<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

                      For the year ended DECEMBER 31, 1999

                                       of

                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                    CPA(R):12

                             A MARYLAND Corporation

                   IRS Employer Identification No. 13-3726306

                            SEC File Number 033-68728

                              50 ROCKEFELLER PLAZA,

                            NEW YORK, NEW YORK 10020

                                 (212) 492-1100

CPA(R):12 has SHARES OF COMMON STOCK registered pursuant to Section 12(g) of the
Act.

CPA(R):12 is not registered on any exchanges.


CPA(R):12 does not have any Securities registered pursuant to Section 12(b) of
the Act.

CPA(R):12 is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-K.

CPA(R):12 (1) has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for 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.

CPA(R):12 has no active market for common stock at March 31, 2000.

Non-affiliates held 27,981,770 shares of common stock, $.001 Par Value
outstanding at March 31, 2000.
<PAGE>   2
                                     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, primarily on a triple net basis. As of December
31, 1999, CPA(R):12's portfolio consisted of 91 properties leased to 39
tenants and totaling more than 9.4 million square feet.

         CPA(R):12's core investment strategy is to purchase and own
properties leased to a variety of companies on a single tenant net lease basis.
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 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. 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.

         Carey Property Advisors 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. Carey Property Advisors
also provides office space and other facilities for CPA(R):12. Carey Property
Advisors 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 Carey Property Advisors and pays
certain transactional fees. CPA(R):12 also reimburses Carey Property Advisors
for certain expenses. Carey Property Advisors also serves in this capacity for
Corporate Property Associates 10 Incorporated, Carey Institutional Properties
Incorporated ("CIP(R)" and Corporate Property Associates 14 Incorporated
("CPA(R):14"). On November 29, 1999, the Board of Directors of CPA(R):12
approved a pending change of control of Carey Property Advisors. If the change
in control is effectuated, Carey Property Advisors will become a wholly-owned
subsidiary of W.P. Carey & Co. LLC (currently known as Carey Diversified LLC), a
publicly-traded company on the New York Stock Exchange and Pacific Exchange
under the symbol "WPC" ("CDC" prior to the change of control). This change of
control will be completed upon the approval of the shareholders of Carey
Diversified LLC.

         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, 2000, CPA(R):12 had no employees. An affiliate
of Carey Property Advisors employs 20 individuals who perform services for
CPA(R):12.

BUSINESS OBJECTIVES AND STRATEGY

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

         -        pay quarterly dividend at an increasing rate that for taxable
                  shareholders may be partially free from current taxation;

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

         -        increase the equity in its real estate by making regular
                  mortgage principal payments.

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         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's portfolio is diversified by geography, property
type and by tenant.

DEVELOPMENTS DURING 1999

         On February 3, 1999, through a 50% interest in a limited liability
company which CPA(R):12 formed with CPA(R):14, CPA(R):12 acquired an
interest in land and buildings in Gilbert, Arizona, and through the limited
liability company interest, entered into a net lease with Intesys Technologies,
Inc. The total purchase price of the building was $23,560,000. The Intesys lease
has an initial term of 20 years with two ten-year renewal options at the
tenant's option. The lease provides for annual rent of $2,274,750. There are
rent increases every three years based on increases in the Consumer Price Index
("CPI") with increases capped at 9%.

         On March 31, 1999 CPA(R):12 and two affiliates, CIP(R) and
CPA(R):14, through a newly-formed entity in which CPA(R):12 and the two
affiliates each own 1/3 interests, purchased land and building in Dallas, Texas
for $39,790,500 and entered into a net lease with Compucom Systems, Inc. The
Compucom Systems lease has an initial term of 20 years with two five-year
renewal terms at Compucom's option. The lease initially provides for annual rent
of $3,914,000 with rent increases every three years based on a formula indexed
to increases in the CPI, with each increase capped at a maximum increase of
13.3%. In connection with the Compucom purchase, the newly-formed entity
obtained a limited recourse mortgage loan of $23,000,000. The loan is
collateralized by the Compucom property and an assignment of the Compucom lease
and bears interest at an annual interest rate of 7.215% with monthly payments of
interest and principal of $165,727 based on a 25-year amortization schedule. The
loan matures in April 2009 when a balloon payment will be due. A prepayment
premium will apply if the loan is prepaid prior to six months before maturity.

         On August 18 1999, CPA(R):12 and CPA(R):14 formed two limited
liability companies which entered into net leases for four properties with
Ameriserve Food Distribution, Inc. located in Burlington, New Jersey; Shawnee,
Kansas; Grand Rapids, Michigan and Manassas, Virginia. The total cost of the
transaction, including the funding of expansions and a build-to-suit facility is
expected to amount to $55,779,445. CPA(R):12 holds a 40% interest in the
limited liability companies. A new facility will be built at the Shawnee
property and existing facilities will be expanded at the Burlington and Manassas
properties. Completion of the projects is scheduled to occur no later than
December 1, 2000. At the earlier of the completion of construction or December
1, 2000, a lease term of 20 years will commence, followed by two ten-year
renewal terms at Ameriserve's option. The annual rent will be $5,769,073,
subject to reduction if total project costs are less than $55,779,445. The
leases provide for increases every three years based on a formula indexed to
increases in the CPI. Ameriserve has purchase options that may be exercised at
the end of the lease. In connection with the purchase of the Ameriserve
properties, the limited liability companies obtained limited recourse mortgage
financing of $32,000,000 collateralized by the Ameriserve properties and lease
assignments. The loans bear interest at an annual rate of 8.51% with combined
monthly payments of interest and principal of $246,279 and based on a 30-year
amortization schedule. The loans mature September 30, 2009 at which time balloon
payments will be due. In February 2000, Ameriserve filed for bankruptcy
protection under Chapter 11 of the bankruptcy code in the Bankruptcy Court for
the District of Delaware. As of February 17, 2000, Ameriserve is current in its
payment obligations to CPA(R):12 and CPA(R):14, however there is no
assurance that this will continue and it is possible that the lease terms could
be amended as a result of a plan of reorganization.

         In February 1995, CPA(R):12 purchased a property in Hayward,
California for $11,860,000 and entered into a net lease with Etec Systems, Inc.
Subsequent to the purchase, CPA(R):12 funded the construction of another
building at the property that was completed in February 1998. In March 1998,
CPA(R):12 and CPA(R):14 agreed to fund the construction of a new building
at the property for up to $52,356,000. At that time, the ownership interests in
Etec property were structured so that CPA(R):12 would retain 100% of the
economic interests in the land and existing buildings and hold a 50.01% interest
in the new improvements. The initial term of the Etec lease was extended through
June 2014. The new improvements were placed in service on July 1, 1999 at which
time annual rent applicable solely to such improvements of $5,746,531 went into
effect. On September 24, 1999, CPA(R):12 and CPA(R):14 obtained
$30,000,000 of limited recourse mortgage financing applicable to the new
improvements. CPA(R):12 had previously obtained $15,000,000 of limited
recourse financing on the existing facilities. The $30,000,000 loan bears
interest at the rate of 7.11% and provides for monthly payments of interest and
principal of $271,497 and will fully amortize through October 1, 2014.

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ACQUISITION STRATEGIES

         Carey Property Advisors 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, Carey Property Advisors 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 Carey Property Advisors' presence in the net lease market to
build its portfolio. In evaluating opportunities for CPA(R):12, Carey
Property Advisors 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 Carey Property Advisors has one of the
most extensive underwriting processes in the industry and has an experienced
staff of professionals involved with underwriting transactions. Carey Property
Advisors seeks to identify those prospective tenants whose creditworthiness is
likely to improve over time. CPA(R):12 believes that the experience of Carey
Property Advisors' management in structuring sale-leaseback transactions to meet
the needs of a prospective tenant enables Carey Property Advisors to obtain a
higher return for a given level of risk than would typically be available by
purchasing a property subject to an existing lease.

         Carey Property Advisors' 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.

FINANCING STRATEGIES

         Consistent with its investment policies, CPA(R):12 uses leverage
when available on favorable terms. CPA(R):12 has approximately $138,361,000
in property level debt outstanding. These mortgages mature between 2000 and 2020
and have interest rates between 6.5% and 10.5%. CPA(R):12 also has available
to it a line of credit up to $40,000,000, of which no balance was outstanding on
December 31, 1999. Carey Property Advisors 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, Carey Property Advisors 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 Carey Property Advisors include
the following:

TENANT EVALUATION

         Carey Property Advisors subjects each potential tenant to an extensive
evaluation of its credit, management, position within its industry, operating
history and profitability.

         Carey Property Advisors 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
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). Carey
Property Advisors 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.

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<PAGE>   5
LEASES WITH INCREASING RENTS.

         Carey Property Advisors 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 certain 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.

         Carey Property Advisors, 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. Carey
Property Advisors 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, Carey Property Advisors 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.

         Carey Property Advisors 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.

         Carey Property Advisors 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 be not less than the fair market value of the property. Carey
Property Advisors' 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. Carey Property Advisors 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

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<PAGE>   6
Committee has in evaluating the blend of corporate credit, real estate and lease
terms that combine to make an acceptable risk.

         The following people serve on the Investment Committee:

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

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

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

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

ASSET MANAGEMENT

         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.

         Carey Property Advisors monitors, on an ongoing basis, compliance by
tenants with their lease obligations and other factors that could affect the
financial performance of any of its properties. Monitoring involves receiving
assurances that each tenant has paid real estate taxes, assessments and other
expenses relating to the properties it occupies and confirming that appropriate
insurance coverage is being maintained by the tenant. Carey Property Advisors
reviews financial statements of its tenants and undertakes regular physical
inspections of the condition and maintenance of its properties. Additionally,
Carey Property Advisors 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 will generally begin selling properties within ten years after the
proceeds of the public offering are substantially invested, subject to market
conditions. The board of directors will make the decision whether to list the
shares, liquidate or devise an alternative liquidation strategy which is likely
to result in the greatest value for the shareholders.

COMPETITION

         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 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

                                      -5-
<PAGE>   7
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:12(R)'s leases often
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.

         CPA:12(R) typically undertakes an investigation of potential
environmental risks when evaluating an acquisition. Phase I environmental
assessments are performed by independent environmental consulting and
engineering firms for all properties acquired by CPA:12(R). Where warranted,
Phase II environmental assessments are performed. Phase I assessments do not
involve subsurface testing, whereas Phase II assessments involve some degree of
soil and/or groundwater testing. CPA:12(R) may acquire a property which is
known to have had a release of hazardous materials in the past, subject to a
determination of the level of risk and potential cost of remediation.
CPA:12(R) normally requires property sellers to indemnify it fully against
any environmental problem existing as of the date of purchase. Additionally,
CPA:12(R) often structures its leases to require the tenant to assume most or
all responsibility for compliance with the environmental provisions of the lease
or environmental remediation relating to the tenant's operations and to provide
that non-compliance with environmental laws is a lease default. In some cases,
CPA:12(R) may also require a cash reserve, a letter of credit or a guarantee
from the tenant, the tenant's parent company or a third party to assure lease
compliance and funding of remediation. The value of any of these protections
depends on the amount of the collateral and/or financial strength of the entity
providing the protection. Such a contractual arrangement does not eliminate
CPA:12(R)'s statutory liability or preclude claims against CPA:12(R) by
governmental authorities or persons who are not a party to the arrangement.
Contractual arrangements in CPA:12(R)'s leases may provide a basis for
CPA:12(R) 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, 1999, no lessee represented 10%
or more of the total operating revenue of CPA(R):12.

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:

SINGLE TENANT LEASES INCREASE OUR EXPOSURE IN THE EVENT OF A FAILURE OF TENANT.

         We focus our acquisition activities on net leased real properties or
interests therein. Due to the fact that our net leased real properties are
leased to single tenants, the financial failure of or other default by a tenant
resulting in the termination of a lease is likely to cause a reduction in the
operating cash flow of CPA(R):12 and might decrease the value of the property
leased to such tenant.

WE DEPEND ON MAJOR TENANTS.

         Revenues from several of our tenants and/or their guarantors constitute
a significant percentage of our consolidated rental revenues. Our five largest
tenants/guarantors, which occupy 11 properties, represent 30% of annualized
revenues. The default, financial distress or bankruptcy of any of the tenants of
such properties could cause interruptions in the receipt of lease revenues from
such tenants and/or result in vacancies in the respective properties,

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<PAGE>   8
which would reduce our revenues until the affected property is re-let, and could
decrease the ultimate sale value of each such property.

