<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K
   ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934

                      For the year ended DECEMBER 31, 2001

                                       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 20, 2002.
Non-affiliates held 28,808,080 shares of common stock, $.001 Par Value
outstanding at March 20, 2002.

CPA(R):12 incorporates by reference its definitive Proxy Statement with respect
to its 2002 Annual Meeting of Shareholders, to be filed with the Securities and
Exchange Commission within 120 days following the end of its fiscal year, into
Part III of this Report.

================================================================================
<PAGE>
                                     PART I

Item 1. Business.

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, 2001,
CPA(R):12's portfolio consisted of 97 properties leased to 42 tenants and
totaling more than 10.2 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 Asset Management Corp. 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 Asset Management Corp. also
provides office space and other facilities for CPA(R):12. Carey Asset Management
Corp. 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 Asset Management Corp. and pays certain
transactional fees. CPA(R):12 also reimburses Carey Asset Management Corp. for
certain expenses. Carey Asset Management Corp. also serves in this capacity for
Corporate Property Associates 10 Incorporated, Carey Institutional Properties
Incorporated, Corporate Property Associates 14 Incorporated and Corporate
Property Associates 15 Incorporated. Carey Asset Management Corp. is a
wholly-owned subsidiary of W.P. Carey & Co. LLC, a publicly-traded company on
the New York Stock Exchange and Pacific Exchange under the symbol "WPC."

CPA(R):12's principal executive offices are located at 50 Rockefeller Plaza, New
York, NY 10020 and its telephone number is (212) 492-1100. As of December 31,
2001, CPA(R):12 had no employees. Carey Asset Management Corp. employs 25
individuals who perform services for CPA(R):12.


BUSINESS OBJECTIVES AND STRATEGY

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

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

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

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

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

                                      -1-
<PAGE>
DEVELOPMENTS DURING 2001

In January 2001, CPA(R):12 obtained $10,000,000 from the issuance of shares of
common stock pursuant to a private placement offering to an institutional
shareholder. The shareholder had previously purchased 1,000,000 shares in CPA
12's public offering.

On May 1, 2001, CPA(R):12 sold its property in San Diego, California leased to
BAE Systems, Inc. ("BAE") for $30,497,865, net of transaction costs. The funds
were held by an intermediary in an escrow account for the purpose of entering
into a Section 1031 noncash exchange which, under the Internal Revenue Code,
allowed CPA(R):12 to acquire like-kind real properties within a stated period in
order to defer a taxable gain of approximately $9,800,000. The noncash exchange
was completed and the escrow funds used in connection with the acquisition in
2001 of properties net leased to Special Devices, Inc. ("SDI"), Jen-Coat, Inc.
and Orbseal, LLC. The taxable gain will not be recognized until the
newly-acquired properties are sold.

On June 5, 2001, CPA(R):12 and an affiliate, Corporate Property Associates 14
Incorporated ("CPA(R):14"), each with 50% ownership interests as
tenants-in-common, purchased properties in Mesa, Arizona and Moorpark,
California for $37,696,335 and entered into a net lease with SDI. The lease
provides for an initial annual rent of $3,924,000 with increases every two years
based on a formula indexed to the consumer price index. The lease has an initial
term of twenty years with two ten-year renewal terms. In connection with the
purchase, CPA(R):12 and CPA(R):14 obtained a $17,500,000 limited recourse
mortgage loan from a third-party lender and a $4,550,000 subordinated loan from
SDI. The $17,500,000 loan provides for monthly payments of interest and
principal of $126,826 at an annual rate of 7.87% based on a thirty-year
amortization schedule. The loan matures on July 1, 2011, at which time a balloon
payment is scheduled. The loan may not be voluntarily prepaid until three months
prior to maturity and is subject to prepayment premiums in the event of a
voluntary prepayment. CPA(R):12 is accounting for its interest in the SDI
properties under the equity method of accounting.

The $4,550,000 subordinated note from SDI provides for quarterly payments of
principal and interest of $113,750 at an annual rate of 9.3807% based on a
thirty-year amortization schedule. The loan, which matures on July 31, 2021, may
be extended under certain circumstances and provides for rights of offset in the
event that SDI does not meet its rental obligations or defaults on the lease.

On June 20, 2001, CPA(R):12 obtained a limited recourse mortgage loan of
$7,385,836 collateralized by a lease assignment on a property in Mendota
Heights, Minnesota leased to Career Education Corporation. The loan provides for
monthly payments of principal and interest of $52,048 and bears interest at an
annual rate of 7.58%, based on a thirty-year amortization schedule. The loan
matures in June 2011, at which time a balloon payment is due.

On August 15, 2001, CPA(R):12 purchased two properties in Westfield,
Massachusetts for $11,518,325 and entered into a net lease with Jen-Coat, Inc.
The lease provides for an initial annual rent of $1,210,000 with increases every
three years based on a formula indexed to the Consumer Price Index ("CPI"). The
lease has an initial term twenty years with two ten-year renewal terms. On
September 7, 2001, CPA(R):12 obtained a limited recourse mortgage loan of
$7,150,000 collateralized by a deed of trust and a lease assignment on the
Jen-Coat properties. The loan provides for monthly payments of principal and
interest of $49,018 and bears interest at an annual rate of 7.31%, based on a
thirty-year amortization schedule. The loan matures in November 2011, at which
time a balloon payment is scheduled.

On September 28, 2001, CPA(R):12 purchased a property in Richmond, Missouri for
$9,947,644 and entered into a net lease with Orbseal, LLC. The terms of the
lease are unconditionally guaranteed by Orbseal Europe I LLC and Orbseal -
Australia LLC, affiliates of Orbseal, LLC. The lease provides for an initial
annual rent of $1,011,750 with increases every three years based on a formula
indexed to the CPI. The lease has an initial term of twenty years with two
ten-year renewal terms. On November 15, 2001, CPA(R):12 obtained a limited
recourse mortgage loan of $6,175,000 collateralized by a deed of trust on the
Orbseal property. The loan provides for monthly payments of principal and
interest of $42,124 and bears interest at an annual rate of 7.25%, based on a
thirty-year amortization schedule. The loan matures in December 2011, at which
time a balloon payment is scheduled.

On October 2, 2001, CPA(R):12 obtained a limited recourse mortgage loan of
$2,800,000 collateralized by a lease assignment on a property in Mechanicsburg,
Pennsylvania leased to Balanced Care Corporation. The loan provides for monthly
payments of principal and interest of $24,299 and bears interest at an annual
rate of 8.5% for sixty months and at a variable annual rate of one percent over
the lender's prime rate thereafter (subject to a maximum annual rate of 14.5%
and a minimum of 7%), based on a thirty-year amortization schedule. The loan
matures in October 2021.

                                      -2-
<PAGE>
On October 19, 2001, CPA(R):12 entered into a credit agreement with PNC Bank,
National Association which provides for a $20,000,000 revolving line of credit
to CPA(R):12. The credit agreement has a two-year term through October 19, 2003.
The proceeds of the credit facility may be used by CPA(R):12 for general
corporate purposes. This credit facility replaces a prior $20,000,000 credit
facility which expired in August 2001. Advances of the credit facility will bear
interest, at the option of CPA(R):12, at an annual rate of either (i) the London
InterBank Offered Rate plus 1.8% or (ii) the greater of PNC's prime rate or the
Federal Fund Effective Rate plus .50%. In addition, CPA(R):12 will pay a fee of
0.25% per annum on the unused portion of the credit line. The credit agreement
has financial covenants that require CPA(R):12 to (i) maintain a minimum
stockholders' equity of $200,000,000 plus 85% of the cash proceeds received by
CPA(R):12 from issuance of any new equity interest, (ii) maintain certain
restrictions on indebtedness and (iii) meet or exceed certain operating and
coverage ratios. Such operating and coverage ratios include but are not limited
to ratios of (a) earnings before interest, taxes, depreciation and amortization
to debt service payments and (b) debt to market value.


ACQUISITION STRATEGIES

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

Carey Asset Management Corp.'s strategy in structuring its net lease investments
for 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, generally
limited recourse mortgage financing, when available on favorable terms.
CPA(R):12 has approximately $165,889,000 in property level debt outstanding.
These mortgages mature between the current year and 2020 and have interest rates
between 5.64% and 9%. CPA(R):12 also has available to it a $20,000,000 credit
facility, as discussed above, with no outstanding balance as of December 31,
2001. Carey Asset Management Corp. continually seeks opportunities and considers
alternative financing techniques to finance properties not currently subject to
debt, refinance debt, reduce interest expense or improve its capital structure.


TRANSACTION ORIGINATION

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

     Tenant Evaluation.  Carey Asset Management Corp. subjects each potential
     tenant to an extensive evaluation of its credit, management, position
     within its industry, operating history and profitability. Carey Asset

                                      -3-
<PAGE>
     Management Corp.  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 Asset Management Corp. may also seek to enhance
     the likelihood of a tenant's lease obligations being satisfied, such as
     through a letter of credit or a guaranty of lease obligations from the
     tenant's corporate parent. This credit enhancement provides CPA(R):12 with
     additional financial security.

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

     Properties Important to Tenant Operations.  Carey Asset Management Corp.,
     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 Asset
     Management Corp. also seeks to assess the income, cash flow and
     profitability of the business conducted at the property, so that, if the
     tenant is unable to operate its business, 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
     Asset Management Corp. 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 Asset Management Corp. 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 Asset Management Corp. 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 Asset Management Corp.'s
practices include performing evaluations of the physical condition of properties
and performing environmental surveys in an attempt to determine potential
environmental liabilities associated with a property prior to its acquisition.

As a transaction is structured, it is evaluated by the Chairman of the
Investment Committee with respect to the potential tenant's credit, business
prospects, position within its industry and other characteristics important to
the long-term value of the property and the capability of the tenant to meet its
lease obligations. Before a property is acquired, the transaction is reviewed by
the Investment Committee to ensure that it satisfies 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 Asset Management Corp. places special emphasis on
having experienced individuals serve on its Investment Committee and does not
invest in a transaction unless it is approved by the Investment Committee.

                                      -4-
<PAGE>
CPA(R):12 believes that the Investment Committee review process gives it a
unique, competitive advantage over other unaffiliated net lease companies
because of the substantial experience and perspective that the Investment
Committee has in evaluating the blend of corporate credit, real estate and lease
terms that combine to make an acceptable risk.

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


HOLDING PERIOD

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.

                                      -5-
<PAGE>
ENVIRONMENTAL MATTERS

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

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


INDUSTRY SEGMENT

CPA(R):12 operates in one industry segment, investment in net leased real
property. For the year ended December 31, 2001, Applied Materials, Inc.
represented 11% of the total operating revenue of CPA(R):12. Applied Materials
is publicly traded and files financial statements with the United States
Securities and Exchange Commission.


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.

                                      -6-
<PAGE>
     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, 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:

          -    2002 - None;

          -    2003 - $5.1 million;

          -    2004 - None;

          -    2005 - $4.1 million; and

          -    2006 - $5.3 million.

     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>
     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.

     Our participation in joint ventures creates additional risk.
     We participate in joint ventures with other entities, some of which may be
     unaffiliated with us. There are additional risks involved in these types of
     transactions. These risks include the potential of our joint venture
     partner becoming bankrupt and the possibility of diverging or inconsistent
     economic or business interests of us and our partner which could result in,
     among other things, subjecting us to liabilities in excess of those
     contemplated under the joint venture agreement and/or exposing us to
     liabilities of the joint venture in excess of our proportionate share of
     these liabilities.

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

     We depend on key personnel for our future success.
     We depend on the efforts of the executive officers and key employees of
     Carey Asset Management Corp. 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.

                                      -8-
<PAGE>
Item 2. Properties.

Set forth below is certain information relating to the Company's properties
owned as of December 31, 2001.

