or obtained prior
            to February 1, 2003, FIN 46 is effective for periods ending after
            March 15, 2004.


                                       21
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            The Company has evaluated the potential impact and believes this
            interpretation will not have a material impact on its accounting for
            its investments in unconsolidated joint ventures as none of these
            investments are VIEs. The Company's maximum loss exposure is the
            carrying value of its equity investments.

            On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of
            Statement 133 on Derivative Instruments and Hedging Activities."
            SFAS No. 149 amends and clarifies accounting for derivative
            instruments, including certain derivative instruments embedded in
            other contracts, and for hedging under SFAS No. 133. The changes in
            the statement improve financial reporting by requiring that
            contracts with comparable characteristics be accounted for
            similarly. In particular, the statement (1) clarifies under what
            circumstances a contract with an initial net investment meets the
            characteristics of a derivative instrument discussed in paragraph
            6(b) of SFAS No. 133, (2) clarifies when a derivative contains a
            financing component, (3) amends the definition of an underlying to
            conform it to language used in FIN 45, "Guarantor's Accounting and
            Disclosure Requirements for Guarantees, Including Indirect
            Guarantees of Indebtedness of Others", and (4) amends certain other
            existing pronouncements. SFAS No. 149 is generally effective for
            contracts entered into or modified after June 30, 2003 and for
            hedging relationships designated after June 30, 2003. The adoption
            of SFAS No. 149 did not have a material effect on the financial
            statements.

            In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
            Financial Instruments with Characteristics of both Liabilities and
            Equity." SFAS No. 150 establishes standards for the classification
            and measurement of certain financial instruments with
            characteristics of both liabilities and equity. It requires that an
            issuer classify a financial instrument that is within its scope as a
            liability (or an asset in some circumstances). In particular, it
            requires that mandatorily redeemable financial instruments be
            classified as liabilities and reported at fair value and that
            changes in their fair values be reported as interest cost.

            This statement was effective for financial instruments entered into
            or modified after May 31, 2003, and otherwise is effective for the
            Company as of July 1, 2003. On November 7, 2003, the FASB
            indefinitely deferred the classification and measurement provisions
            of SFAS No. 150 as they apply to certain mandatorily redeemable
            non-controlling interests. This deferral is expected to remain in
            effect while these provisions are further evaluated by the FASB.
            Based on the FASB's deferral of this provision, the adoption of SFAS
            No. 150 did not have a material effect on the Company's financial
            statements.

2.    Transactions with Related Parties:

      In connection with performing services on behalf of the Company, the
      Advisory Agreement between the Company and the Advisor provides that the
      Advisor receive asset management and performance fees, each of which are
      1/2 of 1/% of Average Invested Assets as defined in the Advisory
      Agreement. The performance fee is subordinated to the Preferred Return, a
      cumulative non-compounded dividend return of 7%. The Advisor has elected
      at its option to receive the performance fee in restricted shares of
      common stock of the Company rather than cash. The Advisor is also
      reimbursed for the actual cost of personnel needed to provide
      administrative services necessary to the operation of the Company. The
      Company incurred asset management fees of $3,378,780, 2,847,951, and
      $2,782,154 in 2003, 2002, and 2001 respectively, with performance fees in
      like amount. The Company incurred personnel reimbursements of $1,378,810,
      $1,323,152, and $1,289,852, in 2003, 2002, and 2001, respectively.

      Fees are payable to the Advisor for services provided to the Company
      relating to the identification, evaluation, negotiation, financing and
      purchase of properties and refinancing of mortgages. A portion of such
      fees are deferred and payable in equal installments over no less than
      eight years following the first anniversary of the date a property was
      purchased. Such deferred fees are only payable if the Preferred Return has
      been met. The unpaid portion of the deferred fees bears interest at an
      annual rate of 7% from the date of acquisition of a property until paid.
      For transaction and refinancings that were completed in 2003, 2002, and
      2001, current fees were $807,467, $770,458, and $1,068,478, respectively,
      and deferred fees were $645,974, $413,097 and $806,283, respectively. On
      March 12, 2003, the Company purchased from Corporate Property Associates
      15 Incorporated ("CPA(R):15"), an affiliate, a 35% interest in a company
      that leases thirteen properties to two lessees. In connection with the
      purchase, the Company assumed an obligation of the deferred acquisition
      fee payable to the Advisor which was $1,031,046. The Company's cash
      portion of the purchase price included reimbursement to CPA(R):15 for 35%
      of the initial current acquisition fee which was $1,288,807 (see Note 5).