WE CAN BORROW A SIGNIFICANT AMOUNT OF FUNDS.

         We have incurred, and may continue to incur, indebtedness (secured and
unsecured) in furtherance of our activities. Neither the certificate of
incorporation, bylaws nor any policy statement formally adopted by the board of
directors limits either the total amount of indebtedness or the specified
percentage of indebtedness (based upon the total market capitalization of
CPA(R):12) that may be incurred. Accordingly, we could become more highly
leveraged, resulting in increased risk of default on our obligations and in an
increase in debt service requirements which could adversely affect our financial
condition and results of operations and our ability to pay distributions.

WE MAY NOT BE ABLE TO REFINANCE BALLOON PAYMENTS ON OUR MORTGAGE DEBTS.

         A significant number of our properties are subject to mortgages with
balloon payments. Scheduled balloon payments for the next five years are as
follows:

         -        2000 - $8 million;

         -        2001 - $2 million;

         -        2002 - $5 million;

         -        2003 - $5 million; and

         -        2004 - None

         Our ability to make such balloon payments will depend upon our ability
either to refinance the obligation when due, invest additional equity in the
property or to sell the related property. Our ability to accomplish these goals
will be affected by various factors existing at the relevant time, such as the
state of the national and regional economies, local real estate conditions,
available mortgage rates, our equity in the mortgaged properties, our financial
condition, the operating history of the mortgaged properties and tax laws.

WE MAY BE UNABLE TO RENEW LEASES OR RE-LET VACATED SPACES.

We will be subject to the risks that, upon expiration of leases, the premises
may not be re-let or the terms of re-letting (including the cost of concessions
to tenants) may be less favorable than current lease terms. If we are unable to
re-let promptly all or a substantial portion of our properties or if the rental
rates upon such re-letting were significantly lower than current rates, our net
income and ability to make expected distributions to our shareholders would be
adversely affected. There can be no assurance that we will be able to retain
tenants in any of our properties upon the expiration of their leases.

WE ARE SUBJECT TO POSSIBLE LIABILITIES RELATING TO ENVIRONMENTAL MATTERS.

         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 investigation and
                  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 investigation and removal or
                  remediation of hazardous substances at disposal facilities for
                  persons who arrange for the disposal or treatment of such
                  substances; and

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

WE MAY BE UNABLE TO MAKE ACQUISITIONS ON AN ADVANTAGEOUS BASIS.

The consummation of any future acquisition will be subject to satisfactory
completion of our extensive analysis and due diligence review and to the
negotiation of definitive documentation. There can be no assurance that we will
be able to identify and acquire additional properties or that we will be able to
finance acquisitions in the future. In addition, there can be no assurance that
any such acquisition, if consummated, will be profitable for us. If we are
unable to consummate the acquisition of additional properties in the future,
there can be no assurance that we will be able to increase the cash available
for distribution to our shareholders.

                                      -7-
<PAGE>   9
WE MAY SUFFER UNINSURED LOSSES.

There are certain types of losses (such as due to wars or some natural
disasters) that generally are not insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of the
limits of our insurance occur, we could lose capital invested in a property, as
well as the anticipated future revenues from a property, while remaining
obligated for any mortgage indebtedness or other financial obligations related
to the property. Any such loss would adversely affect our financial condition.

WE FACE INTENSE COMPETITION.

The real estate industry is highly competitive. Our principal competitors
include national REITs, many of which are substantially larger and have
substantially greater financial resources than us.

THE VALUE OF OUR REAL ESTATE IS SUBJECT TO FLUCTUATION.

We are subject to all of the general risks associated with the ownership of real
estate. In particular, we face the risk that rental revenue from the properties
will be insufficient to cover all corporate operating expenses and debt service
payments on indebtedness we incur. Additional real estate ownership risks
include:

         -        Adverse changes in general or local economic conditions;

         -        Changes in supply of or demand for similar or competing
                  properties;

         -        Changes in interest rates and operating expenses;

         -        Competition for tenants;

         -        Changes in market rental rates;

         -        Inability to lease properties upon termination of existing
                  leases;

         -        Renewal of leases at lower rental rates;

         -        Inability to collect rents from tenants due to financial
                  hardship, including bankruptcy;

         -        Changes in tax, real estate, zoning and environmental laws
                  that may have an adverse impact upon the value of real estate;

         -        Uninsured property liability;

         -        Property damage or casualty losses;

         -        Unexpected expenditures for capital improvements or to bring
                  properties into compliance with applicable federal, state and
                  local laws; and

         -        Acts of God and other factors beyond the control of our
                  management.

WE DEPEND ON KEY PERSONNEL FOR OUR FUTURE SUCCESS.

We depend on the efforts of the executive officers and key employees of Carey
Property Advisors. The loss of the services of these executive officers and key
employees could have a material adverse effect on our operations.

The risk factors may have affected, and in the future could affect, our actual
operating and financial results and could cause such results to differ
materially from those in any forward-looking statements. You should not consider
this list exhaustive. New risk factors emerge periodically, and we cannot
completely assure you that the factors we describe above list all material risks
to CPA(R):12 at any specific point in time. We have disclosed many of the
important risk factors discussed above in our previous filings with the
Securities and Exchange Commission.

YEAR 2000 ISSUES.

                  In 1999, CPA(R):12 and its affiliates formed a task force to
identify year 2000 problems. The task force developed and implemented a plan
that included inventory, assessment, remediation, testing and contingency
planning. CPA(R):12 experienced no significant disruptions as a result of the
year end date change. The task force intends to monitor other critical dates in
the future, such as quarter-end dates. The impact of the year 2000 issues on the
company will continue to depend on the way the issues have been addressed by
third parties that provide services to CPA(R):12. To date, CPA(R):12 has not
been adversely impacted to any significant extent by the failure of third
parties to address year 2000 issues. The task force has developed contingency
plans to address risks associated with year 2000 issues that may arise. There
can be no assurance that these plans will fully mitigate any problems, if any
arise. The foregoing year 2000 discussions constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Readiness and Disclosure and
Disclosure Act of 1998.

                                      -8-
<PAGE>   10
Item 2.       Properties.

    The following table provides certain information with respect to the
Company's significant properties as of March 31, 2000.


<TABLE>
<CAPTION>
                                                                                                             Initial
            Tenant/Guarantor                 Square        Annual       Rent Per           Ownership           Lease
         Location of Properties             Footage       Rent (1)     Square Ft.          Interest            Term
         ----------------------             -------       --------     ----------          --------            ----
<S>                                         <C>          <C>           <C>            <C>                    <C>
BEST BUY CO., INC. (3)
  Denver, CO                                 23,987                                      37% interest;
  Fort Collins, CO                           28,520                                   remaining interest
  Bloomingdale, IL                           27,280                                     owned by CIP(R)
  Bedford Park, IL                           27,466
  Aurora, IL                                 28,186
  Matteson, IL                               27,538
  Schaumberg, IL                            113,933
  Omaha, NE                                  28,731
  Albuquerque, NM                            45,653
  Arlington, TX                              46,361
  Beaumont, TX                               28,255
  Dallas, TX                                 27,697
  El Paso, TX                                28,179
  Plano, TX                                  28,075
  Ft. Worth, TX                              27,460
  Houston, TX                                28,160
  Madison, WI                                28,025
                                            -------
    TOTAL                                   593,506     $1,859,088     $ 8.47(2)                               2018

BIG V HOLDING CORPORATION (3)
  Ellenville, NY                             60,750                                      45% interest;
  Warwick, NY                                72,804                                   remaining interest
                                            -------
    TOTAL                                   133,554        855,563      14.24(2)        owned by CIP(R)        2024

GENSIA, INC.(3)
  San Diego, CA                             144,311      1,472,736      20.41(2)         50% interest;         2009
                                                                                      remaining interest
                                                                                        owned by CIP(R)
ETEC SYSTEMS, INC.
  Hayward, CA (3)                           213,000      2,987,710      14.03       majority interest in a     2014
                                                                                            limited
  Hayward, CA                               142,000      2,873,841      40.47          liability company

WAL-MART STORES, INC.(3)
  Greenfield, IN                             82,620        397,226       4.81                100%              2005

Q CLUBS, INC.
  Austin, TX (3)                             43,935        728,991      16.59                100%              2013
  Houston, TX                                46,733        694,000      14.85                100%              2016

THE GARDEN COMPANIES, INC.
  Chattanooga, TN (3)                       242,317        816,400       3.37                100%              2015

DEL MONTE CORPORATION (3)
  Mendota, IL                               239,850                                      50% interest;
  Plover, WI                                210,000                                   remaining interest
  Toppenish, WA                             274,750                                     owned by CIP(R)
  Yakima, WA                                 11,165
                                            -------
    TOTAL                                   735,765      1,286,250       3.50(2)                               2016

PPD DEVELOPMENT, INC.
  Austin, TX (3)                            173,000      1,391,715       8.04                100%              2010

THE UPPER DECK COMPANY (3)
  Carlsbad, CA                              295,000      1,319,875       8.94(2)         50% interest;         2021
                                                                                      remaining interest
                                                                                        owned by CIP(R)
</TABLE>

                                      -9-
<PAGE>   11
<TABLE>
<CAPTION>
                                                                                                              Initial
            Tenant/Guarantor                 Square        Annual       Rent Per           Ownership           Lease
         Location of Properties             Footage         Rent       Square Ft.          Interest            Term
         ----------------------             -------         ----       ----------          --------            ----
<S>                                       <C>          <C>         <C>                 <C>                <C>
RHEOMETRIC SCIENTIFIC, INC.
  Piscataway, NJ                            104,000       854,986        8.22                100%              2011

TELOS CORPORATION
  Loudon County, VA. (3)                    192,775     1,543,258        8.00                100%              2016

VARIOUS TENANTS

  Newark, DE (3)                            162,220                                          100%              2000-
                                                                                                               2001


CELADON GROUP, INC.
  Indianapolis, IN                           60,900       742,866       12.20                100%              2016

SPECTRIAN CORPORATION
  Sunnyvale, CA (3)                          91,476     2,015,521       22.03                100%              2011

GARDEN RIDGE CORPORATION
  Tulsa, OK (3)                             141,284       854,164        6.05                100%              2016

SENTURY TECHNOLOGY CORPORATION
  Hauppauge, NY                              68,333     2,096,000       30.67                100%              2016

SCOTT COMPANIES, INC.
  San Leandro, CA (3)                       270,000     2,062,281        7.64                100%              2017

QMS, INC.
  Mobile, AL (3)                            277,000     1,793,473        6.47                100%              2012

CHILDTIME CHILDCARE, INC. (3)
  Chandler, AZ                                6,575
  Fleming Island, FL                          7,894
  Sugarland, TX                              11,331
  New Territory, TX                           7,894
  Ackworth, GA                                8,106
  Siverdale, WA                               7,001
  Happauge, NY                                7,894
  Patchogue, NY                               7,900
  Hampton, VA                                 6,783
                                          ---------     ---------
                                             71,378     1,190,074       16.67                100%              2018

THE BON-TON STORES, INC.
  Allentown, PA (3)                         399,175
  Johnstown, PA (3)                          80,884
                                             ------
                                            480,059     1,270,750        2.65                100%              2017

SILGAN CONTAINERS
CORPORATION

  Menomonie and
  Oconomowoc, WI

  Fort Dodge, Iowa                          386,265     1,275,000        3.30                100%              2013

VIASYSTEMS, NEW ENGLAND
  Milford, MA (3)                           108,125       590,000        5.46                100%              2009

VERMONT TEDDY BEAR CO, INC.
  Shelburne, VT (3)                          55,446       652,400       11.77                100%              2017

BAE SYSTEMS

  San Diego, CA                             128,000     2,081,052       16.26                100%              2007

TEXAS FREEZER COMPANY, INC.
  Dallas, TX (3)                            219,614       930,750        4.24                100%              2019

WESTELL TECHNOLOGIES, INC.
  Aurora, IL                                185,410     1,748,250        9.43                100%              2017
</TABLE>

                                      -10-
<PAGE>   12
<TABLE>
<CAPTION>
                                                                                                             Initial
            Tenant/Guarantor                 Square        Annual       Rent Per          Ownership           Lease
         Location of Properties             Footage         Rent       Square Ft.         Interest            Term
         ----------------------             -------         ----       ----------         --------            ----
<S>                                         <C>         <C>            <C>          <C>                      <C>
CAREER EDUCATION CORPORATION
  Mendora Heights, MN                       118,241     1,450,782        12.27              100%              2009