<TABLE>
<CAPTION>
                                                                    RENT PER        SHARE
                                       OWNERSHIP          SQUARE     SQUARE      OF CURRENT       INCREASE    LEASE       MAXIMUM
LEASE OBLIGOR/LOCATION                INTEREST(1)         FOOTAGE     FOOT      ANNUAL RENTS(2)    FACTOR     TERM         TERM
----------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                     <C>       <C>         <C>               <C>       <C>          <C>
APPLIED MATERIALS, INC. (ETEC SYSTEMS, INC.)(3)
                                  Majority interest
                                  in a limited
  Hayward, CA                     liability company       342,000     24.47       $6,293,475      CPI       Sep. 2014    Jan. 2030
                                  owning land and
                                  building

ADVANCED MICRO DEVICES, INC.(3)
                                  33 1/3% interest in
                                  a limited liability
  Sunnyvale, CA                   company owning land     362,000     25.26        3,048,500      CPI       Dec. 2018    Dec. 2038
                                  and buildings

GALYAN'S TRADING COMPANY(3)
  Lombard, IL; Fairfax, VA               100%             197,195     12.28        2,421,029      Stated    Aug. 2019    Aug. 2059

SCOTT COMPANIES, INC.(3)
  San Leandro, CA                        100%             432,081      4.77        2,062,281      CPI       Jan. 2017    Jan. 2032

SPECTRIAN CORPORATION(3)
  Sunnyvale, CA(2)                       100%             141,787     14.22        2,015,521      CPI       Nov. 2011    Nov. 2026

SPECIAL DEVICES, INC.(3)
  Moorpark, CA; Mesa, AZ                  50%             249,275     15.74        1,962,000      CPI       Jun. 2021    Jun. 2041

PERRY GRAPHIC COMMUNICATIONS AND JUDD'S INCORPORATED(3)
  Baraboo and Waterloo, WI               100%             899,476      2.10        1,888,875      Stated    Dec. 2017    Dec. 2032

BEST BUY CO., INC.(3)
  Fort Collins, CO; Matteson
   and Schaumburg, IL;            37% interest in a
   Attleboro, MA; Nashua, NH;     general
   Albuquerque, NM; Arlington,    partnership             585,593      8.58        1,859,160      Stated    Apr. 2018    Apr. 2033
   Beaumont, Dallas, Fort Worth   owning land and
   and Houston, TX; Virginia      buildings
   Beach, VA

WESTELL TECHNOLOGIES, INC.(3)
  Aurora, IL                             100%             185,410      9.81        1,818,879      Stated    Sep. 2017    Sep. 2027

CAREER EDUCATION CORPORATION
  Mendota Heights, MN                    100%             136,400     11.63        1,585,882      Stated    May 2009     May 2019

TELOS CORPORATION(3)
  Loudon County, VA                      100%             192,775      8.01        1,543,258      CPI       Mar. 2016    Mar. 2036

Q CLUBS, INC.
  Austin, TX(3)                          100%              43,935     17.06          749,701      CPI       Jun. 2013    Jun. 2033
  Houston, TX                            100%              46,733     16.82          786,119      CPI       Jul. 2016    Jul. 2036
                                                           ------                  ---------
    Total:                                                 90,668                  1,535,820

PPD DEVELOPMENT, INC.(3)
  Austin, TX                             100%             180,789      8.32        1,504,190      CPI       Nov. 2010    Nov. 2030
</TABLE>

                                      -9-

<PAGE>
<TABLE>
<CAPTION>
                                                                    RENT PER        SHARE
                                       OWNERSHIP          SQUARE     SQUARE      OF CURRENT       INCREASE    LEASE       MAXIMUM
LEASE OBLIGOR/LOCATION                INTEREST(1)         FOOTAGE     FOOT      ANNUAL RENTS(2)    FACTOR     TERM         TERM
----------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                     <C>       <C>         <C>               <C>       <C>          <C>
SICOR, INC.(3)
                                  50% interest in a
                                  general
  San Diego, CA(2)                partnership             144,311     20.41        1,472,736      CPI       Jul. 2009    Jul. 2044
                                  owning land and
                                  buildings

THE UPPER DECK COMPANY(3)
                                  50% interest in a
                                  limited liability
  Carlsbad, CA                    company owning          294,779      9.85        1,452,220      CPI       Dec. 2020    Dec. 2040
                                  land and buildings

THE BON-TON STORES, INC.(3)
  Allentown and Johnstown, PA            100%             407,081      3.31        1,348,121      CPI       Apr. 2017    Apr. 2047

COMPUCOM SYSTEMS, INC.(3)
                                  33 1/3% interest in
                                  a limited liability
  Dallas, TX                      company owning land     497,714      7.86        1,304,667      CPI       Apr. 2019    Apr. 2029
                                  and buildings

DEL MONTE CORPORATION(3)
  Mendota, IL; Plover, Toppenish          50%(5)          748,000      3.44        1,286,250      CPI       Jun. 2016    Jun. 2056
  and Yakima, WA

SILGAN CONTAINERS CORPORATION
  Fort Dodge, IA; Oconomowoc             100%             386,265      3.30        1,275,000      CPI       Mar. 2013    Mar. 2028
  and Menomonie, WI

MCLANE COMPANY, INC.(3)
                                  40% interest in two
  Shawnee, KS; Burlington,        limited liability
  NJ; Manassas, VA                companies owning        686,168      4.62        1,268,499      CPI       Dec. 2020    Dec. 2040
                                  land and buildings

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

CHILDTIME CHILDCARE, INC.(3)
  Chandler, AZ; Fleming Island,
  FL; Ackworth, GA; Hauppauge
  and Patchogue, NY; New                 100%              70,653     16.84        1,190,074      CPI       Oct. 2018    Oct. 2028
  Territory and Sugarland, TX;
  Hampton, VA; Siverdale, WA

TEXTRON, INC.
                                 50% interest in a
                                 limited liability
  Gilbert, AZ                    company owning           243,370      9.35        1,137,375      CPI       Jan. 2019    Jan. 2039
                                 land and building

ORBSEAL EUROPE I LLC AND ORBSEAL - AUSTRALIA LLC(3)
  Richmond, MO                           100%             266,585      3.80        1,011,750      CPI       Sep. 2021    Sep. 2041
</TABLE>

                                      -10-
<PAGE>
<TABLE>
<CAPTION>
                                                                    RENT PER        SHARE
                                       OWNERSHIP          SQUARE     SQUARE      OF CURRENT       INCREASE    LEASE       MAXIMUM
LEASE OBLIGOR/LOCATION                INTEREST(1)         FOOTAGE     FOOT      ANNUAL RENTS(2)    FACTOR     TERM         TERM
----------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                     <C>       <C>         <C>               <C>       <C>          <C>
BIG V HOLDING CORP.(3)(4)
  Ellenville and Warwick, NY              45%             141,428     15.86        1,009,426      Stated/   Oct. 2024    Oct. 2044
                                                                                                  % of
                                                                                                  Sales
GARDEN RIDGE CORPORATION(3)
  South Tulsa, OK                        100%             141,284      6.65          939,580      CPI       Apr. 2016    Apr. 2036

PACIFIC LOGISTICS, L.P.(3)
  Dallas, TX                             100%             219,614      4.24          930,750      CPI       Jan. 2019    Jan. 2059

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

RHEOMETRIC SCIENTIFIC, INC.
  Piscataway, NJ                         100%             104,120      8.49          884,288      CPI       Feb. 2011    Feb. 2031

NUTRAMAX PRODUCTS, INC.
  Houston, TX                            100%             254,000      3.39          860,038      CPI       Apr. 2013    Apr. 2018

VARIOUS TENANTS(3)
  Newark, DE                             100%             162,220      5.24          850,430                          (6)

INTERNATIONAL MANAGEMENT CONSULTANT, INC.
  Ashburn, VA                            100%              69,983     11.44          800,348      CPI       Feb. 2014    Feb. 2014

CELADON GROUP, INC.
  Indianapolis, IN                       100%              60,938     13.01          792,853      CPI       Sep. 2016    Sep. 2036

RANDALL INTERNATIONAL, INC.
  Carlsbad, CA                           100%              87,000      8.96          779,230      CPI       Jan. 2019    Jan. 2029

RAVE REVIEWS CINEMAS, L.L.C.
  Hickory Creek, TX                      100%              57,100     13.63          778,348      CPI       Feb. 2021    Feb. 2041

VERMONT TEDDY BEAR CO., INC.(3)
  Shelburne, VT                          100%              62,000     11.25          697,632      CPI       Jul. 2017    Jul. 2032

VIASYSTEMS GROUP INC.(3)
  Milford, MA                            100%             108,125      6.03          652,034      CPI       Jul. 2009    Jul. 2014

FLEMING COMPANIES, INC.(3)
                                  40% interest in a
                                  limited liability
  Grand Rapids, MI                company owning          176,941      8.58          606,988      Stated    Jul. 2006    Jul. 2026
                                  land and building

SENTRY TECHNOLOGY CORPORATION
  Hauppauge, NY                          100%              68,333      8.03          548,739      CPI       Dec. 2016    Dec. 2020

BALANCED CARE CORPORATION
  Mechanicsburg, PA                      100%              42,000     11.60          487,016      CPI       Jun. 2013    Jun. 2023

WAL-MART STORES, INC.(3)
  Greenfield, IN                         100%              82,620      4.81          397,226      Stated    Jan. 2005    Jan. 2020
</TABLE>

                                      -11-
<PAGE>
<TABLE>
<CAPTION>
                                                                    RENT PER        SHARE
                                       OWNERSHIP          SQUARE     SQUARE      OF CURRENT       INCREASE    LEASE       MAXIMUM
LEASE OBLIGOR/LOCATION                INTEREST(1)         FOOTAGE     FOOT      ANNUAL RENTS(2)    FACTOR     TERM         TERM
----------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>       <C>         <C>               <C>       <C>          <C>
COMPASS BANK FOR SAVINGS
  Bourne, Sandwich and                   100%              22,208      8.84          196,414      CPI       Dec. 2017    Dec. 2037
   Wareham, MA
</TABLE>

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

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

3.   These properties are encumbered by mortgage notes payable.

4.   Includes percentage of sales rents.

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

6.   Subject to short-term leases.


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,
2001 to a vote of security holders, through the solicitation of proxies or
otherwise.

                                      -12-
<PAGE>
                                     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 23 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 7 of the Company's Annual Report contained in Appendix A.


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

Approximately $160,521,000 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 fixed rate debt as of December 31, 2001
ranged from 6.50% to 9% per annum. The interest rate on the variable rate debt
as of December 31, 2001 is 5.64%.

(in thousands)
<TABLE>
<CAPTION>
                           2002      2003       2004      2005       2006       Thereafter     Total      Fair Value
                          ------    ------     ------    -------    -------     ----------    --------    ----------
<S>                       <C>       <C>        <C>       <C>        <C>         <C>           <C>         <C>

Fixed rate debt           $5,131    $5,126     $5,571    $10,036    $11,102      $123,555     $160,521     $161,616
Weighted average
 interest rate              7.70%     7.50%      7.52%      7.80%      7.83%         7.63%
Variable rate debt        $  156    $5,212          -          -          -             -     $  5,368     $  5,368
</TABLE>

                                      -13-
<PAGE>
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 8 to 22 of the
Company's Annual Report contained in Appendix A:

     (i)   Report of Independent Accountants.

     (ii)  Consolidated Balance Sheets as of December 31, 2000 and 2001

     (iii) Consolidated Statements of Income for the years ended December 31,
           1999, 2000 and 2001.

     (iv)  Consolidated Statements of Shareholders' Equity for the years
           ended December 31, 1999, 2000 and 2001.

     (v)   Consolidated Statements of Cash Flows for the years ended
           December 31, 1999, 2000 and 2001.

     (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.

                                      -14-
<PAGE>
                                     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, 2000 and 2001.

               Consolidated Statements of Income for the years ended December
               31, 1999, 2000 and 2001.

               Consolidated Statements of Shareholders' Equity for the years
               ended December 31, 1999, 2000 and 2001.

               Consolidated Statements of Cash Flows for the years ended
               December 31, 1999, 2000 and 2001.