      The Advisor is obligated to reimburse the Company for the amount by which
      operating expenses of the Company exceeds the 2%/25% Guidelines (the
      greater of 2% of Average Invested Assets or 25% of Net Income) as defined
      in


                                       22
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      the Advisory Agreement for any twelve-month period. If in any year the
      operating expenses of the Company exceed the 2%/25% Guidelines, the
      Advisor will have an obligation to reimburse the Company for such excess,
      subject to certain conditions. Only if the Independent Directors find that
      such excess expenses were justified based on any unusual and nonrecurring
      factors which they deem sufficient, the Advisor may be paid in future
      years for the full amount or any portion of such excess expenses, but only
      to the extent that such reimbursement would not cause the Company's
      operating expenses to exceed this limit in any such year. Charges related
      to asset impairment, bankruptcy of lessees, lease payment defaults,
      extinguishment of debt or uninsured losses are generally not considered
      unusual and nonrecurring. A determination that a charge is unusual and
      nonrecurring, such as the costs of significant litigation that are not
      associated with day-to day operations, or uninsured losses that are beyond
      the size or scope of the usual course of business based on the event
      history and experience of the Advisor and Independent Directors, is made
      at the sole discretion of the Independent Directors. The Company will
      record any reimbursement of operating expenses as a liability until any
      contingencies are resolved and will record the reimbursement as a
      reduction of asset management and performance fees at such time that a
      reimbursement is fixed, determinable and irrevocable. The operating
      expenses of the Company have not exceeded the amount that would require
      the Advisor to reimburse the Company.

      The Advisor will be entitled to receive subordinated disposition fees
      based upon the cumulative proceeds arising from the sale of Company assets
      since the inception of the Company, subject to certain conditions.
      Pursuant to the subordination provisions of the Advisory Agreement, the
      disposition fees may be paid only after the shareholders receive 100% of
      their initial investment from the proceeds of asset sales and a cumulative
      annual return of 6% (based on an initial share price of $10) since the
      inception of the Company. The Advisor's interest in such disposition fees
      amounts to $1,375,681 as of December 31, 2003. Payment of such amount,
      however, cannot be made until the subordination provisions are met. The
      Company has concluded that payment of such disposition fees is probable
      and all fees from completed property sales have been accrued. Subordinated
      disposition fees are included in the determination of realized gain or
      loss on the sale of properties. The obligation for disposition fees is
      included in due to affiliates in the accompanying consolidated financial
      statements.

      The Company owns interests in entities which range from 15% to 50% and a
      jointly-controlled 50% tenancy-in-common interest in a property subject to
      a net lease with remaining interests held by affiliates.

      The Company is a participant in an agreement with certain affiliates for
      the purpose of leasing office space used for the administration of real
      estate entities and for sharing the associated costs. Pursuant to the
      terms of the agreement, the Company's share of rental, occupancy and
      leasehold improvement costs is based on gross revenues. Expenses incurred
      in 2003, 2002, and 2001 were $223,996, $232,498, and $232,481,
      respectively. The Company's current share of future minimum lease payments
      is $429,000 through 2006.

 3. Real Estate Leased to Others Accounted for Under the Operating Method:

      Scheduled future minimum rents, exclusive of renewals, under
      non-cancelable operating leases are approximately as follows:

<TABLE>
<CAPTION>
                  Year Ending December 31,
                  ------------------------
<S>                                                      <C>
                  2004                                   $ 34,775,000
                  2005                                     35,335,000
                  2006                                     35,504,000
                  2007                                     35,561,000
                  2008                                     35,973,000
                  Thereafter through 2021                 250,951,000
                                                         ------------
                    Total                                $428,099,000
</TABLE>

      Contingent rents (including percentage rents and CPI-based increases) were
      approximately $2,078,000, $2,396,000, and $1,938,000 in 2003, 2002, and
      2001 respectively.

 4. Net Investment in Direct Financing Leases:

      Net investment in direct financing leases is summarized as follows:


                                       23
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

<TABLE>
<CAPTION>
                                                  December 31,
                                                  ------------
                                              2003             2002
                                              ----             ----
<S>                                       <C>              <C>
         Minimum lease payments
           receivable                     $27,114,350      $35,954,860
         Unguaranteed residual value       19,127,500       24,987,051
                                          -----------      -----------
                                           46,241,850       60,941,911
         Less: unearned income             27,114,350       35,954,860
                                          -----------      -----------
                                          $19,127,500      $24,987,051
                                          ===========      ===========
</TABLE>

      Scheduled future minimum rents, exclusive of renewals, under
      non-cancelable direct financing leases are approximately as follows:

<TABLE>
<CAPTION>
             Year Ending December 31,
             ------------------------
<S>                                                  <C>
             2004                                    $ 2,263,000
             2005                                      2,263,000
             2006                                      2,263,000
             2007                                      2,263,000
             2008                                      2,263,000
             Thereafter through 2016                  15,799,000
                                                     -----------
               Total                                 $27,114,000
</TABLE>

      Contingent rents (including CPI-based increases) were approximately,
      $322,000, $384,000, and $274,000 in 2003, 2002 and 2001, respectively.