PERRY GRAPHIC COMMUNICATIONS
and JUDD'S INCORPORATED
  Baraboo, WI (3)                           433,284
  Waterloo, WI (3)                          466,192
                                            -------
                                            899,476     1,888,875         2.10               100%              2017

COMPASS BANK FOR SAVINGS
  Bourne, MA                                  2,083
  Sandwich, MA                               16,500
  Wareham, MA                                 3,223
                                             ------
                                             21,806       185,282         8.50               100%              2018

NUTRAMAX PRODUCTS, INC
  Houston, TX                               248,960       823,968         3.31               100%              2013

INTERNATIONAL MANAGEMENT
CONSULTANT, INC.
  Ashburn, VA                                69,983       777,036        11.10               100%              2014

BCC DEVELOPMENT AND
MANAGEMENT CO.
  Mechanicburg, PA

                                             42,000       484,034        11.52               100%              2013

ADVANCED MICRO DEVICES, INC.
  Sunnyvale, CA (3)                         362,000     3,048,500        25.27(2)     33 1/3 % interest;       2018
                                                                                      remaining interests
                                                                                      owned by CIP(R) and
                                                                                           CPA(R):14

INTESYS TECHNOLOGIES, INC.
  Gilbert, AZ                               243,370     1,137,375         9.35(2)       50% interest;          2019
                                                                                      remaining interest
                                                                                      owned by CPA(R):14

COMPUCOM SYSTEMS, INC.                      497,714     1,304,667         7.86        33 1/3 % interest,       2020
  Dallas, TX                                                                          remaining interest
                                                                                             owned
                                                                                    by CIP(R) and CPA(R):14

AMERISERVE FOOD DISTRIBUTION, INC.                                                       40% interest;         2020
  Burlington, NJ                            184,819                                   remaining interest
  Shawnee, KS                               244,272                                   owned by CPA(R):14
  Grand Rapids, MI                          176,941
  Manassas, VA                              100,337
                                            -------
                                            706,369      1,690,841     5.98
</TABLE>

(1) Does not include properties under construction.

(2) This figure represents the rent per square foot of the property when
    combined with rents payable to co-owners.

(3) These properties are encumbered by limited recourse mortgages.

                                      -11-
<PAGE>   13
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, 1999 to a vote of security holders, through the solicitation
of proxies or otherwise.

                                     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 20 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 5 of the Company's Annual Report contained in
Appendix A.

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

                  Approximately $118,436,000 of the Company's long-term debt
bears interest at fixed rates, and therefore the fair value of these instruments
is affected by changes in the market interest rates. The following table
presents principal cash flows based upon expected maturity dates of the debt
obligations and the related weighted-average interest rates by expected maturity
dates for the fixed rate debt. The interest rate on the variable rate debt as of
December 31, 1999 ranged from the sum of LIBOR and 2.75% to the sum of the
lender's prime rate and 2.0%.

(in thousands)

<TABLE>
<CAPTION>
                      2000        2001        2002         2003         2004      Thereafter      Total      Fair Value
                      ----        ----        ----         ----         ----      ----------      -----      ----------
<S>                  <C>         <C>         <C>          <C>          <C>         <C>          <C>          <C>
Fixed rate           $5,754      $3,804      $4,116       $4,426       $5,072      $95,264      $118,436     $115,923

Average
   interest
   rate               8.24%       7.54%       7.54%        7.55%        7.69%        7.63%

Variable rate         6,123         620       5,087        5,480        2,615          --         19,925        19,925
</TABLE>

As of December 31, 1999, CPA(R):12 had no other material exposure to market
risk.

                                      -12-
<PAGE>   14
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 6
to 19 of the Company's Annual Report contained in Appendix A:

  (i) Report of Independent Accountants.

 (ii) Consolidated Balance Sheets as of December 31, 1998 and 1999

(iii) Consolidated Statements of Income for the years ended December 31, 1997,
      1998 and 1999.

 (iv) Consolidated Statements of Shareholders' Equity for the years ended
      December 31, 1997, 1998 and 1999.

  (v) Consolidated Statements of Cash Flows for the years ended December 31,
      1997, 1998 and 1999.

 (vi) Notes to Consolidated Financial Statements.


Item 9.       Disagreements on Accounting and Financial Disclosure.

                  NONE

                                    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.

                                      -13-
<PAGE>   15
                                     PART IV

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


(a)               1.  Consolidated Financial Statements:

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

Report of Independent Accountants.

Consolidated Balance Sheets, December 31, 1998 and 1999.

Consolidated Statements of Operations for the years ended December 31, 1997,
1998 and 1999.

Consolidated Statements of Shareholders' Equity for the years ended December 31,
1997, 1998 and 1999.

Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1998 and 1999.

Notes to Consolidated Financial Statements.


The consolidated financial statements are hereby incorporated by reference to
pages 6 to 19 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:

Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1999.

                       Schedule III of the Company is contained on pages 23 to
27 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.

                                      -14-
<PAGE>   16
    (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                                                                                 Method of
  No.             Description                                                            Filing
-------           -----------                                                           ---------
<S>            <C>                                                                      <C>
     3.1       Articles of Incorporation of Registrant.                                 Exhibit 3(A) to Regis-
                                                                                        tration Statement (Form
                                                                                        S-11) No. 33-68728

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

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

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

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

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

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

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

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

    10.8       Note Purchase Agreement dated April 15, 1993 among                       Filed as Exhibit 10.8
               BB Property Company, Best Buy Co., Inc., and Teachers                    to Registrant's Form 10-K
               Insurance and Annuity Association of America.                            dated March 30, 1995

    10.9       $32,800,000 Note dated April 20, 1993 from BB Property                   Filed as Exhibit 10.9
               Company, as Maker, to Teachers Insurance and                             to Registrant's Form 10-K
               Annuity Association of America, as Holder.                               dated March 30, 1995

    10.10      Deed of Trust and Security Agreement dated April 15, 1993                Filed as Exhibit 10.10
               from BB Property Company, as Grantor, to Frank E.                        to Registrant's Form 10-K
               Stevenson, II, Esq., Thomas P. Solheim, Esq., Charles D.                 dated March 30, 1995
               Calvin, Esq., Wallace A. Richardson. Esq., Michael D. Miselman,
               Esq. and Keleher & McLeod, P.A., as Trustee, and Teachers
               Insurance and Annuity Association of America, as Beneficiary.
</TABLE>

                                      -15-
<PAGE>   17
<TABLE>
<CAPTION>
Exhibit                                                                                 Method of
  No.             Description                                                            Filing
-------           -----------                                                           ---------
<S>            <C>                                                                      <C>
    10.11      Owner's Lien Agreement dated April 15, 1993 by Corporate                 Filed as Exhibit 10.11
               Property Associates 10 Incorporated ("CPA(R):10") and                    to Registrant's Form 10-K
               Carey Institutional Properties Incorporated ("CIP(TM)"),                 dated March 30, 1995
               for the benefit of Teachers Insurance and Annuity
               Association of America.

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

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

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

    10.15      Deed of Trust, Security Agreement and Financing Statement                Filed as Exhibit 10.15
               dated December 21, 1993 between GENA Property Company,                   to Registrant's Form 10-K
               as Trustor, and The Northwestern Mutual Life Insurance Company,          dated March 30, 1995
               as Trustee.

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

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

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

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

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

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

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

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

                                      -16-
<PAGE>   18
<TABLE>
<CAPTION>
Exhibit                                                                                 Method of
  No.             Description                                                            Filing
-------           -----------                                                           ---------
<S>            <C>                                                                      <C>
    10.24      Loan Agreement dated June 8, 1995 by and between                         Filed as Exhibit 10.24 to
               SFC (TX) QRS 12-7, Inc., as Borrower, and Bank One,                      Registrant's Form 8-K
               Texas, N.A.                                                              dated June 23, 1995

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

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

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

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

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

    10.30      Lease Agreement dated November 13, 1995 by and between                   Filed as Exhibit 10.30 to
               ABI (TX) QRS 12-11, Inc., as Landlord, and Pharmaco LSR                  Registrant's Form 8-K
               International Inc., as Tenant.                                           dated November 27, 1995

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

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

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

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

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

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

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

                                      -17-
<PAGE>   19
<TABLE>
<CAPTION>
Exhibit                                                                                 Method of
  No.             Description                                                            Filing
-------           -----------                                                           ---------
<S>            <C>                                                                      <C>
    10.38      Lease Agreement dated March 28, 1996 by and between                      Filed as Exhibit 10.42 to
               LAX (DE) QRS 12-16, Inc., as Landlord, and Lanxide                       Registrant's Post-Effective
               Corporation, as Tenants.                                                 Amendment No. 3
                                                                                        dated March 6, 1997

    10.39      Stock Purchase Warrant for 15,500 Shares of Lanxide                      Filed as Exhibit 10.43 to
               Corporation Common Stock.                                                Registrant's Post-Effective
                                                                                        Amendment No. 3
                                                                                        dated March 6, 1997

    10.40      Promissory Note dated March 28, 1996 given by                            Filed as Exhibit 10.44 to
               LAX (DE) QRS 12-16, Inc. to Lanxide Corporation.                         Registrant's Post-Effective
                                                                                        Amendment No. 3
                                                                                        dated March 6, 1997

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

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

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

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

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

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

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

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

                                      -18-
<PAGE>   20
<TABLE>
<CAPTION>
Exhibit                                                                                 Method of
  No.             Description                                                            Filing
-------           -----------                                                           ---------
<S>            <C>                                                                      <C>
    10.49      Lease Agreement dated January 23, 1997 by and between                    Filed as Exhibit 10.53 to
               BUILD (CA) QRS 12-24, Inc., as Landlord, and Scott                       Registrant's Post-Effective
               Corporation, as Tenants.                                                 Amendment No. 3
                                                                                        dated March 6, 1997

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

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

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

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

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

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

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

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

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

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

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

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

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

    21.3       Subsidiaries of Registrant as of March 31, 2000.                         Filed herewith
</TABLE>

                                      -19-
<PAGE>   21
<TABLE>
<CAPTION>
Exhibit                                                                                 Method of
  No.             Description                                                            Filing
-------           -----------                                                           ---------
<S>            <C>                                                                      <C>
    28.1       Limited Guaranty of Payment dated October 8, 1993 from                   Filed as Exhibit 28.1
               CIP(TM), as Guarantor, to Key Bank of New York, as                       to Registrant's Form 10-K
               Lender.                                                                  dated March 30, 1995

    28.2       Amendment to Limited Guaranty of Payment dated July 15, 1994             Filed as Exhibit 28.2
               among CIP(TM) and Registrant, Guarantors, and Key Bank                   to Registrant's Form 10-K
               of New York, as Lender.                                                  dated March 30, 1995

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

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

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

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

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

                                      -20-
<PAGE>   22
    (b)    Reports on Form 8-K

                  During the quarter ended December 31, 1999 the Registrant was
not required to file any reports on Form 8-K.