               Notes to Consolidated Financial Statements.

               The consolidated financial statements are hereby incorporated by
               reference to pages 8 to 22 of the Company's Annual Report
               contained in Appendix A.

     (a) 2. Financial Statement Schedules:

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

               Report of Independent Accountants.

               Schedule III - Real Estate and Accumulated Depreciation as of
               December 31, 2001.

               Schedule III of the Company is contained on pages 22 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.

                                      -15-
<PAGE>

          (a) 3. Exhibits:

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

<TABLE>
<CAPTION>

Exhibit No.                              Description                                                  Method of Filing
-----------                              -----------                                                  ----------------
<S>            <C>                                                                          <C>

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

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

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

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

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

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

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

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

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

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

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

   10.10       Deed of Trust and Security Agreement dated April 15, 1993 from BB            Filed as Exhibit 10.10 to Registrant's
               Property Company, as Grantor, to Frank E. Stevenson, II, Esq., Thomas        Form 10-K dated March 30, 1995
               P. Solheim, Esq., Charles D. 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.

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

                                      -16-
<PAGE>
<TABLE>
<CAPTION>

Exhibit No.                              Description                                                  Method of Filing
-----------                              -----------                                                  ----------------
<S>            <C>                                                                          <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      -17-
<PAGE>
<TABLE>
<CAPTION>

Exhibit No.                              Description                                                  Method of Filing
-----------                              -----------                                                  ----------------
<S>            <C>                                                                          <C>

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

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

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

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

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

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

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

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

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

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

   10.38       Lease Agreement dated March 28, 1996 by and between LAX (DE) QRS 12-16,      Filed as Exhibit 10.42 to Registrant's
               Inc., as Landlord, and Lanxide Corporation, as Tenants.                      Post-Effective Amendment No. 3 dated
                                                                                            March 6, 1997

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

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

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

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

                                      -18-
<PAGE>
<TABLE>
<CAPTION>

Exhibit No.                              Description                                                  Method of Filing
-----------                              -----------                                                  ----------------
<S>            <C>                                                                          <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      -19-
<PAGE>
<TABLE>
<CAPTION>

Exhibit No.                              Description                                                  Method of Filing
-----------                              -----------                                                  ----------------
<S>            <C>                                                                          <C>

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

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

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

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

   21.1        Subsidiaries of Registrant as of March 15, 2002.                             Filed herewith

   23.1        Consent of PricewaterhouseCoopers LLP                                        Filed herewith

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

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

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

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

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

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

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

          (b)  Reports on Form 8-K

               During the quarter ended December 31, 2001 the Registrant was not
               required to file any reports on Form 8-K.

                                      -20-
<PAGE>
                                   SIGNATURES

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


                                CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
                                a Maryland corporation


  3/20/2002                     BY:    /s/ John J. Park
-------------                      ---------------------------------------------
     Date                          John J. Park
                                   Managing Director and Chief Financial Officer
                                   (Principal Financial Officer)

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


                                CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED


  3/20/2002                     BY:    /s/ William Polk Carey
-------------                      ---------------------------------------------
     Date                          William P. Carey
                                   Chairman of the Board and Director
                                   (Principal Executive Officer)


  3/20/2002                     BY:    /s/ W. Sean Sovak
-------------                      ---------------------------------------------
     Date                          W. Sean Sovak
                                   President


  3/20/2002                     BY:    /s/ Ralph G. Coburn
-------------                      ---------------------------------------------
     Date                          Ralph G. Coburn
                                   Director


  3/20/2002                     BY:    /s/ William Ruder
-------------                      ---------------------------------------------
     Date                          William Ruder
                                   Director


  3/20/2002                     BY:    /s/ George E. Stoddard
-------------                      ---------------------------------------------
     Date                          George E. Stoddard
                                   Director


  3/20/2002                     BY:    /s/ Ralph Verni
-------------                      ---------------------------------------------
     Date                          Ralph Verni
                                   Director


  3/20/2002                     BY:    /s/ John J. Park
-------------                      ---------------------------------------------
     Date                          John J. Park
                                   Managing Director and
                                   Chief Financial Officer
                                   (Principal Financial Officer)


  3/20/2002                     BY:    /s/ Claude Fernandez
-------------                      ---------------------------------------------
     Date                          Claude Fernandez
                                   Managing Director and
                                   Chief Administrative Officer
                                   (Principal Accounting Officer)

                                      -21-
<PAGE>
                        REPORT of INDEPENDENT ACCOUNTANTS


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


Our audits of the consolidated financial statements referred to in our report
dated March 15, 2002 appearing in the 2001 Annual Report to Shareholders of
Corporate Property Associates 12 Incorporated (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
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
March 15, 2002

                                      -22-
<PAGE>

                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED
                                and SUBSIDIARIES

             SCHEDULE III - REAL ESTATE and ACCUMULATED DEPRECIATION
                             as of December 31, 2001

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

Distribution facility
 leased to Wal-Mart
 Stores, Inc.                 $ 2,053,865        $  452,871     $ 3,325,910                         $    12,921

Office/Manufacturing
 facility leased to
 Applied Materials, Inc.       40,152,421         1,272,418      10,588,221                          66,962,157        $(2,633,473)

Health club facilities
 leased to Q Clubs, Inc.                          3,152,874       8,524,126

Warehouse/office/research
 facility leased to PPD
 Development, Inc.              6,395,139         1,550,928      11,017,367                              27,856

Research and development
 facility leased in
 Newark, Delaware leased
 to various tenants               371,294         1,390,120       7,281,878                              13,423         (4,281,421)

Distribution/warehouse
 facility leased to
 Celadon Group, Inc.                              1,480,600       5,320,400                              40,000

Office/research facility
 leased to Spectrian
 Corporation                    8,848,027         5,570,775      12,073,204                               4,119

Retail store leased to
 Garden Ridge Corporation       4,278,597         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.                9,156,389         5,734,782      12,175,218                               5,356

Child care centers leased
 to Childtime Childcare,
 Inc.                           4,748,509         2,581,896                                           7,459,165

Retail/distribution
 facility leased to The
 Bon-Ton Stores, Inc.           6,325,288         1,780,000      10,261,885

Technology/manufacturing
 facility leased to
 Silgan Containers
 Corporation                                        758,670      11,630,675                             111,090

Office/research facility
 leased to Viasystems
 Group Inc.                     2,884,224         1,080,000       4,469,738

<CAPTION>
                                 Gross Amount at which Carried
                                     at Close of Period (e)
                             --------------------------------------
                                                                                                                    Life on which
                                                                                                                   Depreciation in
                                                                                                                       Latest
                                                                                                                     Statement of
                                                           Personal                   Accumulated       Date            Income
Description                      Land         Buildings    Property      Total      Depreciation(d)    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       $   573,595    2/10/1995            40 yrs.

Office/Manufacturing
 facility leased to
 Applied Materials, Inc.        1,272,444     74,916,879               76,189,323         6,337,882    2/16/1995            40 yrs.
                                                                                                        6/8/1995
Health club facilities                                                                                   and
 leased to Q Clubs, Inc.        3,152,874      8,524,126               11,677,000         1,265,690    7/25/1996            40 yrs.

Warehouse/office/research
 facility leased to PPD
 Development, Inc.              1,550,985     11,045,166               12,596,151         1,690,720   11/13/1995            40 yrs.

Research and development
 facility leased in
 Newark, Delaware leased
 to various tenants             1,391,311      3,012,689                4,404,000           332,650    3/28/1996            40 yrs.

Distribution/warehouse
 facility leased to
 Celadon Group, Inc.            1,480,600      5,360,400                6,841,000           708,845    6/19/1996            40 yrs.

Office/research facility
 leased to Spectrian
 Corporation                    5,570,775     12,077,323               17,648,098         1,547,291   11/19/1996            40 yrs.

Retail store leased to
 Garden Ridge Corporation       1,857,607      6,204,923                8,062,530           782,079   12/16/1996            40 yrs.

Office/distribution
 facility leased to
 Sentury Technology
 Corporation                    1,603,488      3,321,512                4,925,000           418,649   12/24/1996            40 yrs.

Office/research facility
 leased to Scott
 Companies, Inc.                5,734,782     12,180,574               17,915,356         1,509,884   12/24/1996            40 yrs.

Child care centers leased
 to Childtime Childcare,
 Inc.                           2,581,896      7,459,165               10,041,061           667,575    1/29/1997            40 yrs.

Retail/distribution
 facility leased to The
 Bon-Ton Stores, Inc.           1,780,000     10,261,885               12,041,885         1,207,909    4/10/1997            40 yrs.

Technology/manufacturing
 facility leased to
 Silgan Containers
 Corporation                      758,670     11,741,765               12,500,435         1,249,322    6/13/1997            40 yrs.

Office/research facility
 leased to Viasystems
 Group Inc.                     1,080,000      4,469,738                5,549,738           497,650     7/8/1997            40 yrs.
</TABLE>

                                      -23-
<PAGE>
<TABLE>
<CAPTION>
                                                         Initial Cost to Company
                                                 ---------------------------------------
                                                                                              Costs Capitalized    Decrease in Net
                                                                                Personal       Subsequent to       Investments (b)
Description                  Encumbrances           Land         Buildings      Property       Acquisition (a)
-----------                  ------------        ----------      ---------      --------      -----------------    ---------------
<S>                          <C>                 <C>             <C>            <C>           <C>                  <C>

Operating Method:

Office/manufacturing
 facility leased to
 Vermont Teddy Bear Co.,
 Inc.                           2,982,189         1,465,000       4,398,874                               1,640            (43,950)

Warehouse/special
 facility leased to
 Pacific Logistics, L.P.        4,280,321           257,458                     $1,109,900            7,150,544

Office/manufacturing
 facility leased to
 Westell Technologies,
 Inc.                          11,761,055         2,500,000      14,952,055

Administration/classroom
 facility leased to
 Career Education
 Corporation                    7,357,693         1,150,000       8,840,486                           2,788,170

Printing facility leased
 to Perry Graphic
 Communications, Inc.
 and Judd's                    10,433,395           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                             532,419

Office/light assembly
 facility leased to
 International
 Management Consulting,
 Inc.                                               668,211                                           6,163,589

Office facility leased to
 Balanced Care
 Corporation                    2,788,932           558,600                                           4,291,443

Retail/services
 facilities leased to
 Galyan's Trading Company      16,397,901         8,070,000      16,134,421                              57,241


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

Operating Method:

Office/manufacturing
 facility leased to
 Vermont Teddy Bear Co.,
 Inc.                           1,421,050     4,400,514                 5,821,564           490,455    7/18/1997       7 to 40 yrs.

Warehouse/special
 facility leased to
 Pacific Logistics, L.P.          257,458     7,150,544   $1,109,900    8,517,902         1,120,158    9/23/1997            40 yrs.

Office/manufacturing
 facility leased to
 Westell Technologies,
 Inc.                           2,500,000    14,952,055                17,452,055         1,604,231    9/29/1997            40 yrs.

Administration/classroom
 facility leased to
 Career Education
 Corporation                    1,150,000    11,628,656                12,778,656         1,107,775   11/12/1997            40 yrs.

Printing facility leased
 to Perry Graphic
 Communications, Inc.
 and Judd's                       642,000    18,475,948                19,117,948         1,866,832   12/16/1997            40 yrs.

Office/banking facility
 leased to Compass Bank
 for Savings                      300,000     1,520,000                 1,820,000           152,000   12/30/1997            40 yrs.

Manufacturing/distribution
 facility leased to
 Nutramax Products, Inc.        1,160,000     6,660,141                 7,820,141           613,806    3/28/1998            40 yrs.

Office/light assembly
 facility leased to
 International
 Management Consulting,
 Inc.                             668,211     6,163,589                 6,831,800           431,252    5/18/1998            40 yrs.

Office facility leased to
 Balanced Care
 Corporation                      558,600     4,291,443                 4,850,043           239,951    6/23/1998            40 yrs.