5. Equity Investments:

      The Company owns interests in properties leased to corporations through
      non-controlling interests. The ownership interests range from 15% to 50%.
      All of the underlying investments are owned with affiliates that have
      similar investment objectives as the Company. The lessees are Best Buy,
      Sicor, Inc., The Upper Deck Company, Advanced Micro Devices, Inc.,
      Compucom Systems, Inc., Textron, Inc., McLane Company, Inc., The Retail
      Distribution Group, Inc., Del Monte Corporation, Special Devices, Inc.,
      ShopRite Supermarkets, Inc., TruServ Corporation, Starmark Camhood LLC
      ("Starmark"), Medica-France, S.A. ("Medica") and affiliates of Carrefour
      France, S.A. ("Carrefour"). The equity investments in Starmark, Medica and
      Carrefour were acquired during the quarter ended March 31, 2003.

      Distributions and allocations of income or loss from the equity investees
      are based on ownership percentages and no fees are paid by the Company or
      the partnerships to any of the general partners of the limited
      partnerships.

      Summarized combined financial information of the Company's equity
      investees is as follows:

<TABLE>
<CAPTION>
      (In thousands)                                             December 31,
                                                                 ------------
                                                              2003          2002
                                                              ----          ----
<S>                                                         <C>           <C>
      Assets (primarily real estate)                        $914,682      $505,304
      Liabilities (primarily limited recourse mortgage
         notes payable)                                      635,153       284,254
      Capital                                                279,529       221,050
</TABLE>

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                             -----------------------
                                                          2003         2002         2001
                                                          ----         ----         ----
<S>                                                      <C>          <C>          <C>
      Revenues (primarily rental revenues)               $86,273      $39,758      $33,031
      Expenses (primarily interest on mortgages and
         depreciation)                                   (55,177)     (25,525)     (20,627)
                                                         -------      -------      -------
           Net income                                    $31,096      $14,233      $12,404
                                                         =======      =======      =======
</TABLE>

A.    In February 2002, the Best Buy partnership paid off a mortgage loan of
      $25,743,178 and incurred a charge on the early extinguishment of debt of
      $2,086,384, of which the Company's share was $771,962. The retired loan
      provided



                                       24
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      for monthly payments of interest and principal of $291,290 at an annual
      interest rate of 9.01%. The general partnership obtained a new limited
      recourse loan of $28,500,000 which provides for monthly payments of
      interest and principal of $210,427 at an annual interest rate of 7.49%
      based on a 25-year amortization schedule. The loan matures in May 2012 at
      which time a balloon payment is scheduled.

      On March 12, 2003, the Company purchased a 35% interest in a limited
      liability company from CPA(R):15 which retained the remaining 65%
      interest. The limited liability company owns properties in France that are
      leased to Medica and Carrefour. The purchase price for the 35% interest
      was $11,916,465 in cash and the assumption of a deferred fee payable to
      the Advisor of $1,031,046. The purchase price was based on the appraised
      value of the properties (based on the March 6, 2003 exchange rate for the
      Euro) adjusted for capital costs incurred since the acquisition by
      CPA(R):15 including fees paid to the Advisor, net of mortgage debt.

      The Medica leases have a remaining term through June 2011 and provide for
      aggregate annual rent of Euro 3,856,618 ($4,226,467) with annual rent
      increases based on a formula indexed to increases in the INSEE, a French
      construction cost index. The Carrefour leases have a remaining term
      through December 2011 for an aggregate annual rent of Euro 10,190,269
      ($11,167,516) with annual rent increases based on a formula, indexed to
      the INSEE.

      In connection with the purchase of the properties, the limited liability
      company obtained limited recourse mortgage debt of Euro 34,000,000
      ($37,260,600) and Euro 84,244,000 ($92,323,000) on the Medica and
      Carrefour properties, respectively. The Medica and Carrefour loans provide
      for quarterly payments of interest at an annual interest rate of 5.631%
      and 5.55%, respectively, and stated principal payments with scheduled
      increases over their terms. The Medica and Carrefour loans mature in
      October 2017 and December 2014, respectively, at which time balloon
      payments are payable.