                                      -21-
<PAGE>   23
                                   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

4/7/2000                           BY: /s/ John J. Park
                                      ------------------------------------------
     Date                              John J. Park
                                       Executive Vice President, Chief Legal
                                       Officer 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


4/7/2000                           BY:      /s/ William P. Carey
                                      ------------------------------------------
     Date                                   William P. Carey
                                            Chairman of the Board
                                            and Director
                                            (Principal Executive Officer)

4/7/2000                           BY:      /s/ H. Augustus Carey
                                      ------------------------------------------
     Date                                   H. Augustus Carey
                                            President

4/7/2000                            BY:      /s/ Ralph G. Coburn
                                      ------------------------------------------
     Date                                   Ralph G. Coburn
                                            Director

4/7/2000                            BY:      /s/ William Ruder
                                      ------------------------------------------
     Date                                   William Ruder
                                            Director

4/7/2000                            BY:      /s/ George E. Stoddard
                                      ------------------------------------------
     Date                                   George E. Stoddard
                                            Director

4/7/2000                            BY:      /s/ Thomas E. Zacharias
                                      ------------------------------------------
     Date                                   Thomas E. Zacharias
                                            Director

4/7/2000                            BY:      /s/ John J. Park
                                      ------------------------------------------
     Date                                   John J. Park
                                            Executive Vice President and
                                            Chief Financial Officer
                                            (Principal Financial Officer)

4/7/2000                            BY:      /s/ Claude Fernandez
                                      ------------------------------------------
     Date                                   Claude Fernandez
                                            Executive Vice President and
                                            Chief Administrative Officer
                                            (Principal Accounting Officer)

                                      -22-
<PAGE>   24
                        REPORT of INDEPENDENT ACCOUNTANTS

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

Our audits of the consolidated financial statements referred to in our report
dated April 7, 2000 appearing on page 6 of the 1999 Annual Report to
Shareholders of Corporate Property Associates 12 Incorporated and Subsidiaries
(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 14(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
April 7, 2000

                                      -23-
<PAGE>   25
         CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED and SUBSIDIARIES

             SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION

                             as of December 31, 1999

<TABLE>
<CAPTION>
                                                      Initial Cost to Company
                                                   -----------------------------       Capitalized     Decrease
                                                                         Personal     Subsequent to     in Net
    Description             Encumbrances           Land      Buildings   Property     Acquisition(a)  Investment (b)
    -----------             ------------           ----      ---------   --------    ---------------  --------------
<S>                         <C>                <C>           <C>         <C>         <C>              <C>
Operating Method:

 Distribution facility
   leased
  to Wal-Mart Stores, Inc.    $ 2,206,246      $  452,871    $ 3,325,910                 $   12,921
 Office/Manufacturing
  facility leased to
  Etec Systems, Inc.           43,875,060       1,272,418     10,588,221                 65,873,156   $(2,633,473)
 Health club facilities
  leased to Q Clubs, Inc.       2,309,003       3,152,874      8,524,126
 Warehouses and special
  purpose facility leased
  to Del Monte Corporation      5,572,140         305,733                                10,237,564
 Warehouse/office/
  research facility leased
  to PPD Development, Inc.      6,817,961       1,550,928     11,017,367                     27,856
 Research and development
  facility leased to
  Lanxide Corporation           3,890,420       1,390,120      7,281,878                      7,421    (4,281,421)
 Distribution/warehouse
  facility leased to
  Celadon, Inc.                                 1,480,600      5,320,400                     40,000
 Office/research
  facility leased to
  Spectrian Corporation         9,379,732       5,570,775     12,073,204                      4,119
 Retail store leased
  to Garden Ridge
  Corporation                   4,423,864       1,857,607      6,204,923
 Office/distribution
  facility leased to
  Sentury
  Technology Corporation                        1,603,488      3,321,512
 Office/research facility
  leased
  to Scott Companies, Inc.      9,693,329       5,734,782     12,175,218                      5,356
 Child care centers leased
  to Childtime Childcare,
   Inc.                         4,915,953       2,581,896                                 7,459,165
 Office/research facility
  leased to QMS, Inc.           5,165,148       1,361,073     12,513,273
 Retail/distribution
  facility leased
   to The Bon-Ton
  Stores, Inc.                  6,711,960       1,780,000     10,261,885
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                       Life on which
                                    Gross Amount at which                                                              Depreciation
                                 Carried at Close of Period                                                             in Latest
                              ---------------------------------                                                        Statement of
                                                       Personal                   Accumulated                          Operations
    Description                  Land     Buildings    Property        Total   Depreciation (e)   Date Acquired        is Computed
    -----------                  ----     ---------    --------        -----   ----------------   -------------       --------------
<S>                         <C>          <C>           <C>        <C>          <C>                <C>                 <C>
Operating Method:

 Distribution facility
   leased
  to Wal-Mart Stores, Inc.  $  454,420   $ 3,337,282              $ 3,791,702   $  406,731         February 10, 1995   40 yrs.
 Office/Manufacturing
  facility leased to
  Etec Systems, Inc.         1,272,444    73,827,878               75,100,322    2,592,137         February 16,1995    40 yrs.
 Health club facilities                                                                            June 8, 1995 and
  leased to Q Clubs, Inc.    3,152,874     8,524,126               11,677,000      839,483         July 25, 1996       40 yrs.
 Warehouses and special
  purpose facility leased
  to Del Monte Corporation     376,360    10,166,937               10,543,297      865,563         November 9, 1995    40 yrs.
 Warehouse/office/
  research facility leased
  to PPD Development, Inc.   1,550,985    11,045,166               12,596,151    1,138,462         November 13, 1995   40 yrs.
 Research and development
  facility leased to
  Lanxide Corporation        1,391,311     3,006,687                4,397,998      182,203         March 28, 1996      40 yrs.
 Distribution/warehouse
  facility leased to
  Celadon, Inc.              1,480,600     5,360,400                6,841,000      440,825         September 19, 1996  40 yrs.
 Office/research
  facility leased to
  Spectrian Corporation      5,570,775    12,077,323               17,648,098      943,425         November 19, 1996   40 yrs.
 Retail store leased
  to Garden Ridge
  Corporation                1,857,607     6,204,923                8,062,530      471,833         December 16, 1996   40 yrs.
 Office/distribution
  facility leased to
  Sentury
  Technology Corporation     1,603,488     3,321,512                4,925,000      252,573         December 24, 1996   40 yrs.
 Office/research facility
  leased
  to Scott Companies, Inc.   5,734,782    12,180,574               17,915,356      900,855         January 23, 1997    40 yrs.
 Child care centers leased
  to Childtime Childcare,
   Inc.                      2,581,896     7,459,165               10,041,061      305,440         January 29, 1997    40 yrs.
 Office/research facility
  leased to QMS, Inc.        1,361,073    12,513,273               13,874,346      899,392         February 18, 1997   40 yrs.
 Retail/distribution
  facility leased
   to The Bon-Ton
  Stores, Inc.               1,780,000    10,261,885               12,041,885      694,815         April 10, 1997      40 yrs.
</TABLE>

                                      -24-
<PAGE>   26
         CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED and SUBSIDIARIES

             SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION

                             as of December 31, 1999

<TABLE>
<CAPTION>

                                                          Initial Cost to Company
                                                   ------------------------------------           Capitalized           Decrease
                                                                               Personal          Subsequent to           in Net
    Description             Encumbrances           Land      Buildings         Property         Acquisition(a)        Investment (b)
    -----------             ------------           ----      ---------         --------         --------------        --------------
<S>                         <C>               <C>            <C>               <C>              <C>                   <C>
Operating Method:
(continued):
 Technology/manufacturing
  facility leased to Silgan
  Containers Corporation                          758,670     11,630,675                               111,090
 Office/research
  facility leased
  to ViaSystems, New England    3,047,633       1,080,000      4,469,738
 Office/manufacturing
  facility leased
  to Vermont Teddy
  Bear Co., Inc.                3,147,236       1,465,000      4,398,874                                 1,640
 Warehouse/special facility
  leased to Texas Freezer
  Company, Inc.                 4,429,557         257,458                        $1,109,900          7,150,544
 Research facility
  to BAE Systems, Inc.                          3,025,000      9,741,810                             7,372,483
 Office/manufacturing
  facility leased to Westell
  Technologies, Inc.                            2,500,000     14,952,055
 Administration/classroom
  facility leased to Career
  Education Corporation                         1,150,000      8,840,486                             2,788,170
 Printing facility leased to
  Perry Graphic Communica-
  tions, Inc. and Judd's       10,788,851         642,000     18,467,948                                 8,000
 Office/banking facility
  leased
  to Compass Bank for
  Savings                                         300,000      1,520,000
 Manufacturing/distribution
  facility leased to
  Nutramax Products, Inc.                       1,160,000      6,127,722                               527,777
 Office/light assembly
  facility
  leased to International
  Management Consulting,
  Inc.                                            668,211                                            5,994,089
 Office facility leased to
  Balance Care Corporation                        558,600                                            4,261,335
                             ------------     -----------   ------------         ----------       ------------         -----------
                             $126,374,093     $43,660,104   $182,757,225         $1,109,900       $111,882,686         $(6,914,894)
                             ============     ===========   ============         ==========       ============         ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                     Life on which
                                      Gross Amount at which                                                           Depreciation
                                    Carried at Close of Period                                                          in Latest
                                  ----------------------------------                                                  Statement of
                                                         Personal                  Accumulated                         Operations
    Description                   Land     Buildings    Property        Total    Depreciation (e) Date Acquired       is Computed
    -----------                   ----     ---------    --------        -----   ----------------  -------------        -----------
<S>                          <C>         <C>            <C>        <C>           <C>             <C>                   <C>
Operating Method:
(continued):
 Technology/manufacturing
  facility leased to Silgan
  Containers Corporation         758,670    11,741,765               12,500,435      662,234      June 13, 1997          40 yrs.
 Office/research
  facility leased
  to ViaSystems, New England   1,080,000     4,469,738                5,549,738      274,163      July 8, 1997           40 yrs.
 Office/manufacturing
  facility leased
  to Vermont Teddy
  Bear Co., Inc.               1,465,000     4,400,514                5,865,514      270,429      July 18 1997         7 to 40 yrs.
 Warehouse/special facility
  leased to Texas Freezer
  Company, Inc.                  257,458     7,150,544  $1,109,900    8,517,902      445,517      September 23, 1997     40 yrs.
 Research facility
  to BAE Systems, Inc.         3,025,000    17,114,293               20,139,293      575,972      September 28, 1997     40 yrs.
 Office/manufacturing
  facility leased to Westell
  Technologies, Inc.           2,500,000    14,952,055               17,452,055      856,628      September 29, 1997     40 yrs.
 Administration/classroom
  facility leased to Career
  Education Corporation        1,150,000    11,628,656               12,778,656      526,342      November 12,1997       40 yrs.
 Printing facility leased to
  Perry Graphic Commun-
  ications, Inc. and Judd's      642,000    18,475,948               19,117,948      943,035      December 16, 1997
 Office/banking facility
  leased
  to Compass Bank for
  Savings                        300,000     1,520,000                1,820,000       76,000      December 30, 1997      40 yrs.
 Manufacturing/distribution
  facility leased to
  Nutramax Products, Inc.      1,160,000     6,655,499                7,815,499      280,833      March 28, 1998         40 yrs.
 Office/light assembly
  facility
  leased to International
  Management Consulting,
  Inc.                           668,211     5,994,089                6,662,300      130,669      May 18, 1998           40 yrs.
 Office facility leased to
  Balance Care Corporation       558,600     4,261,335                4,819,935       26,633      June, 23, 1998         40 yrs.
                             -----------  ------------  ---------- ------------  -----------
                             $43,733,554  $287,651,567  $1,109,900 $332,495,021  $16,002,192
                             ===========  ============  ========== ============  ===========
</TABLE>

See accompanying notes to Schedule.

                                      -25-
<PAGE>   27
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION

                             as of December 31, 1999

<TABLE>
<CAPTION>


                                            Initial Cost to Company
                                            ------------------------
                          Encumbrances      Land           Buildings
                          ------------      ----           ---------
<S>                       <C>             <C>             <C>
   Direct Financing
    Method:
    Supermarkets
      leased to
      Big V Holding Corp.   $ 3,180,016   $1,157,294      $ 5,254,309
    Manufacturing
      facility leased to
      The Garden
      Companies, Inc.         3,140,687    1,544,265        5,430,735
    Office/manufacturing
      facility leased to
      Rheometric
      Scientific, Inc.                     1,510,791        4,789,209
    Office facility leased
      to Telos Corporation    5,666,335    1,549,022       10,597,978
    Office/Manufacturing
      facility leased to
    Randall
      International, Inc.                  2,000,000          471,454
                            -----------   ----------      -----------
                            $11,987,038   $7,761,372      $26,543,685
                            ===========   ==========      ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                     Gross Amount
                                Cost                                 which Carried
                              Capitalized                        at Close of Period (e)
                            Subsequent to     Increase in        ---------------------
                            Acquisition (a)  Net Investment (c)          Total            Date Acquired
                            ---------------  ------------------  ----------------------   -------------
<S>                         <C>              <C>                 <C>                     <C>
   Direct Financing
    Method:
    Supermarkets
      leased to
      Big V Holding Corp.    $1,048,013           $656,591          $  8,116,207         July 13,1994
    Manufacturing
      facility leased to
      The Garden
      Companies, Inc.                                                  6,975,000         June 20, 1995
    Office/manufacturing
      facility leased to
      Rheometric
      Scientific, Inc.            4,500           (444,949)            5,859,551         February 23,1996
    Office facility leased
      to Telos Corporation        5,500                               12,152,500         March 11, 1996
    Office/Manufacturing
      facility leased to
    Randall
      International, Inc.     4,904,678                                7,376,132         October 17, 1997
                             ----------           --------           -----------
                             $5,962,691           $211,642           $40,479,390
                             ==========           ========           ===========
</TABLE>

See accompanying notes to Schedule

                                      -26-
<PAGE>   28
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

                       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 and (ii)
                  writedown to fair value.