Retail/services
 facilities leased to
 Galyan's Trading Company       8,070,000    16,191,662                24,261,662           624,054    6/29/2000            40 yrs.
</TABLE>

                                      -24-
<PAGE>

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

Operating Method:

Theater facility leased
 to Rave Reviews
 Cinemas, LLC.                                     1,760,000       5,176,372

Manufacturing/warehouse
 facilities leased to
 Jen-Coat, Inc.                7,136,247           1,193,200      10,325,125                              2,447

Industrial/manufacturing
  facility leased to
  Orbseal, LLC.                 6,175,000            760,000       9,187,644                                250            (79,274)
                             ------------        -----------    ------------    ----------          -----------        -----------
                             $154,526,486        $50,751,498    $201,325,704    $1,109,900          $95,631,830        $(7,038,118)
                             ============        ===========    ============    ==========          ===========        ===========

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

Operating Method:

Theater facility leased
 to Rave Reviews
 Cinemas, LLC.                  1,760,000     5,176,372                    6,936,372       124,017       12/7/2000          40 yrs.

Manufacturing/warehouse
  facilities leased to
  Jen-Coat, Inc.                1,193,200    10,327,572                   11,520,772        96,436       8/15/2001          40 yrs.

Industrial/manufacturing
  facility leased to
  Orbseal, LLC.                   760,000     9,108,620                    9,868,620        66,415       9/28/2001          40 yrs.
                              -----------   ------------   ----------   ------------   -----------
                              $50,710,371   $289,960,543   $1,109,900   $341,780,814   $27,327,123
                              ===========   ============   ==========   ============   ===========
</TABLE>

See accompanying notes to Schedule.

                                      -25-
<PAGE>

<TABLE>
<CAPTION>

                                               Initial Cost to Company
                                              ------------------------
                                                                                Costs
                                                                             Capitalized
                                                                            Subsequent to    Increase in Net
Description                   Encumbrances       Land        Buildings     Acquisition(a)     Investment(c)
-----------                   ------------    ----------    -----------   ---------------   ----------------
<S>                           <C>             <C>           <C>           <C>               <C>

Direct Financing Method:
 Supermarkets leased to Big
 V Holding Corp.               $ 3,068,181    $1,157,294    $ 5,254,309        $1,637,986           $781,154

Manufacturing facility
 leased to The Garden
 Companies, Inc.                 2,926,556     1,544,265      5,430,735

Office/manufacturing
 facility leased to
 Rheometric Scientific,
 Inc.                                          1,510,791      4,789,209             4,500           (444,949)

Office facility leased to
 Telos Corporation               5,368,017     1,549,022     10,597,978             5,500
 Office/Manufacturing
 facility leased to
 Randall International,
 Inc.                                          2,000,000        471,454         5,104,034            (12,370)
                               -----------    ----------    -----------        ----------           --------
                               $11,362,754    $7,761,372    $26,543,685        $6,752,020           $323,835
                               ===========    ==========    ===========        ==========           ========

<CAPTION>

                              Gross Amount at which Carried
                                at Close of Period (e)
                              -----------------------------
Description                             Total                    Date Acquired
-----------                   -----------------------------      -------------
<S>                           <C>                                <C>

Direct Financing Method:
 Supermarkets leased to Big
 V Holding Corp.                      $ 8,830,743                   7/13/1994

Manufacturing facility
 leased to The Garden
 Companies, Inc.                        6,975,000                   6/20/1995

Office/manufacturing
 facility leased to
 Rheometric Scientific,
 Inc.                                   5,859,551                   2/23/1996

Office facility leased to
 Telos Corporation                     12,152,500                   3/11/1996

Office/Manufacturing
 facility leased to
 Randall International,
 Inc.                                   7,563,118                  10/17/1997
                                      -----------
                                      $41,380,912
                                      ===========
</TABLE>

See accompanying notes to Schedule

                                      -26-
<PAGE>

                  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) impairment losses.

(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, 2001, the aggregate cost of real estate owned by Registrant
     and its subsidiaries for Federal income tax purposes is $319,671,645.

(e)

<TABLE>
<CAPTION>

                                                         Reconciliation of Real Estate  Accounted
                                                             for Under the Operating Method
                                                                       December 31,
                                                         ----------------------------------------
                                                             2000                        2001
                                                         ------------                ------------
<S>                                                      <C>                         <C>

Balance at beginning of year                             $332,495,021                $345,166,211

Additions                                                  26,589,486                  28,534,006

Dispositions                                              (13,918,296)                (21,376,106)

Reclassification to equity investment                               -                 (10,543,297)
                                                         ------------                ------------
Balance at close of year                                 $345,166,211                $341,780,814
                                                         ============                ============
</TABLE>

<TABLE>
<CAPTION>

                                                        Reconciliation of Accumulated Depreciation
                                                                       December 31,
                                                        ------------------------------------------
                                                             2000                        2001
                                                        ------------                  ------------
<S>                                                     <C>                           <C>
Balance at beginning of year                             $16,002,196                  $22,333,095

Depreciation expense                                       7,373,672                    7,432,476

Dispositions                                              (1,042,773)                  (1,128,060)

Reclassification to equity investment                              -                  (1,310,388)
                                                        ------------                  -----------
Balance at close of year                                 $22,333,095                  $27,327,123
                                                        ============                  ===========
</TABLE>

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






                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED






                                                              2001 ANNUAL REPORT
<PAGE>
SELECTED FINANCIAL DATA


(In thousands except share amounts)

<TABLE>
<CAPTION>
                                       1997          1998          1999          2000         2001
                                   -----------   -----------   -----------   -----------   -----------
<S>                                <C>           <C>           <C>           <C>           <C>
OPERATING DATA:
  Revenues                         $    25,313   $    34,563   $    39,276   $    44,927   $    46,051
  Income before
   extraordinary items                  12,804        12,078        19,871        25,010        27,948
  Net income                            12,804        11,699        19,871        25,010        27,948
  Basic earnings per share
   before extraordinary items(1)           .57           .42           .69           .87           .94
  Basic earnings per share(1)              .57           .41           .69           .87           .94
  Weighted average number
   of shares outstanding -
   basic                            22,387,928    28,416,013    28,615,971    28,685,620    29,763,716
  Dividends paid                        15,082        23,028        23,268        23,435        24,205
  Dividends paid per share                 .81           .81           .81           .82           .82
  Payments of mortgage
   principal(2)                          1,708         2,174         3,400         3,998         4,416

BALANCE SHEET DATA:
  Total consolidated assets            358,693       398,604       418,088       441,209       447,241
  Long-term obligations(3)              84,745       113,868       133,351       145,547       166,446
</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>
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, 2001. 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
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. Substantially all of CPA(R):12's net leases have
been structured to place certain economic burdens of ownership on these
corporate tenants by requiring them to pay the costs of maintenance and repair,
insurance and real estate taxes. The 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.

As a real estate investment trust ("REIT"), CPA(R):12 is not subject to federal
income taxes on amounts distributed to shareholders provided it meets certain
conditions including distributing at least 90% of its REIT taxable income to its
shareholders. CPA(R):12's primary objectives are to provide 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.

CPA(R):12 is advised by W. P. Carey & Co. LLC and its wholly-owned subsidiary,
Carey Asset Management Corp., pursuant to an Advisory Agreement. CPA(R):12's
contract with W. P. Carey is renewable annually by Independent Directors who are
elected by CPA(R):12's shareholders. In connection with each renewal, W. P.
Carey is required to provide the Independent Directors with a comparison of the
fee structure with several similar companies. The Advisory Agreement also
provides that an independent portfolio valuation be performed annually and
Average Invested Assets, the basis for determining asset management and
performance fees, is based on the results of this independent valuation.

Certain accounting policies are critical to the understanding of CPA(R):12's
financial condition and results of operations. Management believes that an
understanding of financial condition and results of operations requires an
understanding of accounting policies relating to the use of estimates.

The preparation of financial statements requires that Management make estimates
and assumptions that affect the reported amount of assets, liabilities, revenues
and expenses. For instance, CPA(R):12 must assess its ability to collect rent
and other tenant-based receivables and determine an appropriate charge for
uncollected amounts. Because CPA(R):12's real estate operations have a limited
number of lessees, Management believes that it is necessary to evaluate specific
situations rather than solely use statistical methods.

CPA(R):12 also uses estimates and judgments when evaluating whether long-lived
assets are impaired. When events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, Management performs
projections of undiscounted cash flows, and if such cash flows are insufficient,
the assets are adjusted (i.e., written down) to their estimated fair value. An
analysis of whether a real estate asset has been impaired requires Management to
make its best estimate of market rents and residual values. In its evaluations,
CPA(R):12 obtains market information from outside sources; however, such
information requires Management to determine whether the

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


information received is appropriate to the circumstances. Because CPA(R):12's
properties are leased to single tenants, CPA(R):12 is more likely to incur
significant writedowns when circumstances deteriorate because of the possibility
that a property will be vacated in its entirety. This makes the risks faced by
CPA(R):12 different than the risks faced by companies that own multi-tenant
properties. Events or changes in circumstances can result in further writedowns
and impact the gain or loss ultimately realized upon sale of the asset.

CPA(R):12 and affiliated REITs are investors in certain real estate ventures.
Certain of the investments are held through incorporated or unincorporated
jointly held entities and certain investments are held directly as tenants in
common. Substantially all of these investments represent jointly purchased
properties which were net leased to a single tenant and were structured to
provide diversification and reduce concentration of a risk from a single lessee
for CPA(R):12 and the affiliated REIT. The placement of an investment in a
jointly held entity or tenancy in common requires the approval of the
Independent Directors. All of the jointly held investments are structured so
that CPA(R):12 and the affiliated REIT contribute equity, receive distributions
and are allocated profit or loss in amounts that are proportional to their
ownership interests. The presentation of these jointly held investments and
their related results in the accompanying consolidated financial statements is
determined based on accounting principles generally accepted in the United
States and is based on factors such as controlling interest, significant
influence and whether each party has the ability to make independent decisions.
All of the jointly held investments are subject to contractual agreements.

CPA(R):12 recognizes rental income from sales overrides when reported by
lessees, that is, after the level of sales requiring a rental payment to
CPA(R):12 is reached.

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

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

Net income for the year ended December 31, 2001 increased by $2,938,000 as
compared with the year ended December 31, 2000. Excluding the effect of gains of
$9,987,000 and $2,440,000 in 2001 and 2000, respectively, income would have
reflected a decrease of $4,609,000. The decrease in income was due to an
increase in general and administrative, interest and depreciation expenses and a
decrease in equity income, and was partially offset by an increase in lease
revenues (rental income and interest income from direct financing lease) and
interest and other income. The decrease in equity income was due, in part, to
nonrecurring income recognized in 2000 by two equity investees as described
below.

The increase in general and administrative expense of $1,330,000 to $4,255,000
for 2001 was primarily due to investor-related costs and expenses incurred in
connection with business development (i.e., costs related to proposed
investments that were not completed). General and administrative expenses were
also affected by increased state taxes and expense reimbursements related to
personnel costs.

Interest expense increased by $1,007,000 to $13,315,000 in 2001 primarily as a
result of obtaining $52,099,000 of new limited recourse mortgage financing in
connection with the purchases of the Galyan's Trading Company properties in 2000
and the Jen Coat, Inc. and Orbseal LLC properties in 2001 and obtaining mortgage
debt in 2000 and 2001 on properties leased to Westell Technologies, Inc., Career
Education Corporation and Balanced Care Corporation which previously had been
unencumbered. The increase in depreciation was due to the purchase of properties
in 2000 and 2001 and the completion of construction of the Rave Reviews Cinema
LLC property, which was placed in service in January 2001.