      On November 27, 2003, the limited liability company purchased an
      additional Carrefour property in Nimes, France for Euro 17,277,481
      ($20,634,503 as of the date of acquisition) and obtained additional
      recourse mortgage financing of Euro 14,025,000 ($16,750,058) which was
      added to the existing mortgage balance on the Carrefour properties. The
      lease for the Nimes property provides for annual rent of Euro 1,608,750
      ($1,921,330) and has a term through November 2012 with annual rent
      increases based on the INSEE.

      In connection with the purchase of the Nimes property, W. P. Carey & Co.
      LLC ("W. P. Carey"), the parent company of the Advisor, purchased a 22.5%
      interest in the Carrefour properties at which time the Company's interest
      in the Carrefour properties was reduced from 35% to 27.125%. W. P. Carey's
      purchase price was based on an independent appraisal of the properties. In
      connection with the sale of the interest, the Company recognized a gain of
      $1,432,858 including a $1,069,581 increase in the proportionate fair value
      of the real estate sold and $363,277 which resulted from an increase in
      value attributable to changes in foreign currency rates with the Euro and
      changes in the carrying cost of the property.

      On February 7, 2003, the Company and two affiliates, Corporate Property
      Associates 14 Incorporated ("CPA(R):14") and CPA(R):15, through a
      newly-formed limited liability company with ownership interests of 15%,
      41% and 44%, respectively, purchased land and 15 health club facilities
      for $178,010,471 and entered into a master net lease with Starmark. The
      lease obligations of Starmark are jointly unconditionally guaranteed by
      seven of its affiliates.

      The Starmark lease provides for an initial lease term of 20 years with
      three ten-year renewal terms. Annual rent is initially $18,272,400 with
      CPI-based increases scheduled in November 2006, 2010, 2014, 2018 and 2021.

      In connection with the purchase, the limited liability company obtained
      first mortgage limited recourse financing of $88,300,000 and a mezzanine
      loan of $20,000,000. The first mortgage provides for monthly payments of
      interest and principal of $563,936 at an annual interest rate of 6.6% and
      based on a 30-year amortization schedule. The loan matures in March 2013
      at which time a balloon payment is payable. The mezzanine loan provides
      for monthly payments of interest and principal of $277,201 at an annual
      interest rate of 11.15% and will fully amortize over its ten-year term.

      The limited liability company was granted warrants for Class C Unit
      interests in Starmark. If exercised, the Unit interests would represent a
      5% interest in Starmark as of the date of grant. The warrants may be
      exercised at any time through February 7, 2023 at an exercise price of
      $430 per unit. The warrant agreement does not provide for a cashless
      exercise of units.

6. Mortgage Financing Through Loan Securitization:


                                       25
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

      The CPA(R) Interests were purchased for $24,128,739 of which the Company's
      share was $7,238,622, or 30%, and are comprised of two components, a
      component that will receive payments of principal and interest and a
      component that will receive payments of interest only. The CPA(R)
      Interests are subordinated to the Offered Interests and will be payable
      only when and if all distributions to the Offered Interests are current.
      The assumed final distribution date for the CPA(R) Interests is June 30,
      2012. The distributions to be paid to the CPA(R) Interests do not have a
      stated rate of interest and will be affected by any shortfall in rents
      received from lessees or defaults at the mortgaged properties. As of the
      purchase date, the Company's cost basis attributable to the principal and
      interest and interest only components was $4,334,840 and $2,903,782,
      respectively. Over the term of its ownership interest in the CPA(R)
      Interests, the value of the interest only component will fully amortize to
      $0 and the principal and interest component will amortize to its
      anticipated face value of its share in the underlying mortgages (which
      currently is $7,238,622). For financial reporting purposes, the effect of
      such amortization is reflected in interest income. Interest income,
      including all related amortization, is recognized using an effective
      interest method.

      The Company is accounting for its interest in the CPA(R) Interests as an
      available-for-sale security and it is measured at fair value with all
      gains and losses from changes in fair value reported as a component of
      other comprehensive income as part of shareholders' equity. The fair value
      of the Company's CPA(R) Interests was $8,150,462 and $7,510,030,
      reflecting a cumulative unrealized gain of $1,078,004 and $307,999 and
      accumulated amortization of $166,164 and $36,591 at December 31, 2003 and
      2002, respectively. The fair value of the interests in the trust is
      determined using a discounted cash flow model with assumptions of market
      rates and the credit quality of the underlying lessees.