         (c)      The increase in net investment is due (i) to the amortization
                  of unearned income producing a constant periodic rate of
                  return on the net investment which is more than lease payments
                  received, (ii) the writedown of a property to its estimated
                  fair value.

         (d)      At December 31, 1999, the aggregate cost of real estate owned
                  by Registrant and its subsidiaries for Federal income tax
                  purposes is $301,499,870

         (e)


<TABLE>
<CAPTION>
                                                        Reconciliation of Real Estate Accounted
                                                           for Under the Operating Method

                                                                    December 31,
                                                              ------------------------
                                                              1998                1999
                                                              ----                ----
<S>                                                        <C>                  <C>
         Balance at beginning
                  of year                                  $227,014,400         $299,773,723

         Additions                                           72,759,323           33,329,987

         Dispositions                                                               (608,689)
                                                           ------------         ------------


         Balance at close of year                          $299,773,723         $332,495,021
                                                           ============         ============
</TABLE>



<TABLE>
<CAPTION>
                                                      Reconciliation of Accumulated Depreciation

                                                                    December 31,
                                                              ------------------------
                                                              1998                1999
                                                              ----                ----
<S>                                                          <C>                  <C>
         Balance at beginning
                  of year                                    $4,360,196           $9,520,197

         Depreciation expense                                 5,160,001            6,481,995
                                                             ----------           ----------


         Balance at close of year                            $9,520,197          $16,002,192
                                                             ==========          ===========
</TABLE>

                                      -27-
<PAGE>   29
                                                         APPENDIX A TO FORM 10-K

                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                AND SUBSIDIARIES

                                                              1999 ANNUAL REPORT
<PAGE>   30
SELECTED FINANCIAL DATA

(In thousands except share amounts)


<TABLE>
<CAPTION>
                                  1995          1996          1997          1998          1999
                                ---------    ----------    ----------    ----------    ----------
<S>                           <C>           <C>           <C>           <C>           <C>
OPERATING DATA:
  Revenues                    $     3,994   $    11,434   $    25,313   $    34,563   $    39,276

  Income before
    extraordinary items             2,115         6,210        12,804        12,078   $    19,871

   Net income                       2,115         6,210        12,804        11,699   $    19,871

   Basic earnings
    per share before
    extraordinary items (1)           .53           .60           .57           .42           .69

   Basic earnings
    per share (1)                     .53           .60           .57           .41           .69

   Weighted average
    number of Shares
    outstanding-basic           4,016,686    10,365,828    22,387,928    28,416,013    28,615,971

   Dividends paid                   2,351         6,780        15,082        23,028        23,268

   Dividends paid
      per share                       .76           .80           .81           .81           .81

   Payments of mortgage
     principal (2)                    262         1,192         1,708         2,174         3,400

BALANCE SHEET DATA:

  Total consolidated assets        81,173       193,294       358,693       398,604       418,088

  Long-term obligations (3)        19,016        47,734        84,745       113,868       133,351
</TABLE>

(1)      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.

(2)      Represents scheduled mortgage principal amortization paid.

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

                                      -1-
<PAGE>   31
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, 1999. 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. 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.
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.
In February 1994, CPA(R):12 commenced a public offering of common stock at $10
per share on a "best efforts" basis. A second public offering of common stock at
$10 per share on a "best efforts" basis concluded in September 1997. Through
these offerings, CPA(R):12 issued 28,334,451 shares of common stock raising
$283,344,510.

                  CPA(R):12 used the proceeds from the public offerings along
with limited recourse mortgage financing to purchase properties and enter into
long-term net leases with corporate tenants. A majority 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 leases have generally been
structured to include periodic rent increases that are stated or based on
increases in the consumer price index or, for certain retail properties, provide
for additional rents based on sales in excess of a specified base amount.

                  CPA(R):12's primary objectives are to provide rising cash flow
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.

                  Public business enterprises are required to report financial
and descriptive information about their reportable operating segments. Operating
segments are components of an enterprise about which financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Management
evaluates the performance of its portfolio of properties as a whole, rather than
by identifying discrete operating segments. This evaluation includes assessing
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.

Results of Operations:

                  Net income for 1999 increased by $8,172,000 as compared with
1998. Excluding the effect of net gains from the sale of securities and real
estate of $2,309,000 in 1999 and an extraordinary charge on the early
extinguishment of debt of $379,000 and a noncash writedown of a property of
$4,281,000 in 1998, income, as adjusted, would have reflected an increase of
$1,203,000, or 7%, from the prior year. The increase in income was due to
increases in lease revenues (rental income and interest income from direct
financing leases) and income from equity investments and was partially offset by
increases in depreciation and amortization and interest and property expenses.

                                      -2-
<PAGE>   32
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

                  The increase in lease revenues was primarily due to the
completion of build-to-suit projects in 1999 and the commencement of lease terms
at those properties. For financial reporting purposes, any rents received during
the construction and development period are not recognized as lease revenues or
in the results of operations. The projects completed in 1999 included the new
building at the Etec Systems, Inc. property and new buildings or expansions for
Career Education Corporation, Randall International, Inc., Balanced Care
Corporation, Childtime Childcare, Inc. and International Management Consulting,
Inc. and the completions in 1998 of construction of a cold storage facility
leased to Texas Freezer Company and two other build-to-suit projects. Solely as
a result of completing these projects, annual lease revenue will increase by
$7,278,000 of which $5,265,000 was realized in 1999. The increase in income from
equity investments was attributable to acquiring interests in properties net
leased to Advanced Micro Devices, Inc., Intesys Technologies, Inc. and Compucom
Systems, Inc. in December 1998, February 1999 and March 1999, respectively. The
equity investment in the net lease with Ameriserve Food Distribution, Inc.
currently has not resulted in any significant contribution to the results of
operations as three of the four Ameriserve properties are currently either under
construction or being expanded. The increase in depreciation and amortization,
noncash charges, was attributable to the completion of build-to-suit projects
and new debt financing. No depreciation is recorded on projects under
development until construction is completed. The increase in interest expense
was due to new limited recourse mortgage debt placed on the new Etec building of
$30,000,000 and additional mortgage financing of $2,500,000 on the Childtime
properties as well as $30,500,000 of mortgage financing obtained during 1998.
The increase in property expenses was due to the increase in asset management
and performance fees. This increase was solely the result of the increase in the
Company's real estate base. Effective in 2000, the asset management and
performance fees will be based on the appraised value of CPA(R):12's real estate
assets (including equity investments) as of December 31, 1999 rather than the
historical cost basis of the properties. The change in calculating the fees is
in accordance with the Advisory Agreement between CPA(R):12 and Carey Property
Advisors. The appraised value has been determined pursuant to an independent
valuation and the change in value from the appraisal will not significantly
increase asset management fees in 2000. A valuation will be performed annually.

                  During 1999, CPA(R):12 recognized a gain of $2,505,000 on the
sale of 57,000 shares of Etec. In connection with structuring its initial
transaction with Etec, CPA(R):12 had been granted warrants for the Etec common
stock at an exercise price of $0.45 per share. Etec subsequently became a
publicly-traded company. Etec has agreed to be acquired by Applied Materials,
Inc. a publicly-traded company with a market capitalization in excess of
$75,000,000,000. CPA(R):12 has recently completed negotiations that require
Applied Materials to provide an unconditional guaranty of Etec's lease
obligations.

                  Net income for 1998 decreased by $1,105,000 as compared with
1997 because of two nonrecurring items that reduced 1998 income by $4,660,000,
namely an extraordinary charge on extinguishment of debt resulting from a
prepayment charge of $379,000 and the writedown of a property to fair value
resulting in a noncash charge of $4,281,000. Income, as adjusted for these
items, would have reflected an increase of $3,555,000 or 61%. The increase in
income as adjusted was entirely due to increased revenues, and, for the most
part, reflects the increase in lease revenues which included a full year of rent
in 1998 from twelve leases that CPA(R):12 entered into in 1997, rents from three
build-to-suit projects completed in 1998 and two new leases in 1998. The
increase in income resulting from the increase in lease revenues was partially
offset by increases in interest, depreciation, property and general
administrative expenses. The increases in interest and depreciation expenses
were due to the increase in limited recourse mortgage loan balances and real
estate asset balances, respectively. The increase in property expense was also
due to the increase in real estate assets as the asset management and
performances fees payable to the Advisor are directly based on the value of
properties. The increase in general and administrative expense was due solely to
the accrual of a monitoring fee payable to the sellers of the Company's common
stock in accordance with the selling agreements with these broker-dealers.

                  Other interest income decreased in both 1998 and 1999 as cash
balances decreased. This decrease was expected as CPA(R):12 used its cash
balances for additional real estate purchases. This trend of decrease should
continue as an objective of CPA(R):12 is to hold cash balances sufficient for a
working capital reserve.

                  During 1998, CPA(R):12 recognized a noncash charge of
$4,281,000 for the writedown of a property leased to Lanxide Corporation to its
expected fair value as Lanxide vacated the property and CPA(R):12 expected
Lanxide to terminate the lease in connection with its bankruptcy. The Lanxide
lease was structured so that the leases of three subtenants would be assumed by
CPA(R):12 if Lanxide did not meet its lease obligations. With the lease
termination, annual rental income from the Lanxide property decreased by
approximately $445,000.

                                      -3-
<PAGE>   33
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

                  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 have rent increases based on formulas
indexed to increase in the Consumer Price Index, sales overrides or other
periodic increases which are designed to increase lease revenues in the future.

Financial Condition

                  One of CPA(R):12's objectives is to use its cash flow from
operations to meet operating expenses, service its mortgage debt, meet
distribution requirements to minority interests, maintain adequate cash reserves
and fund an increasing rate of dividends to shareholders. During 1999, cash flow
from operations increased by 29% to $28,032,000 and was substantially comparable
to the aggregate amount used to pay dividends of $23,268,000, mortgage principal
installments of $3,400,000 and distributions to holders of minority interests of
$1,436,000. In comparison, cash flow from operations in 1998 was not sufficient
to fund dividends, and the results for 1999 reflect the benefit to operating
cash flow of completing build-to-suit projects and increasing CPA(R):12's
investment in real estate. CPA(R):12 has properties still under construction and
Management expects operating cash flow to continue to increase as these
build-to-suit projects are completed.

                  CPA(R):12's investing activities included using $55,188,000
for investment in real estate including completing several build-to-suit
commitments and purchasing equity investment interests. CPA(R):12 received
$1,767,000 on asset dispositions, primarily sales of securities. In addition,
CPA(R):12 received $942,000 in January 2000 on a sale of Etec shares that was
executed in December 1999. CPA(R):12 currently has a commitment to fund an
additional $1,441,000 for its investment in Ameriserve which includes three
buildings under construction. Since December 31, 1999, Ameriserve filed a
petition of voluntary bankruptcy. Ameriserve is expected to prepare a plan of
reorganization and under such a plan could seek to terminate its lease
obligations. There is no assurance that Ameriserve will affirm its leases.
Ameriserve continues to meet its lease obligations and Management believes that
the properties acquired and being constructed are necessary to Ameriserve's
operation. Accordingly, Management expects Ameriserve to continue to lease the
properties during the reorganization and thereafter. CPA(R):12 has no other
commitments to fund major outlays at its properties. CPA(R):12 paid its Advisor
deferred acquisition fees of $1,529,000 relating to purchases completed prior to
1998. As intended, CPA(R):12 has reduced its cash balances by making additional
investments in real estate during the year. CPA(R):12 continues to evaluate
potential investments for acquisition and has the ability to provide additional
funding for investment by obtaining funds from the placement of mortgage debt on
several unleveraged properties.

                  In addition to paying dividends, making distributions to
holders of minority interests and mortgage principal installments CPA(R):12
obtained $32,500,000 of limited recourse mortgage debt. CPA(R):12's financing
strategy is to leverage substantially all of its properties with limited
recourse mortgage debt so that the portfolio will be diversified to limit risk.
A lender on a limited recourse mortgage loan has recourse only to the property
collateralizing the loan and not to any of CPA(R):12's other assets. Balloon
payments of $14,626,000 are scheduled in 2000, including $6,900,000 that
CPA(R):12 has an option to extend. CPA(R):12 expects to refinance the other
maturing loans as the properties are subject to long-term leases with
creditworthy tenants. Scheduled balloon payments in 2001 are approximately
$2,000,000. In 1999, CPA(R):12 entered into a credit agreement for a $40,000,000
credit facility that will allow it to fund acquisitions on a transitional basis.
No advances have yet been made under the facility. Any advances under the
facility are recourse obligations of CPA(R):12 and subject CPA(R):12 to meeting
specific financial covenants. CPA(R):12 is in compliance with its financial
covenants. The term of the credit agreement ends in June 2000, and CPA(R):12
expects to exercise its option to extend the term through June 2001.