Income from equity investments decreased by $2,944,000 to $5,032,000 for the
year ended December 31, 2001. Two equity investees hold interests in four
properties that were leased to Ameriserve Food Distribution, Inc. and in

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


connection with their bankruptcy claim against Ameriserve, letters of credit
which had been issued to the equity investees at the time the initial leases
were entered into were released into an escrow account in partial settlement of
their bankruptcy claim. Approximately $4,000,000 of equity income in 2000
reflected the amounts released from the irrevocable letters of credit and
related settlement income. All of the properties formerly leased to Ameriserve
are currently net leased to single tenants under long-term leases. Net of the
effect of this nonrecurring item, equity income would have increased by
$1,056,000 primarily as the result of the acquisition of the interest in the
Special Devices properties. Equity income also benefited from being able to
fully re-lease the former Ameriserve properties and from a rent increase on the
Upper Deck Company lease. Effective October 1, 2001, CPA(R):12's
tenancy-in-common interest in the Del Monte properties was reclassified as an
equity investment in connection with contributing the properties to a jointly
controlled entity. The reclassification had no effect on net income but
contributed $161,000 to equity income in 2001.

The increase in lease revenues (rental income and interest income from direct
financing leases) of $948,000 to $45,246,000 in 2001 was due to rent increases
with nine existing lessees in 2001, the purchase of the properties leased to Jen
Coat, Inc. and Orbseal LLC. in 2001 and the commencement of rent from the Rave
Reviews property. The lease revenue increases, generally based on increases in
the Consumer Price Index, were partially offset by the sale of a property in San
Diego, California formerly leased to BAE Systems, Inc. The annual rent on the
BAE property was $2,121,000. The proceeds from the sale of the BAE Systems
property were used to purchase the Jen Coat and Orbseal properties and the
interests in properties leased to Special Devices, Inc. which provide aggregate
annual rents of $4,184,000. More than 30 leases have rent increases scheduled in
2002 and 2003. The majority of these rent increases are based on formulas
indexed to increases in the Consumer Price Index ("CPI"). The CPI has increased
moderately over the past several years, and this will affect future rent
increases on those leases with CPI-based increases. Except for several
short-term leases at CPA(R):12's property in Newark, Delaware, no leases are
scheduled to expire until 2005.

The increase in interest and other income was primarily from interest earned on
the proceeds from the sale of the BAE property which were placed in an escrow
account in order to complete a tax-free exchange and defer a taxable gain on the
sale of the property. The sales proceeds of $31,492,000 were deposited in an
interest-bearing restricted account held by an intermediary until being used to
complete the tax-free exchange. During 2001, all of the proceeds were used.

CPA(R):12's results for 2001 included a realized gain of $8,869,000 from the
sale of the BAE property and an unrealized gain of $1,124,000 from holding
warrants for common stock of certain lessees. Statement of Financial Accounting
Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was effective in 2001. Under SFAS No. 133, warrants for common stock
that provide for net settlement (i.e., as a cashless exercise) or are readily
convertible to cash are defined as derivative instruments and changes in the
value of warrants for common stock which meet the SFAS No. 133 criteria of a
derivative instrument are recognized in earnings. The gain in 2001 represents
the value attributed to warrants for common stock of several lessees, primarily
Vermont Teddy Bear, Inc. and Rheometric Scientific, Inc. that were granted to
CPA(R):12 in connection with structuring the initial lease transactions. The
value of the warrants was determined using Black-Scholes and Binomial Tree
option pricing methods. Changes in the quoted price and value of the underlying
common stocks may fluctuate and cause fluctuations in CPA(R):12's earnings.

Because of the long-term nature of CPA(R):12's net leases, inflation and
changing prices have not unfavorably affected CPA(R):12's revenues and net
income. CPA(R):12's net leases generally have rent increases based on formulas
indexed to increases in the CPI, sales overrides or other periodic increases
which are designed to increase lease revenues in the future.


Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Net income for the year ended December 31, 2000 increased by $5,139,000 as
compared with the year ended December 31, 1999. Approximately $4,000,000 of the
increase in income reflects amounts recognized in connection with a bankruptcy
settlement from Ameriserve. Net of this settlement, which is included in income
from equity investments, income would have increased $1,139,000, or
approximately 6%. The increase was primarily due to increases in lease revenues
(rental income and interest income from direct financing leases) and was
partially offset by increases in depreciation and interest and property
expenses.

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


The increase in lease revenues was due to the purchase of the properties leased
to Galyan's in June 2000, the completion of several build-to-suit and expansion
projects in 1999 including the $52,000,000 addition to the Applied Materials,
Inc. property and scheduled rent increases with nine existing lessees in 2000.
The increase in depreciation was also due to the purchase of the Galyan's
property and the completion of expansion and build-to-suit projects during 1999.
The increase in interest expense was primarily due to a $16,588,000 limited
recourse mortgage loan obligation that CPA(R):12 assumed with the Galyan's
property purchase and the placement of a $30,000,000 loan on the Applied
Materials property in September 1999. The increase in property expenses was due
to an increase in asset management and performance fees, and is directly related
to the growth of CPA(R):12'S portfolio, and, to a lesser extent, the increase in
the appraised value of the portfolio. CPA(R):12's Advisor elected to receive its
performance fee in CPA(R):12 shares rather than cash in 1999 and 2000 so that a
substantial part of the increase in property expenses does not result in a
corresponding reduction in operating cash flow. Over the past two years,
approximately $4,750,000 of performance fees have been satisfied through the
issuance of stock.

CPA(R):12 and Corporate Property Associates 14 Incorporated ("CPA(R):14"), an
affiliate, structured two net leases with Ameriserve in 1999 for four
distribution centers. As structured, CPA(R):12 and CPA(R):14 hold 40% and 60%
ownership interests, respectively. CPA(R):12's interest is accounted for under
the equity method. CPA(R):12 and CPA(R):14 were committed to invest up to
$55,800,000 in the properties, with $32,000,000 of this commitment financed with
limited recourse mortgage debt. In addition, Ameriserve provided the Company and
CPA(R):14 with irrevocable letters of credit of $8,700,000 as a security
deposit. During 2000, Ameriserve declared bankruptcy and subsequently entered
into a settlement agreement with CPA(R):12 and CPA(R):14. The settlement
agreement provided for a cash payment of $3,100,000 and allowed CPA(R):12 and
CPA(R):14 to draw on the full amount of the letters of credit. CPA(R):12 and
CPA(R):14 were obligated to assign a substantial portion of these funds to the
mortgage lenders, who used such funds in the first quarter of 2001 to reduce the
outstanding balance of the mortgage loans. CPA(R):12 and CPA(R):14 entered into
net leases for three of the properties with the company that purchased
Ameriserve's operations. The guarantor of the three new leases is McLane
Company, Inc., a wholly-owned subsidiary of Wal-Mart Stores, Inc. CPA(R):12 was
able to limit its risk by entering into the initial transaction by investing
with an affiliate, using limited recourse mortgage financing and receiving a
security deposit in the form of letters of credit. The fourth facility in Grand
Rapids, Michigan was leased to The Fleming Companies, Inc. in 2001.

CPA(R):12 realized significant gains on sales of securities and real estate in
1999 and 2000. The gains on sale of securities represented equity holdings in
lessees that were granted to CPA(R):12 in connection with negotiating and
structuring their net leases.


Financial Condition

One of CPA(R):12's objectives is to use the cash flow from net leases (including
its equity investments) to meet operating expenses, service its debt and fund an
increasing rate of dividends to shareholders. Cash flows from operations and
equity investments of $29,093,000 were not sufficient to pay quarterly dividends
of $24,205,000, scheduled mortgage principal installments of $4,416,000 and
distributions of $1,555,000 to minority interest partners, resulting in a
shortfall of $1,083,000. The deficit was partially due to the sale of the BAE
Systems property in May 2001 as it took several months to fully reinvest the
funds in real estate. The Jen-Coat and Orbseal purchases were not completed
until August and September 2001, respectively. Cash flow from operations was
also affected by the timing of payments of accrued interest on deferred
acquisition fees. The Advisor had voluntarily deferred collection of $1,142,000
in fees in prior years. Management expects cash flows from operations and equity
investments to be sufficient to meet its cash flow objectives.

CPA(R):12's investing activities included using $5,421,000 of cash along with
$30,492,000 of escrow funds from the sale of the BAE property for the
acquisition of properties leased to Special Devices, Jen-Coat and Orbseal.
CPA(R):12 received $13,145,000 from its share of mortgage proceeds obtained from
its equity investments in the Del Monte and Special Devices properties.
CPA(R):12 made a $1,214,000 payment to its Advisor, in 2001, for deferred
acquisition fees. Deferred acquisition fees are paid each January over eight
years, pursuant to the Advisory Agreement.

CPA(R):12's cash from financing activities included obtaining $23,511,000 of
limited recourse mortgage financing on properties leased to Jen-Coat, Orbseal,
Balanced Care Corporation and Career Education Corporation and $10,429,000 from
the private placement issuance of common stock. In July 2001, the Company paid
off the entire outstanding balance of $4,300,000 on a line of credit. In
addition to using cash to pay dividends to shareholders, distributions to
minority partners and principal amortization, CPA(R):12 paid a $15,003,000
capital distribution to its minority partner, CPA(R):14, to return amounts
CPA(R):14 advanced during the construction period for its investment in

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


the Applied Materials property. CPA(R):12 made a scheduled balloon payment of
$3,316,000 on a mortgage loan on its property in Newark, Delaware, and
$5,471,000 on a mortgage loan for the Del Monte Corporation properties which had
matured. In January 2001, the Company issued 1,000,000 shares of common stock
pursuant to a private placement offering to an institutional shareholder. The
shareholder had previously purchased 1,000,000 shares in CPA(R):12's public
offering.

CPA(R):12's financing strategy has been to purchase substantially all of its
properties with a combination of equity and limited recourse mortgage debt. A
lender on a limited recourse mortgage loan has recourse only to the property
collateralizing such debt and not to any of CPA(R):12's other assets. This
strategy has allowed CPA(R):12 to diversify its portfolio of properties and,
thereby, limit its risk. In the event that a balloon payment comes due,
CPA(R):12 may seek to refinance the loan, restructure the debt with existing
lenders, evaluate its ability to pay the balloon payment from its cash reserves
or sell the property and use the proceeds to satisfy the mortgage debt. No
balloon payments are scheduled in 2002 and one balloon payment of $5,173,000 is
scheduled in 2003. CPA(R):12 may seek to finance its unencumbered properties and
use the proceeds to make additional investments in real estate. To the extent
that CPA(R):12 obtains such financing, it may increase CPA(R):12's overall
leverage. CPA(R):12's equity investees also use a financing strategy of
purchasing property with a combination of equity and limited recourse mortgage
debt.

A credit facility of $20,000,000 expired in August 2001. In October 2001,
CPA(R):12 entered into a new credit facility which provides for a $20,000,000
line of credit. Proceeds drawn from the line of credit may be used for general
corporate purposes, and are not limited to real estate purchases. The credit
agreement requires CPA(R):12 to meet certain financial covenants, including
restrictions on indebtedness and meeting or exceeding certain operating and
coverage ratios. The credit facility is a general obligation of CPA(R):12. No
amounts are outstanding under the facility as of December 31, 2001. In January
2002, CPA(R):12 used $10,000,000 from its credit line in connection with the
partial refinancing of the mortgage on the properties leased to Best Buy & Co.,
Inc. properties, completed in January 2002. The advance under the credit line
was paid off in full from the Best Buy mortgage proceeds. Management believes
that the credit line provides significant flexibility in meeting any potential
liquidity needs of CPA(R):12. The primary financing strategy of CPA(R):12
continues to be using a combination of equity and long-term limited recourse
mortgage financing to purchase properties. As of December 31, 2001, CPA(R):12
had more than $20,000,000 of cash available for additional real estate
investments.

CPA(R):12 is also a participant in a cost-sharing agreement with its affiliates
for its office space. The remaining minimum rents under the office lease are
$6,100,000 through September 2006 and CPA(R):12's current participation
commitment is to pay 16% of such costs. The participation commitment is adjusted
quarterly based on a formula and is not expected to fluctuate significantly.