      The key variable in determining fair value of the CPA(R) Interests is
      current interest rates. As required by SFAS No. 140, "Accounting for
      Transfer and Servicing of Financial Assets and Extinguishments of
      Liabilities," a sensitivity analysis of the current value of the CPA(R)
      Interests based on adverse changes in the market interest rates of 1% and
      2% is as follows:

<TABLE>
<CAPTION>
                                                             Actual          1% Adverse Change    2% Adverse Change
                                                             ------          -----------------    -----------------
<S>                                                         <C>              <C>                  <C>
        Estimated fair value of CPA(R)Interests             $8,150,462           $7,753,464           $7,382,998
</TABLE>

      The above sensitivity is hypothetical and changes in fair value based on a
      1% or 2% variation should not be extrapolated because the relationship of
      the change in assumption to the change in fair value may not always be
      linear.

      In 2002, the Company obtained new mortgage financing of $46,335,000 of
      which $8,908,000 was used to pay off existing loans. In connection with
      paying off the loans, the Company incurred prepayment charges of
      $1,225,092. After paying off the loans, incurring costs in connection with
      obtaining the new mortgages and purchasing its interests in the trust for
      $8,582,022, the Company retained cash of approximately $26,400,000, which
      includes a capital distribution from an equity investee that refinanced
      its loan in connection with the transaction. The loans which were paid off
      bore interest at annual rates ranging from 8.19% to 8.92%.


                                       26
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      The Company owns a 45% interest in two properties leased to ShopRite
      Supermarkets, Inc. ("ShopRite") (formerly Big V Holding Corp.) with CIP(R)
      owning the remaining interest. In connection with structuring the
      transaction, the jointly-owned properties were contributed to limited
      partnerships with CIP(R) owning a 55% interest as general partner.
      Accordingly, the Company's interest in the limited partnership is
      accounted for under the equity method of accounting. The limited
      partnership obtained new mortgage financing of $10,890,000 in connection
      with the securitization with an annual interest rate of 7.5% and paid off
      an existing loan of $6,721,103 with an annual interest rate of 9%.

7. Mortgage Notes Payable and Line of Credit:

      Mortgage notes payable, all of which are limited recourse to the Company,
      are collateralized by an assignment of various leases and by real property
      with a carrying value of approximately $300,057,000. As of December 31,
      2003, mortgage notes payable had fixed interest rates ranging from 6.5% to
      8.75% per annum.

      Scheduled principal payments during each of the five years following
      December 31, 2003 are as follows:

<TABLE>
<CAPTION>
               Year Ending December 31,                    Total Debt
               ------------------------                    ----------
<S>                                                       <C>
                    2004                                  $  5,953,164
                    2005                                    10,446,616
                    2006                                    11,539,386
                    2007                                    24,545,713
                    2008                                    22,552,860
                    Thereafter through 2021                109,167,796
                                                          ------------
                       Total                              $184,205,535
                                                          ============
</TABLE>

      The Company's credit facility matured in October 2003.

      Interest paid, was $14,536,417, $13,661,932, and $13,085,646 in 2003,
      2002, and 2001 respectively. There was no capitalized interest in 2003,
      2002 and 2001.

8. Dividends:

      Dividends paid to shareholders consist of ordinary income, capital gains,
      return of capital or a combination thereof for income tax purposes. For
      the three years ended December 31, 2003, dividends paid per share reported
      for tax purposes were as follows:

<TABLE>
<CAPTION>
                               2003          2002          2001
                               ----          ----          ----
<S>                          <C>           <C>           <C>
      Ordinary income        $    .72      $    .43      $    .44
      Return of capital           .11           .39           .38
                             --------      --------      --------
                             $    .83      $    .82      $    .82
                             ========      ========      ========
</TABLE>

      A dividend of $.2067 per share for the quarter ended December 31, 2003
      ($6,271,709) was declared in December 2003 and paid in January 2004.

9. Lease Revenues:

      The Company's operations consist of the investment in and the leasing of
      industrial and commercial real estate. The financial reporting sources of
      2003, 2002, and 2001 lease revenues are as follows:

<TABLE>
<CAPTION>
                                                                2003               2002               2001
                                                                ----               ----               ----
<S>                                                         <C>                <C>                <C>
      Per Statements of Income:
          Rental income from operating leases               $ 40,421,838       $ 39,879,335       $ 38,699,610
          Interest income from direct financing leases         2,585,832          4,149,082          5,197,590
      Adjustments:
          Share of leasing revenues applicable to
            minority interest                                 (3,096,751)        (3,099,216)        (3,071,528)
          Share of leasing revenues from equity
            investments                                       25,886,413         16,360,259         13,206,572
                                                            ------------       ------------       ------------
                                                            $ 65,797,332       $ 57,289,460       $ 54,032,244
                                                            ============       ============       ============
</TABLE>


                                       27
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      In 2003, 2002, and 2001 the Company earned its share of net lease revenues
      from its direct and indirect ownership of real estate from the following
      lease obligors:

<TABLE>
<CAPTION>
                                                  2003         %            2002            %            2001            %
                                                  ----         -            ----            -            ----            -
<S>                                           <C>            <C>        <C>               <C>        <C>               <C>
Applied Materials, Inc. (a)                   $ 6,285,154      10%      $ 6,290,326         11%      $ 6,238,516         12%
Advanced Micro Devices, Inc. (b)                3,258,938       5         3,258,938          6         3,048,500          6
Carrefour France, S.A. (b)                      3,216,117       5                --         --                --         --
Galyan's Trading Company, Inc.                  2,733,154       4         2,733,154          5         2,733,154          5
Starmark Camhood, L.L.C. (b)                    2,456,045       4                --         --                --         --
Perry Graphic Communications, Inc. and
   Judd's Incorporated                          2,191,567       3         2,191,567          4         2,191,567          4
TruServ Corporation (b)                         2,166,685       3             4,884         --                --         --
Spectrian Corporation                           2,151,000       3         2,040,246          4         2,015,521          4
Special Devices, Inc. (b)                       1,995,156       3         1,962,000          3         1,118,967          2
Westell Technologies, Inc.                      1,983,707       3         1,936,022          3         1,916,386          4
Scott Companies, Inc.                           1,868,772       3         2,062,281          4         2,062,281          4
Career Education Corporation                    1,737,397       3         1,736,808          3         1,736,808          3
Best Buy Co., Inc. (b)                          1,736,427       3         1,749,731          3         1,760,787          3
Telos Corporation                               1,665,539       2         1,634,969          3         1,543,258          3
Q Clubs, Inc.                                   1,556,869       2         1,541,135          3         1,470,319          3
PPD Development, Inc.                           1,504,190       2         1,504,190          3         1,401,088          3
Del Monte Corporation (c)                       1,477,714       2         1,381,982          2         1,286,250          2
Sicor, Inc. (b)                                 1,472,736       2         1,472,736          3         1,472,736          3
The Upper Deck Company (b)                      1,452,220       2         1,452,220          3         1,419,134          3
Silgan Containers Corporation                   1,421,353       2         1,348,177          2         1,275,000          2
The Bon-Ton Stores, Inc.                        1,411,708       2         1,348,120          2         1,348,120          2
McLane Company, Inc. (b)                        1,408,722       2         1,393,046          2         1,383,372          3
Compucom Systems, Inc. (b)                      1,408,043       2         1,382,199          2         1,304,667          2
Childtime Childcare, Inc.                       1,272,818       2         1,190,074          2         1,190,074          2
Medica-France, SA (b)                           1,252,285       2                --         --                --         --
Textron, Inc. (b)                               1,239,739       2         1,222,678          2         1,137,375          2
Jen-Coat, Inc.                                  1,210,000       2         1,210,000          2           457,111          1
ShopRite Supermarkets Inc. (formerly Big
   V Holding Corporation.) (d)                  1,093,122       2         1,083,738          2         1,075,406          2
Other                                          11,170,155      18        12,158,239         21        11,445,847         20
                                              -----------    ----       -----------       ----       -----------       ----
                                              $65,797,332     100%      $57,289,460        100%      $54,032,244        100%
                                              ===========    ====       ===========       ====       ===========       ====
</TABLE>

(a)   Net of amounts applicable to minority interests owned by Corporate
      Property Associates 14 Incorporated.

(b)   Represents the Company's proportionate share of lease revenues from its
      equity investment.

(c)   Includes the Company's proportionate share of lease revenues from its
      equity investment for the period subsequent to September 30, 2001.

(d)   Includes the Company's proportionate share of lease revenues from its
      equity investment for the period subsequent to July 31, 2002.

10. Segment Information:

      The Company has determined that it operates in one business segment, real
      estate operations with domestic and foreign investments. The Company had
      no foreign real estate investment until March 2003.

      For 2003, geographic information for the real estate operations segment is
      as follows:

<TABLE>
<CAPTION>
                                             Domestic          Foreign      Total Company
<S>                                       <C>               <C>              <C>
      Revenues                            $ 47,731,932               --      $ 47,731,932
      Expenses                              36,515,616               --        36,515,616
      Income from equity investments         9,085,145      $   339,612         9,424,757
      Net operating income(1)               18,773,860          339,612        19,113,472
      Total assets                         448,333,483       13,857,379       462,190,862
      Total long-lived assets              398,529,630       13,857,379       412,387,009
</TABLE>


                                       28
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      (1) Net operating income excludes gains and losses and discontinued
      operations.