                  During 1999, the Advisor elected to receive performance fees
of $1,914,000 in restricted shares of CPA(R):12 rather than cash. The issuance
of shares to pay fees increases the cash available to CPA(R):12 and increases
the equity ownership of the Advisor with the effect of aligning more strongly
the interests of the Advisor and shareholders of the Company.


                                      -4-
<PAGE>   34
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

                  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 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.

                  In 1999, CPA(R):12 and its affiliates formed a task force to
identify year 2000 problems. The task force developed and implemented a plan
that included inventory, assessment, remediation, testing and contingency
planning. CPA(R):12 experienced no significant disruptions as a result of the
year end date change. The task force intends to monitor other critical dates in
the future, such as quarter-end dates. In connection with the procedures,
CPA(R):12 incurred expenses of approximately $75,000. The impact of the year
2000 issues on CPA(R):12 will continue to depend on the way the issues have been
addressed by third parties that provide services to CPA(R):12. To date,
CPA(R):12 has not been adversely impacted to any significant extent by the
failure of third parties to address year 2000 issues. The task force has
developed contingency plans to address risks associated with year 2000 issues
that may arise. There can be no assurance that these plans will fully mitigate
any problems, if any arise. The foregoing year 2000 discussions constitute a
Year 2000 Readiness Disclosure within the meaning of the Year 2000 Readiness and
Disclosure and Disclosure Act of 1998.

                                      -5-
<PAGE>   35
                        REPORT of INDEPENDENT ACCOUNTANTS

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

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 Subsidiaries at December 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of Carey Property Advisors, a Pennsylvania limited partnership
(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,
which require that we plan and perform the audits 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 the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

New York, New York
April 7, 2000

                                      -6-
<PAGE>   36
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,

<TABLE>
<CAPTION>
                                                                     1998                      1999
                                                                  -----------               ------------
<S>                                                              <C>                        <C>
         ASSETS:

Real estate leased to others:
   Accounted for under the
      operating method:
         Land                                                    $ 44,342,243               $ 43,733,554
         Buildings                                                255,431,480                288,761,467
                                                                  -----------               ------------
                                                                  299,773,723                332,495,021
         Accumulated depreciation                                   9,520,197                 16,002,192
                                                                 ------------               ------------
                                                                  290,253,526                316,492,829
Net investment in direct financing leases                          36,820,657                 40,479,390
                                                                 ------------               ------------
   Real estate leased to others                                   327,074,183                356,972,219
Equity investments                                                 25,971,837                 45,068,997
Cash and cash equivalents                                          37,790,505                  8,847,449
Other assets, net of reserve for uncollected
   rents of $402,418 and $691,396 in 1998 and 1999                  7,767,129                  7,199,306
                                                                 ------------               ------------
           Total assets                                          $398,603,654               $418,087,971
                                                                 ============               ============


         LIABILITIES:

Limited recourse mortgage notes payable                          $109,261,349               $138,361,131
Accrued interest                                                      907,922                    422,598
Accounts payable to affiliates                                      1,839,533                  2,885,052
Accounts payable and accrued expenses                                 659,750                    487,020
Deferred acquisition fees payable to affiliate                      8,876,292                  7,911,752
Dividends payable                                                   5,805,617                  5,852,519
Prepaid rental income and security deposits                         4,996,561                  5,520,543
                                                                 ------------               ------------
         Total liabilities                                        132,347,024                161,440,615
                                                                 ------------               ------------
Minority interest                                                  26,969,738                 22,397,277
                                                                 ------------               ------------

Commitments and contingencies

         SHAREHOLDERS' EQUITY:

Common stock, $.001 par value; authorized, 40,000,000
  shares; issued and
    outstanding, 28,717,726 and 28,909,098 shares
   at December 31, 1998 and 1999                                       28,717                     28,909
Additional paid-in capital                                        257,668,301                259,581,829
Dividends in excess of accumulated earnings                       (19,903,364)               (23,346,983)
Accumulated other comprehensive income                              2,607,571                    483,269
                                                                 ------------               ------------
                                                                  240,401,225                236,747,024

Less, treasury stock at cost, 129,301 and 285,051
   shares at December 31, 1998 and 1999                            (1,114,333)                (2,496,945)
                                                                 ------------                -----------

           Total shareholders' equity                             239,286,892                234,250,079
                                                                 ------------               ------------
           Total liabilities and
               shareholders' equity                              $398,603,654               $418,087,971
                                                                 ============               ============
</TABLE>

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

                                      -7-
<PAGE>   37
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

                        CONSOLIDATED STATEMENTS of INCOME

For the year ended December 31,

<TABLE>
<CAPTION>
                                                               1997                    1998                1999
                                                            -----------             -----------         -----------
<S>                                                         <C>                     <C>                 <C>
Revenues:
   Rental income                                            $16,651,513             $27,097,224         $33,774,608
   Interest income from direct financing
      leases                                                  4,966,730               4,940,298           4,755,787
   Other interest income                                      3,695,176               2,525,620             746,045
                                                            -----------             -----------         -----------
                                                             25,313,419              34,563,142          39,276,440
                                                            -----------             -----------         -----------
Expenses:
   Interest expense                                           6,499,865               8,557,890           9,975,624
   Depreciation and amortization                              3,100,870               5,268,278           6,997,430
   General and administrative                                 2,209,171               2,566,317           2,926,870
   Property expense                                           2,786,890               3,989,894           4,897,155
   Writedown to fair value                                                            4,281,421
                                                            -----------             -----------         -----------
                                                             14,596,796              24,663,800          24,797,079
                                                            -----------             -----------         -----------
         Income before minority
             interest in income, income from
             equity investments, gain on sale
             and extraordinary item                          10,716,623               9,899,342          14,479,361

Minority interest in income                                                                              (1,043,103)
                                                            -----------             -----------         -----------
         Income before income from equity
             investments, gain on sale
             and extraordinary item                          10,716,623               9,899,342          13,436,258

Income from equity investments                                2,086,993               2,178,813           4,126,251
                                                            -----------             -----------         -----------
         Income before gain (loss) on sale
             and extraordinary item                          12,803,616              12,078,155          17,562,509

Gain on sale of securities                                                                                2,504,878
Loss on sale of real estate                                                                                (196,323)
                                                            -----------             -----------         -----------

         Income before extraordinary item                    12,803,616              12,078,155          19,871,064

Extraordinary loss on extinguishment
   of debt                                                                             (379,246)
                                                            -----------             -----------         -----------

          Net income                                        $12,803,616             $11,698,909         $19,871,064
                                                            ===========             ===========         ===========

Basic earnings per common share
   before extraordinary item                                       $.57                    $.42                $.69
Extraordinary item                                                                         (.01)
                                                            -----------             -----------         -----------
Basic earnings per share                                           $.57                    $.41                $.69
                                                            ===========             ===========         ===========

Weighted average shares outstanding-basic                    22,387,928              28,416,013          28,615,971
                                                            ===========             ===========         ===========
</TABLE>

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

                                      -8-
<PAGE>   38
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

                 CONSOLIDATED STATEMENTS of SHAREHOLDERS' EQUITY

                                              For the year ended December 31,

<TABLE>
<CAPTION>
                                                                         Dividends in   Accumulated
                                          Additional                       Excess of       Other
                             Common         Paid-in    Comprehensive     Accumulated    Comprehensive    Treasury
                              Stock        Capital       Income            Earnings        Income          Stock        Total
                             -------    ------------   -------------   ---------------  --------------  ----------   ------------
<S>                           <C>       <C>            <C>           <C>                <C>             <C>          <C>
Balance at December 31, 1996  $15,668   $139,896,651                  $ (2,584,954)                     $(140,008)    $137,187,357

12,666,048 shares issued
  at $10 per share, net
  of offering costs
  of $12,708,531               12,666    113,939,283                                                                   113,951,949

Dividends declared                                                     (12,987,628)                                    (12,987,628)

Comprehensive income:
Net income                                              $12,803,616     12,803,616                                      12,803,616
Other comprehensive income:
  Unrealized appreciation
   of marketable equity
   securities for 1997                                    3,031,300                       3,031,300                      3,031,300
                                                        -----------
                                                        $15,834,916
                                                        ===========
Repurchase of 53,648 shares                                                                              (412,927)        (412,927)
                              -------   ------------                   -----------        ---------     ---------      -----------

Balance at December 31, 1997   28,334    253,835,934                    (2,768,966)       3,031,300      (552,935)     253,573,667

383,275 shares issued at
  $10 per share                   383      3,832,367                                                                     3,832,750
Dividends declared                                                     (28,833,307)                                    (28,833,307)

Comprehensive income:
Net income                                              $11,698,909     11,698,909                                      11,698,909
Other comprehensive income:
  Unrealized appreciation
   of marketable equity
   securities for 1998                                     (423,729)                       (423,729)                      (423,729)
                                                        -----------
                                                        $11,275,180
                                                        ===========
Repurchase of 61,258 shares                                                                              (561,398)        (561,398)
                              -------   ------------                   -----------        ---------     ---------       -----------
Balance at December 31, 1998   28,717    257,668,301                   (19,903,364)       2,607,571    (1,114,333)     239,286,892
191,372 shares issued
  at $10 per share                191      1,913,529                                                                     1,913,720

Dividends declared                                                     (23,314,683)                                    (23,314,683)
Comprehensive income:
Net income                                              $19,871,064     19,871,064                                      19,871,064
                                                        -----------

Other comprehensive income:
  Change in unrealized
   appreciation resulting
   from sale of securities                               (2,177,400)

  Unrealized appreciation of
   marketable securities
   for 1999                                                  53,098
                                                        -----------
                                                         (2,124,302)                     (2,124,302)                    (2,124,302)
                                                        -----------
                                                        $17,746,762
                                                        ===========





Repurchase of 155,750 shares                                                                           (1,382,612)       (1,382,612)

                              -------   ------------                   -----------        ---------     ---------      -----------
Balance at December 31, 1999  $28,908   $259,581,830                  $(23,346,983)      $  483,269   $(2,496,945)     $234,250,079
                              =======   ============                  =============      ==========   ===========      ============
</TABLE>

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

                                      -9-
<PAGE>   39
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

                      CONSOLIDATED STATEMENTS of CASH FLOWS

                         For the year ended December 31,

<TABLE>
<CAPTION>
                                                                     1997                       1998                  1999
                                                                 ------------               ------------          ------------
<S>                                                              <C>                        <C>                   <C>
Cash flows from operating activities:
  Net income                                                     $ 12,803,616               $ 11,698,909          $ 19,871,064
  Adjustments to reconcile net income
      to net cash provided by operating activities:
      Depreciation and amortization                                 3,100,870                  5,268,278             6,997,430
      Straight-line adjustments and other
        noncash rent adjustments                                     (491,601)                (1,173,220)           (1,119,519)
      Minority interest in income                                                                                    1,043,103
      Income from equity investments in excess
        of distributions received                                    (543,245)                  (230,590)              (32,552)
      Issuance of stock in satisfaction of
        performance fees                                                                                             1,913,720
      Provision for uncollected rents                                 162,137                    240,281               288,978
      Extraordinary loss on extinguishment of debt                                               379,246
      Gain on sales, net                                                                                            (2,308,555)
      Writedown to fair value                                                                  4,281,421
      Change in operating assets and liabilities, net (a)           4,923,814                  1,316,973             1,378,764
                                                                 ------------               ------------          ------------

           Net cash provided by operating activities               19,955,591                 21,781,298            28,032,433
                                                                 ------------               ------------          ------------

Cash flows from investing activities:

  Proceeds from sales                                                                                                1,767,389
  Payment of deferred acquisition fees                                                                              (1,529,131)
  Purchases of real estate and equity investments
      and other capitalized costs                                (138,960,203)               (79,286,006)          (55,188,520)
                                                                 ------------               ------------          ------------

           Net cash used in investing activities                 (138,960,203)               (79,286,006)          (54,950,262)
                                                                 ------------               ------------          ------------

Cash flows from financing activities:

  Proceeds from stock issuance, net of costs                      113,951,949
  Dividends paid                                                  (15,081,819)               (23,027,690)          (23,267,781)
  Payments of mortgage principal                                   (1,707,976)                (2,174,394)           (3,400,218)
  Prepayment of mortgage payable                                   (4,096,000)                (7,957,949)
  Proceeds from issuance of mortgages                              48,411,509                 30,500,000            32,500,000
  Deferred financing costs                                           (530,217)                  (497,069)             (859,052)
  Capital contributions from (distributions to)
      minority partner                                                                        26,969,738            (4,179,218)
  Distribution to minority interests                                                                                (1,436,346)
  Purchase of treasury stock                                         (412,927)                  (561,398)           (1,382,612)
  Payment made on extinguishment of debt                                                        (379,246)
                                                                 ------------               ------------          ------------

           Net cash provided by financing activities              140,534,519                 22,871,992            (2,025,227)
                                                                 ------------               ------------          ------------

           Net increase (decrease) in cash and
              cash equivalents                                     21,529,907                (34,632,716)          (28,943,056)

Cash and cash equivalents, beginning of year                       50,893,314                 72,423,221            37,790,505
                                                                 ------------               ------------          ------------

      Cash and cash equivalents, end of year                     $ 72,423,221               $ 37,790,505          $  8,847,449
                                                                 ============               ============          ============


Noncash operating and investing activities:

Deferred acquisition fee payable to affiliate                    $  3,055,049               $  2,407,146          $    964,540
                                                                 ============               ============          ============
</TABLE>

(a)  Excludes changes in accounts payable and accrued expenses and accounts
     payable to affiliates balances which relate to the raising of capital
     (financing activities) rather than the Company's real estate operations.