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

<TABLE>
<CAPTION>
(in thousands)               Total      2002     2003      2004     2005      2006     Thereafter
                            --------   ------   -------   ------   -------   -------   ----------
<S>                         <C>        <C>      <C>       <C>      <C>       <C>       <C>
Limited recourse
 mortgage notes payable     $165,889   $5,286   $10,338   $5,571   $10,036   $11,102    $123,556
Deferred acquisition fees      7,219    1,376     1,275    1,287     1,159       961       1,161
Subordinated disposition
 fees                          1,376                                                       1,376
Share of minimum rents
 payable under office
 cost-sharing agreement          960      188       206      206       206       154          --
                            --------   ------   -------   ------   -------   -------    --------
                            $175,444   $6,850   $11,819   $7,064   $11,401   $12,217    $126,093
                            ========   ======   =======   ======   =======   =======    ========
</TABLE>

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

SFAS No. 141 requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase method, establishes specific criteria
for the recognition of intangible assets separately from goodwill and requires
that unallocated negative goodwill be written off immediately as an
extraordinary gain. Use of the pooling-

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


of-interests method for business combinations is no longer permitted. The
adoption of SFAS 141 did not have a material effect on CPA(R):12's financial
statements.

SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition and the accounting for asset
acquisitions. The provisions of SFAS No. 142 are effective for fiscal years
beginning after December 15, 2001 and must be adopted at the beginning of a
fiscal year. SFAS No. 142 provides that goodwill and indefinite-lived intangible
assets will no longer be amortized but will be tested for impairment at least
annually. Intangible assets acquired and liabilities assumed in business
combinations will only be amortized if such assets or liabilities are capable of
being separated or divided and sold, transferred, licensed, rented or exchanged
or arise from contractual or legal rights (including leases), and will be
amortized over their useful lives. The adoption of SFAS 142 is not expected to
have a material effect on CPA(R):12's financial statements.

In August 2001, FASB issued SFAS No. 144 "Accounting for the Impairment of
Long-Lived Assets" which addresses the accounting and reporting for the
impairment and disposal of long-lived assets and supercedes SFAS No. 121 while
retaining SFAS No. 121's fundamental provisions for the recognition and
measurement of impairments. SFAS 144 removes goodwill from its scope, provides
for a probability-weighted cash flow estimation approach for analyzing
situations in which alternative courses of action to recover the carrying amount
of long-lived assets are under consideration and broadens that presentation of
discontinued operations to include a component of an entity. The adoption of
SFAS 144 is not expected to have a material effect on CPA(R):12's financial
statements; however, the revenues and expenses relating to an asset held for
sale or sold must be presented as a discontinued operation for all periods
presented. The provisions of SFAS No. 144 are effective for fiscal years
beginning after December 15, 2001.

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), 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.

                                       7
<PAGE>
                        REPORT of INDEPENDENT ACCOUNTANTS



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


In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Corporate Property
Associates 12 Incorporated and its subsidiaries at December 31, 2000 and 2001,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of Carey Asset Management Corp. (the
"Advisor"); our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the Advisor, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



/s/ PricewaterhouseCoopers LLP

New York, New York
March 15, 2002

                                       8
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                         ------------------------------
                                                                             2000              2001
                                                                         ------------      ------------
<S>                                                                      <C>               <C>
ASSETS:

Real estate leased to others:
  Accounted for under the operating method:
    Land                                                                 $ 50,398,531      $ 50,710,371
    Buildings                                                             294,767,680       291,070,443
                                                                         ------------      ------------
                                                                          345,166,211       341,780,814
    Less, accumulated depreciation                                         22,333,095        27,327,123
                                                                         ------------      ------------
                                                                          322,833,116       314,453,691
Net investment in direct financing leases                                  41,312,523        41,380,912
Real estate under construction                                              6,936,371                --
                                                                         ------------      ------------
  Real estate leased to others                                            371,082,010       355,834,603
Equity investments                                                         45,152,342        54,785,770
Cash and cash equivalents                                                  17,673,321        27,147,331
Other assets, net of allowance for uncollected rents of
 $691,396 and $616,396 in 2000 and 2001 and
 accumulated amortization of $1,222,351 and $563,204
 in 2000 and 2001                                                           7,300,919         9,473,400
                                                                         ------------      ------------
     Total assets                                                        $441,208,592      $447,241,104
                                                                         ============      ============

LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY:

Liabilities:
Limited recourse mortgage notes payable                                  $155,580,871      $165,889,240
Notes payable                                                               4,300,000                --
Accrued interest                                                              946,894           966,879
Accounts payable and accrued expenses                                         593,061         1,272,293
Accounts payable to affiliates                                              3,896,297         2,907,240
Deferred acquisition fees payable to affiliate                              7,490,377         7,218,587
Dividends payable                                                           5,871,772         6,148,332
Prepaid rental income and security deposits                                 4,363,784         4,007,424
                                                                         ------------      ------------
     Total liabilities                                                    183,043,056       188,409,995
                                                                         ------------      ------------
Minority interest                                                          23,072,575         7,907,437
                                                                         ------------      ------------

Commitments and contingencies

Shareholders' equity:
Common stock, $.001 par value; authorized, 40,000,000
 shares; issued and outstanding, 29,169,315 and
 30,482,330 shares at December 31, 2000 and 2001                               29,169            30,482
Additional paid-in capital                                                261,821,096       274,728,437
Dividends in excess of accumulated earnings                               (21,791,937)      (18,325,307)
                                                                         ------------      ------------
                                                                          240,058,328       256,433,612
Less, treasury stock at cost, 537,427 and 592,930 shares at
 December 31, 2000 and 2001                                                (4,965,367)       (5,509,940)
                                                                         ------------      ------------
     Total shareholders' equity                                           235,092,961       250,923,672
                                                                         ------------      ------------
     Total liabilities and shareholders' equity                          $441,208,592      $447,241,104
                                                                         ============      ============
</TABLE>

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

                                       9
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                        CONSOLIDATED STATEMENTS of INCOME

<TABLE>
<CAPTION>
                                                                 For the year ended December 31,
                                                           -------------------------------------------
                                                              1999            2000             2001
                                                           -----------     -----------     -----------
<S>                                                        <C>             <C>             <C>
Revenues:
  Rental income                                            $33,774,608     $39,188,496     $40,048,640
  Interest income from direct financing leases               4,755,787       5,110,187       5,197,590
  Interest and other income                                    746,045         627,854         804,542
                                                           -----------     -----------     -----------
                                                            39,276,440      44,926,537      46,050,772
                                                           -----------     -----------     -----------
Expenses:
  Interest expense                                          10,491,059      12,307,768      13,314,629
  Depreciation                                               6,481,995       7,373,672       7,432,476
  General and administrative                                 2,926,870       2,925,151       4,255,364
  Property expense                                           4,897,155       6,522,132       6,726,705
                                                           -----------     -----------     -----------
                                                            24,797,079      29,128,723      31,729,174
                                                           -----------     -----------     -----------
    Income before minority interest, income from equity
     investments, and gains (losses)                        14,479,361      15,797,814      14,321,598

Minority interest in income                                 (1,043,103)     (1,205,530)     (1,393,297)
                                                           -----------     -----------     -----------
    Income before income from equity investments,
     and gains (losses)                                     13,436,258      14,592,284      12,928,301
Income from equity investments                               4,126,251       7,977,028       5,032,221
                                                           -----------     -----------     -----------
    Income before gains (losses)                            17,562,509      22,569,312      17,960,522
Gain on sale of securities                                   2,504,878       1,239,161              --
(Loss) gain on sale of real estate                            (196,323)      1,201,121       8,863,709
Unrealized gain on warrants                                         --              --       1,123,500
                                                           -----------     -----------     -----------
    Net income                                             $19,871,064     $25,009,594     $27,947,731
                                                           ===========     ===========     ===========
Basic earnings per share                                   $       .69     $       .87     $       .94
                                                           -----------     -----------     -----------
Weighted average shares outstanding-basic                   28,615,971      28,685,975      29,763,716
                                                           ===========     ===========     ===========
</TABLE>

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

                                       10
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                 CONSOLIDATED STATEMENTS of SHAREHOLDERS' EQUITY
              For the years ended December 31, 1999, 2000 and 2001

<TABLE>
<CAPTION>
                                                                                 Dividends in Excess
                                      Common     Additional      Comprehensive     of Accumulated
                                       Stock   Paid-in Capital      Income            Earnings
                                      -------  ---------------   -------------   -------------------
<S>                                   <C>      <C>               <C>             <C>
Balance at December 31, 1998          $28,717    $257,668,301                       $(19,903,364)
191,372 shares issued                     192       1,913,528
Dividends declared                                                                   (23,314,683)
Comprehensive income:
Net income                                                        $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)
                                                                  -----------
                                                                  $17,746,762
                                                                  ===========

Repurchase of 155,750 shares
                                      -------    ------------                       ------------
Balance at December 31, 1999           28,909     259,581,829                        (23,346,983)
260,216 shares issued                     260       2,654,281
Cost of raising capital                              (415,014)
Dividends declared                                                                   (23,454,548)
Comprehensive income:
Net income                                                        $25,009,594         25,009,594
Other comprehensive income:
  Change in unrealized
   appreciation resulting from
   sale of securities                                                (483,269)
                                                                  -----------
                                                                  $24,526,325
                                                                  ===========

Repurchase of 252,376 shares
                                      -------    ------------                       ------------
Balance at December 31, 2000           29,169     261,821,096                        (21,791,937)
1,313,015 shares issued                 1,313      13,183,371
Cost of raising capital                              (276,030)
Dividends declared                                                                   (24,481,101)
Comprehensive income:
Net income                                                        $27,947,731         27,947,731
                                                                  ===========
Repurchase of 55,503 shares
                                      -------    ------------                       ------------
Balance at December 31, 2001          $30,482    $274,728,437                       $(18,325,307)
                                      =======    ============                       ============
<CAPTION>
                                        Accumulated
                                      Other Comprehen-
                                        sive Income      Treasury Stock        Total
                                      ----------------   --------------    ------------
<S>                                   <C>                <C>               <C>
Balance at December 31, 1998            $ 2,607,571       $(1,114,333)     $239,286,892
191,372 shares issued                                                         1,913,720
Dividends declared                                                          (23,314,683)
Comprehensive income:
Net income                                                                   19,871,064
Other comprehensive income:
  Change in unrealized
   appreciation resulting from
   sale of securities
  Unrealized appreciation of
   marketable securities for 1999

                                         (2,124,302)                         (2,124,302)




Repurchase of 155,750 shares                               (1,382,612)       (1,382,612)
                                        -----------       -----------      ------------
Balance at December 31, 1999                483,269        (2,496,945)      234,250,079
260,216 shares issued                                                         2,654,541
Cost of raising capital                                                        (415,014)
Dividends declared                                                          (23,454,548)
Comprehensive income:
Net income                                                                   25,009,594
Other comprehensive income:
  Change in unrealized
   appreciation resulting from
   sale of securities                      (483,269)                           (483,269)




Repurchase of 252,376 shares                               (2,468,422)       (2,468,422)
                                        -----------       -----------      ------------
Balance at December 31, 2000                     --        (4,965,367)      235,092,961
1,313,015 shares issued                                                      13,184,684
Cost of raising capital                                                        (276,030)
Dividends declared                                                          (24,481,101)
Comprehensive income:
Net income                                                                   27,947,731

Repurchase of 55,503 shares                                  (544,573)         (544,573)
                                        -----------       -----------      ------------
Balance at December 31, 2001                     --       $(5,509,940)     $250,923,672
                                        ===========       ===========      ============
</TABLE>