11. Impairment Charges:

      2003

      The Company owns a property in Newark, Delaware which, for the past
      several years has been operated as a multi-tenant facility. During 2003,
      the occupancy rate of the property declined substantially. In connection
      with this change in circumstances, the property has been written down to
      its estimated fair value and an impairment charge of $1,000,000 was
      recognized.

12. Gain on Sale of Real Estate and Derivatives Contract:

      2003

      In October 2002, the Company and Rheometric entered into an agreement that
      would allow Rheometric to terminate its lease for its facility in
      Piscataway, New Jersey upon completion of an asset sale of one of its
      lines of business. In January 2003, the Rheometric sale was completed, at
      which time the lease termination agreement became effective and Rheometric
      changed its name to Proterion. In connection with the settlement, the
      Company recognized $3,042,227 which is included in interest and other
      income in the accompanying consolidated financial statements for the year
      ended December 31, 2003. The settlement included a grant of 650,000 shares
      of common stock.

      In connection with structuring the initial purchase transaction with
      Rheometric, the Company was granted warrants for 466,140 shares of
      Rheometric common stock at an exercise price of $2.00. Under the lease
      termination agreement, the exercise price of the warrants was reduced to
      $0.01. On January 16, 2003, the warrants were converted on a cashless
      basis to 456,424 shares of common stock of Proterion. Because the Company
      had the ability to convert the warrants to shares on a cashless basis, the
      warrants had been classified as a derivative instrument. Upon conversion
      to shares, a cumulative unrealized gain in the fair value of the warrants
      of $237,340 was reversed and a realized gain of $237,340, representing the
      gain on the settlement of a derivatives contract was recognized. The
      Company's 1,106,424 shares of Proterion are classified as an
      available-for-sale marketable security and are measured at fair value with
      all gains and losses in fair value reported as a component of other
      comprehensive income as part of shareholders' equity. As of December 31,
      2003, the fair value of the Proterion shares held by the Company was
      $520,019 based on a quoted value per share of $0.47.

      2001

      On May 1, 2001, the Company sold its property in San Diego, California
      leased to BAE Systems, Inc. ("BAE") for $30,497,865, and recognized a gain
      of $8,863,709. The BAE sale was structured as a noncash exchange for tax
      purposes so that the proceeds from sale were placed in an escrow account
      and used in connection with additional real estate acquisitions in 2001.

13. Discontinued Operations:

      In accordance with SFAS No. 144, "Accounting for the Impairment or
      Disposal of Long-Lived Assets", effective for financial statements issued
      for fiscal years beginning after December 15, 2001, the results of
      operations and gain or loss on sales of real estate for properties sold or
      held for sale are to be reflected in the consolidated statements of
      operations as "Discontinued Operations" for all periods presented. The
      provisions of SFAS No. 144 are effective for disposal activities initiated
      by the Company's commitment to a plan of disposition after the date it is
      initially applied (January 1, 2002). Properties held for sale as of
      December 31, 2001 are not included in discontinued operations.

      In July 2003, the Company and Sentry Technology Corporation ("Sentry")
      entered into a termination agreement. Sentry agreed not to contest an
      eviction from the Company's property in Hauppauge, New York, in
      consideration for forgiveness of rent arrearages of $486,000. Under the
      agreement, Sentry vacated the property in September 2003, and assigned the
      Company the right to collect rent directly from Sentry's sub-tenants. In
      addition, Sentry issued 1,000,000 shares of its common stock to the
      Company which had a quoted per share value of $0.03 as of the date of
      issuance and a $250,000 promissory note which Sentry is scheduled to repay
      over a three-year period. As of December 31, 2003, the fair value of
      Sentry shares held by the Company was $140,000. In connection with the
      settlement, the Company recognized other income of $30,000, an amount
      equal to the value of the shares received. Because of Sentry's inability


                                       29
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      to meet lease obligations, the promissory note has been fully reserved for
      and settlement income from the note will be recognized as received.

      In September 2003, the Company entered into an agreement to sell the
      Hauppauge property for $6,300,000, less selling costs, subject to the
      buyer's due diligence review which is currently being performed.
      Accordingly, the property is classified as held for sale with a carrying
      value of $4,361,035 as of December 31, 2003.

      The Company owns a property in Ashburn , Virginia, which was leased to
      International Management Consulting , Inc. ("IMCI"). Following IMCI's
      bankruptcy, the lease was rejected in October 2003. The Company has
      entered into an agreement, subject to certain conditions, to sell the
      Ashburn property for $7,500,000. The property is classified as held for
      sale with a carrying value of $6,092,368 as of December 31, 2003.