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

                                      -10-
<PAGE>   40
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

                   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 limited liability
               company (collectively, the "Company"). 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
               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. 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.

            The Company diversifies its real estate investments among various
               corporate tenants engaged in different industries and by property
               type throughout the United States.

            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 5). 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, 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.

            For properties under construction, interest on mortgages is
               capitalized rather than expensed 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 or, for
               certain leases for retail properties, sales overrides.

            The Company assesses the recoverability of its real estate assets,
               including residual interests, based on projections of
               undiscounted cash flows over the life of such assets. In the
               event that such cash flows are insufficient, the assets are
               adjusted to their estimated fair value.

         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 general partnerships and limited
               liability companies in which its ownership interests range from
               33 1/3% to 50%, 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.

                                      -11-
<PAGE>   41
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued




         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, 1998 and
               1999, 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.

         Other Assets:

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

            The Company's marketable equity securities at December 31, 1998 and
               1999 consist of 68,261 and 11,261 shares of common stock of Etec
               Systems, Inc. ("Etec"), respectively, and are classified as
               available-for-sale securities and are reported at fair value with
               the Company's interest in unrealized gains and losses on these
               securities reported as a separate component of shareholder's
               equity (accumulated other comprehensive income) until realized.
               As of December 31, 1998 and 1999, fair value of the Etec common
               stock was $2,607,571 and $483,269, respectively. The Company sold
               57,000 shares of Etec in 1999 at a gain of $2,356,001. The
               Company sold the remaining 11,261 in January 2000 at a gain of
               approximately $775,000.

         Offering Costs:

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

         Treasury Stock:

            Treasury stock is recorded at cost.

         Deferred Acquisition Fees:

            Fees are payable for services provided by Carey Property Advisors, a
               Pennsylvania limited partnership (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.

                                      -12-
<PAGE>   42
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



         Federal Income Taxes:

            The Company qualifies and intends to continue to qualify as a real
               estate investment trust ("REIT") under the Internal Revenue Code
               of 1986. The Company is not subject to Federal income taxes,
               provided it distributes at least 95% of its REIT taxable income
               to its shareholders and meets other conditions.

        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
               concluded that it engages in a single operating segment.

         Reclassification:

            Certain 1997 and 1998 amounts have been reclassified to conform to
               the 1999 financial statement presentation.

 2.     Organization and Offering:

            The Company was formed on July 30, 1993 for the purpose of engaging
               in the business of investing in and owning industrial and
               commercial real estate. Subject to certain restrictions and
               limitations, the business of the Company is managed by the
               Advisor.

            An initial offering of the Company's shares which commenced on
               February 18, 1994 concluded on January 26, 1996, at which time
               the Company had issued an aggregate of 8,135,992 shares
               ($81,359,920). On February 2, 1996, the Company commenced an
               offering for a maximum of 20,000,000 shares of common stock. The
               shares were offered to the public on a "best efforts" basis at a
               price of $10 per share. On August 22, 1997, the Company
               registered an additional 300,000 shares. The second offering was
               concluded on September 18, 1997, by which time 20,198,459
               ($201,984,590) shares were issued.

            In connection with performing services relating to the Company's
               real estate purchases, affiliates of the Company received
               acquisition fees of $862,415, $724,763 and $305,783 in 1997, 1998
               and 1999, respectively.

 3.     Transactions with Related Parties:

            The Company's asset management and performance fees are each 1/2 of
               1% of Average Invested Assets, as defined in the Advisory
               Agreement between the Company and the Advisor. Asset management
               fees were $1,202,124, $1,751,817 and $2,084,495 in 1997, 1998 and
               1999, respectively, with performance fees in like amount. General
               and administrative expense reimbursements consist primarily of
               the actual cost of personnel needed to provide administrative
               services necessary to the operation of the Company. General and
               administrative expense reimbursements were $1,121,018, $560,957
               and $794,930 in 1997, 1998 and 1999, respectively.

            In connection with performing services related to the Company's real
               estate purchases in 1997, 1998 and 1999, affiliates of the
               Company received structuring and development fees of $2,156,038,
               $1,811,907 and $764,458, respectively. The affiliate is entitled
               to receive deferred acquisition fees of $9,440,586 as of December
               31, 1999 over a period of no less than eight years, subject to
               the 2%/25% Guidelines limitation described below. During 1999
               deferred acquisition fees of $1,529,131 were paid to the Advisor.

                                      -13-
<PAGE>   43
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



            The Company's interests in properties jointly held with affiliated
               entities range from 27.38% to 50.1% with such interests held as
               tenants-in-common and through ownership interests in general
               partnerships and limited liability companies. The Company
               accounts for its undivided interest in assets and liabilities
               relating to tenants-in-common interests on a proportional basis.
               Ownership interests in general partnerships and limited liability
               companies, owned with an affiliate, are accounted for under the
               equity method when such ownership interest is 50% or less.
               Ownership interests in general partnership and limited liability
               companies which are greater than 50% are consolidated with the
               ownership interest of the affiliate accounted for as a minority
               interest.

            The Advisor is obligated to reimburse the Company for the amount by
               which operating expenses of the Company exceed the 2%/25%
               Guidelines (the greater of 2% of Average Invested Assets or 25%
               of Net Income) as defined in the Advisory Agreement. If in any
               year when 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. If the
               Independent Directors find that such expenses were justified
               based on any unusual and nonrecurring factors which they deem
               sufficient, the Advisor may be reimbursed in future years for the
               full amount or any portion of such excess expenses, but only to
               the extent such reimbursement would not cause the Company's
               operating expenses to exceed the 2%/25% Guidelines in any such
               year.

           The Company is a participant in an agreement with W. P. Carey & Co.,
               Inc. ("W. P. Carey") and certain affiliates for the purpose of
               leasing office space used for the administration of real
               estate entities and W. P. Carey 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 1997, 1998 and
               1999 were $69,825, $143,003 and $208,046, respectively.


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

            Scheduled future minimum rents, exclusive of renewals, under
               noncancellable operating leases amount to approximately
               $35,795,000 in 2000; $35,958,000 in 2001; $36,035,000 in 2002;
               $36,246,000 in 2003, $36,353,000 in 2004 and aggregate
               approximately $519,938,000 through 2020.

            Contingent rents were approximately $32,000, $71,000 and $189,000 in
               1997, 1998 and 1999, respectively.

5.      Net Investment in Direct Financing Leases:

            Net investment in direct financing leases is summarized as follows:


<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                      ------------------------------------------
                                                                         1998                           1999
                                                                      ------------                  ------------
<S>                                                                   <C>                           <C>
           Minimum lease payments
             receivable                                               $ 83,497,133                  $ 85,854,794
           Unguaranteed residual value                                  36,300,545                    39,822,801
                                                                      ------------                  ------------
                                                                       119,797,678                   125,677,595
           Less: unearned income                                        82,977,021                    85,198,205
                                                                      ------------                  ------------
                                                                      $ 36,820,657                  $ 40,479,390
                                                                      ============                  ============
</TABLE>

            Scheduled future minimum rents, exclusive of renewals, under
               noncancellable direct financing leases are approximately
               $4,857,000 in each of the years 2000 through 2003; and $4,897,000
               in 2004 and aggregate approximately $85,855,000 through 2024.

           Contingent rents were approximately $13,000 in 1998 and $77,000 in
               1999. The Company did not earn contingent rents in 1997.

                                      -14-
<PAGE>   44
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



6.      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
               $251,811,000. As of December 31, 1999, mortgage notes payable had
               interest rates ranging from 6.5% to 10.5% per annum.

            Scheduled principal payments during each of the five years following
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
               Year Ending December 31,
               ------------------------
<S>                                             <C>

                  2000                           $ 11,877,668
                  2001                              4,424,209
                  2002                              9,202,225
                  2003                              9,905,894
                  2004                              7,688,179
                  Thereafter                       95,262,956
                                                 ------------
                     Total                       $138,361,131
                                                 ============
</TABLE>

            On June 25, 1999, the Company entered into a credit agreement with
               PNC Bank, N. A. ("PNC") and The Bank of New York which provides
               for a $40,000,000 line of credit. The credit agreement has a
               one-year term through June 23, 2000 with a one-year extension at
               the Company's option providing that there are no events of
               default. As of December 31, 1999, the Company had not drawn any
               advances from the line of credit.

            Advances from the credit agreement will bear interest, at the option
               of the Company, at an annual rate of either (i) the London
               InterBank Offered Rate plus 1.8% or (ii) the lesser of PNC's
               prime rate plus .25% or the Federal Fund Effective Rate plus
               .50%. In addition, the Company will pay a fee of .25% per annum
               on the unused portion of the credit line.

            The credit agreement has financial covenants that require the
               Company to (i) maintain a minimum equity value of $200,000,000
               plus 85% of the cash proceeds received by the Company from
               issuance of any new equity interests, (ii) maintain cash balances
               of at least $2,000,000 and (iii) meet or exceed certain operating
               and coverage ratios. Such operating and coverage calculations
               include but are not limited to (a) maintaining a ratio of
               earnings before interest, taxes, depreciation and amortization to
               debt service payments of no less than 2:1, (b) debt leverage not
               to exceed 55% of Total Market Value and (c) a limitation on
               build-to-suit properties under construction to no more than 20%
               of Total Market Value. As of December 31, 1999, the Company was
               in compliance with the financial covenants.

            Interest paid, excluding capitalized interest, was $5,932,311,
               $7,758,956 and $10,460,588 in 1997, 1998, and 1999, respectively.

            In connection with the placement of mortgages, fees of $862,415,
               $724,763 and $705,783 were paid to an affiliate of the Company in
               1997, 1998 and 1999, respectively.

                                      -15-
<PAGE>   45
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



7.      Dividends Payable:

                  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, 1999, dividends paid per share
reported for tax purposes were as follows:

<TABLE>
<CAPTION>
                     1997    1998    1999
                    -----   -----   -----
<S>                 <C>     <C>     <C>
Ordinary income     $ .81   $ .56   $ .56
Capital gains          --      --     .09
Return of capital      --     .25     .16
                    -----   -----   -----
                    $ .81   $ .81   $ .81
                    =====   =====   =====
</TABLE>

           A dividend of $.2039 per share for the quarter ended December
               31,1999 ($5,852,519) was declared in December 1999 and paid in
               January 2000.