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

                                       11
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                      CONSOLIDATED STATEMENTS of CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 For the year ended December 31,
                                                                        --------------------------------------------------
                                                                            1999               2000               2001
                                                                        ------------       ------------       ------------
<S>                                                                     <C>                <C>                <C>
Cash flows from operating activities:
  Net income                                                            $ 19,871,064       $ 25,009,594       $ 27,947,731
  Adjustments to reconcile net income to net cash provided
   by operating activities:
    Depreciation and amortization of financing costs                       6,997,430          7,947,037          7,641,475
    Straight-line rent adjustments                                        (1,119,519)        (1,272,377)        (1,131,902)
    Minority interest in income                                            1,043,103          1,205,530          1,393,297
    Income from equity investments in excess of distributions
     received                                                               (805,479)        (3,563,131)          (814,795)
    Issuance of stock in satisfaction of performance fees                  1,913,720          2,654,541          2,755,791
    Gain on sales, net                                                    (2,308,555)        (2,440,282)        (8,863,709)
    Unrealized gain on warrants                                                   --                 --         (1,123,500)
    Change in operating assets and liabilities, net (a)                    1,667,742            411,711         (1,233,694)
                                                                        ------------       ------------       ------------
        Net cash provided by operating activities                         27,259,506         29,952,623         26,570,694
                                                                        ------------       ------------       ------------

Cash flows from investing activities:
  Capital distributions from equity investments                                   --          4,195,380         13,145,242
  Equity distributions received in excess of equity income                   772,927            829,784          2,522,721
  Proceeds from sales of real estate and securities                        1,767,389         15,751,800                 --
  Payment of deferred acquisition fees                                    (1,529,131)        (1,044,191)        (1,214,073)
  Purchases of real estate and equity investments
   and other capitalized costs                                           (55,188,520)       (18,634,311)        (5,420,821)
                                                                        ------------       ------------       ------------
        Net cash (used in) provided by investing activities              (54,177,335)         1,098,462          9,033,069
                                                                        ------------       ------------       ------------

Cash flows from financing activities:
  Dividends paid                                                         (23,267,781)       (23,435,295)       (24,204,541)
  Payments of mortgage principal                                          (3,400,218)        (3,997,993)        (4,415,958)
  Prepayment of mortgages payable                                                 --         (7,370,926)        (8,786,509)
  Payment of note payable                                                         --                 --         (4,300,000)
  Advances on line of credit                                                      --          4,300,000                 --
  Proceeds from issuance of mortgages                                     32,500,000         12,000,000         23,510,836
  Payment of financing costs and mortgage deposit                           (859,052)          (307,331)          (983,436)
  Costs of raising capital                                                        --           (415,014)          (276,030)
  Proceeds from issuance of shares                                                --                 --         10,428,893
  Capital (distributions to) contributions from minority partner          (4,179,218)           483,822        (15,003,000)
  Distributions to minority partners                                      (1,436,346)        (1,014,054)        (1,555,435)
  Purchase of treasury stock                                              (1,382,612)        (2,468,422)          (544,573)
                                                                        ------------       ------------       ------------
        Net cash used in financing activities                             (2,025,227)       (22,225,213)       (26,129,753)
                                                                        ------------       ------------       ------------
        Net (decrease) increase in cash and cash equivalents             (28,943,056)         8,825,872          9,474,010

Cash and cash equivalents, beginning of year                              37,790,505          8,847,449         17,673,321
                                                                        ------------       ------------       ------------
  Cash and cash equivalents, end of year                                $  8,847,449       $ 17,673,321       $ 27,147,331
                                                                        ============       ============       ============
</TABLE>
Noncash operating, investing and financing activities:

     In connection with the acquisition of properties in 2000, the Company
     assumed mortgage payable obligations of $16,588,659.

     During 2001, proceeds from the sale of a property of $30,492,012 were
     placed in an escrow account and were subsequently released in connection
     with the purchase of additional real estate. (See Note 10)

     Included in the cost basis of real estate investments acquired in 1999,
     2000 and 2001 are deferred acquisition fees payable of $564,591, $622,816
     and $942,283, respectively.

(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.

                                       12
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Summary of Significant Accounting Policies:

          Basis of Consolidation:

               The consolidated financial statements include the accounts of
               Corporate Property Associates 12 Incorporated, its wholly-owned
               subsidiaries and a controlling interest in a majority-owned
               limited liability company (collectively, the "Company"). All
               material inter-entity transactions have been eliminated.


          Use of Estimates:

               The preparation of financial statements in conformity with
               accounting principles generally accepted in the United States of
               America requires management to make estimates and assumptions
               that affect the reported amounts of assets and liabilities and
               disclosure of contingent assets and liabilities at the date of
               the financial statements and the reported amounts of revenues and
               expenses during the reporting period. The most significant
               estimates relate to the assessment of the recoverability of real
               estate assets and investments. 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. Expenditures for
               maintenance and repairs including routine betterments are charged
               to operations as incurred. Significant renovations which increase
               the useful life of the properties are capitalized.

               The Company diversifies its real estate investments among various
               corporate tenants engaged in different industries 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 less
                    accumulated depreciation, minimum rental revenue is
                    recognized on a straight-line basis over the term of the
                    leases, and expenses (including depreciation) are charged to
                    operations as incurred.

               When events or changes in circumstances indicate that the
               carrying amount of a long-lived asset may not be recoverable, the
               Company assesses the recoverability of its long-lived assets,
               including residual interests of real estate assets and
               investments, based on projections of undiscounted cash flows,
               without interest charges, over the life of such assets. In the
               event that such cash flows are insufficient, the assets are
               adjusted to their estimated fair value.

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

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

                                       13
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          Depreciation:

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


          Equity Investments:

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


          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, 2000 and
               2001, 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 refinancings and are amortized over the
               terms of the mortgages and included in interest expense in the
               accompanying consolidated financial statements. Deferred rental
               income is the aggregate difference for operating leases between
               scheduled rents which vary during the lease term and rent
               recognized on a straight-line basis.


          Derivative Instruments:

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


          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.

                                       14
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          Deferred Acquisition Fees:

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


          Earnings Per Share:

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


          Federal Income Taxes:

               The Company is qualified as a real estate investment trust
               ("REIT") as of December 31, 2001 as defined under the Internal
               Revenue Code of 1986. The Company is not subject to Federal
               income taxes on amounts distributed to shareholders provided it
               distributes at least 90% of its REIT taxable income to its
               shareholders and meets certain other conditions.


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


2.   Organization and Offering:

     The Company was formed on 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
     $305,783, $173,004 and $223,967 in 1999, 2000 and 2001, 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 $2,084,495, $2,723,011
     and $2,782,154 in 1999, 2000 and 2001, 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 $794,930, $1,097,817 and
     $1,289,852 in 1999, 2000 and 2001, respectively.

                                       15
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     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.

     In connection with performing services related to the Company's real estate
     purchases in 1999, 2000 and 2001, affiliates of the Company received
     structuring and development fees of $764,458, $432,511 and $559,919,
     respectively. The affiliate is also entitled to receive deferred
     acquisition fees over a period of no less than eight years, subject to the
     2%/25% Guidelines limitation.

     The Advisor will be entitled to receive subordinated disposition fees based
     upon the cumulative proceeds arising from the sale of Company assets since
     the inception of the Company, subject to certain conditions. Pursuant to
     the subordination provisions of the Advisory Agreement, the disposition
     fees may be paid only after the shareholders receive 100% of their initial
     investment from the proceeds of asset sales and a cumulative annual return
     of 6% since the inception of the Company. The Advisor's interest in such
     disposition fees amounts to $1,375,681 as of December 31, 2001. Payment of
     such amount, however, cannot be made until the subordination provisions are
     met. Management has concluded that payment of such disposition fees is
     probable and all fees from completed property sales have been accrued.
     Subordinated disposition fees are included in the determination of realized
     gain or loss on the sale of properties. The obligation for disposition fees
     is included in accounts payable to affiliates in the accompanying
     consolidated financial statements.

     The Company is a participant in an agreement with certain affiliates for
     the purpose of leasing office space used for the administration of real
     estate entities and for sharing the associated costs. Pursuant to the terms
     of the agreement, the Company's share of rental, occupancy and leasehold
     improvement costs is based on gross revenues. Expenses incurred in 1999,
     2000 and 2001 were $208,046, $234,774 and $232,481, respectively. The
     Company's current share of future minimum lease payments is $960,000
     through 2006.

     The Company and its affiliates are investors in certain real estate
     ventures in which the ownership of real property is held directly by each
     investor and not through incorporated or unincorporated jointly held
     affiliates. Title to these properties is held by each investor as tenants
     in common. These ownership interests satisfy the criteria for accounting
     for undivided interests in real property including: Investors in the
     venture hold an undivided interest in each asset, investors are severally
     liable for any liability, there is no joint control, investors are only
     entitled to their share of income and are liable for their proportionate
     share of income and are liable for their share of expenses and each
     investor may sell its interest without the consent of the other investors.
     For these investments, the Company reports its proportionate share of the
     assets, liabilities, revenues and expenses in its financial statements. The
     Company's interest in these properties is 45%. These joint ventures are not
     subject to joint control. Properties held as tenants in common and subject
     to joint control are accounted for under the equity method of accounting.


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

     Scheduled future minimum rents, exclusive of renewals, under non-cancelable
     operating leases amount to approximately $36,943,000 in 2002; $37,201,000
     in 2003; $37,372,000 in 2004, $37,046,000 in 2005, $37,166,000 in 2006 and
     aggregate approximately $527,030,000 through 2021.

     Contingent rents (including percentage rents and CPI-based increases) were
     approximately $189,000, $746,000 and $1,938,000 in 1999, 2000 and 2001,
     respectively.

                                       16
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.   Net Investment in Direct Financing Leases:

     Net investment in direct financing leases is summarized as follows:

<TABLE>
<CAPTION>
                                                December 31,
                                      -------------------------------
                                          2000               2001
                                      ------------       ------------
<S>                                   <C>                <C>
Minimum lease payments
 receivable                           $ 80,997,376       $ 76,139,960
Unguaranteed residual value             40,597,352         40,599,760
                                      ------------       ------------
                                       121,594,728        116,739,720
Less: unearned income                   80,282,205         75,358,808
                                      ------------       ------------
                                      $ 41,312,523       $ 41,380,912
                                      ============       ============
</TABLE>

     Scheduled future minimum rents, exclusive of renewals, under non-cancelable
     direct financing leases are approximately $4,857,000 in 2002 and 2003,
     $4,897,000 in 2004, $4,903,000 in 2005 and 2006 and aggregate approximately
     $76,140,000 through 2024.

     Contingent rents (including CPI-based increases) were approximately
     $77,000, $194,000 and $274,000 in 1999, 2000 and 2001, respectively.


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 $288,024,000. As of December 31,
     2001, mortgage notes payable had fixed interest rates ranging from 6.5% to
     9.0% per annum and one loan had a variable interest rate of 5.64%.

     Scheduled principal payments during each of the five years following
     December 31, 2001 are as follows:

<TABLE>
<CAPTION>
Year Ending December 31,       Total Debt       Fixed Rate Debt     Variable Rate Debt
------------------------      ------------      ---------------     ------------------
<S>                           <C>               <C>                 <C>
2002                          $  5,286,364       $  5,130,720           $  155,644
2003                            10,338,492          5,126,119            5,212,373
2004                             5,570,868          5,570,868                   --
2005                            10,035,799         10,035,799                   --
2006                            11,102,179         11,102,179                   --
Thereafter                     123,555,538        123,555,538                   --
                              ------------       ------------           ----------
  Total                       $165,889,240       $160,521,223           $5,368,017
                              ============       ============           ==========
</TABLE>

     On October 19, 2001, the Company entered into a credit agreement with PNC
     Bank, National Association ("PNC") which provides for a $20,000,000
     revolving line of credit to the Company. As of December 31, 2001, no
     amounts were outstanding under the credit agreement. The credit agreement
     has a two-year term through October 19, 2003. The proceeds of the credit
     facility may be used by the Company for general corporate purposes.

     Advances under the credit facility 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 greater of PNC's prime rate or the Federal Fund
     Effective Rate plus .50%. In addition, the Company will pay a fee of 0.25%
     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
     stockholders' equity of $200,000,000 plus 85% of the cash proceeds received
     by the Company from issuance of any new equity interest, (ii) maintain
     certain restrictions on indebtedness and (iii) meet or exceed certain
     operating and coverage ratios. Such operating and coverage ratios include
     but are not limited to ratios of (a) earnings before interest, taxes,
     depreciation and amortization to debt service payments and (b) debt to
     market value.