      The results of operations for the Hauppauge and Ashburn properties are
      included in discontinued operations and reflect income of $20,766,
      $1,041,130 and $1,075,515 for the years ended December 31, 2003, 2002 and
      2001, respectively. A summary of Discontinued Operations for the years
      ended December 31, 2003, 2002 and 2001 is as follows.

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                                  -----------------------
                                                          2003              2002              2001
                                                          ----              ----              ----
<S>                                                   <C>               <C>               <C>
      Revenues (primarily rental revenues and
         miscellaneous income)                        $ 1,307,370       $ 1,384,189       $ 1,349,030
      Expenses (primarily interest on mortgages,
         depreciation and property expenses)           (1,286,604)         (343,059)         (273,515)
                                                      -----------       -----------       -----------
          Income from discontinued operations         $    20,766       $ 1,041,130       $ 1,075,515
                                                      ===========       ===========       ===========
</TABLE>

      As a result of classifying properties as held for sale, no depreciation
      has been incurred from the date of reclassification. The effect of
      suspending depreciation expenses was $20,759 in 2003. There was no effect
      in 2002 and 2001.

14. Disclosures About Fair Value of Financial Instruments:

      The Company estimates that the fair value of mortgage notes payable was
      approximately $186,724,000 and $201,892,000 at December 31, 2003 and 2002,
      respectively. The fair value of the mortgage notes payable was evaluated
      using a discounted cash flow model with a rate that takes into account the
      credit of the tenant and interest rate risk.

15. Selected Quarterly Financial Data (unaudited):

<TABLE>
<CAPTION>
                                                                              Three Months Ended
                                                                              ------------------
                                                March 31, 2003         June 30, 2003    September 30, 2003     December 31, 2003
                                                --------------         -------------    ------------------     -----------------
<S>                                             <C>                    <C>              <C>                    <C>
Revenues                                          $ 14,053,477          $ 11,280,927          $ 12,178,335          $ 10,219,193
Expenses                                             8,739,172             8,850,876            10,192,899             8,732,669
Income from continuing operations                    7,397,598             4,569,879             4,248,254             5,264,088
Income from continuing operations per
    share - basic and diluted                              .25                   .15                   .13                   .18
Net income                                           7,483,488             4,744,395             3,851,592             5,421,110
Net income per share - basic and diluted                   .25                   .15                   .13                   .18
Dividends declared per share                             .2065                 .2067                 .2067                 .2067
</TABLE>

<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                                                            ------------------
                                                March 31, 2002         June 30, 2002    September 30, 2002     December 31, 2002
                                                --------------         -------------    ------------------     -----------------
<S>                                             <C>                    <C>              <C>                     <C>
Revenues                                          $ 11,128,773          $ 11,177,800          $ 11,407,927          $ 11,580,885
Expenses                                             7,621,735             7,943,873             9,581,575             8,585,040
Income from continuing operations                    3,916,276             4,110,428             3,170,079             4,412,505
Income from continuing operations per
    share - basic and diluted                              .13                   .14                   .10                   .15
Net income                                           4,196,853             4,382,728             3,426,214             4,644,623
Net income per share - basic and diluted                   .14                   .15                   .11                   .15
Dividends declared per share                             .2057                 .2059                 .2061                 .2063
</TABLE>


                                       30
<PAGE>
MARKET FOR THE PARTNERSHIP'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

      There is no established public trading market for the Shares of the
      Company.

      As of December 31, 2003 there were 13,550 holders of record of the Shares
      of the Company.

      In accordance with the Prospectus of the Company, dividends will be paid
      quarterly regardless of the frequency with which such dividends are
      declared. The Company is required to distribute annually at least 90% of
      its Distributable REIT Taxable Income to maintain its status as a REIT.
      The following shows the frequency and amount of dividends paid for the
      past three years.

<TABLE>
<CAPTION>
                                          Cash Dividends Paid Per Share
                                          -----------------------------
                                           2003        2002        2001
                                           ----        ----        ----
<S>                                       <C>         <C>         <C>
        First quarter                     $.2063      $.2055      $.2047
        Second quarter                     .2065       .2057       .2049
        Third quarter                      .2067       .2059       .2051
        Fourth quarter                     .2067       .2061       .2053
                                          ------      ------      ------
                                          $.8262      $.8232      $.8200
                                          ======      ======      ======
</TABLE>

REPORT ON FORM 10-K

      The Advisor will supply to any shareholder, upon written request and
      without charge, a copy of the Annual Report on Form 10-K ("10-K") for the
      year ended December 31, 2003 as filed with the Securities and Exchange
      Commission ("SEC"). The 10-K may also be obtained through the SEC's EDGAR
      database at www.sec.gov.


                                       31