 8.     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 1997, 1998 and 1999 lease revenues are as
               follows:

<TABLE>
<CAPTION>

                                                           1997                  1998                 1999
                                                        -----------          -----------           -----------
<S>                                                     <C>                  <C>                   <C>
        Per Statements of Income:
          Interest income from direct
             financing leases                           $ 4,966,730          $ 4,940,298           $ 4,755,787
          Rental income from operating leases            16,651,513           27,097,224            33,774,608
        Adjustment:
          Share of leasing revenue applicable
             To minority interests                                                                  (1,675,736)
          Share of lease revenues from
             equity investments                           4,422,114            4,501,027             9,914,975
                                                        -----------          -----------           -----------
                                                        $26,040,357          $36,538,549           $46,769,634
                                                        ===========          ===========           ===========
</TABLE>

                                      -16-
<PAGE>   46
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued


            In 1997, 1998 and 1999, 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>
                                                     1997           %             1998          %            1999          %
                                                  -----------   --------    -----------    ---------    -----------    ---------
<S>                                               <C>           <C>         <C>            <C>          <C>            <C>
         Etec Systems, Inc. (a)                   $ 1,556,393          6%   $ 2,857,105            8%   $ 4,664,118           10%
         Advanced Micro Devices, Inc. (b)                                        84,672                   3,048,500            7
         Perry Graphic Communications, Inc.
             and Judd's Incorporated                   82,800                 2,191,567            6      2,191,567            5
         Spectrian Corporation                      1,925,000          7      1,925,000            5      1,947,630            4
         Scott Companies, Inc.                      1,826,069          7      1,940,850            5      1,940,850            4
         Westell Technologies, Inc.                   441,853          2      1,916,387            5      1,916,387            4
         Best Buy Co., Inc. (b)                     1,793,239          7      1,787,480            5      1,779,485            4
         Career Education Corporation                 202,701          1      1,220,308            3      1,736,808            4
         QMS, Inc.                                  1,454,097          6      1,689,375            5      1,689,375            4
         Telos Corporation                          1,447,000          5      1,447,000            4      1,519,193            3
         Q Clubs, Inc.                              1,390,123          5      1,404,608            4      1,416,300            3
         PPD Development, Inc.                      1,302,000          5      1,309,476            4      1,391,715            3
         Sicor, Inc. (b)                            1,309,000          5      1,309,000            4      1,377,223            3
         The Upper Deck Company (b)                 1,319,875          5      1,319,875            4      1,319,875            3
         Del Monte Corporation                      1,286,250          5      1,286,250            4      1,286,250            3
         Silgan Containers Corporation                491,260          2      1,165,952            3      1,275,000            3
         The Bon-Ton Stores, Inc.                     921,294          4      1,270,750            3      1,270,750            3
         BAE Systems, Inc.                            334,734          1      1,262,030            3      1,262,030            3
         Childtime Childcare, Inc.                    218,813          1        670,662            2      1,039,347            2
         Intesys Technologies, Inc. (b)                                                                   1,028,831            2
         Garden Ridge Corporation                     995,764          4        995,764            3        995,764            2
         Compucom Systems, Inc. (b)                                                                         982,213            2
         Texas Freezer Company, Inc.                                            304,196            1        930,750            2
         Big V Holding Corporation                    813,741          3        828,976            2        891,449            2
         Nutramax Products, Inc.                                                637,244            2        831,493            2
         Rheometric Scientific, Inc.                  859,589          3        817,922            2        831,020            2
         The Garden Companies, Inc.                   816,400          3        816,400            2        816,400            2
         Celadon Group, Inc.                          703,944          3        718,791            2        731,592            2
         Randall International, Inc.                                                                        697,724            1
         Vermont Teddy Bear Co., Inc.                 296,857          1        652,400            2        652,400            1
         Lanxide Corporation                        1,030,000          4      1,030,000            3        618,976            1
         Viasystems, New England                      284,628          1        590,000            2        590,000            1
         Sentury Technology Corporation               524,000          2        524,000            1        524,000            1
         International Management
             Consulting, Inc.                                                                               492,253            1
         Wal-Mart Stores, Inc.                        397,226          2        397,226            1        397,226            1
         Ameriserve Food Distribution, Inc. (b)                                                             378,849
         Compass Bank for Savings                      15,707                   167,283                     185,282
         Balanced Care Corporation                                                                          121,009
                                                  -----------   --------    -----------    ---------    -----------    ---------
                                                  $26,040,357        100%   $36,538,549          100%   $46,769,634          100%
                                                  ===========   ========    ===========    =========    ===========    =========
</TABLE>

         (a) Net of amounts applicable to minority interests owned by Corporate
         Property Associates 14 Incorporated ("CPA(R): 14") (b) Represents the
         Company's proportionate share of lease revenues from its equity
         investment.

                                      -17-
<PAGE>   47
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued


9.  Equity Investments:

            The Company owns equity interests with affiliates in eight
               partnerships and limited liability companies. The affiliates have
               investment objectives that are similar to those of the Company.
               These ownership interests consist of a 37% interest in a general
               partnership which net leases 17 retail stores to Best Buy Co.,
               Inc., a 50% interest in a general partnership that net leases two
               office buildings to Sicor, Inc., a 50% interest in a limited
               liability company that net leases two office buildings to The
               Upper Deck Company, a 33 1/3% interest in a limited liability
               company that net leases a building to Advanced Micro Devices,
               Inc., a 33 1/3 % interest in a limited liability company that net
               leases a building to Compucom Systems, Inc. ("Compucom"), a 50%
               interest in a limited liability company that net leases a
               building to Intesys Technologies, Inc. ("Intesys") and 40%
               interests in two limited liability companies that own four
               properties leased to Ameriserve Food Distribution, Inc.
               ("Ameriserve"). Two of the buildings net leased to Ameriserve are
               being expanded and another is under construction. The interests
               in the Intesys, Compucom and Ameriserve properties were acquired
               in 1999.

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

<TABLE>
<CAPTION>
                                                            1997              1998             1999
                                                           -------          --------         --------
<S>                                                        <C>              <C>              <C>
                  Assets (primarily real estate)                            $184,060         $296,378
                  Liabilities (primarily mortgage

                    notes payable)                                           123,266          189,151
                                                                            --------         --------
                  Capital                                                   $ 60,794         $107,227
                                                                            ========         ========

                  Revenues (primarily rental revenues)     $10,104          $ 10,343         $ 25,338
                  Expenses (primarily interest on
                    mortgages and depreciation)              5,387             5,394           15,010
                                                           -------          --------         --------
                  Net income                               $ 4,717          $  4,949         $ 10,328
                                                           =======          ========         ========
</TABLE>


10.     Writedown to Fair Value:

            In March 1996, the Company entered into a direct financing lease for
               a property in Newark, Delaware with Lanxide Corporation
               ("Lanxide") that was purchased for $8,679,000. The Company
               financed the purchase with $4,400,000 from two limited recourse
               mortgages. In January 1998, Lanxide filed a voluntary bankruptcy
               petition and subsequently vacated the property. Based on the
               Company's expectation that future cash flow from the properties
               would be reduced, Management concluded that there had been an
               impairment of the value to the property. Based on a writedown of
               the Company's interest in the property to an estimated fair value
               of $4,398,000, the Company incurred a noncash charge of
               $4,281,421 in 1998

11.     Extraordinary Charge on Extinguishment of Debt:

            In February 1995, the Company purchased land and buildings in
               Hayward, California for $11,860,000 and entered into a net lease
               with Etec Systems, Inc. ("Etec"). In August 1996, the Company
               entered into a commitment to construct an additional building at
               the Etec property, and in January 1997, the Company completed
               construction of the building for $5,241,000.

            In February 1998, the Company entered into a series of transactions
               including paying off the existing limited recourse mortgage loan
               on the Etec property, funding additional improvements at the Etec
               property of approximately $11,518,000, entering into a commitment
               and construction agency agreement to fund additional improvements
               of $52,356,000, completed in 1999, amending the existing lease
               with Etec and transferring ownership of the Etec property to a
               limited liability company in which CPA(R):14 has an ownership
               interest. At that time, the Company paid off the $7,957,947
               existing limited recourse mortgage loan collateralized by the
               Etec property. In connection with paying off the loan, the
               Company incurred a prepayment charge of $379,246 which has been
               recorded in 1998 as an extraordinary charge on the extinguishment
               of debt.

                                      -18-
<PAGE>   48
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



12.     Gains (Losses) on Sale of Real Estate and Securities:

            In February 1995, the Company was granted warrants for 159,314
               shares of Etec Systems, Inc. ("Etec") common stock, exercisable
               at $0.45 share in connection with structuring its net lease with
               ETEC. The Company agreed, subsequently to cancel its rights to
               90,546 warrants for $2,634,000 and used such funds to prepay a
               portion of the then outstanding mortgage loan on the Etec
               property. In September 1997, the Company exercised a cashless
               conversion of its remaining 68,768 Etec warrants for which it
               received 68,261 Etec shares. In December 1999, the Company sold
               57,000 shares of its Etec stock at a gain of $2,356,001. The
               Company sold its remaining Etec shares in January 2000. The
               Company also recognized a gain of $148,877 in connection with the
               redemption of warrants that had been granted by Q Clubs, Inc in
               connection with structuring net leases with the Company.

            In February 1996, the Company purchased land and building in
               Piscataway, New Jersey for $6,300,000 and entered into a net
               lease transaction with Rheometric Scientific, Inc.
               ("Rheometric"). The property included excess land which under the
               lease could be disposed of at Rheometric's option with the
               proceeds divided equally between the Company and Rheometric. In
               July 1998, Rheometric agreed that its share of any proceeds be
               held in an interest bearing escrow account, and be released to
               Rheometric only upon Rheometric's satisfaction of certain
               financial covenants under the lease. On July 14, 1999, the
               Company sold the excess land and recognized a loss on sale of
               $196,323. The Company currently holds $256,315 in an interest
               bearing account on behalf of Rheometric. Annual revenue from the
               Rheometric lease has not changed as a result of the sale of land.

13.     Disclosures About Fair Value of Financial Instruments:

            The carrying amounts of cash, receivables and accounts payable and
               accrued expenses approximate fair value because of the short
               maturity of these items.

            The Company estimates that the fair value of mortgage notes payable
               approximates the carrying value of such mortgage notes was
               approximately $109,681,000 and $135,848,000 at December 31, 1998
               and 1999, respectively. The fair value of the mortgage notes
               payable was evaluated using a cash flow model with a discount
               rate that takes into account the credit of the tenant and
               interest rate risk.

            In conjunction with executing a number of its leases, the Company
               was granted warrants to purchase common stock of the lessee or
               lease guarantor. To the extent that the lessee is not a publicly
               traded company, the warrants were judged at the time of issuance
               to be speculative in nature and a nominal cost basis is
               attributed to them. The Company believes it is not practicable to
               estimate the fair value of its stock warrants for closely-held
               companies. For publicly traded companies, fair value represents
               the amount by which quoted market value of common stock exceeds
               the exercise price at December 31, 1999. The Company has warrants
               to purchase, (a) 150,000 shares of Vermont Teddy Bear Co., Inc.
               ("Vermont Teddy Bear") common stock, (b) 100,000 shares of QMS
               common stock and (c) 464,160 shares of Rheometric Scientific,
               Inc. ("Rheometric") common stock, all of which have
               publicly-traded common stock. There is no market for the stock
               warrants of these companies. As of December 31, 1999, the
               exercise price of the QMS and Rheometric warrants was in excess
               of the quoted value for their common stock.

14.     Accounting Pronouncement:

            In June 1998, the Financial Accounting Standards Board issued
               Statement of Financial Accounting Standards ("SFAS") No. 133,
               "Accounting for Derivative Instruments and Hedging Activities",
               effective January 1, 2000, which establishes accounting and
               reporting standards for derivative instruments. The Company
               believes that upon adoption SFAS will not have a material impact
               on the consolidated financial statements.

                                      -19-
<PAGE>   49
MARKET FOR THE PARTNERSHIP'S COMMON STOCK AND RELATED
         STOCKHOLDER MATTERS

                  Except for limited or sporadic transactions, there is no
established public trading market for the Shares of the Company.

                  As of December 31, 1999 there were 13,968 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 its Distributable REIT
Taxable Income, as defined in the Prospectus, to maintain its status as a REIT.
The following shows the frequency and amount of dividends paid for the past
three years.

<TABLE>
<CAPTION>
                                      1997              1998                 1999
                                     ------            ------               ------
<S>                                  <C>               <C>                 <C>
                  First quarter      $.2015            $.2023              $.2031
                  Second quarter      .2017             .2025               .2033
                  Third quarter       .2019             .2027               .2035
                  Fourth quarter      .2021             .2029               .2037
                                     ------            ------              ------
                                     $.8072            $.8104              $.8136
                                     ======            ======              ======
</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 for the
year ended December 31, 1999 as filed with the Securities and Exchange
Commission.

                                      -20-