                                       17
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Interest paid, excluding capitalized interest, was $10,460,588, $11,210,107
     and $13,085,646 in 1999, 2000 and 2001, respectively.

     In connection with the placement of mortgages, fees of $705,783, $573,004
     and $284,592 were paid to an affiliate of the Company in 1999, 2000 and
     2001, respectively.


7.   Dividends:

     Dividends paid to shareholders consist of ordinary income, capital gains,
     return of capital or a combination thereof for income tax purposes. For the
     three years ended December 31, 2001, dividends paid per share reported for
     tax purposes were as follows:

<TABLE>
<CAPTION>
                                1999          2000          2001
                                ----          ----          ----
<S>                             <C>           <C>           <C>
Ordinary income                 $.56          $.76          $.44
Capital gains                    .09           .04            --
Return of capital                .16           .02           .38
                                ----          ----          ----
                                $.81          $.82          $.82
                                ====          ====          ====
</TABLE>

     A dividend of $.2055 per share for the quarter ended December 31, 2001
     $6,148,332 was declared in December 2001 and paid in January 2002.


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
     1999, 2000 and 2001 lease revenues are as follows:

<TABLE>
<CAPTION>
                                                          1999            2000            2001
                                                       -----------     -----------     -----------
<S>                                                    <C>             <C>             <C>
Per Statements of Income:
  Rental income from operating leases                  $33,774,608     $39,188,496     $40,048,640
  Interest income from direct financing leases           4,755,787       5,110,187       5,197,590
Adjustments:
  Share of leasing revenues applicable to
   minority interest                                    (1,675,736)     (2,897,873)     (3,071,528)
  Share of leasing revenues from equity investments      9,914,975      11,465,450      13,206,572
                                                       -----------     -----------     -----------
                                                       $46,769,634     $52,866,260     $55,381,274
                                                       ===========     ===========     ===========
</TABLE>

                                       18
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     In 1999, 2000 and 2001, the Company earned its share of net lease revenues
     from its direct and indirect ownership of real estate from the following
     lease obligors:

<TABLE>
<CAPTION>
                                                 1999        %         2000        %        2001         %
                                             -----------    ---    -----------    ---    -----------    ---
<S>                                          <C>            <C>    <C>            <C>    <C>            <C>
Applied Materials, Inc. (a)                  $ 4,664,118     10%   $ 5,910,678     11%   $ 6,238,516     11%
Advanced Micro Devices, Inc. (b)               3,048,500      7      3,048,500      6      3,048,500      6
Galyan's Trading Company, Inc.                        --     --      1,379,633      3      2,733,154      5
Perry Graphic Communications, Inc.
 and Judd's Incorporated                       2,191,567      5      2,191,567      4      2,191,567      4
Scott Companies, Inc.                          1,940,850      4      2,052,162      4      2,062,281      4
Spectrian Corporation                          1,947,630      4      2,000,433      4      2,015,521      4
Westell Technologies, Inc.                     1,916,387      4      1,916,387      4      1,916,386      3
Best Buy Co., Inc. (b)                         1,779,485      4      1,770,596      3      1,760,787      3
Career Education Corporation                   1,736,808      4      1,742,437      3      1,736,808      3
Telos Corporation                              1,519,193      3      1,543,258      3      1,543,258      3
Sicor, Inc. (b)                                1,377,223      3      1,472,736      3      1,472,736      3
Q Clubs, Inc.                                  1,416,300      3      1,421,582      3      1,470,319      3
The Upper Deck Company (b)                     1,319,875      3      1,319,875      2      1,419,134      3
PPD Development, Inc.                          1,391,715      3      1,391,715      3      1,401,088      2
McLane Company, Inc. (b)                         378,849     --      1,411,702      3      1,383,372      2
The Bon-Ton Stores, Inc.                       1,270,750      3      1,322,331      2      1,348,120      2
Compucom Systems, Inc. (b)                       982,213      2      1,304,667      2      1,304,667      2
Del Monte Corporation (b) (c)                  1,286,250      3      1,286,250      2      1,286,250      2
Silgan Containers Corporation                  1,275,000      3      1,275,000      2      1,275,000      2
Childtime Childcare, Inc.                      1,039,347      2      1,184,234      2      1,190,074      2
Textron, Inc. (b)                              1,028,831      2      1,137,375      2      1,137,375      2
Special Devices, Inc. (b)                             --     --             --     --      1,118,967      2
Big V Holding Corporation                        891,449      2      1,068,008      2      1,075,406      2
Garden Ridge Corporation                         995,764      2        995,764      2        995,764      2
Pacific Logistics, L.P.                          930,750      2        930,750      2        930,750      2
The Garden Companies, Inc.                       816,400      2        868,346      2        920,292      2
Rheometric Scientific, Inc.                      831,020      2        851,345      2        879,404      2
Nutramax Products, Inc.                          831,493      2        845,582      2        835,256      2
BAE Systems, Inc.                              1,262,030      3      2,463,577      5        794,311      1
QMS, Inc.                                      1,689,375      4        879,389      2             --     --
Other                                          5,010,462      9      5,880,381     10      7,896,211     14
                                             -----------    ---    -----------    ---    -----------    ---
                                             $46,769,634    100%   $52,866,260    100%   $55,381,274    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.
(c)  As of October 1, 2001, interests in these properties were transferred to a
     limited liability company and are accounted for under the equity method.

                                       19
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.   Equity Investments:

     The Company owns equity interests with affiliates in various partnerships
     and limited liability companies ("LLC") and tenancies in common subject to
     joint control, all of which net lease properties to corporate lessees. 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 12 retail properties to Best Buy Co., Inc., a
     50% interest in a general partnership that net leases properties to Sicor,
     Inc., a 50% interest in an LLC that net leases properties to The Upper Deck
     Company, a 33 1/3% interest in an LLC that net leases a building to
     Advanced Micro Devices, Inc., a 33 1/3 % interest in an LLC that net leases
     a building to Compucom Systems, Inc., a 50% interest in an LLC that net
     leases a building to Textron, Inc., 40% interests in two LLCs that own four
     properties, including three leased to McLane Company, Inc. and one to The
     Fleming Companies, Inc., a 50% interest in an LLC and tenancy in common
     that net lease three and one properties to Del Monte Corporation,
     respectively, and a 50% interest in a tenancy in common that net leases two
     properties to Special Devices, Inc.

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

<TABLE>
<CAPTION>
(In thousands)                                       December 31,
                                                -----------------------
                                                  2000           2001
                                                --------       --------
<S>                                             <C>            <C>
Assets (primarily real estate)                  $295,968       $353,674
Liabilities (primarily limited recourse
 mortgage notes payable)                         186,942        225,827
Capital                                          109,026        127,847
</TABLE>

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                 ---------------------------
                                                  1999      2000      2001
                                                 -------   -------   -------
<S>                                              <C>       <C>       <C>
Revenues (primarily rental revenues)             $25,338   $39,412   $33,031
Expenses (primarily interest on mortgages and
 depreciation)                                    15,010    19,317    20,627
                                                 -------   -------   -------
Net income                                       $10,328   $20,095   $12,404
                                                 =======   =======   =======

</TABLE>


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

     1999

     In July 1999, the Company sold excess land at the property leased to
     Rheometric Scientific, Inc. ("Rheometric"). Pursuant to an agreement
     between the Company and Rheometric, a portion of the sales proceeds from
     the sale of the land would be due to Rheometric. 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. The Company recognized a loss on sale
     of $196,323, and currently holds $256,315 in an interest-bearing escrow
     account on behalf of Rheometric.

     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 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.

                                       20
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     2000

     In January 2000, the Company sold its remaining 11,261 Etec shares at a
     gain of $778,946.

     In February 1997, the Company purchased land and building in Mobile,
     Alabama and entered into a net lease agreement with QMS, Inc. ("QMS"). In
     June 2000, the Company sold the QMS property for $14,479,000 and recognized
     a gain on sale of $1,201,121. In November 2000, the Company converted QMS
     warrants for QMS common stock it received in connection with structuring
     the QMS lease for 100,000 shares of QMS and sold the shares at a gain of
     $269,215.

     In connection with structuring its net lease with Texas Freezer Company,
     Inc. ("Texas Freezer") in September 1997, the Company was granted warrants
     to purchase 30,390 shares of Texas Freezer. In June 2000, Texas Freezer
     sold substantially all of its assets to Pacific Logistics, L.P. and P&O
     Cold Logistics, LLC. In connection with the sale, Texas Freezer was
     required to satisfy the rights of warrant holders. Accordingly, the Company
     recognized a gain of $191,000 in connection with receiving a payment in
     satisfaction of its rights.


     2001

     On May 1, 2001, the Company sold its property in San Diego, California
     leased to BAE Systems, Inc. ("BAE") for $30,497,865, net of transaction
     costs. The funds were held by an intermediary in an escrow account for the
     purpose of entering into a Section 1031 noncash exchange which, under the
     Internal Revenue Code, allowed the Company to acquire like-kind real
     properties within a stated period in order to defer a taxable gain of
     approximately $9,800,000. The noncash exchange was completed and the escrow
     funds were used in connection with the acquisition in 2001 of properties
     net leased to Special Devices, Inc., Jen-Coat, Inc. and Orbseal, LLC. The
     taxable gain will not be recognized until the newly-acquired properties are
     sold. For financial reporting purposes, a gain of $8,863,709 was recognized
     upon disposition of the BAE property.


11.  Disclosures About Fair Value of Financial Instruments:

     The Company estimates that the fair value of mortgage notes payable was
     approximately $159,174,000 and $166,984,000 at December 31, 2000 and 2001,
     respectively. The fair value of the mortgage notes payable was evaluated
     using a discounted cash flow model with a rate that takes into account the
     credit of the tenant and interest rate risk.


12.  Accounting Pronouncements:

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

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

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

                                       21
<PAGE>
                  CORPORATE PROPERTY ASSOCIATES 12 INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     In August 2001, FASB issued SFAS No. 144 "Accounting for the Impairment of
     Long-Lived Assets" which addresses the accounting and reporting for the
     impairment and disposal of long-lived assets and supercedes SFAS No. 121
     while retaining SFAS No. 121's fundamental provisions for the recognition
     and measurement of impairments. SFAS 144 removes goodwill from its scope,
     provides for a probability-weighted cash flow estimation approach for
     analyzing situations in which alternative courses of action to recover the
     carrying amount of long-lived assets are under consideration and broadens
     that presentation of discontinued operations to include a component of an
     entity. The adoption of SFAS 144 is not expected to have a material effect
     on the Company's financial statements; however, the revenues and expenses
     relating to an asset held for sale or sold must be presented as a
     discontinued operation for all periods presented. The provisions of SFAS
     No. 144 are effective for fiscal years beginning after December 15, 2001.

                                       22
<PAGE>



MARKET FOR THE PARTNERSHIP'S COMMON STOCK AND RELATED
       STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

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

     As of December 31, 2001 there were 13,834 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 90% of its
     Distributable REIT Taxable Income to maintain its status as a REIT. The
     following shows the frequency and amount of dividends paid for the past
     three years.


<TABLE>
<CAPTION>
                                  Cash Dividends Paid Per Share
                               ------------------------------------
                                1999           2000           2001
                               ------         ------         ------
<S>                            <C>            <C>            <C>
First quarter                  $.2031         $.2039         $.2047
Second quarter                  .2033          .2041          .2049
Third quarter                   .2035          .2043          .2051
Fourth quarter                  .2037          .2045          .2053
                               ------         ------         ------
                               $.8136         $.8168         $.8200
                               ======         ======         ======
</TABLE>



REPORT ON FORM 10-K
--------------------------------------------------------------------------------

     The Advisor will supply to any shareholder, upon written request and
     without charge, a copy of the Annual Report on Form 10-K for the year ended
     December 31, 2001 as filed with the Securities and Exchange Commission.

                                       23